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Ethereum measures its "costs" as issuance paid to stakers while measureing "income" in the amount of eth burned by users via gas fees paid to transact on the ne

Ethereum measures its "costs" as issuance paid to stakers while measureing "income" in the amount of eth burned by users via gas fees paid to transact on the network. Since the merge, there has been about 15K more eth burned in transaction fees then has been issued to validators.

lottin 4y ago
Both issuance of eth and fees are forms of revenue to validators. You're saying that revenue is predominantly in the form of transaction fees. This is just one part of the equation. The other part is costs, and this doesn't tell us anything about the costs incurred by the validators. Therefore no conclusions about the profitability of the network can be inferred from this data.
- lmm 4y ago
  The argument would be that transactions must be worth at least what people pay for them, otherwise people wouldn't pay for them.
  - lottin 4y ago
    Nobody is doubting that transactions aren't worth what people pay for them. The doubt is whether the fees that users pay exceed the costs of operating the network.
- yokem55 4y ago
  90+% of the transaction fees are not paid to validators. They are burned or thrown away. That reduces the supply of eth to the benefit of all other eth holders.
  - lottin 4y ago
    If fees are thrown away you can't count them as revenue. Also, still no mention of costs.
- TimJRobinson 4y ago
  The cost is all the money paid to validators, which is currently less than the revenue the network receives. This is on the ultrasound money website and also token terminal (and a few other places) The cost of running the validators is irrelevant to Ethereum (though it is tiny), it'd be like saying you have to calculate employees lifestyle costs to figure out the "real" cost to a company. The cost is the wages you pay the employees (the rewards given to validators) not how much the validators spend.
  - lottin 4y ago
    Sorry, aren't these "validators" part of the network? They run the network, don't they? The money that they get paid is therefore revenue, not a cost, from the standpoint of the network.
    - aljungberg 4y ago
      It seems like you’re making a semantic argument to equate the Ethereum network with its validators. That seems confusing. Here are some examples of how “A runs B” does not imply “A == B”: “Employees” are part of a company, they run the company, don’t they? Yet the cost of having employees is not “therefore revenue” from the standpoint of the company. “Drivers” are a part of Uber, they deliver the service, don’t they? Yet the money paid to drivers reduce Uber’s profits. I think where your argument runs into trouble is “from the standpoint of the network”. If you want to equate the network and its validators, to say they are the same thing, then your sentence becomes, “The money [the validators] get paid [by the validators] is therefore revenue, from the standpoint of [the validators]”. That’s non-sensical. You can’t give yourself money and say it’s revenue. Either these two things are in fact not the same thing and we can analyse the cashflow of “Ethereum the network” separately from “the validation service providers”, in which case Ethereum is paying out less than it’s taking in, so it is profitable. Or they are the same thing, in which case the “profit”, to the extent you can say a virtual entity like a network can have such a thing, is even higher. This is because whatever costs the validators bear are less than the ETH they receive is worth. This is true if we assume validators are rational actors (they wouldn’t validate if they were losing money doing so). And even if we take away the assumption that they are profit motivated (maybe they’re all doing it as charity work for some higher purpose), the cost of running an Ethereum validator is tiny, so we end up in the same place: outgoings are smaller than receipts when considering the whole. (The fact that Ethereum the network “burns” its receipts and then “mints” its outgoings to the validators does not affect this calculation since it’d work out the same if Ethereum paid validators from fees directly.)
- nootropicat 4y ago
  The actual cost of running ethereum is negligible, about $5k/day at the upper end. It's just the cost of running thousands of staking nodes.
  - lottin 4y ago
    So the cost of storing all the data and doing all the computations is only $5k/day? Where do you get that from, if I may ask?

lottin 4y ago

Both issuance of eth and fees are forms of revenue to validators. You're saying that revenue is predominantly in the form of transaction fees. This is just one part of the equation. The other part is costs, and this doesn't tell us anything about the costs incurred by the validators. Therefore no conclusions about the profitability of the network can be inferred from this data.

lmm 4y ago
The argument would be that transactions must be worth at least what people pay for them, otherwise people wouldn't pay for them.
- lottin 4y ago
  Nobody is doubting that transactions aren't worth what people pay for them. The doubt is whether the fees that users pay exceed the costs of operating the network.
yokem55 4y ago
90+% of the transaction fees are not paid to validators. They are burned or thrown away. That reduces the supply of eth to the benefit of all other eth holders.
- lottin 4y ago
  If fees are thrown away you can't count them as revenue. Also, still no mention of costs.
TimJRobinson 4y ago
The cost is all the money paid to validators, which is currently less than the revenue the network receives. This is on the ultrasound money website and also token terminal (and a few other places) The cost of running the validators is irrelevant to Ethereum (though it is tiny), it'd be like saying you have to calculate employees lifestyle costs to figure out the "real" cost to a company. The cost is the wages you pay the employees (the rewards given to validators) not how much the validators spend.
- lottin 4y ago
  Sorry, aren't these "validators" part of the network? They run the network, don't they? The money that they get paid is therefore revenue, not a cost, from the standpoint of the network.
  - aljungberg 4y ago
    It seems like you’re making a semantic argument to equate the Ethereum network with its validators. That seems confusing. Here are some examples of how “A runs B” does not imply “A == B”: “Employees” are part of a company, they run the company, don’t they? Yet the cost of having employees is not “therefore revenue” from the standpoint of the company. “Drivers” are a part of Uber, they deliver the service, don’t they? Yet the money paid to drivers reduce Uber’s profits. I think where your argument runs into trouble is “from the standpoint of the network”. If you want to equate the network and its validators, to say they are the same thing, then your sentence becomes, “The money [the validators] get paid [by the validators] is therefore revenue, from the standpoint of [the validators]”. That’s non-sensical. You can’t give yourself money and say it’s revenue. Either these two things are in fact not the same thing and we can analyse the cashflow of “Ethereum the network” separately from “the validation service providers”, in which case Ethereum is paying out less than it’s taking in, so it is profitable. Or they are the same thing, in which case the “profit”, to the extent you can say a virtual entity like a network can have such a thing, is even higher. This is because whatever costs the validators bear are less than the ETH they receive is worth. This is true if we assume validators are rational actors (they wouldn’t validate if they were losing money doing so). And even if we take away the assumption that they are profit motivated (maybe they’re all doing it as charity work for some higher purpose), the cost of running an Ethereum validator is tiny, so we end up in the same place: outgoings are smaller than receipts when considering the whole. (The fact that Ethereum the network “burns” its receipts and then “mints” its outgoings to the validators does not affect this calculation since it’d work out the same if Ethereum paid validators from fees directly.)
nootropicat 4y ago
The actual cost of running ethereum is negligible, about $5k/day at the upper end. It's just the cost of running thousands of staking nodes.
- lottin 4y ago
  So the cost of storing all the data and doing all the computations is only $5k/day? Where do you get that from, if I may ask?