Transaction fee economics of the Humanode network
This part of the paper explains important considerations when selecting an optimal fee strategy for a public cryptonetwork. It is proposed that the Humanode network will have a cost-based fee policy which differentiates it from the existing public permissionless systems based on the internal gas market.
Proof-of-Work (PoW) and Proof-of-Stake (Pos) networks, despite being public and permissionless, build trust through capital requirements—running devices or acquired and locked tokens. Hence, they are always susceptible to a direct attack that needs only capital or to an attack of the external network (B.Ford & R.Bohme, 2019) of a greater hashing power or capitalization.
For this reason, the main principle behind the Humanode network is equal control of the shared truth among each person joining the system where one cannot achieve additional voting power toward the consensus of global truth through money or authority. One living person can launch only one node.
To overcome the problems that current public permissionless networks face, we apply a cost-based approach to set transaction fees. This enormously decreases the influence of the market on the base transaction cost making it more stable overtime.
Storage and computing are commodities. Web-service providers with data centers across the globe quote their prices openly. The amount of Humanode tokens (HMND) that is spent on renting computing resources from the largest web service provider in a certain period determines the amount of HMND tokens the user pays after submitting the transaction. At the same time, the total computational costs the network incurred for processing a user's transaction is the computational transaction fee of the user. The protocol gets the computational cost in USD quoted by major cloud computing and storage providers through an oracle-checked API. The largest price for renting hardware will be set as a base computational cost of the node. Instead of having an internal gas token with its own market, in a cost-based fee system the most used by cloud service providers currency becomes the internal non-tradable fee token. For US dollars we use gusd as an internal gas token. It is used only for determining the protocol’s fees at an exact moment of time. Actual fees are paid in HMND and the amount is defined by the exchange rate provided by the oracles including decentralized exchange data. In order to define a user's fee we multiply the validator's cost of computation by the number of validators involved in processing the data.
Now after agreeing on the transaction, human nodes have to store the updated ledger on the rented or self-launched server. Storage costs are time-based. Knowing the market price per GB per month quoted by the leading web-service provider, we set the base cost for a set time period.
We know quotes for the storage costs for a given month. However, the price of the storage resources does not stay the same in a longer time frame. Hence, we have to define a formula that determines the cost of permanent storage. This formula is based on the data sources, methodology and, eventually, rate of cost decline and is agreed upon in the Vortex.Over the past 50 years, the cost of commercially available storage has been decreasing at an annual rate of 30.57% (S. Williams, 2018). Extrapolating the data, the costs of perpetual data storage can be presented as the infinite sum of the declining storage costs over time:
Based on these costs, we derive a transaction fee the user will have to provide to the Humanode protocol for perpetual storage of the transaction.
Submitting the transaction, the user pays the cost of perpetual storage multiplied by the number of nodes storing the data at the moment. After receiving the fees the protocol distributes them equally among the human nodes. This mechanism ensures that the fee the protocol gets is higher than the actual cost for storing data by the cost of future storage. This creates an incentive to continue operating a Humanode server, ensuring the network’s long-term stability.
Not all of the transactions are equal. The size of the transaction changes with the amount of data and computation complexity. The core functions of the Humanode protocol are to encrypt, process and store biometric data, send transactions with onchain assets, execute smart contracts, connect to other ledgers and databases.