Economic Security Analysis

Abstract

Ethereum Classic's fixed emission schedule (ECIP-1017) means block subsidies will continue declining over time, making transaction fees increasingly critical for chain security. This research models long-term miner revenue under ECIP-1120's fee distribution mechanism, verifying that the security budget remains sufficient through tail-end emissions. We analyze historical fee patterns, project future scenarios, and identify the conditions needed for sustainable mining economics.

Research Objectives

1. What is the current contribution of transaction fees to ETC miner revenue?
2. How will miner revenue evolve as block subsidies decline under ECIP-1017?
3. Under what fee scenarios does mining remain profitable through tail-end emissions?
4. How does fee smoothing (ℓ-smoothing) affect miner revenue stability?
5. What is the minimum security budget needed to deter 51% attacks?

Background

ECIP-1017 Emission Schedule

ETC's monetary policy reduces block subsidies by 20% every 5 million blocks (~2.4 years):

By era 15 (~2060), block subsidies will be minimal, and fees must provide most miner revenue.

Security Budget Fundamentals

The "security budget" is the total value paid to miners, which determines:

• Hashrate attracted: Higher revenue → more mining competition
• Attack cost: Higher hashrate → more expensive 51% attacks
• Chain viability: Revenue below operating costs → miners leave

Fee Revenue Context

Current ETC fee revenue is modest compared to Ethereum:

• ETC: ~$10-50K annual fees (varies with activity)
• ETH: ~$1-5B annual fees (pre-burn, varies with activity)

The challenge is ensuring fee revenue can scale to replace subsidies.

Why Not Burn? (ECIP-1120 Rationale)

Ethereum's EIP-1559 burns the basefee, which works for ETH because:

• ETH has unlimited supply with perpetual issuance
• Burning provides deflationary pressure against ongoing inflation
• Fee burning was a deliberate monetary policy choice

For Ethereum Classic, burning is not viable because:

1. Fixed Emission Schedule: ECIP-1017 established a predetermined total supply (~210.7M ETC). Burning would effectively reduce the final supply below what was agreed upon, altering the monetary policy.

2. Security Budget Erosion: As block subsidies decline, transaction fees become the primary source of miner revenue. Burning fees directly reduces the security budget—the total value available to incentivize honest mining and deter attacks.

3. Tail-End Emissions Crisis: By era 15 (2060), block subsidies will be minimal (0.22 ETC). If fees are burned instead of paid to miners, the chain faces a severe security budget shortage precisely when it needs fee revenue most.

4. Miner Economics: Miners invest in hardware and electricity based on expected revenue. Burning fees transfers value to token holders rather than miners, potentially reducing hashrate and 51% attack resistance.

The ECIP-1120 approach preserves ETC's fixed monetary policy while directing all fee revenue to miners, maximizing the long-term security budget.

Methodology

Approach

1. Historical Analysis: Analyze past ETC fee revenue patterns
2. Projection Modeling: Model future scenarios across emission curve
3. Sensitivity Analysis: Test how changes in key variables affect outcomes
4. Comparative Study: Compare with other PoW chains' fee economics

Data Sources

• ETC mainnet historical data (fees, blocks, transactions)
• Mining profitability data (hardware costs, electricity rates)
• Hashrate and difficulty historical data
• Comparative data from BTC, ETH (pre-merge), LTC

Modeling Variables

Research Plan

Phase 1: Historical Data Collection

• Extract complete ETC fee history from genesis
• Calculate daily/monthly/yearly fee revenue in USD and ETC
• Correlate fee revenue with transaction volume and network activity
• Identify patterns: seasonality, correlation with price, etc.
• Document fee distribution (median, mean, outliers)

Phase 2: Current State Analysis

• Calculate current miner revenue breakdown (subsidy vs fees)
• Estimate current mining profitability margins
• Survey hashrate distribution and miner economics
• Determine minimum viable miner revenue threshold
• Model current 51% attack cost

Phase 3: Future Projections

• Build emission curve model through era 20
• Create fee growth scenarios (pessimistic, base, optimistic)
• Model miner revenue under each scenario
• Identify "sustainability threshold" where fees must equal X% of current subsidy
• Project 51% attack cost evolution under each scenario

Phase 4: Fee Smoothing Impact

• Model revenue variance without smoothing (immediate payment)
• Model revenue variance with ℓ-smoothing at various L values
• Calculate how smoothing affects miner cash flow
• Analyze impact on small vs large mining operations
• Coordinate with Distribution Curve Design

Phase 5: Recommendations

• Synthesize findings into security budget requirements
• Identify conditions where ECIP-1120 maintains chain security
• Document risk factors and mitigation strategies
• Prepare economic security section for ECIP-1120 specification

Expected Outcomes

1. Historical Analysis Report: Complete picture of ETC fee economics to date
2. Projection Models: Miner revenue forecasts through 2060+ under various scenarios
3. Sustainability Thresholds: Minimum fee revenue needed at each emission era
4. Security Budget Analysis: 51% attack cost projections over time
5. Risk Assessment: Conditions that could threaten chain security

Success Criteria

• Historical data covers 100% of ETC mainnet blocks
• Projections model at least 3 distinct growth scenarios
• Security budget remains above minimum threshold in base case
• Fee smoothing demonstrably reduces revenue variance
• Analysis identifies actionable risk mitigation strategies

Dependencies

• Distribution Curve Design - Fee smoothing parameters
• ETC archive node access - Historical fee data
• Mining industry data - Profitability metrics

Current Status

Status: TODO

Progress Log

• 2025-11-28: Initial research plan drafted
• Pending: Begin Phase 1 historical data collection

Appendix: Economic Models

Mining Break-Even Model

interface MiningEconomics {
  // Revenue
  blockReward: bigint;      // ETC subsidy
  feeRevenue: bigint;       // Transaction fees
  blocksPerDay: number;     // ~6,646 at 13s blocks
  etcPrice: number;         // USD per ETC

  // Costs
  hashrate: bigint;         // TH/s
  powerConsumption: number; // Watts
  electricityCost: number;  // USD per kWh
  poolFee: number;          // % (typically 1-3%)
  hardwareCost: number;     // Amortized daily

  // Calculated
  dailyRevenue: number;     // USD
  dailyCost: number;        // USD
  profitMargin: number;     // %
}

Security Budget Model

interface SecurityBudget {
  totalMinerRevenue: bigint;    // Daily ETC to all miners
  etcPrice: number;             // USD per ETC
  networkHashrate: bigint;      // Total network TH/s

  // Attack cost = cost to acquire 51% hashrate for 1 hour
  attackCostPerHour: number;    // USD
  attackCostPerDay: number;     // USD
}

References

• ECIP-1017: Monetary Policy
• EIP-1559 Economic Analysis
• Roughgarden, T. Transaction Fee Mechanism Design
• Bitcoin Security Budget Research