With the STEEM price going steadily down, and with the hardware requirements to run a Steemit node going steadily up, we may soon a hit an inflection point: the point from which it is no longer profitable to run a witness (and a backup) node.
I, for instance, I'm already subsidizing my nodes, meaning the amount of witness rewards I get in a month is smaller than the server costs. Not by much, but it's smaller. I had the same problem in 2017, in spring, for a few weeks, and I continued to invest in my infrastructure. Soon after, the first bull run happened and the investment paid off.
But the past is seldom a good way to predict the future, so we don't know yet when (and if) the current bear market will end. As we all know: "the markets can act irrationally longer than you can stay solvent".
So, in this article I'll try to share a few thoughts about what may happen with the Steem network if the incentives to run a witness node (the equivalent of "mining Bitcoin") are going below the infrastructure costs.
Which Witnesses Are At Risk?
As you may know, the top 19 witnesses are getting a lot more, in terms of rewards, than the rest. They're also accounting for the majority of the blocks, which is 19 per minute (1 block every 3 seconds). The remaining block is then scheduled amongst the "backup nodes" in such a way that the lower you get in terms of stake, the less blocks you get to witness. A witness below 50th place is getting around 12-14 blocks per day. At the current price, this is $4/day.
So, it means that top 19 witnesses can run 95% of network just by themselves.
But they also have higher costs in terms of infrastructure, because the penalties they can get (not really enforced at the blockchain yet, by the way) by losing blocks, are somehow more important.
But whoever is below 20th place in the witness list is at risk to subsidize their nodes for an indefinite amount of time, until STEEM goes again above a certain threshold.
First Scenario: Witnesses Will Continue To Subsidize
This is the scenario that I would like the see the most. But I don't know how longer people can hold and how much they will want to invest in a platform which sees so low returns. Anyway, if enough witnesses will subsidize their nodes, we won't see any significant moves below the top 20 and everything will run just as smooth as now.
Second Scenario: A Lot Of Witnesses Will Throw The Towel
That means a lot of backup-backup witnesses, between 100th and 200th place now, will bump up, taking the places of the departing witnesses and they will get to see more rewards. After an initial period of relative chaos, the network will stabilize with the new witnesses.
Third Scenario: What Happens If Top 19 Witnesses Take Control Of The Network?
Another possible scenario is that top 19 witnesses can vote in a hardfork which will make them, and only them, the sole supporters of the network. I think this will be really bad for the project, and here's why:
- the moment we have the network run by only 19 people, it will no longer be a decentralized project, but a hyper-centralized one, with only 19 people holding stakes.
- scarcity creates demand, so probably some of the top 19 witnesses may try to resell parts of they share (using various techniques) so they can bring "onboard" more investment. This will make the price of STEEM jump for a while.
- once content providers will realize their work is in the hands of 19 people they don't know anything about, and whom agenda may be conflicting with theirs, the incentive to create content will go down dramatically. And that will bring the STEEM price even lower than it is now.
All in all, I see a scenario in which the network will implode in a big, ugly speculative event. As much as I don't want this to happen, experience told me to take into account all possible variables.
Fourth Scenario: Rebalancing Rewards
And yet another scenario would be one in which, through a hardfork, witnesses will find a new algorithm to balance the rewards in such a way that the incentive to run the network and keep it decentralized will continue to be there. I don't know yet how such an algorithm will work, I just barely thought about this.
So, that's what I see right now as potential scenarios for the "flesh and blood" of the Steem network, the witnesses.
Thoughts?
I'm a serial entrepreneur, blogger and ultrarunner. You can find me mainly on my blog at Dragos Roua where I write about productivity, business, relationships and running. Here on Steemit you may stay updated by following me @dragosroua.
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I think it would be reasonable to redefine the witness compensation algorithm in order to create a new scenario where many more standby witnesses would at least keep break even at today low steem price. This way the project would remain much longer in a healthy decentralized situation as it is today.
I could even think of a dynamic algorithm rebalancing compensation every once in a while depending on the price. The baseline could be just the way things are right now and the other extreme a scenario where at least top100 witnesses do not lose money.
As a lower ranking witness (@steemcommunity) we are feeling the pinch. Till now we powered up all witness rewards and we funded the server with liquid earnings from our posts on our private accounts. This is going to get harder as our liquid rewards may not cut it. We just paid over 300 steem for server for a month, but we are looking to move servers now to cut costs and try stay on top of it.
I feel your pain... I'm in a similar position.
well lets see how it all plays out, will I role a dice to see whats going to happen If we role a 6 then we will be fine? @rollthedice
Shake shake shake, you roll the 6-sided die.
You rolled a 5.
Darn
I want to try @rollthedice
Shake shake shake, you roll the 6-sided die.
You rolled a 1.
Thank you for writing this @dragosroua and providing us with food for thought!
You ask for thoughts ...
I would "vote" for the Fourth Scenario, although two immediate problems arise:
Still, I am "in here" due to the potential of a decentralized business structure. So, until I learn something which overrides this preference, that is where I will stand.
Whatever happens, it seems we are now at a point of time in truly testing whether this concept can survive.
Thanks for all you do, as one of our Witnesses!
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Because it's either lower or zero.
Yes, @dragosroua, understood from your post. But, perhaps we can expand on that.
"Lower or zero" is clear enough. It is getting a voting majority to acknowledge that is how bad it is first. Even then, if that day arrives, agreeing the solution is to voluntarily give up their income, as the consensus decision on the right solution. And, then, how voting for Witnesses follows afterwards ...
One thing is clear, at least to me (I greatly prefer candor, so I am open to any and all differences of opinion, as I might learn something ...), if it survives long-term, the Steem blockchain has a way to go to be decentralized to the point where a single "point of failure" cannot bring "the whole house down" ...
Right now, that "single point of failure" is Steemit, Inc. without which there would be no Steem blockchain to begin with, if I understand the history correctly. I hope the right decisions are taken, in the face of adversity, for the "Steemisphere" to survive. There should be no "too big to fail" portion of it ...
Thanks again dragosroua for taking the time to put this post together.
Do you think one result will be for more and more lower ranking witnesses "teaming up" to spread the costs between more witness members?
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Sharing costs would be a way to lower the investment, but until the ROI is higher than the investment it doesn't matter if you spread this across 10 people or you keep it to yourself, it will still run at a loss.
I'm affraid that I will have to stop my node, because i'm running server with loss since start 9 months ago and I made ~60sp this month, but I have to pay 160 Steem :(
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I feel you. Tough times...
I think the first two scenarios will dominate for awhile. Lots of people will subsidize. Then some will leave but there will be enough to fill in. I don't see moving beyond that in the near term 6 months or so. Many of the lower witnesses are here for something other than the money. They are true believers. Or techie-s that are doing this for the learning experience.
Well we have spoken a lot of time before to share more rewards with the bacup witnesses. For instance, instead of lowering the reward of the top 19, they could have just diluted a bit their compensation and add more backup places.
Decentralization should be seen as the resilience of the system. I think more people will realize that this is important with Steemit having to scale down. I might still run my witness until end of the year but beyond that I do't have any idea. My witness is operated at a loss since the very beginning. I don't think many people can do like me and loose time and money in this.
Very much agree with this.
I know your pain :(
I made a loss of around 750-1000$ in 9 months with witness.
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Get the feeling it will be very close to "throw in the towel" scenario you described. Think there may be added pressure to leave in a subtle way because of the STINC layoff.
Thank you 🙏🏼 I always appreciate how you put it straight in such a clear headed way. I’ll keep a finger on the pulse given this new info...
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Could we see some analysis of how much SP stake witnesses have. Because that will dictate how long they will take losses on their witness activity in order to protect their overall stake
I've seen a few witnesses say it's getting financially hard to keep going. It's a shame so few people vote, but aren't the top few determined by a few whales anyway? We really don't want to become any less decentralised.
I, for one is yet to come to tern with what is happening, I've once thought of a scenario where only few control the system but steem was booming then and no one could ever thought of that.
And now we are here.
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That is a very nice breakdown of the situation.
I strongly favour rebalancing rewards instead of the implementation of advertisements.
The rebalancing could have sliding sunset provisions with regards to the price. So that the rebalancing scales down to 0 until a minimum price is reached.
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Wouln’t Scenario 4 only happen with a consensus among current top witnesses? What are the chances that 17 of them would be okay with reducing their own income?
Not big, but worth a shot. You basically get to pick between lower rewards or zero.
Is steem in danger of getting myspaced ?
Everything is in danger of getting myspaced. As in everything will become obsolete at some point in time. Even us :)
The only question is when...
@dragosroua...Firstly I want to commend your effort on the impact you've added on this great platform which is helping almost all Steemians. Thank you for your great impact on developing the platform.
I have learnt alot from your write up. The unfavorable condition occurring presently in the crypto market seems to also have a greater impact on the price of steem because some people say it is also depending on Bitcoin.
I don't know your view towards this but some steemians are still active on the platform just like I am doing presently earning more steem and keeping with hope for a better increase in price when it's time.
This time last year, I was told that steem price was very high compared to today's price. Also, last year happened to be cool for some cryptos such as Bitcoin.
What's your view about this?
Is it that the price of steem is depending on BTC?
Will the 19 witnesses you've stated in your post help to solve the problem or add more to the problem?
What's your view or prediction about when steem will rise again?
Thanks for sharing this great post with love from @hardaeborla 💞and I am hoping to see your reply to my question.
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I do understand that it does cost a lot of money and most of the witnesses are committed to Steem. But as you wrote, most also do want to make a profit which could result in one of the scenarios you are describing.
You are writing in scenario 3 that the witnesses in the top 19, could vote for a hardfork in which they will get more rewards and only they will get the rewards. But isn't this also possible at this moment? Or do they need a certain amount of vests behind them (more than x share of the vests voted on the witnesses) to force this?
Thanks!
Peter
Theoretically, it is. The reason why didn't happen so far is probably linked to credibility / decentralization.
I do think that it would be more troubles some if some of the witnesses who are running full nodes, will pull the plug. Maybe resulting into a scenario in which there are not enough full node witnesses left to sing all the blocks.
What would happen in that scenario?
Full nodes are not signing blocks (or if they do, they shouldn't keep on the same instance a full node and a witness node). Only witness nodes are signing blocks and a scenario in which there aren't enough of these to sign blocks will be highly unlikely. But if it will happen, I guess it will segway into number 3 above.
Thanks for the explanation!
jesus Christ, it's been hard decision time lately, but I guess that's a good thing
Interesting times indeed....:)...
Shits gotten hairy up in here. :-\