A Few Thoughts About A Potential Witness Crisis We May Hit At Some Point
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.
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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