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PCP-002 Reduce utxoCostPerByte
This proposal aims to enable more applications on Cardano by reducing the utxoCostPerByte parameter.
I propose lowering utxoCostPerByte from 4310 to 400.
For reference, there was an earlier discussion related to this topic at: Reduce Min UTxO
What is utxoCostPerByte?
The utxoCostPerByte parameter establishes the minimum amount of ADA required per Unspent Transaction Output (UTxO). The parameter is specified as an amount of Lovelace per byte in the UTxO. The current value of utxoCostPerByte is 4310 Lovelace. This gives an approximate minimum of 1.5 ADA per UTxO for transaction outputs containing native tokens.
Why do we need utxoCostPerByte?
The use of this minimum amount of ADA per UTxO ensures that the blockchain remains efficient by preventing the creation of large numbers of extremely small UTxOs that could lead to excessive data storage and processing requirements. It also incentivizes compact and efficient data storage.
What are the pros and cons of lowering utxoCostPerByte?
Lowering the utxoCostPerByte parameter can have both pros and cons. The impact of such a change depends on the specific context, use cases, and the overall goals of Cardano. Here are some potential advantages and disadvantages:
Increased Flexibility: Lowering the utxoCostPerByte allows for more flexibility in creating UTxOs with smaller values. This can be advantageous for microtransactions and use cases where smaller denominations of ADA are needed.
Improved Accessibility: It can make the Cardano network more accessible to a wider range of users, particularly those in regions with lower economic resources, by enabling them to transact with smaller amounts of ADA.
Enhanced Token Functionality: Lowering the utxoCostPerByte can also facilitate the creation and management of custom tokens and assets on the Cardano blockchain. It allows for greater granularity in defining token values.
Encouraging Adoption: Smaller UTxOs can encourage broader adoption by making it easier for people to experiment with and use Cardano.
Blockchain Bloat: A potentially significant drawback of lowering the utxoCostPerByte is that it could lead to blockchain bloat. Smaller UTxOs result in more data being stored on the blockchain, which can increase the overall size of the blockchain. This may require more storage resources and can slow down network synchronization.
Increased Storage Costs: Lowering utxoCostPerByte can lead to higher storage costs for network participants who run Cardano nodes. Storing and maintaining a larger blockchain can be expensive, which may discourage some users from participating in the network.
Network Congestion: If utxoCostPerByte is set too low, it could result in an increased number of transactions and UTxOs, potentially causing network congestion and slower transaction processing times.
In summary, lowering the utxoCostPerByte can have several benefits, such as increased flexibility and accessibility. However, it also carries significant challenges, such as the risk of blockchain bloat and higher storage costs. Any decision regarding lowering utxoCostPerByte should consider the trade-offs and align with Cardano’s overall goals. It is important to strike a balance between accessibility and network efficiency.
What kinds of applications can be enabled by lowering utxoCostPerByte?
Lowering these costs can open the door to a wide range of applications by making it more affordable and accessible for users to interact with the blockchain. Reduced costs can be particularly advantageous in various use cases, including:
Microtransactions: Lower transaction costs enable microtransactions, where users can transfer very small amounts of ADA. This is valuable in applications like content monetization, pay-per-use services, and tipping content creators.
Tokenization: Reduced costs make it more feasible to create and transfer tokens. This eases the way for various tokenized assets, including real estate, art, stocks, and other financial instruments.
Supply Chain Management: Supply chain applications can benefit from lower costs when tracking goods and verifying their origin or authenticity. This is especially relevant in industries like agriculture, pharmaceuticals, and luxury goods.
Decentralized Finance (DeFi): In the DeFi sector, lower costs can encourage more users to participate in lending, borrowing, yield farming, and trading. This can lead to increased liquidity and adoption.
Gaming: Blockchain gaming can benefit from lower costs, increasing the ability to trade in-game assets and currency. Gamers can have true ownership of their assets, and developers can create play-to-earn games.
Digital Identity: Implementing digital identity solutions on the blockchain can become more cost-effective. Users can have greater control over their personal data and selectively share it with trusted parties.
Social Networks: Cardano based social networks could reward content creators and users with cryptocurrency for their contributions. Lower costs make this reward system economically viable.
Internet of Things (IoT): Devices in the IoT ecosystem can interact with the blockchain for data verification and value exchange. Lower costs can make this practical for various IoT applications.
Charitable Giving: Donations and philanthropic efforts can benefit from reduced costs, ensuring that a higher percentage of donated funds goes to the intended recipients.
Voting Systems: Secure and transparent blockchain-based voting systems can be more accessible, enabling secure and tamper-resistant digital voting. In the era of Voltaire, it is crucial to ensure affordable access to voting on Cardano.
Smart Contracts: Lower costs can drive the adoption of smart contracts in various industries, including legal, insurance, and real estate.
Decentralized Autonomous Organizations (DAOs): DAOs can benefit from lower transaction costs by making it affordable for members to participate in decision-making and governance processes.
Overall, lowering transaction related costs by lowering utxoCostPerByte expands the potential applications of Cardano, making it more accessible for a broader range of use cases and encouraging innovation. However, it is important to strike a balance between low costs and network security and scalability to ensure that Cardano remains reliable and efficient.
At what point does the size of the UTxO set become problematic for SPOs? What about wallets and other applications?
Is there a point where network congestion becomes an issue?
At what point do blockchain bloat attacks become feasible or likely?
How much reduction is necessary to enable or expand the various types of applications listed above?
A specified value, or range of values, for utxoCostPerByte that enables more applications on Cardano while maintaining sufficient security and efficiency with justifications and evidence.