Engel coefficient on the blockchain: When your transfer fees exceed your living expenses

This article was published on Huang Shiliang's personal account.

Today I made 7 Ethereum transactions, 1 Bitcoin transaction, 2 Bitcoin Cash transactions, n BSC transactions, and m HECO chain transactions, with both n and m greater than 5. The total miner fees spent exceeded 1000 USD.

For my living expenses today, I spent 299 yuan on extending my hotel stay, 51 yuan on two takeout meals, and 46 yuan on two Didi rides. The total is 396 RMB, which converts to 61 USD.

Although I haven't detailed my long-term expenses on the blockchain, nor have I seriously tracked my daily living costs, the former definitely far exceeds the latter. Daily living expenses include food, clothing, housing, transportation, entertaining, and gifting.

Thinking about this today surprised me.

Economists have come up with an Engel coefficient to describe the proportion of spending on food in a person's total expenses, reflecting the level of wealth. The larger the proportion spent on food, the poorer the person is; conversely, the smaller the proportion, the wealthier they are.

I think we in the crypto community can create a miner fee coefficient to describe the proportion of a person's spending on miner fees in their total expenses, reflecting the person's connection to the blockchain. The larger the proportion spent on miner fees, the more of a crypto person they are; conversely, the smaller the proportion, the less of a crypto person they are.

My miner fee coefficient is approximately 1; I am definitely a crypto person.

Let's change our perspective and further analyze the use of miner fees.

Spending money (referring to RMB, USD) incurs costs. For example, if we use WeChat Pay to buy a meal for 20 yuan, there is generally a 0.6% fee as the payment cost, which is 0.12 RMB. We can consider this 0.6% fee as the "miner fee" of fiat currency.

When using bank transfers, many banks charge a 0.1% transfer fee, which is also a fiat miner fee.

Fiat miner fees generally range from 0.1% to 3%; in some underdeveloped financial countries, such as those in Africa, it may be as high as 5%. In our country, it is generally at the level of a few tenths of a percent, mainly because we use WeChat Pay, Alipay, and UnionPay, all of which are at this fee level. Relatively speaking, it is quite low.

Miner fees on the blockchain are not charged proportionally; for Bitcoin and Ethereum, the fees are basically determined by auctioning block resources.

If we define a coefficient x1 = (blockchain miner fee) divided by (total amount of blockchain transactions), this can give us a sense of the cost of living on the blockchain, which is the transaction friction coefficient of blockchain finance.

If we compare x1 with "fiat miner fees," we can roughly feel the efficiency of operations in the blockchain financial world versus the fiat financial world, or compare the transaction frictions of the two.

I think, for now, the vast majority of people (retail investors) experience much greater transaction friction in blockchain finance than in fiat finance. Only large players can enjoy low transaction friction in blockchain finance.

When we first encountered Bitcoin, we would promote that the transaction fees for Bitcoin transfers were very low, but as blockchain has developed to now, miner fees are frighteningly high.

However, if we further segment the spending scenarios, we might arrive at a different perception.

My spending on miner fees on the blockchain is mainly in DeFi, specifically the miner fees paid for using various decentralized financial products. I basically do not spend coins on consumption (like buying things online).

In the fiat financial system, the "miner fees" for using financial products, such as stock trading or borrowing money from banks, can all be considered as "miner fees."

If we position miner fees in relation to financial products, then blockchain finance's miner fees should have an advantage. However, I do not have data for quantitative analysis; it's just a feeling.

In the realm of consumer life, blockchain miner fees are higher than fiat miner fees.

From this perspective, if blockchain wants to penetrate more areas of daily life, it needs to further scale up to reduce miner fees.

But if blockchain is only positioned in the financial sector, scaling up is not as necessary, because the competitor (fiat finance) has even more outrageous miner fees.

May I ask, what is your miner fee coefficient? Is it close to 1?