A BCH Onboarding Incentive Idea: Transaction Lottery

I have just watched George Donnelly's latest video in which he discusses the topic "utility versus scale".

In the video George states that the BCH community has to decide how much of our limited resources we should put into increasing the utility and how much we should invest into working on scaling. He asks the question which of the two the community should put its main focus onto.

Before I present to you the idea that came to me after watching his video, let me first give you a short summary of the video in order to motivate why this particular idea could be helpful. Let's begin by clarifying what the terms utility and scale mean.

Utility

Utility is basically the answer to the two following questions:

• What can you do with BCH?

• How many people are using BCH?

Scale

Scale is all about the question

• How many transactions or how much data can we put into a block and onto the blockchain?

George Donnelly's take

George Donnelly points out that BCH is doing great in the scale department already. That is why he suggests the community should focus mostly on utility: We should create more use cases and we should get more people to use BCH.

However, he points out that if we only focus on utility, the blocks might fill up and this could lead to increased fees.

Low fees are a key feature of BCH

He stresses that low fees are one of the main key features of BCH. And therefore, some scale improvements may be necessary in the future when the utility is increased in order to maintain the low fees.

The goal for BCH can therefore be summarised as

Onboard as many new BCH users as quickly as possible while maintaining low fees.

I would add the obvious: BCH transactions should additionally remain fast, uncensorable and irreversible.

BCH needs more projects

He stated that noise.cash is the prime example for how new users can be brought to BCH and we would need more projects which have a similar effect.

The "noise.cash effect"

Ever since noise.cash started its operation at the end of 2020, a drastic increase in on-chain BCH transactions has been achieved. Recently, the number of transactions has even surpassed BTC. This fact is called the "transaction flippening".

However, noise.cash started batching its payouts in mid April. That has reduced the on-chain transaction count significantly.

The "noise.cash effect" is clearly visible in the following chart of the BCH and BTC transactions.

It's important to maintain the transaction flippening

George stresses the importance of maintaining the transaction flippening. "It cannot just be a historical proof." he says. "BCH needs to continuously maintain the proof that it is in fact capable of processing more transactions than BTC while maintaining low fees."

The question arises:

What can we do to maintain the transaction flippening?

My idea

I have thought about this challenge and I believe that I found a solution which might help with onboarding new users, especially merchants and it will also increase the number of on-chain BCH transactions -- without resorting to storing weather data.

However, keep in mind that the main goal of my idea is not to create additional "artificial" transactions. The main focus lies on incentivizing real people to make real financial transactions with BCH instead of PayPal, credit cards and so on.

So what is the idea?

Transaction lottery

Who doesn't like a chance to win something?

And who doesn't like to win free crypto?

That's why I think the easiest way to incentivize real people to use BCH transactions rather than any other form of payment for their real financial transactions is to run a transaction lottery. This lottery can then be advertised as one of the benefits of using BCH, in addition to having fast, reliable, cheap, uncensorable and irreversible transactions.

Every on-chain BCH transaction is basically a lottery ticket to win a prize.

The more transactions a person makes, the higher the chance of winning. This gives merchants an edge. It is an extra strong incentive for merchants to accept BCH payments. And in turn they might ask their customers to pay them in BCH -- generating even more new users.

And these new users will try to use BCH for every transaction they make.

The lottery will also incentivize casual BCH users to convince additional people to accept BCH.

As a byproduct, the lottery might lead to an increase in "artificial" or "spam" transactions. More on that later.

Here is how a transaction lottery could work

A random transaction per day, per hour or per block is chosen as the winning transaction. The sender and the recipient will be rewarded with half of the prize money each.

How could be determined which transaction wins?

The winning transaction should be chosen by a more or less random number -- which is determined on-chain.

The hash of every 24th block could be used to determine the winning transaction of the previous 24 blocks, for instance.

For that, the transactions of these 24 blocks have to be enumerated and the hash has to be translated into a number. The transaction matching this number is the winning one.

How could the lottery be funded?

Several options are feasible:

• Flipstarter

• A group of BCH supporters may want to fund it privately

• A tiny part of the coinbase of every block reward could be used to fund the lottery

If the last option is chosen, the lottery could be run for a very long time. It would be one of the selling points which could convince new users to start using BCH.

A Concrete Example

Let's say we choose 0.1 BCH as the daily prize money and we choose one lucky transaction per day as the winner. The sender and the recipient would each get half of the prize money.

People might send themselves very low amounts of BCH in order to increase their chances of winning the prize. To incentivize transactions with higher values, the prize could be capped to 50% of the transaction value, for instance.

If you only send 10 Cents, then you can only win 5 Cents. You would need to send at least 0.2 BCH in order to have a chance to win the full prize money. That also means you would need to own at least 0.2 BCH to have the chance of winning the full price money.

Estimating the amount of "artificial" transactions

Even if people might create bots to constantly send BCH back and forth, the transaction size cap would incentivize them to buy and hold at least 0.2 BCH.

However, such "artificial" transactions become unprofitable at some point: If the cost for sending the transactions exceeds the expectation value of winning the prize money, then we can expect that the bot will stop sending transactions.

The upper limit for the number of extra transactions eTx can be easily calculated:

eTx = prizeMoney / txCost = 0.1 BCH / 0.000 004 00 BCH = 25,000

Therefore, with the numbers in the example, we should see at most 25,000 extra "artificial" transactions per day. We assumed a transaction size of 400 Bytes and 1 Satoshi per Byte in costs.

The more regular transactions are executed on-chain, the less "artificial" transactions will be added and according to the above equation, we can easily adjust this number by increasing or decreasing the prize money.

Of course, this is just an example with numbers I took off the top of my head. These numbers might not be optimal.

And again, let me stress that the goal of the lottery is to increase the BCH userbase -- which will in turn lead to more transactions. The extra "artificial" transactions are just an undesired side effect.

Summary

I believe that the BCH userbase can be expanded and in turn, the number of on-chain BCH transactions can be increased with the proposed transaction lottery. The increased level of transactions will probably be sustained. I estimate that the lottery is a very cost-effective way to onboard new users -- especially the ones who engage in numerous financial transactions and can therefore function as "influencers". By increasing the user base, the transaction lottery will also help to achieve the goal of flippening the BTC transaction numbers.

However, a part of the additional transactions may be due to people -- or bots -- sending BCH to themselves or in a more or less complicated circle to win the prize money.

The prize money divided by the cost of one BCH transaction should give us an upper limit for the number of such "artificial" transactions. I estimate that the number of "artificial" transactions will be negligible compared to the number of real transactions added to the block chain.

Comments

What do you think about this BCH transaction lottery?

Will the incentive suffice to achieve and maintain the transaction flippening?

I am looking forward to reading your comments!