How Ergo's Storage Rent Solves Blockchain State Bloat

Ergo's storage rent feature (also known as demurrage) is designed to help keep node storage requirements manageable, allowing more users to run a node and ensuring a more sustainable, decentralized network.

It achieves this by introducing a small, recurring fee. This fee can be charged on every UTXO that has remained unchanged on the blockchain for an extended period of time – roughly four years.

The fees are determined on a per-byte basis. For a UTXO without any tokens or complex scripts, the demurrage fee amounts to around 0.13 ERG every four years. In the event that the UTXO is below the required fee, it will be completely consumed and will no longer exist.

There are a few reasons that storage rent exists. Firstly, it ensures that forgotten coins and data outputs are not left indefinitely, and are eventually refreshed or recycled back into circulation. Bitcoin has an estimated 4 million coins that have been permanently lost through the users' death or destroyed keys. The only way these bitcoins can ever come back into circulation is if they are recovered by a quantum computer in the future.

Secondly, slowly recycling coins gives miners another revenue stream, helping to keep the network secure in the process by incentivizing higher hashrate.

Thirdly, Ergo's storage rent mechanism also plays an important role in preventing the state from growing uncontrollably. With Bitcoin, there is no mechanism for controlling the size of the UTXO set, except for users intentionally consolidating coins. "Spam attacks", a kind of denial-of-service attack where an attacker floods the network with a large number of very small transactions, have a permanent impact on blockchain state. Ergo's model addresses historical spam, and encourages users to manage their UTXOs effectively, helping the ledger remain lean. To avoid paying storage rent, all users have to do is move their coins once every four years.

Demurrage is not a tax or penalty, but simply redistributes coins from inactive accounts. It can easily be avoided through UTXO management. Alternatively, users may decide to accept the small fee once every four years, if they have coins in cold storage they do not want to access.

Where storage rent really shines is in cleaning up the blockchain of dust and tiny UTXOs that would never be spent anyway, either because they have been forgotten, because they were never meant to be moved (spam attack), or because it is not worth the transaction fee to move them. The Bitcoin blockchain stores a huge number of low-value UTXOs. In fact, almost 50% of all UTXOs (over 85 million UTXOs at the time of analysis) fall in the 1-1,000 Satoshi range. While Bitcoin Inscriptions (NFT-like items) account for 30% of these, there are still tens of millions of essentially worthless UTXOs that can never be spent. 1,000 Satoshis is worth roughly a tenth of a cent; even in the event of bitcoin hitting $1 million, it would still be worth only a penny – and many are far smaller.

Storage rent contributes to a more slimline, sustainable, resource-light, and therefore decentralized and secure blockchain. It prevents indefinite data accumulation, and effectively ties blockchain storage to a real economic cost. This is similar to conventional models of cloud storage and other real-world businesses, where a small fee is periodically levied to reflect ongoing costs to providers.

Like every other feature implemented on Ergo, storage rent has been carefully designed to ensure the long-term blockchain sustainability and decentralization of the network.

Demurrage helps blockchain state to stay manageable. It is one of several mechanisms that ensure that smaller, lightweight nodes can always run (others being the memory-hard Autolykos consensus algorithm, which reduces the trend towards ASIC mining, and NiPoPoWs – topics that will be explored in subsequent blogs).

It also marks a different approach to delivering blockchain services than those seen in other networks. Running a mining or validating node on most networks entails significant costs, regardless of profitability. Nodes need to store the whole blockchain, which can run to many gigabytes (at the time of writing, Bitcoin's blockchain is around 700 GB, while Ergo's is 75 GB), and meet certain other hardware requirements. These costs are generally paid for on a monthly basis.

Ergo's model is fairer economically, since it rewards miners for maintaining active state, as well as for storing the blockchain. This looks to the future of the network, when the blockchain and storage requirements will be larger still. At some point in the future, with greater adoption, the number of network transactions (and therefore income) will stabilize, but the blockchain will always grow in size, since new transactions will always be added to it. Ergo's demurrage seeks to prevent the "data death" scenario where maintaining old data becomes more and more expensive as a percentage of overall income from mining.

As more data-intensive dApps emerge, Ergo's proactive approach helps to ensure scalability, without compromising on decentralisation – something few blockchains can claim.