There have been some positive recent developments in the ETH gas market: 1) several large miners lowered their minimum gas price to 4 gwei from about 20 gwei previously and 2) the number of empty blocks mined has gradually fallen from ~35% a couple of months ago down to ~ 10% today. On the other hand, not all miners have lowered their gas prices. Furthermore, gas use is rising faster than the miners are voting to increase the gas limit, and the network now faces for the first time a meaningful number of full blocks (~20%).

Underlying these changes is a basic question: in this period of rapid network growth and dynamic gas and ETH prices, how much money are ETH miners actually making from mining gas? Profitable gas mining is a critical incentive to maintain for the health of the network — what is the net margin?.

The average block’s transaction fees are currently about 0.045 ETH (~ $12 per block). Many people know, however, that the block transaction fees are not the actual miner profit from gas. Since the inclusion of gas in a block results in a small increase in the probability of the block becoming an uncle (see here for details), an estimate of gas profit requires an adjustment for this potential loss in revenue.

Before analyzing miner gas profits, it is critical to understand the following basic principle: when a miner mines a valid block and broadcasts it to the network, if it is accepted, it either becomes an uncle or it is included in the main chain. Therefore, miners’ average revenue per block is best described by the following: the weighted average of their main block and uncle rewards (both of which are variable) at their achieved uncle rate (which can also vary miner to miner). Currently, for example, with a network average uncle rate of 7.3%, an average uncle reward of 3.53 ETH and an average main reward of 5.056 ETH, this weighted average block reward is 4.95 ETH.

There are different ways we can estimate miners’ profits from mining gas. One way is to use linear regression with the block award (regardless of whether it is an uncle or main block) as the outcome variable and a dichotomous predictor variable based on whether the block is empty or not. This predictor variable creates a contrast between an empty block and a block with the average block gas (currently about 1.9m gas) and estimates their respective weighted average block awards.

This analysis (over the last 100,000 blocks) reveals the following: an empty block is associated with a decrease in the average block award of 0.0354 ETH as compared to average gas-containing block (see here if you want to see the raw regression model data). Since the transaction fee average per block is 0.045, this implies that gas mining is currently solidly profitable with a net profit margin of 78%, a finding consistent with the recent decline in empty blocks.

Incidentally, this regression model also provides an alternative way to estimate the ‘breakeven’ gas price for miners overall. Since the average transaction fees per block are 0.045 ETH and mining empty blocks results in an average loss of 0.0354 ETH, this means that there is an apparent gain of 0.0086 ETH/block from the decrease in uncle risk associated with empty blocks. In order to compensate for this reduction in uncle risk, a gas price of 4.5 gwei (.0086/1.9m gas) is adequate. Note this breakeven price is slightly lower than the breakeven price currently reported by etherchain using Vitalik’s method. I am not sure which one is more accurate; the method described here models the block awards associated with empty and gas-containing blocks as opposed to Vitalik’s method which models their uncle risk. Both are estimates.

To understand individual miner behavior, however, analysis of network averages may not be that useful as individual miners could have results that deviate substantially from the norm. The regression analysis described by Vitalik in which uncle risk is modeled as a function of gas in the block can be easily applied to individual miners. In this regression model, the constant term represents the uncle risk with a zero-gas block and the slope terms relates the tradeoff between gas mined and uncle risk. Using this constant term, you can estimate for each miner their expected weighted average block award under a policy of mining only empty blocks and compare it to their block award at their actual gas mined and get an estimate of individual miner gas profit adjusted for their uncle-risk of gas containing blocks. The results of this analysis are provided here (and for people who want to see the raw regression outputs, you can see them here).

Again, we see that mining gas is solidly profitable with net margins (adjusted for uncle risk) of around 50–80% for large miners (note the difference between these large miners may be due to chance). Smaller miners have slightly lower profit margins from gas (but it is still profitable for them), a finding that may reflect their higher overall uncle rate as compared to large miners (as seen on the graph here).

These methods have the following limitation: they do not account for any loss in effective hash rate that may be attributable to adding transactions to blocks. Nevertheless, the following conclusions appear to be supported: