Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

columbia.edu

Post reply on HN
Print view View original

11–20 of 62 posts

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#11

Post by nosuchthing »

This paper mainly focuses on the miner-transaction fee-protocol economics, completely neglecting the real world economic interactions and history of BTC.

Satoshi's core design of bitcoin minting favored early adopters to mint coins at extremely low cost and processing power, this is why someone traded 10,000 bitcoins for two pizzas because it took no effort to generate those early on. Satoshi decided to decrease the amount of rewards as the network grew older and presumably more users would adopt it, why? This is a marketing gimmick seen with beanie babies and base ball cards where the cost of production is low yet you tell customers the supply is very limited so you must act quick while supplies last. And the supplies of this type of service are increasing with every day as alternative networks offering the same service (blockchains, trustless distributed databases) are increasingly sprouting up. The question speculators should be considering when evaluating the economic worth in trading bitcoins or any other altcoin should certainly take into consideration what value the network provides them versus alternative service networks, what the risk of volatility in each network is especially because extreme drops in value are much easier than rises in price as liquidity is severely limited and many "whale" accounts often own enough supply of coins to crash the entire market [1] [2] [3].

Exchanges like MTGox, Bitfinex, etc have been suspected of manipulating exchange rates and insider trading via maliciously scripted exchange bots within the exchange [4] [5] [6].

[1] https://bitinfocharts.com/top-100-richest-bitcoin-addresses....

[2] https://etherscan.io/tokenrichlist

[3] ETH had a presale which sold for $0.35 USD - $0.45 USD. The vast majority of cryptocoin variations premine or rapidly mint their supply, and then game speculators to pass the bag off to greater fools in what is essentialy a pyramid scheme backed by a network of databases running double-entry bookkeeping marketed as magic technology that's changing everything.

[4] https://www.theguardian.com/technology/2014/may/29/bitcoin-b...

[5] https://medium.com/@bitfinexed/are-fraudulent-tethers-being-...

[6] https://medium.com/@bitfinexed/meet-spoofy-how-a-single-enti...

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#12

Post by nosuchthing »

virtuexru wrote: post #4

From the conclusion which I thought was really interesting: > Bitcoin is not regulated. It cannot be regulated. There is no need to regulate it because as a system it is committed to the protocol as is and the transaction fees it charges the users are determined by the users independently of the miners’ efforts. > Bitcoin’s design as an economic system is revolutionary and therefore would merit an economist’s attenti…

  Bitcoin is not regulated. It cannot be regulated. There is 
  no need to regulate it because as a system it is committed 
  to the protocol as is and the transaction fees it charges 
  the users are determined by the users independently of the 
  miners’ efforts.
There's no need to regulate Bitcoin the protocol or software.

The gateways, such as the exchanges are more of an essential element in regard to regulatory and economic influence on the cryptocoin economies.

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#13

Post by JumpCrisscross »

virtuexru wrote: post #6
rb808 wrote: post #5

That is a very 2015 view - now days people don't buy bitcoin for its use in transactions, they buy bitcoin because it keeps going up. The more it goes up the less people are likely to spend it. We don't need many miners if people never spend it. Here is one high profile example http://avc.com/2017/08/store-of-value-vs-payment-system/ (of course when it starts to go back to zero people will all try to sell and the inf…

> people don't buy bitcoin for its use in transactions I'd beg to differ.. sure there is definitely a percentage of HODL'ers but to say people don't use it in transactions is straight up lunacy. https://blockchain.info/charts/n-transactions?timespan=all https://blockchain.info/charts/trade-volume?timespan=all

Those data don't differentiate bitcoins bought for investment and for trading.

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#14

Post by nosuchthing »

clarkmoody wrote: post #10
Nursie wrote: post #9

Earlier quoted context omitted.

Micropayments are not that feasible when the fees per transaction are in the multiple dollars, surely?

Not on the blockchain. This is what Lightning Network and other Layer 2 technologies seek to enable: nearly-free micropayments.

Why not use the fabled "lightning network" layer as layer 1 if it functions as it should?

Is it not just a blockchain slapped on top of the slower blockchain?

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#15

Post by rj123 »

nosuchthing wrote: post #14
clarkmoody wrote: post #10

Earlier quoted context omitted.

Not on the blockchain. This is what Lightning Network and other Layer 2 technologies seek to enable: nearly-free micropayments.

Why not use the fabled "lightning network" layer as layer 1 if it functions as it should? Is it not just a blockchain slapped on top of the slower blockchain?

The lightning network has no security (protection against double spend) on it's own. It relies on the underlying blockchain for that.

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#16

Post by rothbardrand »

This paper is a reasonable attempt to model bitcoin by people who only see the surface of what bitcoin is.

Bitcoin is like an Onion- it has layers, and makes you cry.

As I have come to understand it there are many layers- both in technology and economics- at work here.

Most obvious is layer 2 tech like lightening network, side chains, and segwit. (which is a second layer inside the blockchain.)

But as you come to understand it better you realize, for instance, that the network has been under attack and the cost of fees is mainly due to that (when its not under attack because the attackers are moving their bitcoins) you can do micropayments-- like $1.50 sent for $0.05 transaction fee with 3 hours clearing-- which is faster and cheaper than credit cards. You get censorship resistance for free!

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#17

Post by AgentME »

nosuchthing wrote: post #11

This paper mainly focuses on the miner-transaction fee-protocol economics, completely neglecting the real world economic interactions and history of BTC. Satoshi's core design of bitcoin minting favored early adopters to mint coins at extremely low cost and processing power, this is why someone traded 10,000 bitcoins for two pizzas because it took no effort to generate those early on. Satoshi decided to decrease the…

>Satoshi decided to decrease the amount of rewards as the network grew older and presumably more users would adopt it, why?

Mining needed to have a way to incentivize miners before transaction fees were common, and there needed to be a system to get bitcoins out into users' hands to begin with. Once a critical mass of users have bitcoins and transaction fees support mining, there's less reason to continue minting new bitcoins.

It could be argued that continuous minting creating inflation would be desirable, but that's a big free parameter that there isn't a known best way to calculate. Bitcoin's monetary supply code was intended to function long-term, and if minting was to continue indefinitely, it's debatable what the minting rate should be, and if it was gotten wrong, it would be extremely controversial to ever change. (Some people might think 2% is a good inflation rate, but what if that's specific to now? Say economic and population growth slow down; 2% could be too much inflation.) Having the cap approach a maximum limit instead of increasing forever seems to have been a much easier decision to make and get others to trust. If there's a fixed amount of Bitcoin, then as long as Bitcoin's usage isn't decreasing, it's straightforward to imagine that the value of Bitcoin shouldn't approach zero.

>And the supplies of this type of service are increasing with every day as alternative networks offering the same service (blockchains, trustless distributed databases) are increasingly sprouting up.

A big part of Bitcoin's value is the network effects of its current user-base. The creation of an altcoin doesn't immediately fully dilute the supply of useful bitcoin-like cryptocurrency if it doesn't have the userbase.

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#18

Post by clarkmoody »

nosuchthing wrote: post #14
clarkmoody wrote: post #10

Earlier quoted context omitted.

Not on the blockchain. This is what Lightning Network and other Layer 2 technologies seek to enable: nearly-free micropayments.

Why not use the fabled "lightning network" layer as layer 1 if it functions as it should? Is it not just a blockchain slapped on top of the slower blockchain?

Here is some more information about what LN is doing: http://dev.lightning.community/overview/

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#19

Post by pmorici »

virtuexru wrote: post #6
rb808 wrote: post #5

That is a very 2015 view - now days people don't buy bitcoin for its use in transactions, they buy bitcoin because it keeps going up. The more it goes up the less people are likely to spend it. We don't need many miners if people never spend it. Here is one high profile example http://avc.com/2017/08/store-of-value-vs-payment-system/ (of course when it starts to go back to zero people will all try to sell and the inf…

> people don't buy bitcoin for its use in transactions I'd beg to differ.. sure there is definitely a percentage of HODL'ers but to say people don't use it in transactions is straight up lunacy. https://blockchain.info/charts/n-transactions?timespan=all https://blockchain.info/charts/trade-volume?timespan=all

The high transaction fees recently are pushing out a lot of the traditional use cases for Bitcoin. Bitcoin Cash appears to be in a position to inherit those use cases.

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#20

Post by AgentME »

nosuchthing wrote: post #14
clarkmoody wrote: post #10

Earlier quoted context omitted.

Not on the blockchain. This is what Lightning Network and other Layer 2 technologies seek to enable: nearly-free micropayments.

Why not use the fabled "lightning network" layer as layer 1 if it functions as it should? Is it not just a blockchain slapped on top of the slower blockchain?

Transactions are encoded into the blockchain to set up a "lightning channel" that incentivize the participants of off-chain transactions to correctly settle the net payments of the channel on the chain later. Only once it's set up on the blockchain can users use it for off-chain payments (which can be instantly confirmed and have much lower fees).

Once the channel is set up on the blockchain between two users and has some amount of bitcoin committed to it, the participants can securely transact between each other with only private communications between each other, without requiring transactions in the blockchain. When either user is done with the channel, either of them may broadcast the settlement transaction which withdraws the committed funds in the correct amounts to each participant. (Every time the participants make a transaction between each other, they create create a new settlement transaction, and a separate transaction which invalidates the previous settlement transaction. These are regular Bitcoin transactions, but they're held privately by the participants instead of being broadcast on the blockchain immediately. If either of the particpants tries to broadcast an earlier version of the settlement transaction, then the other participant can broadcast the invalidation transaction within a certain pre-agreed time, which rewards them the funds as punishment to the defector.)

Then the real fun comes from the "lightning network" part: if Alice wants to send funds to Charlie but has no open lightning channel to Charlie, but she knows that both her and Charlie have an open channel with Bob, then she can do an off-chain lightning transaction through Bob to Charlie, without any risk of Bob taking the funds for himself.

Post reply on HN