Arvind and the Priceton team did some awesome research and lectures back when most of us didn't pay attention to Bitcoin.
This paper goes into how markets and its participants and not just the algorithm plays an important part.
On the Instability of Bitcoin Without the Block Reward [pdf]
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Re: On the Instability of Bitcoin Without the Block Reward [pdf]
#12One of the assumptions the authors make in this paper is that miners can turn their hardware on and off quickly, and that they will benefit financially for doing so. Mainly by paying lower electricity bills. It turns out the really big miners don't pay for electricity the same way you or I do. Big miners sign long term contracts for continuous consumption of energy, and don't save any money for turning mining hardware off for a short duration.
I know one of the authors personally and can try to forward on questions for anyone interested, though they have moved on from academic work so may have limited interest or context.
Re: On the Instability of Bitcoin Without the Block Reward [pdf]
#13I think demand for transactions is an issue. When it fluctuates, miners' earning becomes volatile. Some blockchains, like Grin and Dogecoin, have tail emission. But that's a pretty dumb solution. The reward/supply rate would approach 0. It's effectively the same as zero new supply unless dev teams decide to increase rewards. Changing reward defeats the purpose of decentralization. This problem is prevalent in any lim…
> Inflation discourages hoarding. People have incentives to spend.
I'd rather we use a coin that people want more of (deflationary), rather than a coin people want less of (inflationary). There's no inherent reason we want there to be incentives to spend, unless you're some central planner trying to keep the populace invested in society.
Re: On the Instability of Bitcoin Without the Block Reward [pdf]
#14Sounds like its based on a flawed assumption: "Now, immediately after a block is found, there will be no more transactions in the network to be claimed by a miner making the next block" The fact is there is usually a large backlog of transactions.
This paper was published when there were big fights going on about whether the block size should be increased. Om camp argued for the status quo, which was causing high transaction fees and long backlogs. The other camp argued for a larger block size, which would reduce or eliminate the transaction backlog. Eliminating the backlog was generally considered a good thing, and the arguments were mostly around the block size, but this paper essentially came in and said "wait a minute, we might actually need the backlog once the block reward is 0."
Re: On the Instability of Bitcoin Without the Block Reward [pdf]
#15Why can't Bitcoin simply transition to proof of stake after mining dries up? Once there are few or no bitcoins left to mine then PoW is a lot of ceremony for very little security gain at that point (and perhaps opens up risks that this paper points out).
Re: On the Instability of Bitcoin Without the Block Reward [pdf]
#16Just think how secure Bitcoin will be when we have to Dyson sphere the sun to do the "proof of waste". Uh I meant work. But if the work has value you could sell it for on the side, then it reduces costs of attack, so waste as a feature. I like "proof of wait" for inflation rewards better :). The good news is, we can have other socially enforced consensus networks. (As all blockchain consensus is actually social.) So there's hope for real efficiency, it's just not on version 1 of blockchains. Caveat: I'm biased.
Re: On the Instability of Bitcoin Without the Block Reward [pdf]
#17I think demand for transactions is an issue. When it fluctuates, miners' earning becomes volatile. Some blockchains, like Grin and Dogecoin, have tail emission. But that's a pretty dumb solution. The reward/supply rate would approach 0. It's effectively the same as zero new supply unless dev teams decide to increase rewards. Changing reward defeats the purpose of decentralization. This problem is prevalent in any lim…
> Inflation discourages hoarding. People have incentives to spend. I'd rather we use a coin that people want more of (deflationary), rather than a coin people want less of (inflationary). There's no inherent reason we want there to be incentives to spend, unless you're some central planner trying to keep the populace invested in society.
The whole economy depends on people spending. If everybody starts to hoard currency, economy will implode. That's why deflation is worse than (light) inflation, from an economic standpoint.
Re: On the Instability of Bitcoin Without the Block Reward [pdf]
#18I think demand for transactions is an issue. When it fluctuates, miners' earning becomes volatile. Some blockchains, like Grin and Dogecoin, have tail emission. But that's a pretty dumb solution. The reward/supply rate would approach 0. It's effectively the same as zero new supply unless dev teams decide to increase rewards. Changing reward defeats the purpose of decentralization. This problem is prevalent in any lim…
> Inflation discourages hoarding. People have incentives to spend. I'd rather we use a coin that people want more of (deflationary), rather than a coin people want less of (inflationary). There's no inherent reason we want there to be incentives to spend, unless you're some central planner trying to keep the populace invested in society.
You're comparing want (saving) and utility (spending). They're contradictory. They have different purposes. A functioning money system needs to have:
(1) A Store of Value
(2) A Medium of Exchange
(3) A Unit of Account.
Bitcoin is mostly a Store of Value. It doesn't have the other 2 functions. We can try to fit all 3 into Bitcoin. The Gold Standard failed to do it. The US Dollar system is failing. Bitcoin will likely fail to do it.
Re: On the Instability of Bitcoin Without the Block Reward [pdf]
#19One of the assumptions the authors make in this paper is that miners can turn their hardware on and off quickly, and that they will benefit financially for doing so. Mainly by paying lower electricity bills. It turns out the really big miners don't pay for electricity the same way you or I do. Big miners sign long term contracts for continuous consumption of energy, and don't save any money for turning mining hardwar…
Commercial energy prices do vary throughout the day though, so if they are signing a single fixed price contract per kWh that would miss the opportunity to run older hardware more profitably during cheaper times.
Besides, I doubt miners are keeping going during triad periods.
Re: On the Instability of Bitcoin Without the Block Reward [pdf]
#20[deleted]