Bitcoin Forum

Why was Bitcoin designed in such a way that the rewards from mining decrease over time?

The current system is designed to give a lot to very few in the beginning
and then continue to give less and less rewards as the network grows.

After N years, who makes up the backbone of the network? The first few (assuming they didn't cash out)? Or the thousands or millions of new miners? That's a rhetorical question by the way.

A system in which the reward increases over time (relative) could still be designed in such a way to benefit the early adopters and at the same time spread the wealth among more users (I don't have a specific proposal off the top of my head before someone asks). But maybe such concept was beyond the brilliant mind of Satoshi.

I believe the S-curve would be the most fair reward model for a crypto currency
X-axis = time
Y-axis = block reward

Phase 1: few early adaptors, low reward totally but still huge reward per miner
Phase 2: many new users and higher reward, still huge reward per miner
Phase 3: stabilization and curve going down to low inflation, many miners and users, low reward per miner

http://upload.wikimedia.org/wikipedia/commons/thumb/8/88/Logistic-curve.svg/600px-Logistic-curve.svg.png

Number of total miners:
http://upload.wikimedia.org/wikipedia/commons/thumb/6/64/Exponential.svg/718px-Exponential.svg.png

Or maybe you're just butthurt you didn't start mining in 2011.

Which do you think is most likely?

Minors will always collect transaction fees. In the future, the transaction fees will become a bigger part of the block reward.

Without decreasing rewards bitcoin wouldn't be deflationary; we would all be a lot poorer. Decreasing rewards boost the price, and in turn increase rewards relative to fiat currencies.

The optimal crypto currency should have a built in algorithm for price stability, just like central banks try to target 1-2% inflation.

It can be done by letting an algorithm base the reward on:
*number of transactions per day
*number of addresses
*number of miners
*price of XYZ_Coin vs XAU...

Bitcoin isn't deflationary, it's inflationary because new coins are always being generated by PoW. Please stop spreading that meme.

Yeah, good luck with designing that algorithm ...

Or we could assign Ben Shalom Bernanke as the chairman of Central Bank of Bitcoinistan to handle the monetary policy of Bitcoin. Central banks are not as bad as people in this forum believes, the Fed has actually been pretty good at keeping prices of goods in USDollars more or less stable year to year.

Bitcoins aren't "given" to anyone. Ask any bitcoin miner, and they will tell you that it takes a lot of time, effort, and money to earn just a tiny share of the block reward. It has been that way since the beginning. No miners have gotten rich from mining, and they never will.

The people that have gotten rich are the people that have accumulated bitcoins regardless of whether they mined them, traded for them, or earned them. What you are really complaining about is the fact that some people risked their time and money on Bitcoin, and that they have been rewarded for that risk.

No, I'm not talking about the people who accumulated bitcoins by trading or earning them. I'm talking about rewards from solving blocks. And my point was... it didn't take much time or effort or money to mine blocks # 1, 2, 3...

Yes, NOW it takes a lot of time, effort, and money to mine a small amount a of bitcoin.

So looking at historical data up to this point, one could say, in essence, that the system was setup to:
A) give big rewards for putting minimal time, effort, money into mining
B) give small rewards for putting a lot of time, effort, money into mining

as time went on. Why was time chosen to be a variable?

I hope you were being ironic, but I fear not ..... you want the Fed to control the price of bitcoin? Let me out of here  :o

Perhaps Bitcoin would have never bootstrapped had the reward scheme been different than Satoshi's? Perhaps something as new and different as Bitcoin needed a group of early adopters who would keep pushing regardless of how many times they were told, "It will never work"? Perhaps they needed a reason beyond simply shaking things up? Perhaps profit is fantastic motivation to succeed?

+1

The proof is in the bitcoin pudding :)

You're welcome to make your own version if you don't like this one.  It was designed this way because the designer thought it was a good idea, so he tried it out.  Try yours out and see how it goes.

You are correct that it didn't take much time and effort to mine the earlier blocks, but you are missing a very important point. The value of the bitcoins in block 1, 2, and 3 were 0. In fact, the first 70,000 blocks were worth nothing because the value of a bitcoin at that time was 0. You are complaining that it isn't fair that a group of people were able to spend a bunch of time, effort and money mining worthless bitcoins.

Consider Laszlo Hanyecz, who paid 10,000 BTC for two pizzas in 2010. At that time, it would have taken weeks to mine those 200 blocks. Are you are saying that it is not fair that he was able to mine $20 worth of bitcoins in a few weeks?

So true. Its like people mining altcoins now. Solving "puzzles" very quickly but for little reward. Just like it was in the early bitcoin days. There's nothing inherently unfair about it. Seems a pretty decent system to me.

Or, it's good to be king. And maybe one of his commanders. The rest, not so much.

I don't know how much time Satoshi spent thinking about the coin distribution, but it seems rather obvious (only in hindsight? nah) how it would play out were bitcoin to become successful. But, you know, he deserves to be king since he said "let there be light." Anyways...

True, if you define stable to mean losing 95% of its value in a human lifetime (my grandmother live to be about 100).  Ditto for the Canadian dollar etc. Or half it's value in 20-25 years.

Someone had to say it :)

Duh the dollar's been worth $1 for forever now.

The very first users, when trying Bitcoin for the first time, were not aware that it was going to become what it is today - they put in time, effort and risk when no one else would.

yes but the Bitcoin is worth 25

Has that been proven?

Seems to me that with inflation, people hold as cash balances less than the amount that they would otherwise. Hence, it's suboptimal from their point of view. What other factors do you know of that exactly offset that effect? Or are you just talking out of your ass?

Also, who gets the 1-2% new money? The government? How do we know that they will spend the money efficiently?

Nope, just another economic  theory, and we all know how many of them float around the planet

Another "I believe it is not fair" thread. It's never easy to make money. If it was, everybody would be rich. Bitcoin shouldn't be a vehicle that make people rich, it's an instrument to make payments and maybe store some value. The early adopters and developers got their fair share, that easy block reward was just their income paid for the time and money they put into it. The protocol as it is works fine until now, and if the decreasing rewards will fail in the future then so be it. Some other better crypto currency will pick up where Bitcoin left off. Maybe crypto currencies will fail all together.


Make a new one, or continue to use Bitcoin for payments or make some awesome new application for it.

OP: I think your question is perfectly fine asking why the reward is chosen as it is, but maybe you should leave out the "it's unfair" part.

FTFY

:-)

Cheers, your fix is welcomed and appropriate. That pic above is rather beautiful :)

The backbone of the network would still be made up of miners, who would mine in return for tx fees.

Because mining is not the way to get rich ...  ;D
"Mining" is the way to store and validate transactions !

LOL

NO MINERS HAVE EVER GOTTEN RICH BY MINING




FUCKING TROLL

Should be able to send people back the newbie only area.

What was the risk associated with mining the first blocks? A couple of minutes of personal time wasted, a couple of minutes of wear and tear on CPU, a dollar spent on electricity?

Man, that is a huge risk. I'm glad it paid off.  ;D

I'm not butthurt. I was never interested in mining personally and do not mine any alt coins now.
I'm interested in the design choices and the motives behind them.

Don't be such a huge p**** please. Have you ever invented the idea of a crypto-currency that could change the way the world uses money? Nope, I didn't think so. Rewards are due to innovators, especially if what they produce actually works in the real word.

It wasn't risk, it was genius.

Most of know (or should) what the rules were when we started to "play". Early adopters/miners who built this thing to what it is now took a huge leap of "faith" or interest or sheer force of believing in something until it was true.

We're late, we have to suck it up.

Ooor we're still early there is plenty of room for opportunity (just not in mining for us little guys ;-)

But I value Bitcoin as a store of wealth, and it can be used as a transaction system as well. Better than inflationary currency

You are missing an important point. Even though the cost was small, the risk was huge.

Let me ask you this: why don't you start your own alt coin and start mining it? After all, it takes very little effort -- even less now because everything is already done for you. You stand to make billions of dollars! Not interested? Why not?

$100 in electricity per month for something that might never be worth anything?

Not selling the mined coins at $0.0001
Not selling the mined coins at $0.001
Not selling the mined coins at $0.01
Not selling the mined coins at $0.1
Not selling the mined coins at $1
Not selling the mined coins at $10
Not selling the mined coins at $100
Not selling the mined coins at $1000

At every price increase, there is a risk that a bitcoin would never be worth more. At some point along the way, for most early miners, that risk became "huge".

Anyway, Bitcoin is where it is today thanks to the early adopters. If the reward schedule was different, you may have never heard about the failed experiment called Bitcoin.

Save the world.

















From the idiocraty of bank strategies.

A CPU uses around the same amount of electricity as an incandescent lightbulb. More like $5-10 a month.

How about all the time writing the original code - that is "risk" in terms of time spent that could have been used to do other things / earn money.

Yes but the transaction fees will be no where near enough to make up for the difference in the lower block reward. THUS, it works like a ponzi. Either the price of bitcoin has to go up a bunch, or miners have to shut down because they can no longer pay their electric bills on a 1 coin/block. Then since they shut down their miners, the network shrinks and because unsecure and open to attack by anyone who decides to flip on their asic farm that they had previously shut down.

How do you know how many fee including transactions will be included in blocks found years from now?

Nobody knows how much transactions fees will generate in 5 years time. One of the many mysteries of bitcoin that only time can unravel.

For the O.P.
This was an interesting video.

http://www.youtube.com/watch?v=bTPQKyAq-DM (http://www.youtube.com/watch?v=bTPQKyAq-DM)

So, we figured out that life is not fair and those who risk first and most usually reap greater rewards.

It must suck to feel like a spoiled entitled victim (child) all the time.

How do those people even function in society?

There is no rule, law or right that miners have to get money only because the fact they are mining. So the price of Bitcoin doesn't have to go up. That's ridiculous. The number of miners will always be a balance between the money that can be made by mining and the costs of equipment, electricity, space, and expertise.

I don't think he thought through his argument ... at all :)

Deflation is about value not supply.  The number of Bitcoins is completely irreverent.
Here is a quote from wikipedia "deflation increases the real value of money"
http://en.wikipedia.org/wiki/Deflation
Time and time again we see Bitcoiners talking about economics like they are qualified and have a degree.

Perhaps an example will help you understand:
In Janurary 2013 a loaf of bread cost 1 USD
100 USD would buy you 100 loaves of bread
1 Bitcoin would buy you 13 loaves of bread

In Janurary 2014 a loaf of bread now costs 2 USD
100 USD will buy you 50 loaves of bread (you get less for your money - inflation)
1 Bitcoin will buy you 500 loaves of bread (you get more for you Bitcoin - deflation)

Hope this helps.

With price stability I refer to the price today compared to one year ago, not 100 years ago.
To save all your fiat-money in 100 years is foolish, money is meant to be spent or invested in something with long term value or an asset which pays dividend, for example bonds, gold, stocks or real estate.

The lack of price stability in bitcoin is unacceptable since the BTC price goes up and down several % every day, and some days even drop with 50% or double in price.

What's unacceptable to you is obviously acceptable to a growing number of people on the planet.

Agreed.  Here is a voice of reason!
"What's unacceptable to you is obviously acceptable to a growing number of people on the planet."

The volatility of bitcoin is nice for speculators, but not so fun for commerce since you can't hedge the currency risk of BTC/USD when you sell stuff for BTC.

volatility is the mt.gox bot.

on others places, btc is very stable less than 50 euros in 1 month.

btc-e has more bots running than gox

The more intelligent humans accepting Bitcoin for purchases use a payment processor to instantly convert all Bitcoins they do not want to save into Fiat Currency at the time of sale/payment, which completely removes the concern you mentioned.

a burned out CPU/bus??

The difficulty of mining should adjust more smoothly than that. I doubt we'll see a sudden drop in difficulty due to a lot of miners giving up. New miners will stop joining the system because it won't be profitable enough to invest in new hardware. Old miners will tend to keep going, because they've already paid for their hardware. The ones who give up, because they can't even afford their electricity bills, will be the ones who have the least efficient hardware, so they will tend to be the ones who were making least contribution to the network, so their quitting won't have much impact. And of course, as each one quits, the remainder become more profitable.

Also, as transaction volume increases, the transaction fees per block will increase. This is for two reasons. First, there will be more transactions in each block. Second, there will be more users competing for the space in each block, so there will be more incentive for users to offer higher fees so their own transactions get processed quicker. So as long as Bitcoin is successful, there should be enough reward for mining to keep enough miners at it to discourage 51% attacks.

(Personally, I think governments and large companies will eventually start mining themselves, not for block rewards but as a kind of public good. America will want to be sure Russia can't mount a 51% attack. Microsoft will want to be sure Google can't mount one. One day, they will all be dependant on Bitcoin remaining healthy.)

I started mining in 2011, I am not rich so what's your point? Sure, I made 100 btc but this was play money at the time, now I have just 1-2BTC. Again, what of it?

Where did your 100 BTC go?  Play money?  It has never been play money, you sound like that guy from Wales that threw out his hard disk drive, along with 7500 bitcoins worth millions of dollars.
http://www.theguardian.com/technology/2013/nov/27/hard-drive-bitcoin-landfill-site
Clearly you never got what Bitcoin is about, and apparently you still don't.

If the crypto doesn't reward high in the beginning, not many people will mine it. So to gain as many miners as possible, they keep high rewards in the beginning.

A better solution would be, to increase the reward as more and more people join in. So, people would ask their friends to join in and so on,.