How much money does it cost to cover Bitcoins security needs?

[Quantus]

  
  I"m bad at math and I'm just doing this in my head. so... Some input would be nice.

  So... 24 hours in a day, 60 minutes in each hour, gives us 1440 minutes per day, every 10 minutes a block is mined for a total of 144 blocks a day with a reward of 25 bitcoins for each block, for a grand total of 3600 bitcoins per day. At the current price of bitcoins $400 that's 1 million 440 thousand dollars each day we spend on securing our network. The current market cap of all bitcoins currently distributed is 6,138,792,511 USD.


So we are paying 1.4 million dollars a day to protect 6.1 billion dollars in total value? Not bad I guess but what happens when the price of bitcoin goes up and the block rewards go down?

Lets do this again but this time lets make the price per bitcoin 1,000 dollars and the block reward 12.5 bitcoins.  


  So... 24 hours, 60 minutes, 1440 minutes in a day, 144 blocks a day but this time only 1800 bitcoins are produced worth 1.8 million dollars but now the market cap its protecting is much higher, 15 billion dollars minimum and much more as bitcoins are released.


What happens when bitcoins are worth 10,000 or 100,000? Will it be enough to secure our network when block rewards fall to 3.125 bitcoins?

144 blocks * 3.125 is only 450 bitcoins per day to pay for our network. Currently transaction fees are less then 1% of where they need to be to maintain our current level of security after the halving in just 21 weeks.

The cost of performing a single block double spend is proportional to the mining reward.  

[Quantus]

 Its even more messed up when you start to think about colored coins being used to represent stocks raising the market cap even higher.

 I mean if you think about it we can never truly know Bitcoins true market cap because we can't know what ownership rights Bitcoins securing for 3rd party companies.

[Cconvert2G36]

Currently, counting inflation, it costs about $5-6 per transaction to secure the network.

If you want security to stay the same or greater going forward... either the blocksize needs to increase (segwit is a complicated accounting trick method to increase the blocksize while giving a discount to signature heavy tx's), and/or you need to use another system that might aggregate and settle on the blockchain (which has become expensive to use natively).

Or... you use one of the myriad of altcoins and altchains that are in fierce competition to steal market share from Bitcoin.

Tick tock.

[It's does, not dose.]

[xqus]

So we are paying 1.4 million dollars a day to protect 6.1 billion dollars in total value? Not bad I guess but what happens when the price of bitcoin goes up and the block rewards go down?

We are not paying the block rewards. They are created. We are only paying for the electricity to run the miners. Witch would (for the miners sake) hopefully be lower.

[Quantus]

So we are paying 1.4 million dollars a day to protect 6.1 billion dollars in total value? Not bad I guess but what happens when the price of bitcoin goes up and the block rewards go down?

We are not paying the block rewards. They are created. We are only paying for the electricity to run the miners. Witch would (for the miners sake) hopefully be lower.

But we are paying for it threw inflation, it devalues the coins we hold. The persons who hold more coins lose more value then those who hold fewer coins so its uneven across the user base but the user base dose in the end pay for it.

[franky1]

   I"m bad at math and I'm just doing this in my head. so... Some input would be nice.

  So... 24 hours in a day, 60 minutes in each hour, gives us 1440 minutes per day, every 10 minutes a block is mined for a total of 144 blocks a day with a reward of 25 bitcoins for each block, for a grand total of 3600 bitcoins per day. At the current price of bitcoins $400 that's 1 million 440 thousand dollars each day we spend on securing our network. The current market cap of all bitcoins currently distributed is 6,138,792,511 USD.
So we are paying 1.4 million dollars a day to protect 6.1 billion dollars in total value?

no "we" dont spend it.. that fund is CREATED out of thin air. (minted by miners)

Not bad I guess but what happens when the price of bitcoin goes up and the block rewards go down?

Lets do this again but this time lets make the price per bitcoin 1,000 dollars and the block reward 12.5 bitcoins.  

  So... 24 hours, 60 minutes, 1440 minutes in a day, 144 blocks a day but this time only 1800 bitcoins are produced worth 1.8 million dollars but now the market cap its protecting is much higher, 15 billion dollars minimum and much more as bitcoins are released.

What happens when bitcoins are worth 10,000 or 100,000? Will it be enough to secure our network when block rewards fall to 3.125 bitcoins?

144 blocks * 3.125 is only 450 bitcoins per day to pay for our network. Currently transaction fees are less then 1% of where they need to be to maintain our current level of security after the halving in just 21 weeks.

transaction fee's are not important..
your own maths has shown that after the reward halving the price of bitcoin can speculate upto $1000.. giving miners $1.8mill a day instead of $1.4m

just because its only $400k more(28%) doesnt mean that the security is going to suffer only a 28% increase.
the cost of running a miner gets cheaper. and every 2 weeks the difficulty(security) jumps ~5%- ~10%
in 21 weeks the difficulty(security) will be 50%-100% higher, without it costing miners much more. due to costs of miners decreasing while hashing power of miners increases..

EG 6 years ago 3 GPU giving 30Mhash cost $1000,  3 years ago a 60,000Mhash miner cost $1000. now a 4,800,000Mhash miner costs $1000

so relax. there are MANY different things that come into the equation. transaction fee's will not be important for a few decades.

[franky1]

But we are paying for it threw inflation, it devalues the coins we hold. The persons who hold more coins lose more value then those who hold fewer coins so its uneven across the user base but the user base dose in the end pay for it.

out of 15mill coins.. 25 new coins every 10 minutes. equates to a $0.06 inflation value deduction.

now if there was no speculation, no increase of demand. no other outside forces affecting the price positively then yea the price would decline by 0.06c every 10 minutes..

but bitcoin has 140,000+ merchants(and growing). it has 2million-6million users (and growing)
the demand vs supply offsets the short term inflation because everyone who knows bitcoins understands the long term deflation and scarcity is a factor that over powers the short term inflation of bitcoin.

EG every 4 years there is a 200% deflation.
every 10 minutes there is a 0.000166667%¹ inflation which equates to 35%² every 4 years
¹ (100% / 15m) * 25
² 0.000166667% * 210000 (4 years of blocks)

so 200%positive outways 35% negative

[Quantus]

If your math is right then yes I agree with what you said but that dose not mean what i said is false.


We do pay for our security whether we feel it or not.

[franky1]

If your math is right then yes I agree with what you said but that dose not mean what i said is false.


We do pay for our security whether we feel it or not.

at 8% inflation per year, but then theres the deflation at 50% a year that offsets it. so we are at a +42% economy. which is overal deflationary. so its not really costing us at the moment..

the reward halving will continue until your grandchildren are at retirement age so there will always be a 50% a year deflation for as long as you will be alive.
but. as of summer 2016. only 12.5 bitcoins will be minted which brings inflation down to 17.5% and thats without factoring in that there will be 15.75mill bitcoins instead of 15mill.. (actual maths is 16.6% inflation per 4 years... while deflation remains at 200%)

then in 2020 when there are 18375000 inflation of 6.25btc would be 7.14% per 4 years... while deflation remains at 200%

[Quantus]

But cutting the rate of inflation is not deflation, its just a lower rate of inflation.

[7788bitcoin]

So we are paying 1.4 million dollars a day to protect 6.1 billion dollars in total value? Not bad I guess but what happens when the price of bitcoin goes up and the block rewards go down?

We are not paying the block rewards. They are created. We are only paying for the electricity to run the miners. Witch would (for the miners sake) hopefully be lower.

But we are paying for it threw inflation, it devalues the coins we hold. The persons who hold more coins lose more value then those who hold fewer coins so its uneven across the user base but the user base dose in the end pay for it.

As the coins are being constantly created (at a rate of 25 BTC/10minutes), the price of bitcoin didn't go down constantly. We all started with 21 millions coins and miner just release them from the protocol as the time goes.

[Quantus]

So we are paying 1.4 million dollars a day to protect 6.1 billion dollars in total value? Not bad I guess but what happens when the price of bitcoin goes up and the block rewards go down?

We are not paying the block rewards. They are created. We are only paying for the electricity to run the miners. Witch would (for the miners sake) hopefully be lower.

But we are paying for it threw inflation, it devalues the coins we hold. The persons who hold more coins lose more value then those who hold fewer coins so its uneven across the user base but the user base dose in the end pay for it.

As the coins are being constantly created (at a rate of 25 BTC/10minutes), the price of bitcoin didn't go down constantly. We all started with 21 millions coins and miner just release them from the protocol as the time goes.

The price dose not go down because we have value flowing into the bitcoin community buying up 1.4 million dollars worth of bitcoins every day.
We did not start with 21 million that's not how it works.

[franky1]

But cutting the rate of inflation is not deflation, its just lower rate of inflation.

lol deflation is 50%.. inflation is 8.75% a year...
its the inflation that is cutting the rate of deflation, so its just a lower rate of deflation EG 41.25% a year deflation. (instead of 50%)

and after summer its 50% deflation per year but 4.375 inflation per year.. (without factoring in circulation to cause lower inflation)
which is 45.625% deflation

The price dose not go down because we have value flowing into the bitcoin community buying up 1.4 million dollars worth of bitcoins every day.

and thats some of the other factors of supply and demand that helps the speculative price stay up.. which also counters inflation.
there are not just 2 things to factor in. there are several.. but primarily its the overal deflationary nature that makes people not even bothr caring about the short term inflation.. and then its the supply and demand..

put it this way.. inflation alone would make the price drops by 6 cents every block if there was no demand, no speculation and no scarcity. but all the positives are soo positive that inflation is not really even considered to be a point to think about

[Quantus]

Wut?

Ok but Bitcoin in its current state with Block rewards is a inflationary currency period. End of line. Bitcoin will be inflationary until all block rewards are removed in what 140 years?  

Just because you reduce the rate of inflation dose not mean your now deflating the currency. Bitcoin will only become deflationary when people begin to lose bitcoins faster then they are created. 

[franky1]

Wut?

Ok but Bitcoin in its current state with Block rewards is a inflationary currency period. End of line. Bitcoin will be inflationary until all block rewards are removed in what 140 years?  

deflation outweighs inflation.. do the maths atleast.

[Quantus]

I don't understand your logic at all

I thank you for responding I think most people have me blocked at this point.

I just don't understand how we can grow our market cap and reduce our spending and yet somehow say we are just as secure as we were when we started.

I don't see any deflation only lower and lower rates of inflation.  If you hold bitcoins your paying for its security whether your using it to transact or not.

You can't say its deflation just because you cut the rate of inflation by 50% every 4 years, its still inflation just a lower rate of inflation.

I mean theoretically if we hit the 21 million cap and we didn't change anything and if theoretically no one lost any coins then it would be inflationary/deflationary neutral.  

Bitcoin is not deflationary in its current state and in a perfect world were no one ever lost bitcoins or destroyed bitcoins on purpose it would never be deflationary.

Its like this, were in a hot air bloon right, and I'm like "hey were low on fuel"  and your like "don't worry hot air raises and we have sand bags we can drop."  OK you make valid points but were still running out of fuel.

[funkenstein]

 
  I"m bad at math and I'm just doing this in my head. so... Some input would be nice.

  So... 24 hours in a day, 60 minutes in each hour, gives us 1440 minutes per day, every 10 minutes a block is mined for a total of 144 blocks a day with a reward of 25 bitcoins for each block, for a grand total of 3600 bitcoins per day. At the current price of bitcoins $400 that's 1 million 440 thousand dollars each day we spend on securing our network. The current market cap of all bitcoins currently distributed is 6,138,792,511 USD.


So we are paying 1.4 million dollars a day to protect 6.1 billion dollars in total value? Not bad I guess but what happens when the price of bitcoin goes up and the block rewards go down?

Lets do this again but this time lets make the price per bitcoin 1,000 dollars and the block reward 12.5 bitcoins.  


  So... 24 hours, 60 minutes, 1440 minutes in a day, 144 blocks a day but this time only 1800 bitcoins are produced worth 1.8 million dollars but now the market cap its protecting is much higher, 15 billion dollars minimum and much more as bitcoins are released.


What happens when bitcoins are worth 10,000 or 100,000? Will it be enough to secure our network when block rewards fall to 3.125 bitcoins?

144 blocks * 3.125 is only 450 bitcoins per day to pay for our network. Currently transaction fees are less then 1% of where they need to be to maintain our current level of security after the halving in just 21 weeks.

I am happy to see more people are asking this question. 

One point is that there is no need to convert to another currency to analyze the situation.  The current "security spending" as you put it, which is basically the cost of double spending or 51% style atacks, is 3600 bitcoins per day.  That would be true if they were worth 10 or a million funbucks each on exchanges.

Conversion becomes necessary when one needs to consider if this security is enough to move X funbucks anonymously, etc. 

The big question mark, as you have noted, is the fee.  The fees will have to jump to maintain the security, no question about it.  Can they?  Will people find ways to still use the coin?  The answers aren't clear in my mind, as there is interplay with payment services, altcoins, and other factors.  You might be interested to read the woodcoin whitepaper which addresses this issue, but I don't have any answers for you sorry    
 

[Quantus]

Oh shit, this guy gets it! I read the paper on WoodCoin I don't understand the math but I do understand what their trying to do.

Ultimately the price people are willing to pay for one bitcoin dose not matter as you say, I would also wager the price of mining hardware, the price of electricity or the efficiency of hardware all have absolutely nothing to do with the simple fact that block rewards are proportional to our level of security period. What I'm asking is how much money do we need to spend proportional to our market cap (ultimately unknowable) to ensure our long term security.
Ultimately it dose not matter if we have 10 users or a billion users the true minimum possible cost to ensure our security must be pinned down so we can determine minimum transaction fees going forward.
We need to give this number a name and continue this discussion because it plays a part in the block size debate.

Edit: i think we should call this number the Quantus

[funkenstein]

Well thanks  I'm not sure I get it though.

The "Quantus" appears to be..  difficult to quantify.  

Like many issues in security..  it's not clear how much is needed until it is too late.  

For some things, as Schneier says: commerce is strongly resistant to security holes.  In other words: people want to make it work.  One need look no further than legacy or fiat systems to see this is the case.  These systems have no public confirmations, are counterfeitable, are often "pull" type, etc. etc.  Security seems absent.  Yet people make it work.  For the most part people want to pay and do business, so they will make it work even when the Quantus is not reached.  

On the other hand, trustless transactions will need to have some estimate of the quantus.  Exchanges need to make a decision about how many confirmations to require.  

To quantify the quantum quantus is a noble endeavor!  


For some of my related thoughts on the matter:

http://frass.woodcoin.org/godzilla-vs-the-51-attack/