Funding of network security with infinite block sizes

[bitlancr]

Wouldn't things be much simpler if Bitcoin inflation were allowed to continue past 21m BTC?

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[ShadowOfHarbringer]

Wouldn't things be much simpler if Bitcoin inflation were allowed to continue past 21m BTC?

[caveden]

Wouldn't things be much simpler if Bitcoin inflation were allowed to continue past 21m BTC?

The whole point of all these discussions is to come up with spontaneous/natural/market-based ways to finance the work that is done for the blockchain, and not just arbitrarly pick some magic numbers or formulas and impose them via the protocol.

The inflation rate is necessarily an "arbitrary formula". Satoshi was wise to put an asymptotic cap on it.

If you use an arbitrary number/formula, there's just no way of knowing if this number really reflects the amount of security the network needs. It's likely to be higher (but it can also be lower), meaning that the resources being spent on such security would be better spent elsewhere (or are not enough). It's the knowledge problem Hayek talks about. You'd have to be omniscient to know what's the optimal formula, and it would need to change constantly.

Finally, inflation is even worse than just an arbitrary transaction fee, as you don't put the load on those who create the load. You force every holder to pay, regardless of how many UTXO they're creating.

[caveden]

This assurance contract theory is interesting, but I don't view merchants themselves doing the pledges.
Perhaps insurance+assurance would work better. The merchant only wants to be sure he won't be defrauded. He pays an insurance contract for his transactions. Insurers want to make sure the network has enough hash rate to make it unlikely that many of their insured transactions get double-spent, so they may start these pledges. Other insurers may contribute.

I don't think merchants themselves would start the pledges because that would involve complex calculations (how much is enough?) whose results would change frequently. Merchants wouldn't want to be bothered with such things.

[bitlancr]

Maybe there is a market-based way to set the inflation rate? Say the BTC transacted (or fees) in a block is low, then newly mined coins could be used to top the reward up to an acceptable amount. The 'acceptable amount' needs to be something high enough to cover the miner's expenses - this could be decided based on the hashrate, perhaps.

The leap of logic here is that More Txs => More Fees though. Of course with the free riders problem, this isn't necessarily the case.

[allten]

Leaned something new today: Assurance Contract

Though I'm still having a difficult time seeing how this
could be implemented in a simple manner for Bitcoin.

There's one idea I've had (I post it here because it seems to relate.....maybe)

I would like the ability to pay fees not just to the miner who solved the block
but to the miners of the following X number of blocks. Doesn't seem to controversial
and easy to implement. Fees are still kind of free and for those that do pay a decent
amount, it would be nice to have a choice to break up those fees over the next
10, 100, 1000, even 10,000+ blocks.

[ShadowOfHarbringer]

Maybe there is a market-based way to set the inflation rate? Say the BTC transacted (or fees) in a block is low, then newly mined coins could be used to top the reward up to an acceptable amount. The 'acceptable amount' needs to be something high enough to cover the miner's expenses - this could be decided based on the hashrate, perhaps.

The leap of logic here is that More Txs => More Fees though. Of course with the free riders problem, this isn't necessarily the case.

Please go find and read 100 threads that have talked about changing the total number of BTC and then come back.

The inflation rate will not be changed. Period.
Deal with it.

[bitlancr]

The inflation rate will not be changed. Period.
Deal with it.

From what I've read, the arguments against increasing inflation just seem to be a fundamentalist "NO - inflation is theft" stance. That may be, but it's also an elegant way to reward the miners - the people who make the whole bitcoin system work. Also, increasing the money supply doesn't always mean inflation... we have an increasing money supply now, and massive deflation!

As someone who's trying to start a business in the bitcoin economy, I just want to make bitcoin the best currency it can be. That means being a great medium of exchange, not just a store of value.

[caveden]

That may be, but it's also an elegant way to reward the miners

Inflation is not elegant at all. It's the worst way to charge people. It's disguised, distributes its load on people who are not creating the load, etc. Even in the context of a voluntary currency, it's almost dishonest. In the context of legal tender, it being theft is not a "fundamentalist stance", it's a fact.

Also, increasing the money supply doesn't always mean inflation...

Sure it does. That's the very definition of monetary inflation.

we have an increasing money supply now, and massive deflation!

You're confusing monetary inflation with price increases.

[bitlancr]

Also, increasing the money supply doesn't always mean inflation...

Sure it does. That's the very definition of monetary inflation.

we have an increasing money supply now, and massive deflation!

You're confusing monetary inflation with price increases.

I mean inflation in this sense:
https://www.google.com/search?q=define%3A+inflation

If the purchasing power of your money is increasing, why do you care about the money supply?

[ShadowOfHarbringer]

Also, increasing the money supply doesn't always mean inflation...

Sure it does. That's the very definition of monetary inflation.

we have an increasing money supply now, and massive deflation!

You're confusing monetary inflation with price increases.

I mean inflation in this sense:
https://www.google.com/search?q=define%3A+inflation

Bitcoin's inflation rate is practically a HOLY rule of Bitcoin.
If you ever try to change it, hard fork, major havoc and panic on the market are unevitable.

So what you are asking for is impossible to do. I for sure, would immediately leave (or rather: switch to the proper fork) after somebody tried to mess with the holy rule.

If the purchasing power of your money is increasing, why do you care about the money supply?

I don't think you understand what "money supply" actually means. Or perhaps you don't understand what money is and what it stands for at all.

[bitlancr]

Bitcoin's inflation rate is practically a HOLY rule of Bitcoin.
If you ever try to change it, hard fork, major havoc and panic on the market are unevitable.

So what you are asking for is impossible to do. I for sure, would immediately leave (or rather: switch to the proper fork) after somebody tried to mess with the holy rule.

I can accept that - and if it were ever to come to a hard fork the majority would win. That's the beauty of Bitcoin, right?

I don't think you understand what "money supply" actually means. Or perhaps you don't understand what money is and what it stands for at all.

Yes, I do. Right now, the money supply of Bitcoin is increasing, and yet its purchasing power is also increasing. We have monetary inflation, along with deflation in real terms.

The point is monetary inflation doesn't imply real inflation.

I'm going to stop there, because I'm feeling like I've hijacked this thread... I'm sure this debate could still be of interest to others in the community, though, particularly those who want to see a flourishing Bitcoin economy, not just a store of value.

[caveden]

I mean inflation in this sense:
https://www.google.com/search?q=define%3A+inflation

On the terminology: https://mises.org/daily/908

[ShadowOfHarbringer]

Bitcoin's inflation rate is practically a HOLY rule of Bitcoin.
If you ever try to change it, hard fork, major havoc and panic on the market are unevitable.

So what you are asking for is impossible to do. I for sure, would immediately leave (or rather: switch to the proper fork) after somebody tried to mess with the holy rule.

I can accept that - and if it were ever to come to a hard fork the majority would win. That's the beauty of Bitcoin, right?

Yeah, you can do that even today - that's the beauty of it. Just fork the code. Or find somebody that can do it for you.
Of course the market would quickly verify your claims and pick a winner.

I don't think you understand what "money supply" actually means. Or perhaps you don't understand what money is and what it stands for at all.

The point is monetary inflation doesn't imply real inflation.

Doesn't matter. The more money are gaining on value, the better. Deflation is good for the economy, contrary to popular beliefs. And Bitcoin will be the perfect proof of that.

[bitlancr]

On the terminology: https://mises.org/daily/908

His arguments seem to be based on an oversimplification, so I'm not sure I buy them. Where does velocity of money and 'real' value of the transactions come in to play?

Yeah, you can do that even today - that's the beauty of it. Just fork the code. Or find somebody that can do it for you.
Of course the market would quickly verify your claims and pick a winner.

Would be a bit pointless to do that without any community support though, right? 

Doesn't matter. The more money are gaining on value, the better. Deflation is good for the economy, contrary to popular beliefs. And Bitcoin will be the perfect proof of that.

That may be true - but I still contend that you can have real deflation alongside monetary inflation (this is evidently true, as it's the situation we're in now). And even then, you still need to figure out a way to pay the miners fairly (the original point of this thread).

On a separate note, consider this:

If you're holding Bitcoins but not spending them, you're still using the services of the bitcoin network. The service being - in this case - storing your captial. You're relying on the activity in the network around you (the miners) to hold the value of that capital. Why shouldn't you pay for that service?

[Peter Todd]

If you're holding Bitcoins but not spending them, you're still using the services of the bitcoin network. The service being - in this case - storing your captial. You're relying on the activity in the network around you (the miners) to hold the value of that capital. Why shouldn't you pay for that service?

It's unfortunate that the economics of the PoW system have a kind of "asymmetrical warfare" aspect to them in that the amount of funds an attacker needs to spend to destroy the system with a 51% attack will always be far less than the value that they have destroyed. It's a simple market cap thing: if we spend 1% of the market cap per year on hashing power an attacker only needs to to spend just over 1% to attack the other 99% of value. Even if you assume the attacker can't rent the hashing power and that mining has a significant capital cost, you're probably looking at something like 5% of the market cap to attack the other 95%

An emergency proof of stake system is a doable option, but getting any of them to work - even the really simple pseudo-PoS idea of just prioritizing based on coin-age spent in the block - without requiring every node to have a UTXO set copy is going to be tricky.

[nevafuse]

The funding of network security is self-regulated via transaction fees.  If the network starts being attacked, people will either try to save it or cash out.  Saving it will mean increased transaction fees to pay for a higher hash rate.  No other mechanism is necessary.  Artificially limiting block size will only cause the network to be overpaying for security which will cause people to leave bitcoin for another currency.

[acoindr]

...

The argument is that unless there is a hard block size limit, miners are incentivised to include any transaction no matter how small its fee because the cost of doing so is practically zero (less than a microdollar, according to Gavins calculations). Therefore if a bunch of transactions stack up in the memory pool that pay a smaller percentage than "normal", some miner will include them anyway because it costs nothing to do so and maximizes short term profit. Hence, you get a race to the bottom and you need some kind of hard network rule saying you can't do that. We already have one in the form of block byte size, so the debate becomes "let's keep the size limit" vs "let's remove it".

Hang on a second. Am I missing something? I don't think miners need a hard block size limit to have incentive to stop accepting transactions. They will do so because there is always a time limit.

The difficulty target is adjusted to regulate time between blocks, and results in a target with a probability a correct hash will be found within a certain time (regardless the total hashing power of the network). Every second a miner waits to include more transactions in their block the probability is increased a competing miner will find a correct hash for their own block.

When the network receives more than one valid block version within close time proximity it holds both and waits to see which is extended longest breaking the tie. Again, every second a miner waits to announce a block it increases the chance their found block won't be permanently regarded as valid. Physical block size is not a factor in that, and miners will naturally stuff their block with most profitable transactions first.

[justusranvier]

Hang on a second. Am I missing something? I don't think miners need a hard block size limit to have incentive to stop accepting transactions. They will do so because there is always a time limit.

The difficulty target is adjusted to regulate time between blocks, and results in a target with a probability a correct hash will be found within a certain time (regardless the total hashing power of the network). Every second a miner waits to include more transactions in their block the probability is increased a competing miner will find a correct hash for their own block.

When the network receives more than one valid block version within close time proximity it holds both and waits to see which is extended longest breaking the tie. Again, every second a miner waits to announce a block it increases the chance their found block won't be permanently regarded as valid. Physical block size is not a factor in that, and miners will naturally stuff their block with most profitable transactions first.

This is exactly true, and rather obvious.

The fact that solutions are being proposed to a problem that can be so trivially shown not to exists calls into question the real motives of the people pushing said solutions.

[acoindr]

Hang on a second. Am I missing something? I don't think miners need a hard block size limit to have incentive to stop accepting transactions. They will do so because there is always a time limit.

The difficulty target is adjusted to regulate time between blocks, and results in a target with a probability a correct hash will be found within a certain time (regardless the total hashing power of the network). Every second a miner waits to include more transactions in their block the probability is increased a competing miner will find a correct hash for their own block.

When the network receives more than one valid block version within close time proximity it holds both and waits to see which is extended longest breaking the tie. Again, every second a miner waits to announce a block it increases the chance their found block won't be permanently regarded as valid. Physical block size is not a factor in that, and miners will naturally stuff their block with most profitable transactions first.

This is exactly true, and rather obvious.

The fact that solutions are being proposed to a problem that can be so trivially shown not to exists calls into question the real motives of the people pushing said solutions.

I think that's rather harsh. People are processing Bitcoin problems (scalability, block size, etc.) in different parts, from different aspects, and with differing information. I don't think calling anything obvious is fair.