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Author Topic: properties of an ideal digital money/commodity  (Read 4280 times)
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January 27, 2011, 02:43:41 AM

Fees will not work because they are easily circumvented by pooling and doing back-end bookkeeping, such as mybitcoin already does now. What will really happen--and this would be more fair than transaction fees--is miners will collectively decide to continue generating (and accepting) new coins past the 21 million limit set by Satoshi.

At first this seems like it is breaking a core principle of bitcoin, but it is completely within the spirit of bitcoin. The new dynamic inflation rate will be reached based on the agreement of 51% of CPU power. If miners set the inflation too high, the currency on that high-inflation chain will lose credibility, thus the return for miners will lose real value. If miners set the inflation too low, you have the original problem of insufficient mining activity. So the end result will be a fair inflation rate that coin users can live with and miners will work for.

It deserves a discussion on what happens when the chain branches:

Let's say I branch the chain today to provide a bigger reward for new blocks, say 100 BTC. Then you'll have 2 chains: the main chain and the new chain. At this point, all coins in current and future existence will fall into 3 categories:
(1) valid on both chains (default, all previous coins are valid on both chains)
(2) valid on only the main chain (coins generated on main chain, 50 BTC reward) and
(3) valid on only the new chain (coins generated on new chain, 100 BTC reward).

The price of BTC is currently 0.40 USD. The price for type (1) coins will remain at 0.40. The SUM of the price for type (2) and type (3) chains will equal 0.40 USD. The difference in prices in type (2) and (3) coins will determine which chain the market eventually accepts.

So... for right now, we don't need to do anything. But when the major mining software makers decide to allow different block rewards other than the 50 BTC, 25 BTC ladder set up by Satoshi, then we will have to reprogram the regular clients to deal with branched chains gracefully and communicate to the user which branches their coins belong to.
"Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own." -- Satoshi
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January 27, 2011, 03:44:12 AM

Having two chains purporting to be the "real Bitcoin chain" will be really messy, and I think the market will avoid taking that step unless the subsidy ends up being very wrong. It could happen, though. I'd prefer to anticipate the future market as much as possible in order to avoid that.

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Won't the market regulate the fee by itself and provide enough computational power in doing so?

Not really. The block subsidy is a mandatory tax on all bitcoins, whereas the transaction fee is controllable by senders.

Right now the network is paying for 50 BTC of mining per block (not counting fees). If we instead pay 25 BTC per block, then we will get less computation, and we will be that much more vulnerable to attack. The reduction in computation happens because everyone who does not make 25 BTC of profit right now is eliminated after the reduction.

If there is no subsidy, then there will need to be 500 transactions (with 0.01 fees) per minute for the network to get the same amount of computation that a 50 BTC subsidy would buy. Otherwise, the computation provided by miners will be reduced because blocks will be worth less and people will be eliminated from the market.

This entire issue may be meaningless if it turns out botnets can compete against custom hardware, since botnets have no cost and will mine for nearly any amount.

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January 27, 2011, 05:38:34 AM

I just had an idea. It's probably not a possible change, but maybe, interesting anyway.

Right now you only pay to get your tx included in the chain, but the tx benefits in terms of security for every block added after it.

It would be cool if when you paid a fee it went half to the miner who included it, 1/4 to the next block finder, 1/8, 1/16 until below some limit. This way each user can increase the incentive to put his block deeper and deeper, potentially for a while, but still for a finite fee.

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