"Surprisingly, Tail Emission Is Not Inflationary" -- A post by Peter Todd

[Vlad BTCTKVR]

I've interviewed Peter about it, hope some of his answers contribute to this debate. Wish I read Greg's reply before hitting the "record" button 

YouTube video: https://youtu.be/27Bp9ZU2KWw

Audio podcast (no registration required, use Tor browser for privacy): https://bitcoin-takeover.com/audio/?name=2022-07-25_s11_e11_peter_todd_on_bitcoin_inflation__lightning__privacy.mp3

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[werghb4562]

If proponents of perpetual debasement actually believed that such a scheme would result in more security they would fork off. The fact that they are not even considering it shows that they know such a fork would fail.

[larry_vw_1955]

If proponents of perpetual debasement actually believed that such a scheme would result in more security they would fork off. The fact that they are not even considering it shows that they know such a fork would fail.

i dont think bitcoin should be changed to have debasement but i also didn't like the idea that miners going to need to have higher transaction fees to maintain their income. who wants to have to pay higher transaction fees? they will just use something else if the fees gets too high, i would anyway. unless i was under some idea that the purpose of bitcoin is to hold it forever until it goes way up and then dump it.

[tadamichi]

If proponents of perpetual debasement actually believed that such a scheme would result in more security they would fork off. The fact that they are not even considering it shows that they know such a fork would fail.

i dont think bitcoin should be changed to have debasement but i also didn't like the idea that miners going to need to have higher transaction fees to maintain their income. who wants to have to pay higher transaction fees?

Debasement doesn’t reduce fees tho, these two aren’t correlated. You would pay the same fees, regardless of debasement or not. The concern of some people is that transaction fees alone wouldn’t be enough to compensate miners and thus secure the network.

Reducing fees wouldn’t be that simple, you need to let more transactions in. But this comes at the cost of decentralization, depending on how much throughput you let in, because it becomes much harder to run a node. And if blockspace isn’t scarce enough, transactions fees are less likely to be enough to compensate miners, because it’s based on a fee market.

they will just use something else if the fees gets too high, i would anyway.

Lightning or sidechain proposals that will likely come in the future. Lightning is more suited for daily payments anyways, because of the speed of transacting. But this doesn’t mean the actual chain becomes unusable for other kinds of transactions, even if the fees ar higher. Different kind of transactions require different levels of security.

unless i was under some idea that the purpose of bitcoin is to hold it forever until it goes way up and then dump it.

It’s not.

[dkbit98]

I've interviewed Peter about it, hope some of his answers contribute to this debate. Wish I read Greg's reply before hitting the "record" button  

I appreciate your effort, but instead of interviewing only Peter Todd it would be much better if you called someone else to join who thinks tail emission is a bad idea,
that way we could have a both sides talking about this and we could get a better idea of all the pros and cons for this proposal.
Maybe gmaxwell would be good candidate and he posted his views in this topic, but I am sure there are others you could call.

[larry_vw_1955]

Debasement doesn’t reduce fees tho, these two aren’t correlated. You would pay the same fees, regardless of debasement or not.

I don't know about that.

The concern of some people is that transaction fees alone wouldn’t be enough to compensate miners and thus secure the network.

That's a pretty generic statement. How would we know if the transaction fees were not compensating miners enough? Would a red light pop up on peoples' bitcoin core?

Reducing fees wouldn’t be that simple, you need to let more transactions in. But this comes at the cost of decentralization, depending on how much throughput you let in, because it becomes much harder to run a node. And if blockspace isn’t scarce enough, transactions fees are less likely to be enough to compensate miners, because it’s based on a fee market.

OK but again, the phrase "transactions fees are less likely to be enough to compensate miners" doesn't explain what happens if that's the case. Does a red light pop up on peoples electrum and refuse to allow them to do a transaction? And say "we're not being compensated enough to mine your transaction" ?

As well, who gets to decide if miners are being "compensated enough"? Do they have some type of minimum wage for bitcoin mining?

[odolvlobo]

Debasement doesn’t reduce fees tho, these two aren’t correlated. You would pay the same fees, regardless of debasement or not. The concern of some people is that transaction fees alone wouldn’t be enough to compensate miners and thus secure the network.

Reducing fees wouldn’t be that simple, you need to let more transactions in. But this comes at the cost of decentralization, depending on how much throughput you let in, because it becomes much harder to run a node. And if blockspace isn’t scarce enough, transactions fees are less likely to be enough to compensate miners, because it’s based on a fee market.

That statement demonstrates a misunderstanding about the economics of Bitcoin mining.

Here is how it works: If a miner feels that they are not being adequately compensated for mining (simply stated, they aren't making a profit), they will stop mining, and the difficulty will adjust to increase the compensation for the miners that remain. That process will continue until the remaining miners feel that they are being adequately compensated. So, only in an exceptional scenarios will transaction fees not be enough to compensate miners.

However, as @tadamichi also states, there is a danger that low transaction fees could become a security risk. It is the value of the block reward (and not the number of miners) that determines the level of security against a 51% attack.

[tadamichi]

Debasement doesn’t reduce fees tho, these two aren’t correlated. You would pay the same fees, regardless of debasement or not.

I don't know about that.

Thats how it is tho, it doesnt change anything about how transaction fees work.

The concern of some people is that transaction fees alone wouldn’t be enough to compensate miners and thus secure the network.

That's a pretty generic statement. How would we know if the transaction fees were not compensating miners enough? Would a red light pop up on peoples' bitcoin core?

We would know when too many miners started behaving dishonestly or too many couldnt afford to mine anymore, when honest miners cant keep outpacing attackers. The compensation just serves as an incentive for miners to stay honest, theres no fixed amount that determines whats enough for people to stay honest. It works on the basis that a majority stays honest, doesnt matter how.

Its a valid concern, but there are good counter arguments to this.

OK but again, the phrase "transactions fees are less likely to be enough to compensate miners" doesn't explain what happens if that's the case. Does a red light pop up on peoples electrum and refuse to allow them to do a transaction? And say "we're not being compensated enough to mine your transaction" ?

Higher risks of 51% attacks, so possible risk of double spendings, preventing transactions from getting confirmed etc.

As well, who gets to decide if miners are being "compensated enough"? Do they have some type of minimum wage for bitcoin mining?

If its extremely expensive to carry out these attacks, then its less likely to happen. Especially if it would be more profitable to work for the network than to attack it. If a majority remains honest regardless of compensation then they can still outpace any attacker, but they have running expenses so even someone honest will need compensation to keep mining. So if its profitable for a big amount of people, its likely that a big amount of people will mine honestly. No one wants to bite the hand that feeds them.

Debasement doesn’t reduce fees tho, these two aren’t correlated. You would pay the same fees, regardless of debasement or not. The concern of some people is that transaction fees alone wouldn’t be enough to compensate miners and thus secure the network.

Reducing fees wouldn’t be that simple, you need to let more transactions in. But this comes at the cost of decentralization, depending on how much throughput you let in, because it becomes much harder to run a node. And if blockspace isn’t scarce enough, transactions fees are less likely to be enough to compensate miners, because it’s based on a fee market.

That statement demonstrates a lack of understanding about the economics of Bitcoin mining.

Here is how it works: If a miner feels that they are not being adequately compensated for mining (simply stated, they aren't making a profit), they will stop mining, and the difficulty will adjust to increase the compensation for the miners that remain. That process will continue until the remaining miners feel that they are being adequately compensated. So, only in an exceptional scenarios will transaction fees not be enough to compensate miners.

However, as @tadamichi also states, there is a danger that low transaction fees could become a security risk. It is the value of the block reward (and not the number of miners) that determines the level of security against a 51% attack.

Ofc im not dumb, all i said is that its not easily possible to reduce fees without potential security or decentralization drawbacks. Idk if you correctly understood what i wrote. If there would be more blockspace than demand for it, there would be lower transaction fees than otherwise, its just logical. There would be no icentive to pay more than the minimum fee, when this one would always make it into the block anyways. So you need to maintain some level of scarcity, for achieving higher fees. Demand needs to outgrow blockspace, otherwise no one would choose to pay higher fees.  And when miners solely rely on fees for compensation, higher total fees will be a bigger incentive to keep miners honest/ enabling more miners to mine profitably, than lower ones.

I never said that fees wont be enough compensation, i think they will be. And ofc the number of miners matters too to a certain degree, if there was just 5 miners left, it couldnt seriously be considered secure anymore(ik this wont happen).

[PrimeNumber7]

Debasement doesn’t reduce fees tho, these two aren’t correlated. You would pay the same fees, regardless of debasement or not. The concern of some people is that transaction fees alone wouldn’t be enough to compensate miners and thus secure the network.

Reducing fees wouldn’t be that simple, you need to let more transactions in. But this comes at the cost of decentralization, depending on how much throughput you let in, because it becomes much harder to run a node. And if blockspace isn’t scarce enough, transactions fees are less likely to be enough to compensate miners, because it’s based on a fee market.

That statement demonstrates a misunderstanding about the economics of Bitcoin mining.

Here is how it works: If a miner feels that they are not being adequately compensated for mining (simply stated, they aren't making a profit), they will stop mining, and the difficulty will adjust to increase the compensation for the miners that remain. That process will continue until the remaining miners feel that they are being adequately compensated. So, only in an exceptional scenarios will transaction fees not be enough to compensate miners.

However, as @tadamichi also states, there is a danger that low transaction fees could become a security risk. It is the value of the block reward (and not the number of miners) that determines the level of security against a 51% attack.

This is not quite right. What you say is true only for economically rational miners, and only to the extent that the miners are strickly rational in regards to the economics of mining bitcoin.

One of the assumptions that satoshi made when designing the security of bitcon was that the majority of miners would be honest. Currently, it is very expensive for a bad actor to control a large percentage of the network hashrate, but if total block rewards (block subsidy plus transaction fees) become too low, it will become less expensive for a bad actor to control a majority of the network hashrate. I would also point out that if a miner was not being rewarded enough for their mining activities, in addition to turning off their equipment, they will also often attempt to sell their equipment.

Another thing is that tail supply can be reached by taking coins from people, without increasing 21 million coins limit. Then, it will be obvious to everyone, what this proposal is truly about. Because if more coins will be produced, then it is more sneaky, because many people don't understand, how inflation works, but if they will start losing satoshis, then they will see that in a crystal clear way.

That would not be a good solution. It would make L2 solutions like LN impossible to implement because the sum of the total inputs would always be changing. If it were decided to implement a tail supply, it would be superior to simply issue more than 21M coin.

Then you have three options

Fourth option: Large holders of bitcoin are incentivized to mine, even with minimal or zero fees or block subsidy, in order to protect both the security and the value of their bitcoin.

The outcome for these users would be little different than having a tail supply. With them mining for zero reward, they would be spending a small proportion of their money to secure the rest of their money. With a tail supply, they would be losing a small proportion of the value of their money to secure the rest of their money. Arguments against this is that it is effectively discriminating against the good will of the users who partake in mining, and of course the free rider problem.

I don't think a large holder would be acting rationally by doing this. I think this holder would be better off selling their coin if they were needing to provide security for everyone.

From an economics perspective, having modest inflation is generally a positive outcome. Modest inflation will encourage people to actually spend their coin on goods/services rather than simply hoarding their coin until they absolutatly need to spend it. Modest inflation should encourage additional adoption, as it will cause the bitcoin ecosystem/economy to grow.

[o_e_l_e_o]

I don't think a large holder would be acting rationally by doing this. I think this holder would be better off selling their coin if they were needing to provide security for everyone.

You say in your very next sentence that without a tail emission users are incentivized to hold on to their coin for as long as possible and not sell it. It would be entirely rational for a large holder to spend a very small amount of their coin on securing the network if they believe the value of the rest of their coin will be worth more in the future than it is worth to them if they were to sell everything now. You are also assuming that the only value that the large holder cares about is the fiat value of their bitcoin, and not about any of the other benefits bitcoin brings as a superior form of money.

[garlonicon]

That would not be a good solution. It would make L2 solutions like LN impossible to implement because the sum of the total inputs would always be changing.

There is no need to update it every second. The same with halvings, you have them every four years, not every block. And the same with difficulty adjustments, you have them every two weeks, not every block. And the same with the coinbase maturity, you have it set to 100 blocks. So, the sum of the total inputs can be calculated in the same way for a long time, and then be adjusted every sometimes, just like other parameters are adjusted. Also, coins can be timelocked to the future, so it won't be "I lock some coins now, and the next miner will get it". It should rather be: "I lock some coins now, and 210,000 blocks later, some miner will get it".

Another thing is that such things can be executed on a fee level, for example by adding a rule, that each miner has to collect at least 0.01 BTC in fees, and lock it for 210,000 blocks. Also note that if you want to get 0.01 BTC tail supply, then it doesn't matter if it would be 0.001 BTC paid by one user, and 0.009 BTC paid by another user, or if they both will pay 0.005 BTC. So, tail supply fees can be regulated in a free market way, for example by having minimal fees set to 0.5 sats/vB miner fee, and 0.5 sats/vB tail supply fee, then it will be perfectly compatible with 1 sat/vB fees.

So, it is all about how many coins each miner could get now, and how many coins should be locked to the future. Just by adjusting coinbase rewards today, you can change supply for the future blocks. And again: what about RSK, and their algorithm of smoothing block rewards?

[PrimeNumber7]

I don't think a large holder would be acting rationally by doing this. I think this holder would be better off selling their coin if they were needing to provide security for everyone.

You say in your very next sentence that without a tail emission users are incentivized to hold on to their coin for as long as possible and not sell it. It would be entirely rational for a large holder to spend a very small amount of their coin on securing the network if they believe the value of the rest of their coin will be worth more in the future than it is worth to them if they were to sell everything now. You are also assuming that the only value that the large holder cares about is the fiat value of their bitcoin, and not about any of the other benefits bitcoin brings as a superior form of money.

If the security of the network depends on a subset of the users of said network, over time, some of the people who "donated" to the security will stop doing so and will allow the remaining of those who is providing security to continue doing so. Over time, this will result in a small group of people being responsible for security.

That would not be a good solution. It would make L2 solutions like LN impossible to implement because the sum of the total inputs would always be changing.

There is no need to update it every second. The same with halvings, you have them every four years, not every block. And the same with difficulty adjustments, you have them every two weeks, not every block. And the same with the coinbase maturity, you have it set to 100 blocks. So, the sum of the total inputs can be calculated in the same way for a long time, and then be adjusted every sometimes, just like other parameters are adjusted. Also, coins can be timelocked to the future, so it won't be "I lock some coins now, and the next miner will get it". It should rather be: "I lock some coins now, and 210,000 blocks later, some miner will get it".

LN closing transactions are currently designed such that they can be broadcast at an arbitrary time in the future. Further, if coin is removed from (a subset of) the UTXO set at intervals less frequent than every block, there will be incentives to get transactions confirmed prior to this frequency, and as such, the cost of getting transactions confirmed will spike immediately prior to these block heights.

This issue can be entirely resolved by simply increasing the total supply of bitcoin. Tail Emission is already a major change, so if this change were to be adopted, you may as well adopt it in the most simple way, and increasing the total coin supply is the simplest way to achieve this.

[garlonicon]

LN closing transactions are currently designed such that they can be broadcast at an arbitrary time in the future.

This is not true, because they are based on some fee rate, and you have no guarantee that fees will be on that level in the future. So, if you assume that minimal fees will be lower than today, then you are safe. But if you assume they will be higher than today, well, then your transaction could be rejected as non-standard, or could require RBF/CPFP to be confirmed.

Further, if coin is removed from (a subset of) the UTXO set at intervals less frequent than every block, there will be incentives to get transactions confirmed prior to this frequency, and as such, the cost of getting transactions confirmed will spike immediately prior to these block heights.

We already have those spikes, they are called halvings. So, the solution is to make fees more smooth globally, by adjusting coinbase transactions, not by adjusting users' transactions.

increasing the total coin supply is the simplest way to achieve this

It is not the simplest way, because:
1) if it is a hard-fork, then it can be rejected by just doing nothing (I won't upgrade to the tail supply version, what then?)
2) if it is a soft-fork, then miners could say "no", and people could burn or lock coins, to resist "tail supply attack", and remain in the same network (I prefer locking, because it is more resistant to this attack, and people can always agree to spend coins, that are circulating in some loops, to keep those coins away from "the legacy supply"; expect every additional satoshi to be tracked and blacklisted, and to be used to counter-attack)
3) if it is a no-fork, then it has the highest chances to be introduced, and it is unstoppable at the same time, because you can keep it on the sidechain; then if tail supply enthusiasts are right, users will join them (I expect this chain would fail, or would need being "rescued" by burning all additional coins)

[Wind_FURY]

Playing the Devil's Advocate, does everyone truly believe that the fees alone would be enough to subsidize the miners when the block rewards go close to zero? Or is it a situation of "let's wait and see", because a hard fork to break Bitcoin's ethos will not be that worth it in "fixing" the "mining subsidy problem"? OR, it's not going to be a problem?

[BlackHatCoiner]

Playing the Devil's Advocate, does everyone truly believe that the fees alone would be enough to subsidize the miners when the block rewards go close to zero? Or is it a situation of "let's wait and see"

It's more like a "discuss, speculate, wait and see" situation. If the fees alone aren't enough to make the system survive, then it's probably because it's already dead.

To explain my previous utterly philosophical sentence that I'm proud of: If the fees alone can't sustain the network, it's probably because there's no activity at all (or much less). There are lots of halvings before the subsidy drop to minimum, and hence much time left to witness some serious recognition. If there's exponentially more activity in 10, 20, 30 years, we can be more assured about sustainability.

[a1 Hashrate LLC2022]

Reasonable people, see Proof of stake as the tech evolution needed to propel the tech to new heights of innovation.

It is pretty much, off-topic, if not vandalism. There is a topic for PoW/PoS debate, Good luck convincing people about your blind faith in Proof of Stake

Actually you mentioned PoS 1st.  

• Govs all over the world are targeting bitcoin miners for imposing bans, extra taxes, etc. Meanwhile, PoS shills are aggressively promoting their stupid ideas about
  PoS being the next generation, environmentally correct, energy efficient alternative to PoW, blah, blah.  
• Bitcoin is not adopted as means of payment, not even in the horizon, instead ,speculators (people like you), along with gamblers and scammers are dominating the marketplace.
• Bitcoin is not even ready for mass adoption, right now with 4-5 TPS.
• ...

The most stupid and irresponsible thing would be ignoring everything

Your one confusion is this , there is no PoS vs PoW anymore.
PoS won, and only a few PoW coins are left to evolve or die,
PoS supporters could care less about the dying PoW tech.

The Coming battle with PoW is this:
It is PoW vs People right to use affordable energy.
PoW vs Having an Air Conditioner
PoW vs Having electric Heat
PoW vs Having Lights
PoW vs Having Hot Water/Cook Food
PoW vs Playing Video Games
PoW vs Having Freezer/Refrigerator
PoW vs Basically anything else using electricity

Which is why PoW is a dead end, because eventually it prevents people from using energy for anything else.

FYI:  Be sure and sign the petition to stop btc PoW mining in Navarro county, Texas.
https://www.change.org/p/no-to-riot-bitcoin-mine-in-navarro-county

Navarro County/ Corsicana TX is looking to allow an industrial Bitcoin Mining operation to move here & use our resources.

We do NOT want this enormous burden on our already fragile infrastructure.

We do not want the increase in water and electricity bills.

We do not want the increase in environmental temperature in the immediate vicinity of the factory-that-produces-nothing.

We do not want the noise pollution that 500,000 computers running 24-7 will produce.

We do not want our county to facilitate in the illegal activity Bitcoin is used for, such as money laundering, child, human and sex trafficking, tax evasion and drug trafficking.

WE. DO. NOT. WANT. THIS. FACILITY. IN. NAVARRO. COUNTY.

This is NOT a done deal.

We have the power & authority to deny access to our municipal water supply.  We're in a drought and already experience brown-outs during the summer months.

This factory-that-produces-nothing will affect every single citizen of Navarro County and MUST BE STOPPED!

People are trying to ban PoW mining to save their communities.
 

POW is a hammer and hammer can be used to do wrong.

This thread is not about the misuse of a hammer in Texas by a bunch of rich motherfuckers.

Its about inflation and whether fixed block mining rewards are better than vanishing rewards.

I hodl a lot of DOGE

I think that

1x
2x 100% inflation
3x  50% inflation
4x  33% inflation
5x  25% inflation
.
.
.

10x
11x 10% inflation
.
.
.
.
20x
21x 5% inflation
.
.
.
50x
51x 2% inflation
.
.
.
100x
101x 1% inflation

in the case of Doge

may be better then no new coins in the case of BTC

I am 65 I won't live long enough to see if doge is better than btc.

If you are 20 consider buying 10000 doge and leaving them be only costs 700 dollars.


and please post on topic.

[tromp]

Its about inflation and whether fixed block mining rewards are better than vanishing rewards.
I hodl a lot of DOGE

I think that

1x
2x 100% inflation
3x  50% inflation
4x  33% inflation
5x  25% inflation
...
50x
51x 2% inflation
...
101x 1% inflation

in the case of Doge

You seem to be confused with Grin, which has a fixed reward from launch and therefore 1/n inflation after n years.
Doge had MUCH bigger rewards in the first year (emitting 100B DOGE, vs only 5B DOGE for every later year).

Curiously, 1 DOGE costs about the same as 1 Grin, even though the former emits at a 167x higher rate (10000 per minute vs 1 per second).

[larry_vw_1955]

I am 65 I won't live long enough to see if doge is better than btc.

If you are 20 consider buying 10000 doge and leaving them be only costs 700 dollars.


and please post on topic.

well why would doge be better than btc. btc has more development effort behind it. btc has more features than doge. i don't see any reason for doge coin to exist. other than for people to speculate and try and get rich at the expense of other people. need to transfer money? btc can do that. you got your answer, you're not too old to find out the answer now!

[PrimeNumber7]

Playing the Devil's Advocate, does everyone truly believe that the fees alone would be enough to subsidize the miners when the block rewards go close to zero? Or is it a situation of "let's wait and see"

It's more like a "discuss, speculate, wait and see" situation. If the fees alone aren't enough to make the system survive, then it's probably because it's already dead.

To explain my previous utterly philosophical sentence that I'm proud of: If the fees alone can't sustain the network, it's probably because there's no activity at all (or much less). There are lots of halvings before the subsidy drop to minimum, and hence much time left to witness some serious recognition. If there's exponentially more activity in 10, 20, 30 years, we can be more assured about sustainability.

In general, I would agree with this point.

I think the question of tail emission is more about who should pay for security. If someone is holding their coins for a long time, they have the benefit of the security of the network, while someone who is sending many transactions will need to pay transaction fees to the miners, which ultimately pay for this security. There is also the point that someone who is paying a transaction fee is also paying for the service of getting their transaction confirmed, and for the block space necessary to include their transaction in the blockchain.

[bkelly13]

This is an interesting post: Surprisingly, Tail Emission Is Not Inflationary

This article will show that a fixed block reward does not lead to an abundant supply. In fact, due to the inevitability of lost coins, a fixed reward converges to a stable monetary supply that is neither inflationary nor deflationary, with the total supply proportional to rate of tail emission and probability of coin loss.

I think his analysis is a little naive, but it could be the start of something interesting.

"... inevitability of lost coins"

That is a really interesting concept.  While not mathematically inevitable, human nature makes it, in practice, inevitable.  This should be given serious consideration.  But it will be very far from easy or simple. 

When are there two few coins?  That might be determined by some combination of the cost of coins becoming too high, and/or the churn/turnover rate of coins in circulation becomes very high.  Both of those are almost completely subjective.  But maybe some top-flight number crunchers can get together and make some objective criteria.

Once that is determined, then the path to resolve the situation needs to be considered.  I see a couple of possible solutions, but this conversation is already complex so omit that for now.