BIP-110 : Where Will the Monetary Premium End Up?

[BitGoba]

If you have studied the idea of Bitcoin deeply, then it should be clear that users ultimately decide which software they run and, therefore, what Bitcoin is. Miners, developers, exchanges, and other intermediaries are secondary.

If the majority of users choose to run BIP 11 0 and miners refuse to follow them, the network will split and two competing versions of Bitcoin will emerge. This will undoubtedly create an identity crisis, because both sides will claim to be the real Bitcoin. But  that is not the most important question.

The most important question is where will the monetary premium ultimately end up?

In the long run, the monetary premium will flow toward the chain that performs the functions of money more effectivel

The miners’ chain may initially have a much higher hash rate and therefore be more secure, but the user BIP 110 chain may perform the functions of money more effectively.In the long run, I believe the BIP 110 chain could capture the monetary premium. Miners would then eventually be forced to return to that chain because mining follows economic value and profitability.

That is also why I do not think there will actually be hard fork. Miners will probably activate BIP 110 from the beginning because they understand that their competing chain would gradually lose its monetary premium.

[athanred]

where will the monetary premium ultimately end up?

You never know that upfront, only time will tell.

but the user BIP 110 chain may perform the functions of money more effectively

Having 50x or 100x slower chain is not "more effective".

In the long run, I believe the BIP 110 chain could capture the monetary premium.

Read the whitepaper, the probability of "flippening" is decreasing exponentially with the number of mined blocks. When the majority chain will produce 100 or more blocks, then miners will start spending them, and then, it will be very unlikely to merge splitted chains again.

Of course, it is even in the whitepaper in the Chapter 11th called "Calculations":

Code:

#include <math.h>
double AttackerSuccessProbability(double q, int z)
{
    double p = 1.0 - q;
    double lambda = z * (q / p);
    double sum = 1.0;
    int i, k;
    for (k = 0; k <= z; k++)
    {
        double poisson = exp(-lambda);
        for (i = 1; i <= k; i++)
            poisson *= lambda / i;
        sum -= poisson * (1 - pow(q / p, z - k));
    }
    return sum;
}

You can test Satoshi's code in any online C/C++ compiler you want, and you should get the same results, as he did: https://www.programiz.com/cpp-programming/online-compiler/

Running some results, we can see the probability drop off exponentially with z.

Code:

q=0.1
z=0 P=1.0000000
z=1 P=0.2045873
z=2 P=0.0509779
z=3 P=0.0131722
z=4 P=0.0034552
z=5 P=0.0009137
z=6 P=0.0002428
z=7 P=0.0000647
z=8 P=0.0000173
z=9 P=0.0000046
z=10 P=0.0000012

Code:

q=0.3
z=0 P=1.0000000
z=5 P=0.1773523
z=10 P=0.0416605
z=15 P=0.0101008
z=20 P=0.0024804
z=25 P=0.0006132
z=30 P=0.0001522
z=35 P=0.0000379
z=40 P=0.0000095
z=45 P=0.0000024
z=50 P=0.0000006

Solving for P less than 0.1%...

Code:

P < 0.001
q=0.10 z=5
q=0.15 z=8
q=0.20 z=11
q=0.25 z=15
q=0.30 z=24
q=0.35 z=41
q=0.40 z=89
q=0.45 z=340

To be absolutely safe, 100 confirmations are needed for miners, because then they will be able to spend recently mined coins. But for regular users, something like 5-6 confirmations should be enough (as you can see, z=5 is the Satoshi's solution from his code, which gives less than 0.1% probability of catching up, when a minority chain has 10% hashrate support).

[BitGoba]

where will the monetary premium ultimately end up?

 I look at this issue from an economic perspective.

If you have studied Austrian economics, you understand that monetization is not a short-term process, but a very long-term one.Austrian economics also teaches us that individuals choose what they believe is in their own self-interest. The same applies to money people choose which form of money they want to use.

Money has three primary use a store of value, a medium of exchange, and a unit of account.As with everything else people choose to use, money is evaluated according to certain characteristics. These characteristics help us determine whether a form of money is good or bad. In economics, they are known as monetary properties.The version of Bitcoin that better fulfills the properties and functions of money will ultimately win.


The miners’ chain might initially be more secure because it would have a higher hash rate, but the BIP 110 chain could still possess superior monetary properties , could remain more decentralized and provide stronger assurance that Bitcoin’s monetary policy would not be changed.and therefore attract the monetary premium over the long term.If miners do not activate BIP 110, their chain might win in the short term, but the BIP 110 chain could prevail in the long term.

[athanred]

The version of Bitcoin that better fulfills the properties and functions of money will ultimately win.

We have an example of BCH, which increased the block size, and was able to process more transactions per second. And they lost. Their chain is still usable, but it is less secure, more open to 51% attacks, and it simply became an altcoin.

but the BIP 110 chain could still possess superior monetary properties

The problem with BIP-110 chain is that it reduces use cases, so how is that "superior"? It only blocks some kind of transactions, which means, that all blocked users will automatically be against it.

could remain more decentralized

Blocking arbitrary transactions is not "more decentralized". Actually, it is still unknown, which scripts won't be blocked by future BIPs, built on top of BIP-110, because that community never stated it.

provide stronger assurance that Bitcoin’s monetary policy would not be changed

Actually, BIP-110 proponents want to deploy next soft-forks, which will restrict it further. Which means, that if you want to "keep things unchanged", then BIP-110 is definitely not about it. Example: https://bitcointalk.org/index.php?topic=5582070

but the BIP 110 chain could prevail in the long term

Both chains will be active, as long as miners will keep mining them. How much you could buy with a single coin, is a completely different question.

That is also why I do not think there will actually be hard fork.

The difference between a hard-fork, and a minority soft-fork, is that soft-forks can be united into a single chain, at least in theory. But in practice, the more blocks are produced, the less likely it becomes. And then, the losing side has to be really persistent, to go through all difficulty adjustments, and bring back 10 minutes per block, because by being in a minority, it will take them some time, to get there.

Anyway, hard-forking is quite likely, because if you have for example 100x slower chain, then what is easier: to keep mining it, and go through all needed difficulty adjustments, or to make a hard-fork, and decrease it instantly, by changing the code?

I look at this issue from an economic perspective.

From an economic perspective, you can have no blockchain at all, and a token, which is traded only on some centralized exchange. And it can even have a significant value. In the same way, you can have highly centralized coins, which can be traded for a lot of dollars, because why not. The price is set only by the buyers, and the sellers, so: how many BTCs are you going to trade for BIP-110 coins? Because many BIP-110 proponents are not willing to put any coins, to support their beliefs, which is quite telling.

[BitGoba]

Unfortunately, you do not understand Bitcoin,and what is the monetary premium
 but that is not surprising. You are probably a programmer who has never seriously explored its economic side.Bitcoin is more about economics than technology.

You must first understand what money is before you can understand Bitcoin.Most people think that the dollar or the euro is money, but they are not money in the true sense they are fiat currencies. The difference between money and currency is enormous.It is a very deep rabbit hole that requires a great deal of time studying the Austrian School of Economics and the evolution of money.

I will try to help you understand it and explain it briefly.

Bitcoin is software that performs the functions of money. Money has only three primary uses a medium of exchange, a store of value, and a unit of account.Money can be any good that people choose to use as money. You could store your wealth in bananas or nails if you wanted, and even choose nails as your form of money.

However, not every good is suitable to function as money. For a good to become widely accepted as money, it must possess the monetary properties I mentioned above.That is why gold was chosen as money it had the best monetary properties.People will not store their wealth in something that is insecure, centralized, perishable, abundant, indivisible, or non-fungible.

That is the monetary premium when the market recognizes that something can serve as good money, additional value begins to attach to it because people want to hold it for its monetary properties.If the BIP 110 chain performs the functions of money better, more people will choose to hold it and store their wealth in it.

[athanred]

People will not store their wealth in something that is insecure, centralized, perishable, abundant, indivisible, or non-fungible.

Will people store their wealth in a chain, which cannot produce one block per 10 minutes, but it produces one or two blocks per day?

If the BIP 110 chain performs the functions of money better, more people will choose to hold it and store their wealth in it.

The whole space, which would be gained by rejecting spammy transactions, would be reduced by the speed of the chain. If you would have 100x bigger block size, but 100x bigger delay between blocks, then the average number of confirmed transactions per second can stay the same. Which means, that if 99% transactions are just data pushes, and you reject them, then having payment-only chain will be as fast, as it was, just because of not enough miners supporting it.

Bitcoin is more about economics than technology.

If Proof of Work wouldn't matter at all, then Bitcoin wouldn't exist in its current form. You can always ignore Proof of Work, and switch to a different security model. But then, you can reach for example signet, which is fully centralized, and is currently traded for 22 satoshis per coin.

If BIP-110 is about economics, more than about technology, then why BIP-110 proponents don't want to trade their BIP-110 coins for non-BIP-110 ones? If they are so sure about their victory, they could easily gain a lot of coins from such trades. But for some reason, they don't want to do that. Do you know why?

They call it "gambling", and by not swapping such coins, they are actively preventing people from learning, how much BIP-110 coins are worth, when compared to non-BIP-110 ones, so we simply don't know, and people can only guess, which side will win.

[BitGoba]

It’s obvious that we’re not understanding each other. I’m speaking from an economic perspective, while you’re talking about something completely different that I don’t understand.


After watching this video by Fred Krueger on x , where he explains the activation of BIP 111 from a game-theory perspective, I realized that it is actually a soft fork, not a hard fork. I now understand the difference and why it would not cause a chain split.

https://x.com/dotkrueger/status/2075440344456683965

[athanred]

I now understand the difference and why it would not cause a chain split.

Soft-forks are not splitting the chain, only if they are supported by the hashrate majority, just like Segwit and Taproot eventually were.

However, if you create a soft-fork, and miners are against you, then you will start rejecting the heaviest chain they produce, which would cause a split. As a user, you can always do that, but then, you have to find a different group of miners, pushing your chain forward, or mine it by yourself.

See also: https://www.youtube.com/watch?v=P9PQr4Fj5tQ

[gmaxwell]

BIP-110 is opposed to performing the function of money well in the same way that commercial bank fiat is--  it's not a good money if third parties get to pass judgement over your transactions.

Bitcoin was expressly created to take out third party judgement in transactions-- and it was explained as much even in the earliest announcements.  To deliver on that Bitcoin makes many compromises.  Freedom has never been free.

As a result, it's my view that Luke-jr's 110 proposal is a total violation of the central concept of bitcoin and what makes it valuable in the first place.  In doing so it trashes bitcoin's programmability (part of its day one value prop), and will confiscate coins by breaking timelocked inheritance faults, turning existing working scripts into funds destroying black holes--  all which amounts to destroying one of Bitcoin's other major selling points: that you can stick your self custodial coins in a hole in a ground and forget about them they're not going to get taken away without your constant vigilance.  The programmability of Bitcoin isn't incidental either, it's integral to the value proposition over the long term since if *using* bitcoin requires constant recourse to a trusted third party then you might as well have them handle the transactions for you and skip out on the whole messy decentralized bitcoin thing.

Your analysis, such as it is, seems premised by a misconception that bip110 meaningfully makes 'spammy' uses of Bitcoin more difficult or ineffective.  Yet its authors and proponents have admitted that it does nothing to stop non-financial use cases and in fact the most popular (by a wide margin) such as runes have never been effected by it and the others have already been updated to avoid it.  You could be excused having believed otherwise, because the proponents have alternated between dishonestly referring to it an anti-spam measure and calling people morons for analyzing it as such.

In any case, it's generally fundamental to the nature of these "collateral" applications that they're more or less unblockable because they have complete and total freedom to interpret the transaction however they want-- because their relevant properties are not defined by the bitcoin network but by their own software.  You might raise an interesting point if 110 did the thing you thought it did (it doesn't), if such a thing were possible (seems likely not), and did so without gravely undermining other integral properties of bitcoin (which it does).

Even on the abstract question, I'm a bit dubious: use of a good as money seems to degrade the other uses but the converse isn't obviously true.  The fact that people use gold for electronics or jewelry doesn't make it less useful as money, but its use for non-monetary things is thoroughly degraded by the use as money (and as a result gold is comparably quite expensive compared to other similarly rare elements, and made less available for non-monetary use-- while the effectively infinite divisibility of gold means those uses don't degrade the monetary use).  In any case, I think this question while perhaps interesting academically is of no relevance to 110 because 110 hurts bitcoins monetary properties without meaningfully preventing non-monetary use.  In fact, I think if you consider it you'll notice that the monetary premium view makes for an argument that Bitcoin's monetary use will tend to price out the collateral uses, which appears to be largely what we've seen in practice.

That said, I'm all for the filtercoiners having their own chain.  If they want to create some fork of Bitcoin where luke and his little cabal play king over who can transact with who and how, that's not really any of my concern.   I'll be happy to sell any 110 coins as soon as I can.  Given that it defeats the point, I don't expect filtercoins to trade for much-- but I don't care if they do:  Bitcoin was valuable to me when it hardly had a price at all because it was freedom money.  If I didn't want freedom money, it's easy to just use the dollar.

Actually BitGoba, since you seem to like 110 and expect it to be valuable you'd be an ideal trading partner for me.  It's possible to setup a trustless swap--  I'll trade you my filtercoins for your non-filtercoins.  Then we both get what we want! Deal?  If you believe what you say you believe then you'd be a fool to turn down this opportunity.

But if you agree-- you'll be the first.  Because even 110's most vocal proponents don't seem to want it themselves.  They mostly seem to want to impose their will on other people, particularly non-consenting people.

[DaveF]

The monetary premium by your definition will have to have to use the non 110 chain.

...Money has three primary use a store of value, a medium of exchange, and a unit of account....

1) Store of value. It have been shown in all the other posts about 110 how it can and will invalidate certain transactions that people already have broadcast and it will confiscate at worst or delay them getting it as best. Therefore 110 is not a good store of value since it can take your money.

2) Medium of exchange.  110 unless it hard forks off is going to be useless for this too. With it's 1% +/- of the global hashrate at the moment it fails to be able to transact in any normal amount of time since it could take hours to get enough conformations to be sure that there will not be any chain reorg.

3) Unit of account. Fails at this too, since they are blocking any TX that does not meet their standards even if it's already out there. See #1

In under a month knots nodes are going to stop accepting non 110 blocks. Although it's still about a day from this post it looks like 1% of the blocks mined in this period are signaling for acceptance of it. So unless a lot more miners get onboard (they wont) it's DOA.

-Dave