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Author Topic: Why doesn't the block reward decrease continuously?  (Read 5909 times)
sunray
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May 07, 2011, 02:57:52 PM
 #1

The scariest moment for Bitcoin in the near-term future will be the first block reward decrease, namely from 50 BTC to 25 BTC some time toward the end of 2012.  There's been plenty of speculation about how this will affect miners.  It's conceivable that those who are dissatisfied with the reward decrease could attempt to fork the protocol and/or block chain at that point.  I personally am not *too* worried about that, but still - it's a scary moment.

So I personally wish that Satoshi had instead implemented a *continuous* block reward decrease.  With that approach, the reward will decrease ever-so-slightly with each successive block but still converge to 21 million.  That would avoid potentially disruptive discontinuities.  It's too late to change that now but, still, does anyone know why he chose a block reward function that looks like a staircase rather than a smooth curve?
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gim
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May 07, 2011, 04:19:47 PM
 #2

Very good question.

Maybe the idea was not to scare people with exp(-t) curves?
But, yes discontinuities are quite worrisome.
grue
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May 07, 2011, 04:44:34 PM
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nothing will really happen when the reward halves. Difficulty will drop, and in the end, it's the same $ generated.

It is pitch black. You are likely to be eaten by a grue.

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gim
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May 07, 2011, 06:13:57 PM
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nothing will really happen when the reward halves. Difficulty will drop, and in the end, it's the same $ generated.

Looking at GetNextWorkRequired() nothing seems to link difficulty with reward.
Or you mean half of the miners will just go away ? Smiley
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May 07, 2011, 10:00:42 PM
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nothing will really happen when the reward halves. Difficulty will drop, and in the end, it's the same $ generated.

Looking at GetNextWorkRequired() nothing seems to link difficulty with reward.
Or you mean half of the miners will just go away ? Smiley

less reward will mean unprofitably for most miners, so they will leave. That will decrease the difficulty, which will bring some miners back.

It is pitch black. You are likely to be eaten by a grue.

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ribuck
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May 07, 2011, 10:11:40 PM
 #6

Miners know that the decrease will be coming, and will factor that into their plans. Predictable events don't cause problems for markets.
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May 08, 2011, 11:37:00 AM
 #7

So this would mean that the security of the network is somehow bounded by the ratio (base reward+fee)/target ?

So next question is... What will make the fee increase in the case too much miners leave and some attacks on the network succeed?

For now, the only answer I found is the one suggested in this thread by sunray: the creation of a new chain with adjusted difficulty.
This way, all the users of the new chain are forced to contribute equally (proportionally to their possessions) to the security of the network.

And I feel that the 21 MBTC limit is a lie somehow (bitcoin users might be forced to switch to a more secure chain).

This potential issue is not discussed in the FAQ and I think it is a very important one.
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May 08, 2011, 11:43:00 AM
 #8

Wait, so when the reward reaches zero it will be infinitly easy to crack a new valid block?

(I dont always get new reply notifications, pls send a pm when you think it has happened)

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May 08, 2011, 11:51:51 AM
 #9

If fees are so low that almost all miners left. Then yes it will be easy...

But maybe Satoshi is in fact Hari Seldon, and he knew what the value of bitcoin would be over time. So he chose this particular staircaise curve instead of another one, so that the bounding limit is never reached? Cheesy

I'm waiting for next Satoshi Crisis...
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May 08, 2011, 11:58:00 AM
 #10

If fees are so low that almost all miners left. Then yes it will be easy...

But maybe Satoshi is in fact Hari Seldon, and he knew what the value of bitcoin would be over time. So he chose this particular staircaise curve instead of another one, so that the bounding limit is never reached ? Cheesy
But why would fees get that low? Wouldn't the market kick in? As I see it, as fees diminish and miners stop mining, transactions take longer and longer. This incentivises people making transactions to pay a higher transaction fee, which in turn incentivises miners to start/resume mining.

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May 08, 2011, 12:06:55 PM
 #11

Let's hope we never experience a huge drop in hashing power, otherwise we'd have a similar problem like the one we already experienced back when ArtForz, for fun, redirected his rigs to the testnet. Once he stopped the remaining nodes where left with an incredibly high difficulty and the rebalancing would have taken months (2016 blocks at 3-4x the actual hashing power in the network would take 2 months to rebalance) and confirmations would be really slow.
It's hard to make promises but if my mining equipment survives that long I'll continue mining ^^

Want to see what developers are chatting about? http://bitcoinstats.com/irc/bitcoin-dev/logs/
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gim
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May 08, 2011, 12:23:22 PM
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But why would fees get that low? Wouldn't the market kick in? As I see it, as fees diminish and miners stop mining, transactions take longer and longer. This incentivises people making transactions to pay a higher transaction fee, which in turn incentivises miners to start/resume mining.

Dunno, but I can't see why transaction needs and security needs should be linked.
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May 09, 2011, 04:33:21 AM
 #13

But why would fees get that low? Wouldn't the market kick in? As I see it, as fees diminish and miners stop mining, transactions take longer and longer. This incentivises people making transactions to pay a higher transaction fee, which in turn incentivises miners to start/resume mining.

Dunno, but I can't see why transaction needs and security needs should be linked.


They have to be. Security is just the difficulty of sending a transaction to multiple people. What you are paying for is literally the work that is going to be dumped on top of your transaction.

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FreeMoney
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May 09, 2011, 04:37:35 AM
 #14

Very good question.

Maybe the idea was not to scare people with exp(-t) curves?
But, yes discontinuities are quite worrisome.

It could have been more frequent smaller reductions if it had to be stepwise though. I'm excited to see what happens and I don't think it'll be a problem. But it seems unnecessarily eventlike.

I think it'll be price up in anticipation and about 2 hard difficulty reductions after the drop then leveling off at about 75% of old difficulty and resuming a rise from there.

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gigabytecoin
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May 09, 2011, 05:56:08 AM
 #15

I had mentioned on another thread (where I asked what was the highest fee paid for a block to date) that:

A short script running getblockbycount revealed that the highest combined fee so far was 6.71 BTC in block 55812
http://blockexplorer.com/b/55812
In more recent times, there were a few blocks with fees above 2BTC. This one is the most recent:
http://blockexplorer.com/b/120528

Great, thanks Raulo!

At this rate, miners will probably receive more than 50 BTC per block after 2013!

But yes I do wonder why it does not decrease gradually with every transaction solved. It would seem much more of a "stable" model so to speak... nobody would be worried about any future happenings.

What if the bitcoin reward drop turns out to be a horrible thing for the markets? People could potentially be scared off of bitcoin every few years and it could kill the project.
marcus_of_augustus
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May 09, 2011, 09:23:57 AM
 #16

Very good question.

Maybe the idea was not to scare people with exp(-t) curves?
But, yes discontinuities are quite worrisome.

It could have been more frequent smaller reductions if it had to be stepwise though. I'm excited to see what happens and I don't think it'll be a problem. But it seems unnecessarily eventlike.

I think it'll be price up in anticipation and about 2 hard difficulty reductions after the drop then leveling off at about 75% of old difficulty and resuming a rise from there.

Yes, but what if it is just what bitcoin needs to create a stir, garner publicity and demonstrate resilience; an event that it survives, at the same time exactly half of the bitcoins will have been found?

gim
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May 09, 2011, 09:27:45 AM
 #17

What you are paying for is literally the work that is going to be dumped on top of your transaction.
Literally?? I think you need an argument here.

Personally, I won't artificially increase my fees for the security of the whole network. I'll let the others pay for that.
If nobody want to pay, I might switch to another chain where everybody is bounded to pay.

And enforcing fees (and therefore security) by means of a tight block limit is not really a solution. Heavy transactors might go away because they won't like to pay for everybody neither. They can also fork the chain.
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May 09, 2011, 09:32:50 AM
 #18

What you are paying for is literally the work that is going to be dumped on top of your transaction.
Literally?? I think you need an argument here.

Personally, I won't artificially increase my fees for the security of the whole network. I'll let the others pay for that.
If nobody want to pay, I might switch to another chain where everybody is bounded to pay.

And enforcing fees (and therefore security) by means of a tight block limit is not really a solution. Heavy transactors might go away because they won't like to pay for everybody neither. They can also fork the chain.

But you won't be paying higher fees just for security - you'll be paying higher fees so that your transactions are processed speedily. Security will just be a pleasant side-effect. Higher fees won't be "enforced": they'll come about through the natural operation of a free market.

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ribuck
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May 09, 2011, 09:43:48 AM
 #19

On the day before the reward decreases from 50 to 25, there will be approx 7200 new coins generated out of a total of 10.5 million. Less than 0.08% extra. On the following day there will be approx 3600 new coins generated out of a total of 10.5 million. Less than 0.04% extra.

The change from 0.08% to 0.04% per day won't upset the markets, and the miners will have known about the coming change for ages, and will have factored it into their plans and budgets.

This is not something to sweat about.
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May 09, 2011, 12:21:41 PM
 #20

But you won't be paying higher fees just for security - you'll be paying higher fees so that your transactions are processed speedily. Security will just be a pleasant side-effect. Higher fees won't be "enforced": they'll come about through the natural operation of a free market.

There is perfect competition between miners, so I think transactions will be payed at their real (hardware processing) cost.
No more than that. (If transaction capacity is voluntarily limited, then it won't be the case, but see my second point in my previous post).

All this is very unclear to me. But bitcoin's security has a very big cost. And it seems nobody knows who will/should pay for it.
People here mostly consider bitcoins advantages and tend to forget about everything else.
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