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One of Bitcoin's main goals is to fix the unpredictable and arbitrary emission in fiat currencies. But its finite supply, said to be modeled after Gold's, is qu

by tromp 7y ago

One of Bitcoin's main goals is to fix the unpredictable and arbitrary emission in fiat currencies. But its finite supply, said to be modeled after Gold's, is questionable. Gold may have a finite supply, but it's been mined for millenia and has slowly increased its supply rate over time, and will likely continue to do so in our lifetime. In contrast, Bitcoin's emission which ranges from 2009 through 2140 is heavily tilted to the first few years. Its final century from 2040 through 2140 accounts for only about 0.5% of emission. The only point of the halvings is to be able to claim "finite supply". A constant reward would still have the yearly supply inflation rate (stock to flow ratio) going to 0, albeit more slowly. So crucially, supply would still be scarce, would be more predictable (time independent), more fair to late adopters, and be much closer to Gold's emission over our lifetime. It would also avoid the inherent instability [1] of mining rewards dominated by transaction fees, and avoid lengthening confirmation times to maintain security against doublespending [2]. If we further consider the fact that coins inevitably get lost, then even a constant reward will yield a softcap of supply, where yearly emission merely serves to balance the yearly losses. Unfortunately, practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards, even when they often already enjoy lower difficulty. [1] https://www.cs.princeton.edu/~arvindn/publications/mining_CCS.pdf https://www.cs.princeton.edu/~arvindn/publications/mining_CC... [2] https://www.coindesk.com/the-halving-exposes-bitcoin-to-51-attacks-heres-what-we-can-do https://www.coindesk.com/the-halving-exposes-bitcoin-to-51-a...

lisper 7y ago
> The only point of the halvings is to be able to claim "finite supply" The irony is that no matter what you do there will only ever be a finite supply of any currency, fiat or otherwise. It's a finite universe, so "finite supply" is inherently imposed by the laws of physics. > practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards That's the real objective. Like all startups, cryptocurrencies want to encourage early adoption by, among other things, FOMO. If there is no benefit to being an early adopter, no one will adopt early, and if no one adopts early, you will never get to critical mass.
- dnautics 7y ago
  Would you be happier if we said "bounded"/"unbounded" supply
- rwmj 7y ago
  Why can't I just declare that I issue "TREE(3)" of my own fiat currency? There's finite supply only in some astronomical sense that computers would have difficulty storing bank balances represented in BCD or something.
  - wnoise 7y ago
    Because TREE(3) units are not well divisible. You can't give someone one and have the leftover amount representable with any reasonable amount of memory.
- SkyBelow 7y ago
  >The irony is that no matter what you do there will only ever be a finite supply of any currency, fiat or otherwise. It's a finite universe, so "finite supply" is inherently imposed by the laws of physics. I'm not so certain that holds true. You could, in theory, either in a game or in real life, create a currency item that represents infinite currency. There would a finite number of physical representation of such items (if done is real life), and people would only place a finite value on it, but it would still representing an infinite number of whatever currency. You could even digitally create an infinite number of such infinite currencies. Depending upon exactly how they behave, it would quickly make the currency worthless about as fast as people conceptualized what infinite means, but at the core there would be an infinite amount of money.
- spraveenitpro 7y ago
  So the newly minted 2T dollar bills printed by the fed is finite for you?
zby 7y ago
Well - ETH has infinite supply.
saagarjha 7y ago
> Unfortunately, practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards, even when they often already enjoy lower difficulty. Well, it's a great way to get people to be invested in your new cryptocurrency.
jron 7y ago
Bitcoin needed to bootstrap. Without reward subsidies halving there would be little incentive to invest early. See Grin: https://www.tradingview.com/symbols/GRINUSDT/?exchange=POLONIEX https://www.tradingview.com/symbols/GRINUSDT/?exchange=POLON...
pal_9000 7y ago
Good points. I haven't read the link but aren't you missing the equation of price economics? Bitcoin is only highly skewed for early miners only if they have held on to their rewards stash. Atleast what the designer intended/predicted if I remember correctly, is for the reward value over time to be the same. This is of course not backed by mathematical equation of sort. I would way super early mining is more similar to being the first employee of a startup that pays you in equity only.
paulmd 7y ago
Even better, we could adjust the rate of issue in accordance with the demand for money, thus negating the need for more than a constant, low amount of inflation in the first place. We could call the entity that adjusts the rate of issue a "central bank" and they could perform this "inflation targeting" to keep the value of the currency stable through economic shocks.
- irln 7y ago
  Even, even better that "central bank" could choose winners and losers providing credit to certain participants eliminating the need for petty "price discovery" and creating a system where 20.5 million people can lose their job on the same day something called "the stock market" goes up 400 points...a pure "stable" utopia!
gridlockd 7y ago
The whole idea that Bitcoin will have a finite supply is nonsense. There's already dozens of Bitcoin forks, some of which lay claim to be the "one true Bitcoin". If the majority decides that whatever is now referred to as the Bitcoin blockchain should not have a limited supply, so it will be. Ultimately, the ones calling the shots here are the same people receiving the block reward, so if transaction fees don't make up for loss in block reward, what's to stop them? On a secondary note, who can claim that it is a good thing that money can't be printed if necessary? The crisis of 2008 was a liquidity crisis, without the ability to print money it could've turned into a great depression. Making the money supply fixed is just throwing out one tool out of the toolbox.
- cryptica 7y ago
  >> The whole idea that Bitcoin will have a finite supply is nonsense. There's already dozens of Bitcoin forks, some of which lay claim to be the "one true Bitcoin". But there is a limited supply of user attention to be divided up between all available cryptocurrencies and it's not divided equally by any measure; so cryptocurrencies are constantly competing with each other for that attention and this is where they derive essentially all of their value. Underlying technology at this stage has almost no value. In our economy, even an untalented fool speculating on random projects can generate a profit if they have capital; this fact makes talent worthless and means that capital and network effects are EVERYTHING.
  - gridlockd 7y ago
    I'm not saying there will be yet another Bitcoin fork that just gets rid of the block halving "as a feature". That would be nonsense. I'm saying that the official Bitcoin blockchain is going to get rid of the block halving, the minority fork will keep the limit "as a feature" and will be called "Bitcoin Classic" or something.
    - sparkie 7y ago
      There is no official bitcoin blockchain. There is only the chain with the most accumulated work, and orphan chains. Anybody attempting to remove a limit which may cause the holdings of all bitcoin users to be devalued will simply be ignored by all other users. Conversely, lets say I put out a proposal to tighten the limit, increase the rate of disinflation and reduce the maximum total supply that could ever be mined to 20M rather than 21M. This proposal might actually gain some interest among bitcoiners because if price speculation so far has been under the assumption that there will be an eventual ~21M bitcoins issued, and this gets scaled back to ~20M, then the 5% reduction in overall supply, without corresponding 5% reduction in demand, would cause all existing bitcoin to gain value. This could also be implemented as a soft-fork and be compatible with all existing software - because the software checks that the amount paid in a coinbase is less than or equal to the subsidy plus fees. It is technically possible to mine blocks which don't release all of the available bitcoin for that block. (This has been done, and such bitcoin are permanently unavailable and reduce the theoretical maximum 21M supply). To relax or remove the block subsidy, one would need to hard fork the protocol in order to defeat the "less than or equal" check. You would have to convince the vast majority of bitcoin users that they aught to download and install alternative software which may cause inflation and devalue their holdings. Keep kidding yourself that this will happen.
cryptica 7y ago
>> Unfortunately, practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards, even when they often already enjoy lower difficulty. This habit of disproportionately rewarding early adopters is a universal feature of our economy and doesn't only apply to cryptocurrencies. The reason why it's like this is simply because it's extremely difficult to get any project or company off the ground; the risk of failure for an early adopter is ridiculously high so rewards also need to be ridiculously high to justify those risks. This is because most economic activity today is focused on seeking rents and building moats; so this has made the environment extremely adverse for newcomers; it lowered their probability of success and forced early adopter payoffs to skyrocket. We live in an age where the moats are so wide that that even offering customers a solution which is 10x better isn't going to cut it anymore in terms of being able to turn any profit. One might think that cryptocurrency would be immune to this; after all, the entire point of the blockchain movement was to fix such kinds of socio-economic problems - But having worked in the space for several years, I can say with confidence that incumbents in the cryptocurrency space have become part of the same problem which they were originally claiming to solve. Development in the space is slow, inefficient, lacks a clear vision and the incumbents of the cryptocurrency space lack any incentives to give newcomers a fighting chance. They will happily let the most promising new projects drown in the noise of popular mediocrity. The hypocrisy of it all is unmistakable. I've seen the ugliest side of human nature in this industry. That said I'm still cautiously optimistic but it's clear that something has to change at a social level in order to move forward.

by tromp 7y ago

lisper 7y ago

> The only point of the halvings is to be able to claim "finite supply" The irony is that no matter what you do there will only ever be a finite supply of any currency, fiat or otherwise. It's a finite universe, so "finite supply" is inherently imposed by the laws of physics. > practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards That's the real objective. Like all startups, cryptocurrencies want to encourage early adoption by, among other things, FOMO. If there is no benefit to being an early adopter, no one will adopt early, and if no one adopts early, you will never get to critical mass.

dnautics 7y ago
Would you be happier if we said "bounded"/"unbounded" supply
rwmj 7y ago
Why can't I just declare that I issue "TREE(3)" of my own fiat currency? There's finite supply only in some astronomical sense that computers would have difficulty storing bank balances represented in BCD or something.
- wnoise 7y ago
  Because TREE(3) units are not well divisible. You can't give someone one and have the leftover amount representable with any reasonable amount of memory.
SkyBelow 7y ago
>The irony is that no matter what you do there will only ever be a finite supply of any currency, fiat or otherwise. It's a finite universe, so "finite supply" is inherently imposed by the laws of physics. I'm not so certain that holds true. You could, in theory, either in a game or in real life, create a currency item that represents infinite currency. There would a finite number of physical representation of such items (if done is real life), and people would only place a finite value on it, but it would still representing an infinite number of whatever currency. You could even digitally create an infinite number of such infinite currencies. Depending upon exactly how they behave, it would quickly make the currency worthless about as fast as people conceptualized what infinite means, but at the core there would be an infinite amount of money.
spraveenitpro 7y ago
So the newly minted 2T dollar bills printed by the fed is finite for you?

zby 7y ago

Well - ETH has infinite supply.

saagarjha 7y ago

> Unfortunately, practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards, even when they often already enjoy lower difficulty. Well, it's a great way to get people to be invested in your new cryptocurrency.

jron 7y ago

Bitcoin needed to bootstrap. Without reward subsidies halving there would be little incentive to invest early. See Grin: https://www.tradingview.com/symbols/GRINUSDT/?exchange=POLONIEX https://www.tradingview.com/symbols/GRINUSDT/?exchange=POLON...

pal_9000 7y ago

Good points. I haven't read the link but aren't you missing the equation of price economics? Bitcoin is only highly skewed for early miners only if they have held on to their rewards stash. Atleast what the designer intended/predicted if I remember correctly, is for the reward value over time to be the same. This is of course not backed by mathematical equation of sort. I would way super early mining is more similar to being the first employee of a startup that pays you in equity only.

paulmd 7y ago

Even better, we could adjust the rate of issue in accordance with the demand for money, thus negating the need for more than a constant, low amount of inflation in the first place. We could call the entity that adjusts the rate of issue a "central bank" and they could perform this "inflation targeting" to keep the value of the currency stable through economic shocks.

irln 7y ago
Even, even better that "central bank" could choose winners and losers providing credit to certain participants eliminating the need for petty "price discovery" and creating a system where 20.5 million people can lose their job on the same day something called "the stock market" goes up 400 points...a pure "stable" utopia!

gridlockd 7y ago

The whole idea that Bitcoin will have a finite supply is nonsense. There's already dozens of Bitcoin forks, some of which lay claim to be the "one true Bitcoin". If the majority decides that whatever is now referred to as the Bitcoin blockchain should not have a limited supply, so it will be. Ultimately, the ones calling the shots here are the same people receiving the block reward, so if transaction fees don't make up for loss in block reward, what's to stop them? On a secondary note, who can claim that it is a good thing that money can't be printed if necessary? The crisis of 2008 was a liquidity crisis, without the ability to print money it could've turned into a great depression. Making the money supply fixed is just throwing out one tool out of the toolbox.

cryptica 7y ago
>> The whole idea that Bitcoin will have a finite supply is nonsense. There's already dozens of Bitcoin forks, some of which lay claim to be the "one true Bitcoin". But there is a limited supply of user attention to be divided up between all available cryptocurrencies and it's not divided equally by any measure; so cryptocurrencies are constantly competing with each other for that attention and this is where they derive essentially all of their value. Underlying technology at this stage has almost no value. In our economy, even an untalented fool speculating on random projects can generate a profit if they have capital; this fact makes talent worthless and means that capital and network effects are EVERYTHING.
- gridlockd 7y ago
  I'm not saying there will be yet another Bitcoin fork that just gets rid of the block halving "as a feature". That would be nonsense. I'm saying that the official Bitcoin blockchain is going to get rid of the block halving, the minority fork will keep the limit "as a feature" and will be called "Bitcoin Classic" or something.
  - sparkie 7y ago
    There is no official bitcoin blockchain. There is only the chain with the most accumulated work, and orphan chains. Anybody attempting to remove a limit which may cause the holdings of all bitcoin users to be devalued will simply be ignored by all other users. Conversely, lets say I put out a proposal to tighten the limit, increase the rate of disinflation and reduce the maximum total supply that could ever be mined to 20M rather than 21M. This proposal might actually gain some interest among bitcoiners because if price speculation so far has been under the assumption that there will be an eventual ~21M bitcoins issued, and this gets scaled back to ~20M, then the 5% reduction in overall supply, without corresponding 5% reduction in demand, would cause all existing bitcoin to gain value. This could also be implemented as a soft-fork and be compatible with all existing software - because the software checks that the amount paid in a coinbase is less than or equal to the subsidy plus fees. It is technically possible to mine blocks which don't release all of the available bitcoin for that block. (This has been done, and such bitcoin are permanently unavailable and reduce the theoretical maximum 21M supply). To relax or remove the block subsidy, one would need to hard fork the protocol in order to defeat the "less than or equal" check. You would have to convince the vast majority of bitcoin users that they aught to download and install alternative software which may cause inflation and devalue their holdings. Keep kidding yourself that this will happen.

cryptica 7y ago

>> Unfortunately, practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards, even when they often already enjoy lower difficulty. This habit of disproportionately rewarding early adopters is a universal feature of our economy and doesn't only apply to cryptocurrencies. The reason why it's like this is simply because it's extremely difficult to get any project or company off the ground; the risk of failure for an early adopter is ridiculously high so rewards also need to be ridiculously high to justify those risks. This is because most economic activity today is focused on seeking rents and building moats; so this has made the environment extremely adverse for newcomers; it lowered their probability of success and forced early adopter payoffs to skyrocket. We live in an age where the moats are so wide that that even offering customers a solution which is 10x better isn't going to cut it anymore in terms of being able to turn any profit. One might think that cryptocurrency would be immune to this; after all, the entire point of the blockchain movement was to fix such kinds of socio-economic problems - But having worked in the space for several years, I can say with confidence that incumbents in the cryptocurrency space have become part of the same problem which they were originally claiming to solve. Development in the space is slow, inefficient, lacks a clear vision and the incumbents of the cryptocurrency space lack any incentives to give newcomers a fighting chance. They will happily let the most promising new projects drown in the noise of popular mediocrity. The hypocrisy of it all is unmistakable. I've seen the ugliest side of human nature in this industry. That said I'm still cautiously optimistic but it's clear that something has to change at a social level in order to move forward.