4 ms·

Everything I know about cryptocurrencies makes me think you and parent are completely right, and PoW cannot work without inflation (or even with very low inflat

• DennisP 6y ago
  There's actually research out of Princeton, that says blockchains destabilize if the rewards are dominated by fees. https://www.cs.princeton.edu/~arvindn/publications/mining_CCS.pdf https://www.cs.princeton.edu/~arvindn/publications/mining_CC...
  • aeternum 6y ago
    These researchers really need to re-evaluate their assumptions: >Figure 2: Illustration of Mining Gaps. Miners will only mine when the instantaneous expected reward exceeds the instantaneous cost This makes no sense, rational actors generally consider discounted future cash flows, not just instantaneous reward. Perhaps the quality of the paper is explained by the researchers following this strategy and only working on 15th and 30th of every month (when their salaries are remitted to their bank account representing an instantaneous reward).
    • nootropicat 6y ago
      Discounted cash flow applies to capital like asics, but energy used for mining is instantaneous cost. When the expected revenue from mining is lower than expected power expenses mining makes zero sense.
      • aeternum 6y ago
        Not necessarily, the paper itself shows motivations other than direct revenue for discovering a block (IE ability to withhold a block and selfish mining strategies). > We also assume that miners always have space to include all available transactions. This is also a pretty bad assumption. In reality the bitcoin mempool is almost always non-zero as bitcoin has smaller and/or less frequent blocks than many other cryptocurrencies.
  • 1996 6y ago
    No, it's very short sighted and wrong: their whole analysis from 2016 depend on a high variance of rewards, which completely ignores the reality of 2017 clogged mempool where miners chose the highest tx fee. Selfish mining is possible, at least for a short period of a time, but sunk costs are eventually sunk costs and you compete for the next block.
    • this_user 6y ago
      Why would mining be anything but selfish? The only reason miners are operating is because they expect a reward that is greater than their expenses. That means block rewards plus TX fees need to be greater than the cost of running the network. Block rewards are effectively a tax on existing holders through inflation of supply, but that will go to zero in the long run. As the rewards decreases, TX fees will need to increase, which means the average TX will rise. This will increasingly make using BTC prohibitively expensive unless the block size is increased so as to allow more TX per block. But if the scenario should arise where revenue no longer covers the costs of being a miner, the whole economic model breaks down. This could even get to the point where going rogue, and attempting to exploit the network with the hash power, could become more profitable for a miner.
      • 1996 6y ago
        I think you do not understand "selfish mining": it's a technical term for a miner trying to take the lead over the existing blockchain, but only in some very specific cases outside normal mining. It's predicted by game theory - google for it, it's interesting! The rest of your analysis is correct: as rewards decrease, TX fees may increase. You can also see that due to competition for the limited tps, as seen in 2017. But this is also exactly why the scenario discussed in the paper is implausible: miners get to pick the transactions with the highest fees for inclusion in the next block. If your transaction is not urgent, you pay the minimum and wait. Eventually, it will be processed - if the expected delay (given the mempool) is not to your liking, you can update the fee with RBF. But again, it means there will be little variance - just a smooth adjustment, meaning the required condition this whole paper is based on is dead wrong. About the economic model breaking down, you make 2 mistakes: 1) you fail to account for difficulty adjustments made just for this situation, but even people who do often forgot 2) when revenue no longer covers costs (as say for a factory), the company doesn't immediately give up and fire everybody. It's industrial organization 101, and due to the difference between short term and long term. Of course, there is less friction and fewer rigidities with software, and mining equipment could be deployed differently if it was still CPUs or GPUs. But the genius of ASICs having no alternative use means it can't happen (except maybe switching to another coin with the same algorithm) Overall, regardless of the situation and what you throw at it, there's no situation I can see where the economic model break - except maybe if miners are tracked and executed on sight by the army? But even then, all it would do is move the mining to another country - or lead to bribes!
• tromp 6y ago
  PoW can work fine with the inflation rate going to zero, and without relying on transaction fees. All it needs is a constant (or an eventually constant) block reward. An effective zero inflation is already achieved when the new emission merely balances the amount of coins getting lost.
  • konschubert 6y ago
    So the amount of value getting lost must be equal or greater the electricity bill for mining. I see your point but doesn’t sound like a great pitch.
  • hanniabu 6y ago
    Sorry but this is a ridiculously stupid reasoning. You're relying on coins being lost (unknown amount) to counteract rewards and closing there's no inflation due to that. This also assumes that miners will be holding enough bitcoin that price increases alone will not only pay for their operations but also cover a reasonable interest in their holdings. It's not logical to think this will happen. And even of it does, you'll be left with only a handful of miners.
    • konschubert 6y ago
      I think your second paragraph is wrong, since the parent suggests that a block reward will still be paid through newly minted coins.