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The linked Medium posts have a bit more content https://joekelly100.medium.com/how-to-kill-bitcoin-part-1-is-bitcoin-unstoppable-code-7a1b366f65ee https://joeke

by paulgb 6y ago

The linked Medium posts have a bit more content https://joekelly100.medium.com/how-to-kill-bitcoin-part-1-is-bitcoin-unstoppable-code-7a1b366f65ee https://joekelly100.medium.com/how-to-kill-bitcoin-part-1-is... Note that this is from last July, when the price of BTC was significantly lower and thus the price of the attack is likely higher now. That said, this becomes more feasible in the long-run when mining is purely funded by transaction fees. Something I don’t see talked about much is the fact that, although Bitcoin is intended to be non-inflationary in the long run, the mining network that keeps it secure is currently 80-90% subsidized by inflation.

AffableSpatula 6y ago
Hey, author here - I think you're absolutely right that there is a risk that demand for blockspace doens't generate sufficient block reward to provide useful security guarantees. If that is the case, it could cause the price of BTC to fall which could create a negative feedback loop. This would, at best, create an end of the 21m cap and at worst trigger a collapse of the game entirely.
- jpsalm 6y ago
  Yea that's what I don't understand either. Is the plan to secure a fully-mined chain just rampant value-inflation in a way that is completely detached from supply and demand? Today my 1e-1000 bitcoin is worth 10 carrots, tomorrow it is worth 20 everything else held equal? How does that even work in practice? Alternatively you need transactions to pay entirely for the security of the chain. This doesn't seem feasible when chain security costs rise everyday as the cost of energy deceases. And if transaction fees increase to compensate and people transact less the whole thing blows up.
  - wmf 6y ago
    The "official" plan is for low-value transactions to happen on the Lightning Network and high-value (e.g. >$1M) transactions paying high fees to happen on-chain.
    - mathiasrw 6y ago
      Lets assume they solve all the math challenges with the routing: The on-boarding is still a challenge as it demands one initial on-chain transaction. If 10% of the current facebook users want to get on lightning and we can make 6 transactions per second it will take 17 months before all are on board - and this is assuming no other types of transactions (so any payment made with BTC will delay this)
- janandonly 6y ago
  A very simple way to increase block rewards is making blocks SMALLER. It is game theory: If you really want your transaction to be on-chain, you pay for it. And smaller blocks means less transactions will fit in one block. So fees will need to go up.
  - AffableSpatula 6y ago
    In theory... but demand has elasticity. If the market has no way to equilibrate at a state that produces sufficient returns, there's no constraining of supply that can produce the returns needed. And that is the risk/unknown.
- RustyRussell 6y ago
  Many people (me included) would consider Bitcoin to have failed at that point. It's pretty clear that the ecosystem believed in the cap, and removing it is a bait-and-switch. Given we're currently floating around 10-15% fee-supported at the moment, I'd say most people are optimistic that we will succeed in moving Bitcoin into its final economic phase (i.e. in 10 years it will be 50% fees). Personally, I still consider it a risk.
- mathiasrw 6y ago
  This is why the original design focus on fees in great volume to be the main incentive to be a miner and using the block reward as both A) a way of distributing the original minting of coins and B) a transition mechanism until volume is so large that the fees can sustain the miner incentive.
treve 6y ago
You probably mean deflation, right? In inflation the cost of goods and services are higher, because the currency is losing value.
- rspeele 6y ago
  The reward paid to miners is mostly newly minted BTC. Presently 6.25 BTC newly created with each block, about 1-2 BTC in fees. Mining has been paid for by increasing the BTC supply, for all of Bitcoin's history so far. Eventually that will have to change as the reward keeps halving. At some point there is no block reward and it's all fees. Will people pay enough in fees to sustain mining at a rate that's impossible for a large actor to 51%?
  - Ekaros 6y ago
    No they won't. As the cost of 51% attack is actually the cost of fee of cancelled transaction(and subsequent ones) plus created coins. The attacker can collect all the fees also from those blocks they mined for attack... Ofc, if the mining is sufficiently large that it is impossible for anyone to collect enough power, then sure. But that is quite expensive proposition in general...
- WJW 6y ago
  No he means inflation. New coins are being mined all the time, causing existing coins to lose value. This does not really matter yet since total demand for bitcoins has been increasing faster than the total supply, leading to an increase in price.
- paulgb 6y ago
  Thanks, but I mean inflation: miners were paid a subsidy in new Bitcoin for their contribution to the network. This has an inflationary effect on Bitcoin, although it was overshadowed by increased demand over the same period.
- FabHK 6y ago
  GP might be referring to the fact that currently, 80-90% of the miners' reward is "coinbase", ie newly minted coins (which expand the money supply and could be considered inflationary), while only 10-20% of the mining reward is from fees, ie cut on the transactions.
WJW 6y ago
I always wondered about that and perhaps someone here can explain. After bitcoin reaches its "full" volume, mining rewards will go away and the only way miner income can stay the same is if transaction fees rise to match. Since the competition of miners basically converges to "block reward is equal to electricity cost equivalent", this would mean transaction costs increase to an insanely huge amount. Not paying the larger transaction costs would lead to the less efficient miners being squeezed out of the pool of miners, leading to less hashing power overall and thus an increased vulnerability to attack. How does the system intend to keep up miner income after all bitcoins have been mined?
- Ekaros 6y ago
  It's interesting as well. If block rewards+transactions fees over confirmation period is lower than value of transaction it will lead to 51% attack being actually profitable. And actually even the transaction fees don't matter. As you can still collect them in 51% attack.
- pitaj 6y ago
  BCH addresses this by increasing the number of transactions per block. This decreases the fee per transaction.
  - swinglock 6y ago
    No, that doesn't address the question at all.
- cloudhead 6y ago
  There are a couple answers to this question, but the truth is we have ~100 years to figure this out, and the world will be a very different place then.
- fanciestManimal 6y ago
  It's an unsolved problem, and all solutions would require a majority of the mining pool to get on board. You could periodically increase the block size, splitting the transaction fee among more transactions. Although larger blocks make it more difficult to produce hashes, so more power would be consumed, thus increasing the transaction fees further. You could change the block reward such that there's a larger block reward or even some kind of sustained rate of inflation. The cap of 21 million bitcoin isn't a fundamental unit, it can be changed if a majority of the mining pool decides to. You could switch to Proof of Work, which doesn't use nearly as much electricity. Given how long this has taken Ethereum, this would probably be a multi year effort. If the Lightning network were to take off, it might also help with this for day to day users. I'm not super confident about that though. I don't think a Layman is going to deal with the Lightning network, personally. Especially with the current narrative of bitcoin being a "store of value" rather than a currency. Bitcoin proponents don't seem to be advocating using it as a day to day payment tool. Of course, there could also just never be any consensus on the direction to take, the network could be attacked, people could bail on bitcoin for other cryptocurrencies or just abandon cryptocurrencies all together and it could become a relic of history.

by paulgb 6y ago

AffableSpatula 6y ago

Hey, author here - I think you're absolutely right that there is a risk that demand for blockspace doens't generate sufficient block reward to provide useful security guarantees. If that is the case, it could cause the price of BTC to fall which could create a negative feedback loop. This would, at best, create an end of the 21m cap and at worst trigger a collapse of the game entirely.

jpsalm 6y ago
Yea that's what I don't understand either. Is the plan to secure a fully-mined chain just rampant value-inflation in a way that is completely detached from supply and demand? Today my 1e-1000 bitcoin is worth 10 carrots, tomorrow it is worth 20 everything else held equal? How does that even work in practice? Alternatively you need transactions to pay entirely for the security of the chain. This doesn't seem feasible when chain security costs rise everyday as the cost of energy deceases. And if transaction fees increase to compensate and people transact less the whole thing blows up.
- wmf 6y ago
  The "official" plan is for low-value transactions to happen on the Lightning Network and high-value (e.g. >$1M) transactions paying high fees to happen on-chain.
  - mathiasrw 6y ago
    Lets assume they solve all the math challenges with the routing: The on-boarding is still a challenge as it demands one initial on-chain transaction. If 10% of the current facebook users want to get on lightning and we can make 6 transactions per second it will take 17 months before all are on board - and this is assuming no other types of transactions (so any payment made with BTC will delay this)
janandonly 6y ago
A very simple way to increase block rewards is making blocks SMALLER. It is game theory: If you really want your transaction to be on-chain, you pay for it. And smaller blocks means less transactions will fit in one block. So fees will need to go up.
- AffableSpatula 6y ago
  In theory... but demand has elasticity. If the market has no way to equilibrate at a state that produces sufficient returns, there's no constraining of supply that can produce the returns needed. And that is the risk/unknown.
RustyRussell 6y ago
Many people (me included) would consider Bitcoin to have failed at that point. It's pretty clear that the ecosystem believed in the cap, and removing it is a bait-and-switch. Given we're currently floating around 10-15% fee-supported at the moment, I'd say most people are optimistic that we will succeed in moving Bitcoin into its final economic phase (i.e. in 10 years it will be 50% fees). Personally, I still consider it a risk.
mathiasrw 6y ago
This is why the original design focus on fees in great volume to be the main incentive to be a miner and using the block reward as both A) a way of distributing the original minting of coins and B) a transition mechanism until volume is so large that the fees can sustain the miner incentive.

treve 6y ago

You probably mean deflation, right? In inflation the cost of goods and services are higher, because the currency is losing value.

rspeele 6y ago
The reward paid to miners is mostly newly minted BTC. Presently 6.25 BTC newly created with each block, about 1-2 BTC in fees. Mining has been paid for by increasing the BTC supply, for all of Bitcoin's history so far. Eventually that will have to change as the reward keeps halving. At some point there is no block reward and it's all fees. Will people pay enough in fees to sustain mining at a rate that's impossible for a large actor to 51%?
- Ekaros 6y ago
  No they won't. As the cost of 51% attack is actually the cost of fee of cancelled transaction(and subsequent ones) plus created coins. The attacker can collect all the fees also from those blocks they mined for attack... Ofc, if the mining is sufficiently large that it is impossible for anyone to collect enough power, then sure. But that is quite expensive proposition in general...
WJW 6y ago
No he means inflation. New coins are being mined all the time, causing existing coins to lose value. This does not really matter yet since total demand for bitcoins has been increasing faster than the total supply, leading to an increase in price.
paulgb 6y ago
Thanks, but I mean inflation: miners were paid a subsidy in new Bitcoin for their contribution to the network. This has an inflationary effect on Bitcoin, although it was overshadowed by increased demand over the same period.
FabHK 6y ago
GP might be referring to the fact that currently, 80-90% of the miners' reward is "coinbase", ie newly minted coins (which expand the money supply and could be considered inflationary), while only 10-20% of the mining reward is from fees, ie cut on the transactions.

WJW 6y ago

I always wondered about that and perhaps someone here can explain. After bitcoin reaches its "full" volume, mining rewards will go away and the only way miner income can stay the same is if transaction fees rise to match. Since the competition of miners basically converges to "block reward is equal to electricity cost equivalent", this would mean transaction costs increase to an insanely huge amount. Not paying the larger transaction costs would lead to the less efficient miners being squeezed out of the pool of miners, leading to less hashing power overall and thus an increased vulnerability to attack. How does the system intend to keep up miner income after all bitcoins have been mined?

Ekaros 6y ago
It's interesting as well. If block rewards+transactions fees over confirmation period is lower than value of transaction it will lead to 51% attack being actually profitable. And actually even the transaction fees don't matter. As you can still collect them in 51% attack.
pitaj 6y ago
BCH addresses this by increasing the number of transactions per block. This decreases the fee per transaction.
- swinglock 6y ago
  No, that doesn't address the question at all.
cloudhead 6y ago
There are a couple answers to this question, but the truth is we have ~100 years to figure this out, and the world will be a very different place then.
fanciestManimal 6y ago
It's an unsolved problem, and all solutions would require a majority of the mining pool to get on board. You could periodically increase the block size, splitting the transaction fee among more transactions. Although larger blocks make it more difficult to produce hashes, so more power would be consumed, thus increasing the transaction fees further. You could change the block reward such that there's a larger block reward or even some kind of sustained rate of inflation. The cap of 21 million bitcoin isn't a fundamental unit, it can be changed if a majority of the mining pool decides to. You could switch to Proof of Work, which doesn't use nearly as much electricity. Given how long this has taken Ethereum, this would probably be a multi year effort. If the Lightning network were to take off, it might also help with this for day to day users. I'm not super confident about that though. I don't think a Layman is going to deal with the Lightning network, personally. Especially with the current narrative of bitcoin being a "store of value" rather than a currency. Bitcoin proponents don't seem to be advocating using it as a day to day payment tool. Of course, there could also just never be any consensus on the direction to take, the network could be attacked, people could bail on bitcoin for other cryptocurrencies or just abandon cryptocurrencies all together and it could become a relic of history.