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Another dynamic of bitcoin is that mining is not purely motivated by block rewards; even if there were no rewards at all, people who owned bitcoins would be inc

by TheDong 11y ago

Another dynamic of bitcoin is that mining is not purely motivated by block rewards; even if there were no rewards at all, people who owned bitcoins would be incentivized to continue mining in order to secure their own currency holdings. For example, if I had 100BTC and I feared that they would halve in value if the bitcoin network had a successful technological attack, it would be quite reasonable for me to spend up to half the amount of coins I had in mining/securing the network, regardless of other profit... and that arms race also continues even with no money gained from mining due to increasing vested interest. I think this dynamic is often lost in people estimating what amount of mining a rational actor would undertake.

Someone 11y ago
Half of the money over what time frame? If that's per year, you're facing 50% devaluation of your property per year. That may be your best choice, but it surely isn't enticing for people to enter the game, or keep playing it. So, that would kill Bitcoin.
dperfect 11y ago
As long as markets exist to transfer bitcoin to other currencies, I believe that effect is probably negligible. If a miner holds a significant portion of their rewards in bitcoin and there exists a credible threat to the network, it will almost certainly be more advantageous to convert that value to another currency rather than continue mining in hopes of saving the network.
reddytowns 11y ago
If you owned stock in Pepsi, and their business looked like it was going to go under, would you drive down to the plant and help them bottle the stuff? The rational response in your scenario would be to sell your BTC and diversify into other assets. Trying to secure the network yourself suffers from the tragedy of the commons. There is no real incentive besides altruism to not let others bear the cost of doing the work and ride on their coattails.
- beaner 11y ago
  You might not, but if Pepsi produced 90% of the demand for drinking bottles, the bottle makers might. Similarly, bitcoin companies which are not currently miners but which profit from providing bitcoin-related services might have incentive to step in. (Coinbase, Circle, BitPay, etc.)

by TheDong 11y ago

Someone 11y ago

Half of the money over what time frame? If that's per year, you're facing 50% devaluation of your property per year. That may be your best choice, but it surely isn't enticing for people to enter the game, or keep playing it. So, that would kill Bitcoin.

dperfect 11y ago

As long as markets exist to transfer bitcoin to other currencies, I believe that effect is probably negligible. If a miner holds a significant portion of their rewards in bitcoin and there exists a credible threat to the network, it will almost certainly be more advantageous to convert that value to another currency rather than continue mining in hopes of saving the network.

reddytowns 11y ago

If you owned stock in Pepsi, and their business looked like it was going to go under, would you drive down to the plant and help them bottle the stuff? The rational response in your scenario would be to sell your BTC and diversify into other assets. Trying to secure the network yourself suffers from the tragedy of the commons. There is no real incentive besides altruism to not let others bear the cost of doing the work and ride on their coattails.

beaner 11y ago
You might not, but if Pepsi produced 90% of the demand for drinking bottles, the bottle makers might. Similarly, bitcoin companies which are not currently miners but which profit from providing bitcoin-related services might have incentive to step in. (Coinbase, Circle, BitPay, etc.)