It's not about if transaction fees cover the cost of mining, it's about the fact that some people, holders, pay nothing to secure their wealth and that cost is subsidized by transaction fees. This isn't me complaining about some injustice or something, it is about the incentives on the bitcoin network.
Could they conceivably cover the costs of security?? For a time, yes, as you see now that is exactly what is happening, but ultimately incentives are your outcome. People are incentivized to hodl, because they can offload their security costs to those who spend or move around bitcoin, and it's compounding, it has a positive feedback loop; the more people just hodl, the more transaction fees have to cover the cost, the more incentive someone paying those fees has to just hodl. Ultimately, there's a threshold somewhere where security begins to decline, and with it, value.
Mining becoming cheaper with energy... I tried to look up the name of the phenomenon and I can't find anything (search engines filled with renewable energy blogspam) and I can't remember, but historically it has been empirically observed that, as energy becomes cheaper, people spend *more* on it and increase their energy usage. So far bitcoin has also followed this. Also, co wider increasing efficiency of ASICs does not lead to less mining power on the network, but simply a better edge to whoever can get their hands on it. Ultimately, security of the network is not a function of hash power, since machines get more powerful and cheaper, but is a function of share of total available hash power in the world held by the network, and that very closely correlates with energy expenditure by the network of miners. If the expenditure goes down, security does also.
Replies (4)
As the block reward decreases, banks will run miners at a loss. This will centralise mining further.
I don't know about banks, but Satoshi designed bitcoin with an assumption early on, that all nodes mine and therefore all users mine. Later, he figured out that "nodes" would run in "server farms" and spoke about it. Of course he assumes all nodes mine there too, and everyone else uses remote nodes. Well the way the incentives are set up, eventually the only people that can afford to send transactions, barring a collapse of the value and therefore price, would be people that are 1) mining the transaction, or 2) sending a transaction to the miner that mined the block. They might collude with each other to allow each other to send free transactions, but that's not a stable state. This *is* the result of the block size limit, and a smaller block size makes success more likely, if your definition of success is a system where only miners send transactions. This is not peer to peer digital cash, but a settlement layer for sovereign entities.
But that's separate from the issue of uncapped supply I was talking about above.
Not everyone. Holders don't pay, but they benefit, and those that spend subsidize the security on behalf of those that don't spend. It's a big problem that will increasingly become obvious as it rears it's head in the coming decades. I wrote up some detail on it in the linked note and more in the thread it is in
mister_monster
It's not about if transaction fees cover the cost of mining, it's about the fact that some people, holders, pay nothing to secure their wealth and that cost is subsidized by transaction fees. This isn't me complaining about some injustice or something, it is about the incentives on the bitcoin network.
Could they conceivably cover the costs of security?? For a time, yes, as you see now that is exactly what is happening, but ultimately incentives are your outcome. People are incentivized to hodl, because they can offload their security costs to those who spend or move around bitcoin, and it's compounding, it has a positive feedback loop; the more people just hodl, the more transaction fees have to cover the cost, the more incentive someone paying those fees has to just hodl. Ultimately, there's a threshold somewhere where security begins to decline, and with it, value.
Mining becoming cheaper with energy... I tried to look up the name of the phenomenon and I can't find anything (search engines filled with renewable energy blogspam) and I can't remember, but historically it has been empirically observed that, as energy becomes cheaper, people spend *more* on it and increase their energy usage. So far bitcoin has also followed this. Also, co wider increasing efficiency of ASICs does not lead to less mining power on the network, but simply a better edge to whoever can get their hands on it. Ultimately, security of the network is not a function of hash power, since machines get more powerful and cheaper, but is a function of share of total available hash power in the world held by the network, and that very closely correlates with energy expenditure by the network of miners. If the expenditure goes down, security does also.
View quoted note →
There is an ongoing cost to holding it. Your wealth is secured by the network, without that security, your wealth is worthless. That security you get is subsidized by spenders, and this has incentive/game-theoretical implications for the bitcoin network that are not good. You can have the rarest of assets and if it can disappear while you sleep it's not worth anything.
Energy becoming cheaper... As energy becomes cheaper, people spend more on it by raising their energy usage. This is commonly observed everywhere in the world, and so far, empirically, this has held true for the bitcoin network as well.
I explained all of this stuff the other day in more detail in the following note, as well as another note in the same thread, if you want to give it a read to get a good idea of my thoughts on the matter.
mister_monster
It's not about if transaction fees cover the cost of mining, it's about the fact that some people, holders, pay nothing to secure their wealth and that cost is subsidized by transaction fees. This isn't me complaining about some injustice or something, it is about the incentives on the bitcoin network.
Could they conceivably cover the costs of security?? For a time, yes, as you see now that is exactly what is happening, but ultimately incentives are your outcome. People are incentivized to hodl, because they can offload their security costs to those who spend or move around bitcoin, and it's compounding, it has a positive feedback loop; the more people just hodl, the more transaction fees have to cover the cost, the more incentive someone paying those fees has to just hodl. Ultimately, there's a threshold somewhere where security begins to decline, and with it, value.
Mining becoming cheaper with energy... I tried to look up the name of the phenomenon and I can't find anything (search engines filled with renewable energy blogspam) and I can't remember, but historically it has been empirically observed that, as energy becomes cheaper, people spend *more* on it and increase their energy usage. So far bitcoin has also followed this. Also, co wider increasing efficiency of ASICs does not lead to less mining power on the network, but simply a better edge to whoever can get their hands on it. Ultimately, security of the network is not a function of hash power, since machines get more powerful and cheaper, but is a function of share of total available hash power in the world held by the network, and that very closely correlates with energy expenditure by the network of miners. If the expenditure goes down, security does also.
View quoted note →
