> I think Bitcoin makes particularly elegant usage of energy, and is getting more energy efficient over time.
I see no logical basis for the latter. With a fixed amount of miner rewards, the amount of electricity spent on competing for it will approach its value. With each new generation of more efficient ASICs, miners just end raising the hashrate.
> That’s what journalists and other people who don’t understand the algorithm often miss: the declining block subsidy. This results in Bitcoin’s inflation rate going down
The inflation rate would go down as well without a declining block subsidy. The latter just makes it go down faster.
> some analysts and critics of the network are concerned that Bitcoin won’t use enough energy to remain secure in the future when it relies mostly on transaction fees. I don’t view that as a primary concern either
Strangely no reason given for this wishful thinking that declining rewards leading to declining security won't be a long term problem.
> Since they don’t need to expend resources to stake, they can simply increase their overall staking amount as they earn ongoing coins from staking rewards, and exponentially grow their influence on the network over time,
Every staker increases their stake by the same percentage; each one is just holding on to their share of the pie; there is no exponentially growth.
> I think money that doesn’t have a cost ultimately ends up being political in nature. So people closer to the money, the so-called Cantillon Effect, are going to be advantaged.
Early miners/adopters were (exponentially!) closer to the money in bitcoin.
The most apolitical money is one without reward reduction.
> > some analysts and critics of the network are concerned that Bitcoin won’t use enough energy to remain secure in the future when it relies mostly on transaction fees. I don’t view that as a primary concern either
> Strangely no reason given for this wishful thinking that declining rewards leading to declining security won't be a long term problem.
Why would reliance on mostly transaction fees be a problem? Even with zero block reward, miners still have every incentive as before (with high block rewards) to compete for finding as many blocks as possible, because the creator of a block can choose transactions and gets the resulting fees. The chance to succeed is proportional to hashing power and thus energy usage. Do I get something wrong here?
The problem is not with lack of miners, but with lack of security relative to the total secured value (i.e. marketcap). This paper [1] studies the issues.
>> That’s what journalists and other people who don’t understand the algorithm often miss: the declining block subsidy. This results in Bitcoin’s inflation rate going down
> The inflation rate would go down as well without a declining block subsidy. The latter just makes it go down faster.
Agree.
The interesting question would be: what would have happened to Bitcoin, if it had been designed to have a fixed emission rate instead of halvings every few years?
Maybe it wouldn't even have attracted interest from enough people to become widespread.
Or maybe it would've attracted even more interest.
I think the notion of "fixed supply" attracted many people who see it as a fundamental feature.
> The interesting question would be: what would have happened to Bitcoin, if it had been designed to have a fixed emission rate instead of halvings every few years?
It would have much less fear of missing out, much less hoarding and speculation, and demand would mostly be from people actually wanting to transact. Which is a good thing. Prices would stay much lower, the environmental impact would be hugely smaller, and bitcoin would actually be a p2p currency rather than a perceived get-rich-quick scheme.
> I think the notion of "fixed supply" attracted many people who see it as a fundamental feature.
> It would have much less fear of missing out, much less hoarding and speculation, and demand would mostly be from people actually wanting to transact.
I wouldn't be so sure about this. I'd assume FOMO is rather induced by people observing steep price surges which show them that they could have earned X % in a short time, had they bought a little earlier, than the mere supply function over time.
Had the price remained mostly flat in the way it did until September 2020, there'd have been little FOMO.
I read your text. While I agree that in the long term the difference in inflation rate is almost negligible (after 200 years Grin would have 0.5 % inflation whereas Bitcoin's inflation would be practically zero) it appears pretty obvious to me that in the early years, the difference is huge.
A huge difference in the beginning is crucial for systems that are subjected to the network effect. If early on a system doesn't gain enough traction and users, there's a big probability it will just fade away. So any p2p digital currency system should attract enough users in the beginning or it will be too slow to catch on and be outrun by its competitors.
Sure, Grin would work as store of value practically the same way as Bitcoin would in 200 years. But people don't live that long, so their time horizon for a system to work as store of value will rather be like 30-40 years. If you look at Grin's inflation over the first 30-40 years, it is no store of value, it looses value quicker than regular currencies did in the last couple of decades.
Grin vs Bitcoin Inflation, had they both started in 2009:
2013 - 25.0 % - 12.5 %
2017 - 12.5 % - 4.2 %
2021 - 8.3 % - 1.8 %
2025 - 6.3 % - 0.8 %
Sure, many people became interested in Bitcoin (second wave) because of price spikes. But I still assume the early adopters were only early adopters because of rapidly decreasing and eventually fixed supply.
Unlike a top down governmental currency which is just issued and everybody uses it, a bottom up currency (that has to grow via the network effect) needs a sufficient level of early adopter reward, or it will never become wide spread.
Also, the pure blockchain doesn't really appear to scale well enough to enable everyday payments for billions of people, which might indicate that its purpose might be more in the store of value (as foundation of currency systems) domain rather than in being used for day to day payments.
> > Since they don’t need to expend resources to stake, they can simply increase their overall staking amount as they earn ongoing coins from staking rewards, and exponentially grow their influence on the network over time,
> Every staker increases their stake by the same percentage; each one is just holding on to their share of the pie; there is no exponentially growth.
Aren't you missing here that there's a certain threshold below which holders practically do not stake? All those people with low balances do not get this "same percentage".
Maybe you can compare it to a savings bank account. It is mostly small amounts of money which reside in pockets or wallets or piggy banks. They don't earn interest as the larger amounts in savings accounts do.
Most people with little money do not get any interest on the little they have, whereas wealthy people often manage their wealth so that they have gains.
So I claim that there's indeed an exponential effect that will shift the percentages over time. And it should lead to accumulation instead of distribution.
> Aren't you missing here that there's a certain threshold below which holders practically do not stake? All those people with low balances do not get this "same percentage".
If some percentage p of people cannot afford to stake, and the rest do, then the stakers can at most increase their share by 1/(1-p). Just a constant. Nothing exponential.
> Early miners/adopters were (exponentially!) closer to the money in bitcoin.
True, this initial distribution of Bitcoin isn't desirable longterm.
The important question is: do the fundamental dynamics of the system lead to a less unequal distribution or to even more concentration in the longterm?
I'd say the longterm dynamics of a system that's capable of reaching some equilibrium are hugely more important than its initial state.
Every time, some Bitcoin whale buys something with their coins, they're very likely flattening the distribution.
Since Bitcoin doesn't earn any interest, whales cannot just spend the earnings and keep a constant balance. Every time (almost) they spend, the distribution becomes more flat.
As long as the Bitcoin price were to rise, the incentive to buy something else with it would also increase. Combined with people having finite lifespan this will probably lead to most whales spending sooner or later.
For reducing wealth concentration and thus better distribution, it's crucial that initial whales keep getting diluted, as they would be with a fixed reward.
Agree. Heat pumps are likely the most efficient way to heat/cool something we'll ever have.
But that's besides the point. The question was whether mining is becoming more efficient, not whether mining can deliver secondary purposes as efficiently as other technology that's specifically designed for those purposes.
I see no logical basis for the latter. With a fixed amount of miner rewards, the amount of electricity spent on competing for it will approach its value. With each new generation of more efficient ASICs, miners just end raising the hashrate.
> That’s what journalists and other people who don’t understand the algorithm often miss: the declining block subsidy. This results in Bitcoin’s inflation rate going down
The inflation rate would go down as well without a declining block subsidy. The latter just makes it go down faster.
> some analysts and critics of the network are concerned that Bitcoin won’t use enough energy to remain secure in the future when it relies mostly on transaction fees. I don’t view that as a primary concern either
Strangely no reason given for this wishful thinking that declining rewards leading to declining security won't be a long term problem.
> Since they don’t need to expend resources to stake, they can simply increase their overall staking amount as they earn ongoing coins from staking rewards, and exponentially grow their influence on the network over time,
Every staker increases their stake by the same percentage; each one is just holding on to their share of the pie; there is no exponentially growth.
> I think money that doesn’t have a cost ultimately ends up being political in nature. So people closer to the money, the so-called Cantillon Effect, are going to be advantaged.
Early miners/adopters were (exponentially!) closer to the money in bitcoin. The most apolitical money is one without reward reduction.