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10 sats \ 3 replies \ @SimpleStacker 6 Sep 2023 \ on: Tail Emissions Are A Terrible Idea bitcoin
In equilibrium, tx fees plus subsidy should equal the energy cost of mining a block plus opportunity cost.
If subsidies go down, then either:
- The amount of tx fees goes up (measured in BTC)
- The resource price of bitcoin goes up (measured in real resources per BTC)
- The cost of mining goes down
#2 seems to be what has happened most often historically, while #1 should continue to go up if adoption increases. I don't support ordinals, but new sources of on-chain demand like ordinals can also drive up #1.
#3 can occur one of two ways:
- 3a) Cost of energy goes down;
- 3b) Difficulty goes down.
3A is likely to continue happening into the future as block subsidies continue to reduce.
3B is probably the least desirable outcome as it undermines bitcoin's security against 51% attacks. But compared to 3B there are three other potential sources to counteract a decline in block reward.
Moreover, it's not obvious to me that a decline in difficulty would be so bad. A 51% attack would most likely still be out of reach, even with a decline in difficulty, and a lower difficulty would allow more people to benefit from mining.
asking for decline in difficulty - is an obvious attack on famous Store-of-Value property of Bitcoin, attack on Bitcoin price in fact
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And my intuition tells me that, asymptotically speaking, if something declines in Bitcoin, it's probably not to some fixed magic 'equilibrium constant', but to zero.
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#3 wouldn't fix anything in most cases.
If the cost of energy went down, why would they allocate less money to mining? They would still try to allocate the same amounts and reap the maximum reward they can. If all miners had access to cheap energy, then this would happen in tandem with all miners.
The difficulty going down would be a result of miners making the decision to go out of business or temporarily spend less. Over the long run, miners will always use all their allocated energy to mine unless they can predict a future drop in the hashrate where saving energy for a more opportune time makes sense. This would probably only happen if they pay a predictable price for energy rather than generate it themselves since producing and storing energy for later is expensive.
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