312 sats \ 3 replies \ @kr 21 Oct 2022 \ on: I'm Peter Todd, cryptochronomancer/web-π dev, AMA bitcoin
Can you steelman the argument for not adding tail emissions to Bitcoin?
Easy: it'll require a highly disruptive hard fork that could easily be more harmful than the problem.
Fortunately, we can achieve that exact same goal with a demurrage soft-fork. Basically, you'd create a pool of funds that all miners pay into in their coinbase transactions, with miners also allowed to withdraw from this pool slowly over time. You'd make the contribution per block be the sum of each txin * blocks in existence * some tax rate, eg 0.1% per year worth of blocks. Just like the inflationary subsidy, that'll result in miners always having an incentive to mine and build on top of other blocks. It's a bit more technically complex, and the accounting isn't as nice. But economically it's the exact same thing, and it just needs a soft fork. It's also compatible with existing wallets, as it just shows up as fees being higher.
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Your tail emission and demurrage proposals is an example of why bitcoin could never be written by just a programmer. Bitcoin solves an economic problem that has existed since the beginning of money; It brings into existence something that cannot be confiscated, counterfeited or inflated. What you propose are solutions to a problem that we don't even know will exist. To impose such a new 'legislation' is to change the terms of the contract, and it quickly transforms your proposed system into something other than bitcoin.
Tail emission solves two problems that are not proven to be problems; one that bitcoin can be lost, and two that there will not be sufficient incentive to mine with only fees.
Granted bitcoin can be lost, but this is a feature not a problem. Everyone that buys bitcoin signs up under this assumption and for once (unlike out present system of elastic and inflationary currency) everyone that holds bitcoin benefits directly from the mistakes of others no matter how much political influence they hold.
To keep mining the reward high with a wealth tax, or demurrage as you call it, is to ignore the purpose of bitcoin in the first place: to be an immutable store of wealth. With a demurrage, your wallet becomes a negative interest rate bearing account, and under hyperbitcoinization the function of unit of account will stabilize deflation and turn mining into an effective license to steal.
I haven't seen you make a full throated argument, or a demonstrable model, proving that your stated problems are unsolvable by simple market forces without changes to Bitcoin's algorithm. You presume everyone agree these problems exist and require your proposed solutions.
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Thank you for having a discussion like this here @petertodd. You have a lot of experience and contextual insight you bring.
I think that most people would agree that the bitcoin protocol needs to, ad infinitum, provide incentive to contribute work to the network.
As a first step towards that, one way to ensure that there is always a non-zero block reward, while retaining the property of finite total supply, would be to:
- keep the same subsidy reduction schedule (halving every 4 years) and "simply" increase the numerical precision with which the protocol tracks sats.1
Are there particular economic reasons why you would consider the above not a viable path, or at least a natural step in the right direction?
This continuation of the subsidy halving schedule seems more "natural" in that it does not arbitrarily pick some target inflation tax or demurrage tax and add it to the protocol. Rather, it simply continues the existing inflation tax which is passively and pro-rata paid by all utxos.
Ultimately I suppose one way we could look at the block subsidy, not just tail emmission, but any subsidy at all, is that it is a technically "simple" way for all utxos to passively, and pro-rata pay for block creation.
Yet, when we transition to a post-subsidy (and hope there is a robust fee market by then!), it also means it is also a transition to only some utxos actively paying for block creation (via fees). So we have a freerider problem. And it is ironic, because the freeriders in the post-subsidy scenario are the hodlers, yet the hodlers are a large part of why bitcoin works at all!
Footnotes
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let us set technical details aside for a moment as to whether such a thing is even possible via a soft fork ↩
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