Re: [bitcoin-dev] Reducing block reward via soft fork

[Phuoc Do <dnprock@gmail.com>]

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I think security and inflation are intertwined aspects of a monetary system
[1]. They are both necessary. Many Bitcoin articles discussed energy and
security. More energy translates to more security. The other dimension is
inflation. Bitcoin block reward is constant and reduced every 4 years. But
its price has increased exponentially. The price rise compensates for
reduced inflation.

I don't think a fee market is enough to sustain the system. Bitcoin, for
now, is heading for destruction when inflation stops. As a self-contained
system, this happens when the block reward (plus fee) decreases faster than
the price rise. The Fed has an inflation target of 2% per year. This is
conventional wisdom. The USD M2 money base historically grows at 7% per
year [2]. We didn't know why inflation is necessary. I think Bitcoin shows
us that inflation and security are related. Inflation ensures there'll be
security.

Without inflation, the system will collapse. Cutting block rewards will
reduce energy spend. But it likely will destroy the system. Instead, we
need to ask:

1. How much energy we should spend on mining?
2. How we can use renewable energy?

[1] https://bitflate.org/post/2021/05/21/inflation-and-security.html
[2] https://ycharts.com/indicators/us_m2_money_supply_yoy

On Sun, May 23, 2021 at 1:49 AM James Lu via bitcoin-dev <
bitcoin-dev@lists.linuxfoundation.org> wrote:

> Background
> ===
> Reducing the block reward reduces the incentive to mine. It reduces the
> maximum energy price at which mining is profitable, reducing the energy use.
>
> Bitcoins have value because they are accepted by full node users, from
> individual node operators, to exchanges and custodians like Coinbase.
> Anything else and the Bitcoins don't exist and are worthless. Like all
> currencies, Bitcoin has value because others recognize that they have value.
>
> Idea
> ===
> Reduce the block reward by adding fewer coins to the UTXO set per block.
> This should be done gradually
>
> Consensus layer
> ===
> This is a soft fork, because it tightens the
>
> Some Possible Weaknesses
> ===
> - It will cost less than a nation-state of energy to reverse recent
> Bitcoin transactions.
> - Some miners may protest and lobby exchanges.
> - By pushing mining towards the cheapest energy sources, centralization
> increases towards Chinese miners.
> - The Bitcoin network may split if consensus is not built before flag day.
>
> However, given the current political headwinds and widespread public
> discussion around Bitcoin's energy use, it may be socially possible to
> ask individual users and major exchanges to install a version of Bitcoin
> with a reduced block reward.
>
> Alternatives
> ===
> Instead of outright rejecting transactions (and the blocks that contain
> them) that attempt to spend increased block rewards, treat them as no-ops.
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>


-- 
Phuoc Do

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