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Today's Topics:

   1. Re: Bitcoin covenants are inevitable (Billy Tetrud)


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Message: 1
Date: Wed, 6 Jul 2022 17:46:15 -0700
From: Billy Tetrud <billy.tetrud@gmail.com>
To: vjudeu@gazeta.pl,  Bitcoin Protocol Discussion
        <bitcoin-dev@lists.linuxfoundation.org>
Subject: Re: [bitcoin-dev] Bitcoin covenants are inevitable
Message-ID:
        <CAGpPWDbKjSXKHaUcevzG1DtdP-WksO3Ak+1J2JWTeCG2=3GgLQ@mail.gmail.com>
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@Corey

>  Currently there is zero feedback in the Bitcoin system between what we
might think is the optimum amount of security and what actually exists.

I basically agree with this. The pedantic part of my mind does want to
point out that the link between block subsidy and bitcoin's price does
actually give somewhat of a feedback loop, in that the higher the price,
the more valuable bitcoin is as a whole (at least as viewed by the active
market), and therefore the more investment in security is appropriate.
However, in the long run when the subsidy reduces to insignificance, we
basically lose this link. And even with this link, it's not very direct.
Fees retain only a little bit of this behavior, because presumably a more
valuable bitcoin is more valuable to spend, but the link to security is
very tenuous there.

> There is also zero agreement on how much security would constitute such
an optimum.

This is really step 1. We need to generate consensus on this long before
the block subsidy becomes too small. Probably in the next 10-15 years. I
wrote a paper
<https://github.com/fresheneesz/quantificationOfConsensusProtocolSecurity>
that uses a framework for thinking about how much security bitcoin might
need. The concept is that we should figure out what bitcoin's bottlenecks
are, and figure out the minimum requirements we want to place on running a
node based on how many (public) nodes we think we need and what percentage
of machines out there are likely to run a node. The goals I chose to
explore in that paper are totally up for debate, and I think its an
important debate to have. But they are basically a first stab at setting up
what we would need to determine optimum security. I would very much
appreciate your review of that part of the paper, Corey.

> Figuring out how much security is needed, or even better, figuring out a
way to have a market mechanism to answer that question, will be an
important project.

My thoughts on this are that we will need to periodically make some
software change to adjust a *target amount of investment in security*,
because the components of bitcoin's blockchain security are not all
predictable. Many unpredictable things factor into bitcoin's security (eg
miner behavior, pools, how many people generally run public nodes on their
own, what features require running public nodes, value of bitcoin, etc.

The primary mechanism we have to change how much security we have is to
change the block size, which changes how much fees miners can collect each
block. This isn't a linear thing. Its probably a parabola with a peak,
where at that peak, making the block either smaller and larger would both
reduce total fees paid. This is because when blocksize is higher, more
transactions (and thus more fees) can be collected, but at the same time
average fees will be lower. The pull of those two forces should define that
parabola.

So my suggestion here would be that we should target a certain amount of
security and have programmatic adjustments to the block size in order to
stay near enough to the parabolic maximum so that we pay miners enough to
give us sufficient blockchain security. Conversely, it should also attempt
to minimize how much "extra" security we pay for. It would be wasteful to
pay 3 times as much for 3 times the security we actually need. Such a thing
is a very real form of devaluation that basically represents a tax on
bitcoin and users of bitcoin. And its very possible for the position of
this parabola to change over time. We could never say with certainty
whether we're on one side of the parabola's maximum or the other. This
would make it rather complex to track well.

Additionally, there's no clear trustless way to determine the market value
of bitcoin at any given time, which makes it difficult to maintain this
target over time. As the market value of bitcoin changes, that target could
become quite inaccurate. This implies that we would need to do periodic
adjustments to the target, either through periodic forks or through some
other mechanism for changing the target.

If there were a good trustless way to determine the market value of
bitcoin, we would have to "manually" change this target potentially much
less often. Transaction fees kind of have an association with market value.
Perhaps some kind of analysis can be done on that to make a reasonable
prediction of what market value is based on fees. Or maybe blocks can
commit to a market price similarly to how they commit to a timestamp (which
is also only verifiable to an approximation and can only be verified close
to when it was mined but not eg years later).




On Wed, Jul 6, 2022 at 4:13 AM vjudeu via bitcoin-dev <
bitcoin-dev@lists.linuxfoundation.org> wrote:

> > If the only realistic (fair, efficient & proportionate) way to pay for
> Bitcoin's security was by having some inflation scheme that violated the 21
> million cap, then agreeing to break the limit would probably be what makes
> sense, and in the economic interest of its users and holders.
>
> So, Paul Sztorc was right again, there are three options: Enormous Block
> Size Increases, Violate 21M Coin Limit, or >50% Miner Fee-Revenues Come
> From Merged Mining: https://www.truthcoin.info/images/sb-trilemma.png.
> And I think using Merged Mining is the best option. More about that:
> https://www.truthcoin.info/blog/security-budget-ii-mm/
>
> > Another option, if we were to decide we are over-secured in the short
> term, would be to soft-fork in a reduction in the current and near-future
> mining rewards, by somehow locking the coins in a contract that deprived
> the miner of the full reward, and then using that contract to pay the
> rewards out far in the future, should at some point we feel the security
> budget was insufficient.
>
> Yes, that's also possible, RSK uses that. And making some kind of
> soft-fork for that is also possible, but I don't know if miners will agree
> to send some coinbase reward to "<futureBlockNumber> OP_CHECKLOCKTIMEVERIFY
> OP_DROP OP_TRUE".
>
> On 2022-07-06 06:29:18 user Corey Haddad via bitcoin-dev <
> bitcoin-dev@lists.linuxfoundation.org> wrote:
> >Bitcoin's finite supply is the main argument for people investing in it,
> the whole narrative around bitcoin is based on its finite supply. While it
> has its flaws and basically condemns bitcoin to be only used as a store >of
> value (and not as a currency), I don't think it's worth questioning it at
> this point.
> >
> >Just my 2 sats.
> >
> >Giuseppe.
>
>
> A finite supply alone is not enough to give something value, as it must
> also be useful in some way. In the case of Bitcoin, various forms of
> cryptographic security must all work - and work together - to make Bitcoin
> useful. If the only realistic (fair, efficient & proportionate) way to pay
> for Bitcoin's security was by having some inflation scheme that violated
> the 21 million cap, then agreeing to break the limit would probably be what
> makes sense, and in the economic interest of its users and holders.
>
> There will always be competitive pressures with respect to efficiency, and
> both being over-secured and under-secured would be economically inefficient
> for a crypto currency, and thereby laving room for a more optimally-secured
> competitor to gain ground. Currently there is zero feedback in the Bitcoin
> system between what we might think is the optimum amount of security and
> what actually exists. There is also zero agreement on how much security
> would constitute such an optimum. Figuring out how much security is needed,
> or even better, figuring out a way to have a market mechanism to answer
> that question, will be an important project.
>
> Another option, if we were to decide we are over-secured in the short
> term, would be to soft-fork in a reduction in the current and near-future
> mining rewards, by somehow locking the coins in a contract that deprived
> the miner of the full reward, and then using that contract to pay the
> rewards out far in the future, should at some point we feel the security
> budget was insufficient. Anthony Towns presented a form of this concept in
> greater detail at a Scaling Bitcoin conference some years ago. While this
> solution, if employed, would only work for some finite amount of time, it
> is possible that could give additional decades before the accumulated
> security budget was exhausted.
>
>
> Corey
> _______________________________________________
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