this post was submitted on 21 Aug 2023
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I didn't talk about features, but specifically about the security budget.
How much do you think the total security budget needs to be, and why? Where's the math that doesn't work out?
The security budget is total fiat denominated miner reward of the entire network. The higher it is, the the more resistant bitcoin becomes to 51% attacks.
As you know, each halfing decreases the block reward, which is currently the largest part of the total miner reward. In order keep a steady security budget, the price and market cap has to double each time as well. But remember, the security budget stays constant, so an ever increasing amount is secured by a relatively lower share.
Transaction fees make up the remaining tiny share, and I honestly don't see it growing much. Because the higher this fee becomes, the more people will find ways to avoid it, and just keep it on exchanges, custodial solution or lightning. This reduces the decentralization , the primary feature of bitcoin, and thereby reduces it value proposition.
All this can be side-stepped by having holders pay a small, program-ably guaranteed fee proportional to their holdings, which is then paid out to miners. Yes, this is similar to inflation, but as long as it is lower than fiat inflation I can be worth the trade off. Considering how cult like bitcoin holder are, I don't think this is a change they are willing to make, at least not before it's too late.
Why would we need to hold the total security budget steady/constant? We're currently paying FAR more than necessary. If we assume total fee revenue won't increase, then Bitcoin fees alone are already more than the entire security budget for some reasonably secure blockchains today.
And that's a very conservative assumption. Lightning and p2p sidechains (which don't hurt decentralization) increase efficiency, so the Jevons paradox predicts that total transaction fees paid will continue to increase. Lightning is less dependent on quick confirmations than base layer commerce is, reducing the impact of 51% attacks if/when they do happen.
When evaluating Monero's monetary inflation trade-off, its primary competitor is Bitcoin, not the dollar. It's not very hard at all to do better than the dollar. :-P I for one am strongly in favor of making changes in general (go BIP 300!) but tail emission has been proposed for over a decade and has been repeatedly rejected as unnecessary.
Bitcoins current budget is sufficient at about 1.6% (= 8B USD) annually. After next halfing it will be about 0.8%, similar to Monero's budget. In 2032 it will be about 0.2%. If Bitcoins price doesn't increase, the budget would only be 1B USD; if it does increase, a 4T mcap would be secured by still only secured by 8B. Either way, the more time passes, the easier Bitcoin becomes to attack. How much longer do you think bitcoin will last?
The (original) selling point of crypto is that it can't be manipulated, even by nations with practically unlimited power and funds. Side chains sacrifice some of the immutability for other aspects and are a at best workaround instead of solution. So far there is little evidence to show that transaction fees will one day make up for the loss in block rewards.
The primary competitor to Monero is not Bitcoin, but gold, whose inflation sits at about 1.5%. Proponents of tail emission have long left bitcoin, and rather contribute to a project which aligns with their views. The remaining crowd will therefore be biased, don't take their word as gospel.
I think it will last indefinitely. This is because fee revenue will continue to be a large positive number, and it's more profitable to cooperate than to attack (as per the white paper). Fees alone would already be enough today, not counting expected increased fee revenue - Satoshi was only wrong about how quickly it would catch on.
How much do you think is enough? Is it an absolute number, or a percentage of market cap? Is it just copying the rate at which humans find gold? I'm not familiar with how Monero calculates its optimal tail emission, if you have any recommended reading.
BIP 300 sidechains are even more immutable than Lightning channels; they're backed by months of confirmations on the main chain and cheating miners would waste their invested hashes. Even without LN, without sidechains, there will continue to be upgrades for more on-chain transactions per block. (Bulletproofs are epic btw)
I hope that after what happened to the BCH investors, we've all learned to not take anyone's word as gospel. :-D
You are clearly knowledgeable about the things you're talking and made a conscious decision. It seems like we agree that there is some risk, but you consider it insignificant while I it's quite substantial. Only time will tell whose right.
Monero's inflation is not a percentage, but rather a fixed 0.6XMR per block. This mean as the supply grows, the inflation percentage will slowly go down, so there's no exponential losses like with fiat inflation. Currently the 0.6XMR/block work out to 0.9% of the mcap, in the year 2100 it will be down to 0.5%: https://moneroj.net/tail_emission/ (<- great site btw, it has a few BTC diagrams as well). The tail emission was chosen so that it works out to be less inflation then gold, but high enough to have a decent security budget.
How do we know that 0.5% is decent? Why not 10% or 0.01%?
The more the better for security, the upper practical limit is golds inflation rate, the lower practical limit is the percentage of coins that become lost or inaccessible. That puts the viable range to 1.5-0.2%, roughly. To be clear, I'm not worried about bitcoins current rate, but rather that it will drop further and further.
Would I be correct to assume gold sets the upper limit because any higher and people would just store value in gold instead?
Why does the security budget need to be higher than the rate of lost coins?
The goal is to create attractive market conditions. Positioning yourself between the historic store of value and the minimum to avoid deflation seems like a good target.