Subject: Re: [bitcoin-dev] Block solving slowdown question/poll

From: Andrew Cann <[email-masked]>
Date: Fri, 27 Mar 2020 05:17:34 -0400

> To change the supply is far too big a change.

It would also be a big change if bitcoin became unusable due to mining profits
dropping low enough for a state actor with a warehouse full of asics to mount a
51% attack and mine empty blocks all day.

> What happens if I own a few million Bitcoin and then accidentally lose my
> private keys in a tragic ear-cleaning accident?
> Then the vote of that UTXO containing a few million Bitcoins will remain
> forever fixed and unable to change according to whatever you believe would
> make us as a community decide to change the inflation rate.

All that matters is whether the long-term rate of deflation due to lost coins
is less or greater than the rate of inflation. This determines whether the
proportion of coins whose signaled inflation rate is fixed in time would tend
towards zero or one. I think it's /fairly/ safe to assume that it would remain
less. People obviously have a pretty strong incentive to not lose their coins -
particularly people who are holding massive amounts of bitcoin - and as bitcoin
becomes more mainstream, regular users will necessarily be using forms of
protection against losing their coins (whatever they might be). Contrast this
against the inflation rate which should remain high enough to prevent very
wealthy entities from being able to mount a 51% attack. What proportion of the
total market cap of bitcoin do you think your least favorite government could
plausibly be willing to spend to take down bitcoin for a month? And do you
think it's less or greater than the proportion of all bitcoins that get lost in
a month?

> It is helpful to remember that as a UTXO gets buried deeper, its security is
> inevitably better, and once I have a sufficient level of security in my
> ownership of the coin, I will not particularly care about any improved
> security and will not be interested in paying for more.

If we're talking about the possibility of your coin becoming worthless because
someone out there can unwind transactions at will and prevent you from spending
it then you should definitely be interested.

> If I want to *spend* my Bitcoins on something --- and nothing has value until
> I actually utilize it --- then I *will* pay transaction fees. The receiver of
> the coin would want to ensure that the received UTXO is deeply buried to the
> point that it has sufficient security for the receiver, before releasing or
> providing me with whatever I am exchanging the coin for.
>
> Thus, if I find that there are no miners at all, I could offer a high fee to
> get my transaction mined. Of course, you might say that this only pays for
> one block.
>
> But in most cases I will have more value remaining beyond what I spend to the
> receiver, i.e. I have a change output from that transaction.
>
> In such a case, I can  pay for more blocks by re-spending the change output
> to myself, paying a transaction fee each time, until the original transaction
> that spends to the receiver is deeply buried and the receiver credits it and
> then releases the product or service I am exchanging *for*. Alternately the
> receiver can do the same for its *own* UTXO, and will increase the payment it
> demands from me in order to perform this itself; thus I still end up paying
> for the security of the *transaction* and not the security of the *holding*.

In your example though it's just you or the receiver paying for blocks. In that
case you're only paying for your own security and so there's no tragedy of the
commons and the system works. But once you have a thousand people putting
transactions in every block and everyone is collectively paying for everyone's
collective security then, without some mechanism to force everyone to pay their
fair share, you're inviting Moloch to the party.

Here's a better explanation than I could write of the phenomenon I'm talking
about:

> As a thought experiment, let’s consider aquaculture (fish farming) in a lake.
> Imagine a lake with a thousand identical fish farms owned by a thousand
> competing companies. Each fish farm earns a profit of $1000/month. For a
> while, all is well.
> 
> But each fish farm produces waste, which fouls the water in the lake. Let’s
> say each fish farm produces enough pollution to lower productivity in the
> lake by $1/month.
> 
> A thousand fish farms produce enough waste to lower productivity by
> $1000/month, meaning none of the fish farms are making any money. Capitalism
> to the rescue: someone invents a complex filtering system that removes waste
> products. It costs $300/month to operate. All fish farms voluntarily install
> it, the pollution ends, and the fish farms are now making a profit of
> $700/month – still a respectable sum.
> 
> But one farmer (let’s call him Steve) gets tired of spending the money to
> operate his filter. Now one fish farm worth of waste is polluting the lake,
> lowering productivity by $1. Steve earns $999 profit, and everyone else earns
> $699 profit.
> 
> Everyone else sees Steve is much more profitable than they are, because he’s
> not spending the maintenance costs on his filter. They disconnect their
> filters too.
> 
> Once four hundred people disconnect their filters, Steve is earning
> $600/month – less than he would be if he and everyone else had kept their
> filters on! And the poor virtuous filter users are only making $300. Steve
> goes around to everyone, saying “Wait! We all need to make a voluntary pact
> to use filters! Otherwise, everyone’s productivity goes down.”
> 
> Everyone agrees with him, and they all sign the Filter Pact, except one
> person who is sort of a jerk. Let’s call him Mike. Now everyone is back using
> filters again, except Mike. Mike earns $999/month, and everyone else earns
> $699/month. Slowly, people start thinking they too should be getting big
> bucks like Mike, and disconnect their filter for $300 extra profit…
> 
> A self-interested person never has any incentive to use a filter. A
> self-interested person has some incentive to sign a pact to make everyone use
> a filter, but in many cases has a stronger incentive to wait for everyone
> else to sign such a pact but opt out himself. This can lead to an undesirable
> equilibrium in which no one will sign such a pact.

Won't a thousand bitcoin-spenders, individually paying for their transactions
but collectively paying for their security, end up falling into the same
dynamic?

 - Andrew