Subject: Re: [bitcoin-dev] Off-chain transactions and miner fees

From: Eric Voskuil <[email-masked]>
Date: Mon, 10 Aug 2015 14:12:12 -0700

Hi Anthony,

No belief can be shown to be universally held, and an appeal to
authority is also a logical fallacy for good reason.

The blog you quote is littered with flawed economic ideas. It's become a
pet peeve of mine that people refer to mining (and/or validation) as a
"tragedy of the commons" problem, or a "public good" subject to a "free
rider" problem. This betrays a fundamental misunderstanding of both
money and Bitcoin.

I'm not commenting on the other merits of your argument or others in
this thread, I mean just to dispute the validity of this particular
reference. Even the portion you quoted is quite absurd:

>> "We’re not spending so much on mining because we really need it.
>> It’s because printing money distorts behaviour."

We don't "really need" to prevent "printing money" - Bitcoin could
somehow get by without that constraint? Preventing the printing of money
is the only reason that Bitcoin exists.

The tragedy of the commons scenario properly applies only to property
controlled by the state. In the quoted blog the analogy is so misapplied
that it fundamentally misrepresents the forces at work in Bitcoin.

Bitcoin is not at all "like a lighthouse". State run lighthouses are
financed via taxation. That may be taxation of anything, whether or not
related to the shipping the lighthouse purports to protect. It may in
fact protect no shipping at all, since payment is generally completely
divorced from benefit, and the benefits may be completely divorced from
shipping. For example, preservation of jobs for lighthouse keepers and
the Coast Guard, or even nostalgia. Just as with a private grazing
field, a truly private lighthouse would not have a "commons problem" at all.

Bitcoin mining is financed by a fixed schedule of inflation and
transaction fees. State inflation is a tax on all holders of currency
and a form of default on state debt. This and other taxes fund
lighthouses. A tax is the seizure of someone else's property through
force. Bitcoin inflation is predictable, so the inflation cost is
factored in to its value before it is acquired, according to the
depreciation schedule, just like bond valuation for example. This means
it is NOT a tax, is merely a cost that is paid to miners for use of
their security services.

Bitcoin transaction "fees" are not fees in the state use-fee (taxation)
sense, since the fees are priced based on voluntary trade. The blog
misinterprets who is paying the cost of securing a transaction when it
claims, "it's the sender who pays." Both parties to a transaction bear
the cost of using any given medium of exchange. If the receiver is
concerned about double spending risk, it's the sender who will have to
compensate with time and/or money. But this is just as much a cost to
the receiver as it has raised the effective price of his sales with the
difference in money accruing to the third party.

Finally, transaction fees *are* mining contracts. Creating *another*
system of mining contracts initiated by a receiver would do nothing to
change the economics, but it would significantly complicate the
implementation (raising costs generally). The cost of paying a mining
contract would of course be paid by the sender, in terms of increased
price charged by the receiver.

I believe that a fundamental misunderstanding of the important
distinction between voluntary trade and state-controlled trade is
underpinning a lot of confusion and misunderstanding with respect to the
block size debate. Bitcoin does not have a commons problem specifically
because it's designed to resist state control. It's only in the loss of
that independence that such a problem would arise (and effectively kill
Bitcoin altogether).

Ironically the desire to fix a non-existent commons problem in Bitcoin
seems to be a driving force behind what may in fact weaken its only
defence against eventually becoming a commons.

e

On 08/10/2015 11:50 AM, Anthony Towns via bitcoin-dev wrote:
> On Mon, Aug 10, 2015 at 12:20:36AM +0200, info--- via bitcoin-dev wrote:
>> one argument I often read on this mailing list is that it's essential to
>> reward miners with transaction fees at some point to secure the network.
> 
> That's not a universally held belief. See for example:
> 
>  https://en.bitcoin.it/wiki/Funding_network_security#Alternatives
>  https://bitcointalk.org/index.php?topic=157141.0
> 
> It's also not clear to me what amount of security people actually "want".
> In late May, Mike Hearn wrote:
> 
>>  "Currently the Bitcoin community is being effectively taxed about
>>   $832,000 per day ... just to support mining! [...]
>> 
>>   We’re not spending so much on mining because we really need it. It’s
>>   because printing money distorts behaviour."
> 
>   -- https://medium.com/@octskyward/hashing-7d04a887acc8