Subject: Re: [bitcoin-dev] Bitcoin covenants are inevitable

From: Peter Todd <[email-masked]>
Date: Thu, 7 Jul 2022 10:12:41 -0400

On Thu, Jul 07, 2022 at 02:24:39PM +0100, John Carvalho via bitcoin-dev wrote:
> Billy,
> 
> Proof of work and the difficulty adjustment function solve literally
> everything you are talking about already.

Unfortunately you are quite wrong: the difficulty adjustment function merely
adjusts for changes in the amount of observable, non-51%-attacking, hashing
power. In the event of a chain split, the difficulty adjustment function does
nothing; against a 51% attacker, the difficulty adjustment does nothing;
against a censor, the difficulty adjustment does nothing.

We should not imbue real technology with magical qualities.

> Bitcoin does not need active economic governanance by devs or meddlers.

Yes, active governance would definitely be an exploitable mechanism. On the
other hand, the status quo of the block reward eventually going away entirely
is obviously a risky state change too.

> > > 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

The fact of the matter is that the present amount of security is about 1.7% of
the total coin supply/year, and Bitcoin seems to be working fine. 1.7% is also
already an amount low enough that it's much smaller than economic volatility.

Obviously 0% is too small.

There's zero reason to stress about finding an "optimal" amount. An amount low
enough to be easily affordable, but non-zero, is fine. 1% would be fine; 0.5%
would probably be fine; 0.1% would probably be fine.

Over a lifetime - 75 years - 0.5% yearly inflation works out to be a 31% tax on
savings; 0.1% works out to be 7.2%

These are all amounts that are likely to be dwarfed by economic shifts.

-- 
https://petertodd.org 'peter'[:-1]@petertodd.org