Oddbean

OK so you don't understand. Its not about supporting miners. I mean kind of, but not really. It's about what miners are, and who receives the benefit of their service and who pays for it. Youre right, a capped supply supports holders. But who pays for securing the network? The people moving it, spending it, using it. Holders get their wealth secured, which is the only reason the bitcoin itself has value, that it is secure, a currency that can disappear in the night is worthless no matter how few there are in the world, without having to cover the cost of the security they receive, their cost is subsidized by daily users. In game theory we call this the free rider problem, something everyone benefits from but only a subset pays for. The game theory in systems like this is that everyone tries to become one of the people that doesn't pay and then eventually there's not enough people paying for the thing to keep existing to benefit people. There is no other outcome. So there's an incentive in bitcoin to not spend, to only hodl. But if people don't spend, security goes down. And I've already establishes that security is the primary sales pitch that bitcoin offers. So ultimately, bitcoin's value is only its security level, and it's security is covered by a decreasing percentage of the userbase. This means security *must* decrease beyond some point, whicheans the value must decrease, which means the price must decrease. So, how do you resolve this free rider problem, and get everyone to cover the cost of securing their assets without one person having an outsized unfair cost of doing so, without tinkering with peoples funds and having the the cost apply proportional to the benefit they receive? Well, the answer is of course, an emission. I can go into the different emission schemes with different benefits and problems, but those are kind of out of scope, if you're interested I'll go into it. Suffice to say, a capped supply coin, any capped supply coin, no matter what, will suffer from the free rider problem and eventually go to 0.

I wrote up a whole thing about this after I came to understand it, as well as some theoretical stuff about blockchain and preserving historical transaction data, like a year ago or something on nostr (my only publishing outlet now) and I didn't bookmark them lol so I kind of have to just write everything out every time. I'm not the first to figure this out, there's a reason there are tail emissions in coins like grin and Monero, but since the rationale behind these decisions have been discussed, the focus has drifted to "pay miners" and not the deeper, more fundamental reason that underlies "pay miners", that everyone must cover the cost of what they get from one of these networks in proportion to their benefit or misaligned incentives will destroy the network.

I'm guilt of the drifting attention too for sure... certainly aware of the free rider problem, but everyone is always talking about mining incentives and the window shifts to what the dominant narrative is 😕 its a great explanation, thanks.

>> everyone tries to become one of the people that doesn't pay and then eventually there's not enough people paying for the thing to keep existing to benefit people *Everyone* tries to avoid spending. On a capped network everyone will ALWAYS try to avoid spending and hodl for as long as possible. There is no incentive to spend because everyone assumes that their buying power will increase as time goes on you Maxis are talking about it all day long. The only thing pushing up transaction fees for the last two years have been people shitcoining on the network In the absence of a block reward only people who use sats for goods and services provide security for the network. hodlers ride for free. Since there will be no new supply, everybody wants to hodl. nobody wants to exchange for goods and services. But since it's transactions that provide security, On a long enough timeline security goes to zero.

It's not about if transaction fees cover the cost of mining, it's about the fact that some people, holders, pay nothing to secure their wealth and that cost is subsidized by transaction fees. This isn't me complaining about some injustice or something, it is about the incentives on the bitcoin network. Could they conceivably cover the costs of security?? For a time, yes, as you see now that is exactly what is happening, but ultimately incentives are your outcome. People are incentivized to hodl, because they can offload their security costs to those who spend or move around bitcoin, and it's compounding, it has a positive feedback loop; the more people just hodl, the more transaction fees have to cover the cost, the more incentive someone paying those fees has to just hodl. Ultimately, there's a threshold somewhere where security begins to decline, and with it, value. Mining becoming cheaper with energy... I tried to look up the name of the phenomenon and I can't find anything (search engines filled with renewable energy blogspam) and I can't remember, but historically it has been empirically observed that, as energy becomes cheaper, people spend *more* on it and increase their energy usage. So far bitcoin has also followed this. Also, co wider increasing efficiency of ASICs does not lead to less mining power on the network, but simply a better edge to whoever can get their hands on it. Ultimately, security of the network is not a function of hash power, since machines get more powerful and cheaper, but is a function of share of total available hash power in the world held by the network, and that very closely correlates with energy expenditure by the network of miners. If the expenditure goes down, security does also.