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Subject: [Bitcoin-development] Long-term mining incentives
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The discussion on block size increase has brought some attention to the
other elephant in the room: Long-term mining incentives.
Bitcoin derives its current market value from the assumption that a
stable, steady-state regime will be reached in the future, where miners
have an incentive to keep mining to protect the network. Such a steady
state regime does not exist today, because miners get most of their
reward from the block subsidy, which will progressively be removed.
Thus, today's 3 billion USD question is the following: Will a steady
state regime be reached in the future? Can such a regime exist? What are
the necessary conditions for its existence?
Satoshi's paper suggests that this may be achieved through miner fees.
Quite a few people seem to take this for granted, and are working to
make it happen (developing cpfp and replace-by-fee). This explains part
of the opposition to raising the block size limit; some people would
like to see some fee pressure building up first, in order to get closer
to a regime where miners are incentivised by transaction fees instead of
block subsidy. Indeed, the emergence of a working fee market would be
extremely reassuring for the long-term viability of bitcoin. So, the
thinking goes, by raising the block size limit, we would be postponing a
crucial reality check. We would be buying time, at the expenses of
Bitcoin's decentralization.
OTOH, proponents of a block size increase have a very good point: if the
block size is not raised soon, Bitcoin is going to enter a new, unknown
and potentially harmful regime. In the current regime, almost all
transaction get confirmed quickly, and fee pressure does not exist. Mike
Hearn suggested that, when blocks reach full capacity and users start to
experience confirmation delays and confirmation uncertainty, users will
simply go away and stop using Bitcoin. To me, that outcome sounds very
plausible indeed. Thus, proponents of the block size increase are
conservative; they are trying to preserve the current regime, which is
known to work, instead of letting the network enter uncharted territory.
My problem is that this seems to lacks a vision. If the maximal block
size is increased only to buy time, or because some people think that 7
tps is not enough to compete with VISA, then I guess it would be
healthier to try and develop off-chain infrastructure first, such as the
Lightning network.
OTOH, I also fail to see evidence that a limited block capacity will
lead to a functional fee market, able to sustain a steady state. A
functional market requires well-informed participants who make rational
choices and accept the outcomes of their choices. That is not the case
today, and to believe that it will magically happen because blocks start
to reach full capacity sounds a lot like like wishful thinking.
So here is my question, to both proponents and opponents of a block size
increase: What steady-state regime do you envision for Bitcoin, and what
is is your plan to get there? More specifically, how will the
steady-state regime look like? Will users experience fee pressure and
delays, or will it look more like a scaled up version of what we enjoy
today? Should fee pressure be increased jointly with subsidy decrease,
or as soon as possible, or never? What incentives will exist for miners
once the subsidy is gone? Will miners have an incentive to permanently
fork off the last block and capture its fees? Do you expect Bitcoin to
work because miners are altruistic/selfish/honest/caring?
A clear vision would be welcome.
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