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From: Phuoc Do <dnprock@gmail.com>
Date: Mon, 24 May 2021 15:03:32 -0700
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To: James Lu <jamtlu@gmail.com>, 
 Bitcoin Protocol Discussion <bitcoin-dev@lists.linuxfoundation.org>
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Subject: Re: [bitcoin-dev] Reducing block reward via soft fork
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I think security and inflation are intertwined aspects of a monetary system
[1]. They are both necessary. Many Bitcoin articles discussed energy and
security. More energy translates to more security. The other dimension is
inflation. Bitcoin block reward is constant and reduced every 4 years. But
its price has increased exponentially. The price rise compensates for
reduced inflation.

I don't think a fee market is enough to sustain the system. Bitcoin, for
now, is heading for destruction when inflation stops. As a self-contained
system, this happens when the block reward (plus fee) decreases faster than
the price rise. The Fed has an inflation target of 2% per year. This is
conventional wisdom. The USD M2 money base historically grows at 7% per
year [2]. We didn't know why inflation is necessary. I think Bitcoin shows
us that inflation and security are related. Inflation ensures there'll be
security.

Without inflation, the system will collapse. Cutting block rewards will
reduce energy spend. But it likely will destroy the system. Instead, we
need to ask:

1. How much energy we should spend on mining?
2. How we can use renewable energy?

[1] https://bitflate.org/post/2021/05/21/inflation-and-security.html
[2] https://ycharts.com/indicators/us_m2_money_supply_yoy

On Sun, May 23, 2021 at 1:49 AM James Lu via bitcoin-dev <
bitcoin-dev@lists.linuxfoundation.org> wrote:

> Background
> ===
> Reducing the block reward reduces the incentive to mine. It reduces the
> maximum energy price at which mining is profitable, reducing the energy use.
>
> Bitcoins have value because they are accepted by full node users, from
> individual node operators, to exchanges and custodians like Coinbase.
> Anything else and the Bitcoins don't exist and are worthless. Like all
> currencies, Bitcoin has value because others recognize that they have value.
>
> Idea
> ===
> Reduce the block reward by adding fewer coins to the UTXO set per block.
> This should be done gradually
>
> Consensus layer
> ===
> This is a soft fork, because it tightens the
>
> Some Possible Weaknesses
> ===
> - It will cost less than a nation-state of energy to reverse recent
> Bitcoin transactions.
> - Some miners may protest and lobby exchanges.
> - By pushing mining towards the cheapest energy sources, centralization
> increases towards Chinese miners.
> - The Bitcoin network may split if consensus is not built before flag day.
>
> However, given the current political headwinds and widespread public
> discussion around Bitcoin's energy use, it may be socially possible to
> ask individual users and major exchanges to install a version of Bitcoin
> with a reduced block reward.
>
> Alternatives
> ===
> Instead of outright rejecting transactions (and the blocks that contain
> them) that attempt to spend increased block rewards, treat them as no-ops.
> _______________________________________________
> bitcoin-dev mailing list
> bitcoin-dev@lists.linuxfoundation.org
> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
>


-- 
Phuoc Do

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<div dir=3D"ltr">I think security and inflation are intertwined aspects of =
a monetary=C2=A0system [1]. They are both necessary. Many Bitcoin articles =
discussed=C2=A0energy and security. More energy translates to more security=
. The other dimension is inflation. Bitcoin block reward is constant and re=
duced every 4 years. But its price has increased exponentially. The price r=
ise compensates for reduced inflation.<div><br></div><div>I don&#39;t think=
 a fee market is enough to sustain the system.=C2=A0Bitcoin, for now, is he=
ading for destruction when inflation stops. As a self-contained system, thi=
s happens when the block reward (plus fee) decreases faster than the price =
rise. The Fed has an inflation target of 2% per year. This is conventional =
wisdom. The USD M2 money base historically grows at 7% per year [2]. We did=
n&#39;t know why inflation is necessary. I think Bitcoin shows us that infl=
ation and security are related. Inflation ensures there&#39;ll be security.=
</div><div><br></div><div>Without inflation, the system will collapse. Cutt=
ing block rewards will reduce energy spend. But it likely will destroy the =
system. Instead, we need to ask:</div><div><br></div><div>1. How much energ=
y we should spend on mining?</div><div>2. How we can use renewable energy?<=
/div><div><br></div><div>[1]=C2=A0<a href=3D"https://bitflate.org/post/2021=
/05/21/inflation-and-security.html">https://bitflate.org/post/2021/05/21/in=
flation-and-security.html</a></div><div>[2] <a href=3D"https://ycharts.com/=
indicators/us_m2_money_supply_yoy">https://ycharts.com/indicators/us_m2_mon=
ey_supply_yoy</a></div></div><br><div class=3D"gmail_quote"><div dir=3D"ltr=
" class=3D"gmail_attr">On Sun, May 23, 2021 at 1:49 AM James Lu via bitcoin=
-dev &lt;<a href=3D"mailto:bitcoin-dev@lists.linuxfoundation.org">bitcoin-d=
ev@lists.linuxfoundation.org</a>&gt; wrote:<br></div><blockquote class=3D"g=
mail_quote" style=3D"margin:0px 0px 0px 0.8ex;border-left:1px solid rgb(204=
,204,204);padding-left:1ex"><div dir=3D"ltr"><div class=3D"gmail_default" s=
tyle=3D"font-family:arial,helvetica,sans-serif;font-size:small;color:rgb(0,=
0,0)">Background</div><div class=3D"gmail_default" style=3D"font-family:ari=
al,helvetica,sans-serif;font-size:small;color:rgb(0,0,0)">=3D=3D=3D</div><d=
iv class=3D"gmail_default" style=3D"font-family:arial,helvetica,sans-serif;=
font-size:small;color:rgb(0,0,0)">Reducing the block reward reduces the inc=
entive to mine. It reduces the maximum energy price at which mining is prof=
itable, reducing the energy use.</div><div class=3D"gmail_default" style=3D=
"font-family:arial,helvetica,sans-serif;font-size:small;color:rgb(0,0,0)"><=
br></div><div class=3D"gmail_default" style=3D"font-family:arial,helvetica,=
sans-serif;font-size:small;color:rgb(0,0,0)">Bitcoins have value because th=
ey are accepted by full node users, from individual node operators, to exch=
anges and custodians like Coinbase. Anything else and the Bitcoins don&#39;=
t exist and are worthless. Like all currencies, Bitcoin has value because o=
thers recognize that they have value.</div><div class=3D"gmail_default" sty=
le=3D"font-family:arial,helvetica,sans-serif;font-size:small;color:rgb(0,0,=
0)"><br></div><div class=3D"gmail_default" style=3D"font-family:arial,helve=
tica,sans-serif;font-size:small;color:rgb(0,0,0)"></div><div class=3D"gmail=
_default" style=3D"font-family:arial,helvetica,sans-serif;font-size:small;c=
olor:rgb(0,0,0)">Idea</div><div class=3D"gmail_default" style=3D"font-famil=
y:arial,helvetica,sans-serif;font-size:small;color:rgb(0,0,0)">=3D=3D=3D</d=
iv><div class=3D"gmail_default" style=3D"font-family:arial,helvetica,sans-s=
erif;font-size:small;color:rgb(0,0,0)">Reduce the block reward by adding fe=
wer coins to the UTXO set per block. This should be done gradually<br></div=
><div class=3D"gmail_default" style=3D"font-family:arial,helvetica,sans-ser=
if;font-size:small;color:rgb(0,0,0)"><br></div><div class=3D"gmail_default"=
 style=3D"font-family:arial,helvetica,sans-serif;font-size:small;color:rgb(=
0,0,0)">Consensus layer</div><div class=3D"gmail_default" style=3D"font-fam=
ily:arial,helvetica,sans-serif;font-size:small;color:rgb(0,0,0)">=3D=3D=3D<=
/div><div class=3D"gmail_default" style=3D"font-family:arial,helvetica,sans=
-serif;font-size:small;color:rgb(0,0,0)">This is a soft fork, because it ti=
ghtens the=C2=A0</div><div class=3D"gmail_default" style=3D"font-family:ari=
al,helvetica,sans-serif;font-size:small;color:rgb(0,0,0)"><br></div><div cl=
ass=3D"gmail_default" style=3D"font-family:arial,helvetica,sans-serif;font-=
size:small;color:rgb(0,0,0)">Some Possible Weaknesses</div><div class=3D"gm=
ail_default" style=3D"font-family:arial,helvetica,sans-serif;font-size:smal=
l;color:rgb(0,0,0)">=3D=3D=3D</div><div class=3D"gmail_default" style=3D"fo=
nt-family:arial,helvetica,sans-serif;font-size:small;color:rgb(0,0,0)">- It=
 will cost less than a nation-state of energy to reverse recent Bitcoin tra=
nsactions.</div><div class=3D"gmail_default" style=3D"font-family:arial,hel=
vetica,sans-serif;font-size:small;color:rgb(0,0,0)">- Some miners may prote=
st and lobby exchanges.<br></div><div class=3D"gmail_default" style=3D"font=
-family:arial,helvetica,sans-serif;font-size:small;color:rgb(0,0,0)">- By p=
ushing mining towards the cheapest energy sources, centralization increases=
 towards Chinese miners.</div><div class=3D"gmail_default" style=3D"font-fa=
mily:arial,helvetica,sans-serif;font-size:small;color:rgb(0,0,0)">- The Bit=
coin network may split if consensus is not built before flag day.</div><div=
 class=3D"gmail_default" style=3D"font-family:arial,helvetica,sans-serif;fo=
nt-size:small;color:rgb(0,0,0)"><br></div><div class=3D"gmail_default" styl=
e=3D"font-family:arial,helvetica,sans-serif;font-size:small;color:rgb(0,0,0=
)">However, given the current political headwinds and widespread public dis=
cussion<span class=3D"gmail_default"> around Bitcoin&#39;s energy use</span=
>, it may be<span class=3D"gmail_default"> socially possible to ask individ=
ual users and major exchanges to install a version of Bitcoin with a reduce=
d block reward.</span><br></div><div class=3D"gmail_default" style=3D"font-=
family:arial,helvetica,sans-serif;font-size:small;color:rgb(0,0,0)"><br></d=
iv><div class=3D"gmail_default" style=3D"font-family:arial,helvetica,sans-s=
erif;font-size:small;color:rgb(0,0,0)">Alternatives</div><div class=3D"gmai=
l_default" style=3D"font-family:arial,helvetica,sans-serif;font-size:small;=
color:rgb(0,0,0)">=3D=3D=3D</div><div class=3D"gmail_default" style=3D"font=
-family:arial,helvetica,sans-serif;font-size:small;color:rgb(0,0,0)"><div c=
lass=3D"gmail_default"><div class=3D"gmail_default">Instead of outright rej=
ecting transactions (and the blocks that contain them) that attempt to spen=
d increased block rewards, treat them as no-ops.</div></div></div></div>
_______________________________________________<br>
bitcoin-dev mailing list<br>
<a href=3D"mailto:bitcoin-dev@lists.linuxfoundation.org" target=3D"_blank">=
bitcoin-dev@lists.linuxfoundation.org</a><br>
<a href=3D"https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev" =
rel=3D"noreferrer" target=3D"_blank">https://lists.linuxfoundation.org/mail=
man/listinfo/bitcoin-dev</a><br>
</blockquote></div><br clear=3D"all"><div><br></div>-- <br><div dir=3D"ltr"=
 class=3D"gmail_signature"><div dir=3D"ltr">Phuoc Do</div></div>

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