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From: Alex Lee <cloudstrife79@gmail.com>
Date: Tue, 28 Jun 2022 12:23:40 -0400
Message-ID: <CAPNW7nVjRgBHJritW5UECk7SiNTO+BWaHEGwKULh9o4=w=2yhw@mail.gmail.com>
To: Billy Tetrud <billy.tetrud@gmail.com>, 
 Bitcoin Protocol Discussion <bitcoin-dev@lists.linuxfoundation.org>
Content-Type: multipart/alternative; boundary="0000000000003e45b605e28476c0"
Subject: Re: [bitcoin-dev] Bitcoin covenants are inevitable
Precedence: list

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On Tue, Jun 28, 2022 at 4:43 AM Billy Tetrud via bitcoin-dev <
bitcoin-dev@lists.linuxfoundation.org> wrote:

> @Eric
> >  People who transact are realizing the benefit of money - the avoidance
> of barter costs.
>
> I'm very confident you're incorrect that holders don't receive any benefit
> and you're certainly not correct that every spend is receiving the same
> benefit. As I'm sure you're aware, one of the primary components of a
> currency's value and purpose is as a store of value. Storing value happens
> while you're holding it, not while you're spending it. Consider the
> following two scenarios: one person holds onto 10 bitcoin for 10 years and
> then spends those 10 bitcoins in some way in 2 transactions. Another person
> spends 4 bitcoins to buy something, then sells it for 6 bitcoins, and then
> buys something else for that 6 bitcoins and then never acquires any bitcoin
> for 10 years.
>
> Both people spent 10 bitcoins over 2 transactions. Over that 10 year
> period, only one of those people utilized bitcoin's utility as a store of
> value. Who benefited more from their use of bitcoin?
>
>
The person who obtained greater economic utility from their two
transactions.


> > Those who never transact, never realize any benefit.
>
> While that's true, its not relevant and basically a red herring. You need
> to compare those who transact often and rarely hold, to those who hold a
> lot but rarely transact. Its not helpful to consider those who throw their
> bitcoin into a bottomless pit and never retrieve them.
>

There are legitimate uses for burning bitcoin, speaking of bottomless pits.
I would avoid confusing velocity metrics with utility, as these aren't the
same thing.


>
> On an idealistic level, I agree with Keagan that it would make sense to
> have "a balance of fees to that effect". I think doing that would be
> technically/economically optimal. However, I think there is an enormous
> benefit to having a cultural aversion to monetary inflation and the
> consequences of convincing the bitcoin community that inflation is ok could
> have unintended negative consequences (not to mention how difficult
> convincing the community would be in the first place). There's also the
> economic distortion that inflation causes that has a negative effect which
> should also be considered. The idea of decaying utxo value is interesting
> to consider, but it would not solve the economic distortion that
> monetary inflation causes, because that distortion is a result of monetary
> devaluation (which decaying utxos would be a form of). Then again, maybe in
> this case the distortion of inflation would actually be a correction -
> correcting for the externality of benefit received by holders. I'm
> stream-of-consciousnessing a bit, but anyways, I suspect its not worth the
> trouble to perfect the distribution of bitcoin blockchain security costs to
> include holders. Tho, if I were to go back in time and influence how
> bitcoin was designed, I might advocate for it.
>
> @Peter
> > demurrage and inflation have identical economic properties.
>
> The distortion of incentives is identical, however there is also the
> effect it has on a currency's property as a useful unit of account.
> Decaying utxos would mean that it would contribute substantially less to
> market prices needing to change. I suspect this effect would be bordering
> on negligible tho.
>
> On Thu, Jun 23, 2022 at 2:17 PM Peter Todd via bitcoin-dev <
> bitcoin-dev@lists.linuxfoundation.org> wrote:
>
>> On Tue, Jun 21, 2022 at 01:00:07PM -0600, Keagan McClelland via
>> bitcoin-dev wrote:
>> > > The PoW security of Bitcoin benefits all Bitcoin users, proportional
>> to
>> > the
>> > value of BTC they hold; if Bitcoin blocks aren't reliably created the
>> value
>> > of
>> > *all* BTC goes down. It doesn't make sense for the entire cost of that
>> > security
>> > to be paid for on a per-tx basis. And there's a high chance paying for
>> it
>> > on a
>> > per-tx basis won't work anyway due to lack of consistent demand.
>> >
>> > FWIW I prefer the demurrage route. Having something with finite supply
>> as a
>> > means of measuring economic activity is unprecedented and I believe
>> deeply
>> > important. I'm sympathetic to the argument that the security of the
>> chain
>> > should not be solely the responsibility of transactors. We realize the
>> > value of money on receipt, hold *and* spend and it would be appropriate
>> for
>> > there to be a balance of fees to that effect. While inflation may be
>> > simpler to implement (just chop off the last few halvings), I think it
>> > would be superior (on the assumption that such a hodl tax was
>> necessary) to
>> > keep the supply fixed and have people's utxo balances decay, at least at
>> > the level of the UX.
>>
>> Demurrage makes protocols like Lightning much more complex, and isn't
>> compatible with existing implementations. While demurrage could in theory
>> be
>> implemented in a soft-fork by forcing txs to contain an output with the
>> demurrage-taxed amount, spending to a pool of future mining fees, I really
>> don't think it's practical to actually do that.
>>
>> Anyway, demurrage and inflation have identical economic properties.
>> They're
>> both a tax on savings. The only difference is the way that tax is
>> implemented.
>>
>> --
>> https://petertodd.org 'peter'[:-1]@petertodd.org
>> _______________________________________________
>> bitcoin-dev mailing list
>> bitcoin-dev@lists.linuxfoundation.org
>> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
>>
> _______________________________________________
> bitcoin-dev mailing list
> bitcoin-dev@lists.linuxfoundation.org
> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
>

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Content-Transfer-Encoding: quoted-printable

<div dir=3D"ltr"><div dir=3D"ltr"><br></div><br><div class=3D"gmail_quote">=
<div dir=3D"ltr" class=3D"gmail_attr">On Tue, Jun 28, 2022 at 4:43 AM Billy=
 Tetrud via bitcoin-dev &lt;<a href=3D"mailto:bitcoin-dev@lists.linuxfounda=
tion.org">bitcoin-dev@lists.linuxfoundation.org</a>&gt; wrote:<br></div><bl=
ockquote class=3D"gmail_quote" style=3D"margin:0px 0px 0px 0.8ex;border-lef=
t:1px solid rgb(204,204,204);padding-left:1ex"><div dir=3D"ltr"><div>@Eric<=
br></div>&gt;=C2=A0

People who transact are realizing the benefit of money - the avoidance of b=
arter costs.=C2=A0<div><br></div><div>I&#39;m very confident you&#39;re inc=
orrect that=C2=A0holders=C2=A0don&#39;t receive any benefit and you&#39;re =
certainly not correct that=C2=A0every=C2=A0spend is receiving the same bene=
fit. As I&#39;m sure you&#39;re aware, one of the primary components of a c=
urrency&#39;s value and purpose is as a store of=C2=A0value. Storing value =
happens while you&#39;re holding it, not while you&#39;re spending it. Cons=
ider the following two scenarios: one person holds onto 10 bitcoin for 10 y=
ears and then spends those 10 bitcoins in=C2=A0some way in 2 transactions. =
Another person spends 4 bitcoins to buy something, then sells it for 6 bitc=
oins, and then buys something else for that 6 bitcoins and then never acqui=
res any bitcoin for 10 years.=C2=A0</div><div><br></div><div>Both people sp=
ent 10 bitcoins over 2 transactions. Over that 10 year period, only one of =
those people utilized bitcoin&#39;s utility as a store of value. Who benefi=
ted more from their use of bitcoin?=C2=A0</div><div><br></div></div></block=
quote><div><br></div><div>The person who obtained greater economic utility =
from their two transactions.<br></div><div>=C2=A0</div><blockquote class=3D=
"gmail_quote" style=3D"margin:0px 0px 0px 0.8ex;border-left:1px solid rgb(2=
04,204,204);padding-left:1ex"><div dir=3D"ltr"><div></div><div>&gt; Those w=
ho never transact, never realize any benefit.</div><div><br></div><div>Whil=
e that&#39;s true, its not relevant and basically a red herring. You need t=
o compare those who transact often and rarely hold, to those who hold a lot=
 but rarely transact. Its=C2=A0not helpful to consider those who throw thei=
r bitcoin into a bottomless pit and never retrieve them.</div></div></block=
quote><div><br></div><div>There are legitimate uses for burning bitcoin, sp=
eaking of bottomless pits. I would avoid confusing velocity metrics with ut=
ility, as these aren&#39;t the same thing.<br></div><div>=C2=A0</div><block=
quote class=3D"gmail_quote" style=3D"margin:0px 0px 0px 0.8ex;border-left:1=
px solid rgb(204,204,204);padding-left:1ex"><div dir=3D"ltr"><div><br></div=
><div>On an idealistic level, I agree with Keagan that it would make sense =
to have &quot;a balance of fees to that effect&quot;. I think doing that wo=
uld be technically/economically optimal. However, I think there is an enorm=
ous benefit to having a cultural aversion to monetary inflation and the con=
sequences of convincing the bitcoin community that inflation is ok could ha=
ve unintended negative consequences (not to mention how difficult convincin=
g the community would be in the first place). There&#39;s also the economic=
 distortion that inflation causes that has a negative effect which should a=
lso be considered. The idea of decaying utxo value is interesting to consid=
er, but it would not solve the economic distortion that monetary=C2=A0infla=
tion causes,=C2=A0because that=C2=A0distortion is a result of monetary deva=
luation (which decaying=C2=A0utxos would be a form of). Then again, maybe i=
n this case the distortion of inflation would actually be a correction - co=
rrecting for the externality of benefit received by holders. I&#39;m stream=
-of-consciousnessing=C2=A0a bit, but anyways, I suspect its not worth the t=
rouble to perfect the distribution of bitcoin blockchain security costs to =
include holders. Tho, if I were to go back in time and influence how bitcoi=
n was designed, I might advocate for it.</div><div><br></div><div>@Peter<br=
></div><div>&gt; demurrage and inflation have identical economic properties=
.=C2=A0</div><div><br></div><div>The distortion of incentives is identical,=
 however there is also the effect it has on a currency&#39;s property as a =
useful unit of account. Decaying utxos would mean that it would contribute =
substantially less to market prices needing to change. I suspect this effec=
t would be bordering on negligible tho.=C2=A0</div></div><br><div class=3D"=
gmail_quote"><div dir=3D"ltr" class=3D"gmail_attr">On Thu, Jun 23, 2022 at =
2:17 PM Peter Todd via bitcoin-dev &lt;<a href=3D"mailto:bitcoin-dev@lists.=
linuxfoundation.org" target=3D"_blank">bitcoin-dev@lists.linuxfoundation.or=
g</a>&gt; wrote:<br></div><blockquote class=3D"gmail_quote" style=3D"margin=
:0px 0px 0px 0.8ex;border-left:1px solid rgb(204,204,204);padding-left:1ex"=
>On Tue, Jun 21, 2022 at 01:00:07PM -0600, Keagan McClelland via bitcoin-de=
v wrote:<br>
&gt; &gt; The PoW security of Bitcoin benefits all Bitcoin users, proportio=
nal to<br>
&gt; the<br>
&gt; value of BTC they hold; if Bitcoin blocks aren&#39;t reliably created =
the value<br>
&gt; of<br>
&gt; *all* BTC goes down. It doesn&#39;t make sense for the entire cost of =
that<br>
&gt; security<br>
&gt; to be paid for on a per-tx basis. And there&#39;s a high chance paying=
 for it<br>
&gt; on a<br>
&gt; per-tx basis won&#39;t work anyway due to lack of consistent demand.<b=
r>
&gt; <br>
&gt; FWIW I prefer the demurrage route. Having something with finite supply=
 as a<br>
&gt; means of measuring economic activity is unprecedented and I believe de=
eply<br>
&gt; important. I&#39;m sympathetic to the argument that the security of th=
e chain<br>
&gt; should not be solely the responsibility of transactors. We realize the=
<br>
&gt; value of money on receipt, hold *and* spend and it would be appropriat=
e for<br>
&gt; there to be a balance of fees to that effect. While inflation may be<b=
r>
&gt; simpler to implement (just chop off the last few halvings), I think it=
<br>
&gt; would be superior (on the assumption that such a hodl tax was necessar=
y) to<br>
&gt; keep the supply fixed and have people&#39;s utxo balances decay, at le=
ast at<br>
&gt; the level of the UX.<br>
<br>
Demurrage makes protocols like Lightning much more complex, and isn&#39;t<b=
r>
compatible with existing implementations. While demurrage could in theory b=
e<br>
implemented in a soft-fork by forcing txs to contain an output with the<br>
demurrage-taxed amount, spending to a pool of future mining fees, I really<=
br>
don&#39;t think it&#39;s practical to actually do that.<br>
<br>
Anyway, demurrage and inflation have identical economic properties. They&#3=
9;re<br>
both a tax on savings. The only difference is the way that tax is implement=
ed.<br>
<br>
-- <br>
<a href=3D"https://petertodd.org" rel=3D"noreferrer" target=3D"_blank">http=
s://petertodd.org</a> &#39;peter&#39;[:-1]@<a href=3D"http://petertodd.org"=
 rel=3D"noreferrer" target=3D"_blank">petertodd.org</a><br>
_______________________________________________<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>
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></div>

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