Return-Path: Received: from smtp1.linuxfoundation.org (smtp1.linux-foundation.org [172.17.192.35]) by mail.linuxfoundation.org (Postfix) with ESMTPS id A91D87AD for ; Wed, 2 Mar 2016 19:01:34 +0000 (UTC) X-Greylist: whitelisted by SQLgrey-1.7.6 Received: from mail-pa0-f48.google.com (mail-pa0-f48.google.com [209.85.220.48]) by smtp1.linuxfoundation.org (Postfix) with ESMTPS id 87025EE for ; Wed, 2 Mar 2016 19:01:33 +0000 (UTC) Received: by mail-pa0-f48.google.com with SMTP id bj10so68661381pad.2 for ; Wed, 02 Mar 2016 11:01:33 -0800 (PST) DKIM-Signature: v=1; a=rsa-sha256; c=relaxed/relaxed; d=voskuil-org.20150623.gappssmtp.com; s=20150623; h=from:to:references:in-reply-to:subject:date:message-id:mime-version :thread-index:content-language; bh=V5GH59wd9bCVCKQgDDUT87cFFu7r/ybhFs0YPiDiEgU=; b=RswPxzHXHKSY2vK2UVxpRMHtV34VBxA2PZVB9feJJzbr9zUPEKetiGV7tBQYZZv+VV uJvBexFc3clnkDcX8uRCgQkBYpa0i0PzghiEJQyyMf155f/o4tBlEY7zFHh62CCtzrOz 6+r2LDNdPgCXdUiHaUH0GLoFzZk3YMW6krvtj9eCJTjMTTrvmIAPN3PttTKE0k1gsCce RdA70bq6P0FDl1znidbJVCMho/tCST7/cFeAsuIbVtv5dRDO360RutVJRRVqVw1p/bo0 +ZDK7v2tibZXNqv7DZvHi7gMkfU1kkQt+q7T4f+UitE03qVffbK7SgaDIDHARS8UMXCv OaBQ== X-Google-DKIM-Signature: v=1; a=rsa-sha256; c=relaxed/relaxed; d=1e100.net; s=20130820; h=x-gm-message-state:from:to:references:in-reply-to:subject:date :message-id:mime-version:thread-index:content-language; bh=V5GH59wd9bCVCKQgDDUT87cFFu7r/ybhFs0YPiDiEgU=; b=WEnT81uSTdnZUUW83QGgbFodhEOIKP0ywCDvnVx7NwwUWctI+WhFLg4fBZ+EzaQaYu mMZKHHFUJ3UiQJ2m1PCVeeQKc8DoPcm938KHgCCbtvA7NHmAl96uLSINGEZ1FkXn8kdz w8FRkTnpWb0i1rS5iA2FmSspybKLhwFgbRmpTdByfhopCiU1nXjO3z8EHiyey+/Yv8h4 8HL4Yp0ITTnra8LKcjhDUrvO8YW3PWV1I9zn2Ncqk2wUhwEAfzbxWlx57QAjYNAQ4g4c piam0a1cVGk9HDjIf80Xgk5168dUp2QfADjPn1FWlp/Eb7A7brRsdqUjnDJENUvzyI9O sn0w== X-Gm-Message-State: AD7BkJLuXgyRm9oqCWGKjyvGWyZhF6d7jnkTiS/eSJRL6iUjChhwD0evG1khWFkbUM4Psg== X-Received: by 10.66.55.39 with SMTP id o7mr40173744pap.13.1456945293206; Wed, 02 Mar 2016 11:01:33 -0800 (PST) Received: from ERICWINDOWS10 ([2601:600:9001:8060:c9f4:ad38:fabe:eeb4]) by smtp.gmail.com with ESMTPSA id 17sm54710333pfp.96.2016.03.02.11.01.31 for (version=TLSv1/SSLv3 cipher=OTHER); Wed, 02 Mar 2016 11:01:32 -0800 (PST) From: "Eric Voskuil" To: References: <201603021456.15820.luke@dashjr.org> <201603021542.29609.luke@dashjr.org> <56D71488.4080607@gmail.com> In-Reply-To: Date: Wed, 2 Mar 2016 11:01:36 -0800 Message-ID: <00e101d174b5$f2659060$d730b120$@voskuil.org> MIME-Version: 1.0 Content-Type: multipart/alternative; boundary="----=_NextPart_000_00E2_01D17472.E44313B0" X-Mailer: Microsoft Outlook 16.0 Thread-Index: AQJTnwVA3gQBIZ1FBbTqJu7Z8D/4lQIk5bzfAqUY40oCq+oGe54GeanA Content-Language: en-us X-Spam-Status: No, score=-2.6 required=5.0 tests=BAYES_00,DKIM_SIGNED, DKIM_VALID,HTML_MESSAGE,RCVD_IN_DNSWL_LOW autolearn=ham version=3.3.1 X-Spam-Checker-Version: SpamAssassin 3.3.1 (2010-03-16) on smtp1.linux-foundation.org X-Mailman-Approved-At: Wed, 02 Mar 2016 19:05:53 +0000 Subject: Re: [bitcoin-dev] Hardfork to fix difficulty drop algorithm X-BeenThere: bitcoin-dev@lists.linuxfoundation.org X-Mailman-Version: 2.1.12 Precedence: list List-Id: Bitcoin Development Discussion List-Unsubscribe: , List-Archive: List-Post: List-Help: List-Subscribe: , X-List-Received-Date: Wed, 02 Mar 2016 19:01:34 -0000 This is a multipart message in MIME format. ------=_NextPart_000_00E2_01D17472.E44313B0 Content-Type: text/plain; charset="utf-8" Content-Transfer-Encoding: quoted-printable > A 6 month investment with 3 months on the high subsidy and 3 months on = low subsidy would not be made=E2=80=A6 =20 Yes, this is the essential point. All capital investments are made based = on expectations of future returns. To the extent that futures are = perfectly knowable, they can be perfectly factored in. This is why = inflation in Bitcoin is not a tax, it=E2=80=99s a cost. These step = functions are made continuous by their predictability, removing that = predictability will make them -- unpredictable. =20 Changing these futures punishes those who have planned properly and = favors those who have not. Sort of like a Bitcoin bail-in; are some = miners are too big to fail? It also creates the expectation that it may = happen again. This infects the money with the sort of uncertainty that = Bitcoin is designed to prevent. =20 e =20 From: bitcoin-dev-bounces@lists.linuxfoundation.org = [mailto:bitcoin-dev-bounces@lists.linuxfoundation.org] On Behalf Of Tier = Nolan via bitcoin-dev Sent: Wednesday, March 2, 2016 10:08 AM Cc: Bitcoin Dev Subject: Re: [bitcoin-dev] Hardfork to fix difficulty drop algorithm =20 On Wed, Mar 2, 2016 at 4:27 PM, Paul Sztorc via bitcoin-dev = > wrote: For example, it is theoretically possible that 100% of miners (not 50% or 10%) will shut off their hardware. This is because it is revenue which ~halves, not profit. =20 It depends on how much is sunk costs and how much is marginal costs too. If hashing costs are 50% capital and 50% marginal, then the entire = network will be able to absorb a 50% drop in subsidy. 50% capital costs means that the cost of the loan to buy the hardware = represents half the cost. Assume that for every $100 of income, you have to pay $49 for the loan = and $49 for electricity giving 2% profit. If the subsidy halves, then = you only get $50 of income, so lose $48. =20 But if the bank repossesses the operation, they might as well keep = things running for the $1 in marginal profit (or sell on the hardware to = someone who will keep using it). Since this drop in revenue is well known in advance, businesses will = spend less on capital. That means that there should be less mining = hardware than otherwise. A 6 month investment with 3 months on the high subsidy and 3 months on = low subsidy would not be made if it only generated a small profit for = the first 3 and then massive losses for the 2nd period of 3 months. For = it to be made, there needs to be large profit during the first period to = compensate for the losses in the 2nd period. ------=_NextPart_000_00E2_01D17472.E44313B0 Content-Type: text/html; charset="utf-8" Content-Transfer-Encoding: quoted-printable

> = A 6 month investment with 3 months on the high subsidy and 3 = months on low subsidy would not be made=E2=80=A6

 

Yes, this is = the essential point. All capital investments are made based on = expectations of future returns. To the extent that futures are perfectly = knowable, they can be perfectly factored in. This is why inflation in = Bitcoin is not a tax, it=E2=80=99s a cost. These step functions are made = continuous by their predictability, removing that predictability will = make them -- unpredictable.

 

Changing = these futures punishes those who have planned properly and favors those = who have not. Sort of like a Bitcoin bail-in; are some miners are too = big to fail? It also creates the expectation that it may happen again. = This infects the money with the sort of uncertainty that Bitcoin is = designed to prevent.

 

e<= /span>

 

From:<= /b> = bitcoin-dev-bounces@lists.linuxfoundation.org = [mailto:bitcoin-dev-bounces@lists.linuxfoundation.org] On Behalf Of = Tier Nolan via bitcoin-dev
Sent: Wednesday, March 2, 2016 = 10:08 AM
Cc: Bitcoin Dev = <bitcoin-dev@lists.linuxfoundation.org>
Subject: Re: = [bitcoin-dev] Hardfork to fix difficulty drop = algorithm

 

On Wed, Mar 2, 2016 at 4:27 PM, Paul Sztorc via = bitcoin-dev <bitcoin-dev@lists.linuxfoundation.org> = wrote:

For = example, it is theoretically possible that 100% of miners (not 50%
or = 10%) will shut off their hardware. This is because it is = revenue
which ~halves, not profit.

 

It depends on how much is sunk costs and = how much is marginal costs too.

If hashing costs are = 50% capital and 50% marginal, then the entire network will be able to = absorb a 50% drop in subsidy.

50% capital costs means = that the cost of the loan to buy the hardware represents half the = cost.

Assume that for every $100 of income, you = have to pay $49 for the loan and $49 for electricity giving 2% = profit.  If the subsidy halves, then you only get $50 of income, so = lose $48. 

But if the bank repossesses the = operation, they might as well keep things running for the $1 in marginal = profit (or sell on the hardware to someone who will keep using = it).

Since this drop in revenue is well known = in advance, businesses will spend less on capital.  That means that = there should be less mining hardware than = otherwise.

A 6 month = investment with 3 months on the high subsidy and 3 months on low subsidy = would not be made if it only generated a small profit for the first 3 = and then massive losses for the 2nd period of 3 months.  For it to = be made, there needs to be large profit during the first period to = compensate for the losses in the 2nd = period.

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