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Date: Sun, 5 Nov 2023 15:39:53 +0100
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To: Erik Aronesty <erik@q32.com>,
 Bitcoin Protocol Discussion <bitcoin-dev@lists.linuxfoundation.org>
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From: JK <jk_14@op.pl>
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Subject: Re: [bitcoin-dev] ossification and misaligned incentive concerns
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I'm worried even more about something else, but still fits into the same 
topic category.


A tax in the form of a direct tax is less acceptable to people than a 
hidden tax. This is human nature, as the saying goes, "What the eye 
doesn't see, the heart doesn't grieve over." A high direct tax (e.g., on 
a one-time transaction) is much more irritating than a tax of the same 
amount but hidden (especially when it affects all cash holders equally, 
as in the case of inflation).

There is no reason to believe that in any alternative financial system, 
it will be different ("This time is different." No, it is not.)

The analogy is clear: a transaction tax is on-chain fee, an inflation 
tax is the block reward. And just in case: miners are only able to 
collect payment for providing network security in an amount equal to the 
sum collected in both of these taxes, and no single satoshi more (the 
principle that "There's no such thing as a free lunch" applies).

Now, a little thought experiment:
Imagine a system that tries to maintain a constant level of difficulty 
and reacts flexibly to changes in difficulty, by modulating the block 
reward level accordingly (using negative feedback).

It is known that the system will oscillate around a certain level of the 
block reward value (around a certain level of inflation) that provides 
the desired level of network security.

Furthermore, Earth is a closed system with finite resources, making it 
hard to imagine a situation where Bitcoin is responsible for e.g. 95%
of global energy consumption (while complaints already arise at 0.1%).

In other words, the level of network security is de facto limited from 
the top, whether we like it or not.

And for a naturally limited and still acceptable level of network 
security (vide: "Change the code, not the climate") - there is a 
corresponding level of inflation.


To sum this up, the most important conclusion to remember is:

For a natural level of network security, there is a natural level of 
inflation.


I'll add a very relevant comment I know from the internet:

"It makes sense. Something akin to what the central banks do by setting 
interest rates, but algorithmic, leading to a 'natural' (rather than 
manipulated) level of inflation. But different, because it's directly 
tied to security. I haven't thought whether it would be an issue if it 
works in one direction only (halvings, but no doublings), but it might. 
When I was learning about Bitcoin, I heard "It costs you nothing to 
store your bitcoin (as opposed to, say, gold). You get security for 
free." and thought it sounded wonderful, but too good to be true. There 
is no free lunch and all that... I understand a lack of inflation is 
aligned with Austrian economics, but the Austrians didn't know a 
monetary system whose security was tied to inflation. So it's a new 
concept to wrap one's head around."
https://stacker.news/items/291420


There is growing awareness of the lack of a free market between active 
and passive participants in Bitcoin and growing awareness of the 
inevitability of the problem that will arise in the future as a result. 
And there is slowly growing acceptance of well-thought-out proposals to 
fix this situation.
The free market is more important than finite supply.


Regards
Jaroslaw


W dniu 03.11.2023 o 19:24, Erik Aronesty via bitcoin-dev pisze:
> currently, there are providers of anonymity services, scaling services, 
> custody, and other services layered on top of bitcoin using trust-based 
> and federated models.
> 
> as bitcoin becomes more popular, these service providers have 
> increasingly had a louder "voice" in development and maintenance of the 
> protocol
> 
> holders generally want these features
> 
> but service providers have an incentive to maintain a "moat" around 
> their services
> 
> in summary, making privacy, scaling and vaulting "hard" for regular 
> users, keeping it off-chain and federated...  is now incentivised among 
> a vocal, but highly technical, minority
> 
> is anyone else worried about this?
> 
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