Sounds plausible enough, and the pessimist in me definitely agrees. Let’s hope I’m wrong!
I don’t know… I certainly don’t see BTC staying around for the next two decades because it has substantial flaws in its protocol (see next paragraph). As for other crypto I don’t really see it happening because a) I doubt people in power will want to give up the possibilities fiscal policy allows for and b) the natural way of crypto is ‘screw up and there’s no going back’ might is too scary for many people.
Regarding the flaws in BTC: The problem is actually that there is limited supply. Paper with better explanations here. Since miners at some point will only make money from transaction fees, they will only mine part time: Only when enough transactions have saved up to make mining worth it. Certainly not great for stability…
Second flaw: Any economically thinking miner will mine where most transaction fees are available. This is called PettyCompliant in the paper. Because of that, intentionally not processing all transactions becomes the optimal strategy, leaving an ever growing backlog of unprocessed transactions outstanding. If a miner does not do that, then noone is incentivized to mine on top of his blocks. Short version: BTC will slowly stop processing transactions unless people run miners because it’s fun.
This goes against of what I know about Bitcoin. That is, blocks are guaranteed to be mined at a constant pace. If it goes too well, the processing power required to mine the next block increases, and vice versa.
I think the reason why bitcoin might be your best bet is that cryptos can evolve. If bitcoin is missing a crucial feature, they can just add it. And bitcoin already has the recognition and is widely supported.
But betting all your future on bitcoin is a sad strategy. Bitcoin will not produce anything for you. If you invest in businesses, then you at least give future a chance.
Short version: Block mined =/= Transaction processed. It’s possible to mine a block without any transactions included.
Long version:
Yes, you’re correct that the difficulty to mine adjusts every so often (every 2016 blocks?) for an average (no guarantee btw, it’s all probabilities) 10 min block time. However, a block mined does not automatically include every outstanding transaction. Think of it like a bookkeeper balancing the numbers every night, even though there’s unprocessed invoices still on the table.
Unprocessed invoices in this example are potential future payoff, if processed. In the case shown in the paper, miners would only mine on top of your block / continue working at your desk if you leave enough unprocessed transactions open / invoices on the table. So for every transaction processed the backlog will grow by a bit, resulting in unreasonable wait times to be of practical use.
That got a lot more complicated than I prefer… Maybe the paper would do a better job of explaining?
That miner would be leaving money on the table that another miner could take. You have to do the same amount of work whether you fill the block or not, so why not fill it and collect all the fees you can? As long as there’s just one single miner, the network won’t stop. Sure, it will probably take a while to confirm transactions for a couple of weeks until the difficulty readjusts, but that’s survivable.
At this point it might be worth it to split out a new thread with this debate… I doubt many people enjoy reading through what follows
I’m gonna try my best to explain (and I’m no expert), but I think the paper describes it better than I can.
In the standard environment, you are completely right. However, we are working with the assumption that most miners work with the protocol
Follow the protocol BUT
If there are two blocks of equal height (aka a fork, for example because two miners discovered a new block at the same time), mine on top of the one that contains more transaction fees. (Standard protocol would be to mine on top of the block you heard about first)
The paper calls this strategy PettyCompliant, and also shows that it strictly outperforms (read: the miners receives more BTC for mining) the standard implementation.
If (and only if) most miners are PettyCompliant, then a so-called undercutting attack can happen. In such an attack, a miner intentionally forks the top block and leaves out some transactions, such that we now have a fork and the newly forked block has more outstanding transactions left over. Then, the PettyCompliant miners will flock to the newly forked block and the original block (which by the standard protocol should be the winner) is orphaned. This undercutting strategy again outperforms the standard protocol given that most miners are PettyCompliant (critical assumption!).
Once more and more miners add the undercutting attack to their arsenal of strategies to boost their income, more and more miners start undercutting each other, every time reducing the transactions included in the block.
So, to finally answer your question about “why not fill it and collect all the fees you can?”: Because you’d get undercut. I didn’t make it quite clear enough in the previous comment, but in my statement I was referring to the situation where PettyCompliant is the default and undercutting attacks are common.
Listen, I’d love to be wrong and I haven’t properly looked for rebuttals to these claims. But to me, the instability-promoting strategies are clearly superior than the default strategy and I don’t see a way to prevent those from taking over. And if I messed something up, please point it out. I’d love to learn something more!
I won’t read the paper, but let’s assume they’re right and small transactions are going to be left hanging. In that case they will have to charge more for these small transactions, or find another solution. The point is, they can fix the algorithm.
Ok, I understand. These game theory issues are pretty interesting. Still, it seems to me a PettyCompliant actor would need to have much more hash power than an honest one in order to do this consistently, otherwise they would only be able to do it when a half-empty block arrived very closely after a full one.
Greg Maxwell wrote an interesting “rebuttal” to this paper already three years ago. His argument was that these issues were already well known, some mitigations had already been put in place (which the original paper ignored) and others were already in the works.
Bitcoin can switch from Mining to “Proof of Stake”. Then you get free Bitcoin while holding Bitcoin - like a dividend. Ethereum and Tezos are examples of Proof of Stake.
Imagine a world where dollar loses value while when you hold Bitcoin you get a 5% dividend in Bitcoin. And with Bitcoin you can pay taxes in canton Zug, buy electronics on Digitec and furniture and toys on galaxus. And when “Atomic swaps” become real, you dont even need coinbase, binance, bittrex or any other crytpo company to switch between different cryptocurrencies. You own your own Bitcoin in your own wallet and can transfer it through different countries within seconds (exchange to Ripple back and fort) to your friends, partners or to yourself. This is the future of value preservation for individuals, family offices and foundations - where you dont rely on banks, governments who change, the FED or paper money.
Given that the current development team is the one opposed to even changing the block size from 1MB to 2MB, I severely doubt they would agree to change something so fundamental.
I’m not sure which situation you’re referring to. Could you explain a bit further, please? Just PettyCompliant mining or actively undercutting? I have tried to think about a few scenarios and I cannot follow your reasoning.
This is exactly what I was hoping for, thank you!
I think this should fix the issue I brought up. Glad to see that bitcoin is more responsive than @jmk fears:
I agree. I think this might be the reasoning:
I’m not sure how fun this is for the users… It certainly seems desirable for technical reasons, but as a hypothetical user this does not excite me at all.
So then we would say goodbye to the limited supply of bitcoin and say hello to inflation. 5% per year is a lot. And I don’t see how it would incentivise miners to mine unprofitable ledger blocks.
Once I sat down to understand what Bitcoin really are. The best explanation I found was from 3 blue 1 brown
Initially I was excited about the idea, as it is simple enough that you can understand it by applying basic computer science/crypto principles… But after a while thinking about it a little more I didn’t see where the big deal really is. The decentralised verification part of the blockchain is the real “innovation” but also what makes Bitcoin slow and wasteful… The artificially low supply reminds me of Magic Cards and other collectibles cards game. At least in those worlds the collectible have an intrinsic use.
Despite the constrained supply, bitcoins is super volatile… it is not digital gold as previously taunted or an edge against a crash as we have seen lately. It remains a purely speculative product and have no intrinsic value other than for criminals that want to perform anonymous transaction (not even sure part is safe with BC). Buying something with the only goal of selling for more later is pure speculation IMHO.
I think the jury is still out on the question if bitcoin can be treated as gold. But I think it can be surely treated as currency. Fiat currency, yes, but a currency still. If it provides advantages over the classic fiat currencies, is a different matter.
I would not be too bashful treating cryptos as tool for “criminals”. In one country you’re a criminal, in another you’re not. Cryptos give us a way to go under the radar of oppressive government, which becomes a larger issue over time. People are just plain stupid, allowing the government to print money and strip them of their liberties. During the coronavirus pandemic we only see more of such behavior. I think cryptos can only win on this. The more oppression and inflation there is, the stronger the cryptos will get.
A new block full block was just mined. If you’re PettyCompliant, how long do you wait for another block with fewer transactions to be discovered by someone else? Or how long do you keep mining based off of the previous block once you know there’s a new one out there? If you don’t start mining the new block immediately, you risk being left out. Unless you actually have more hash rate than everyone else, then you can afford to get a late start.
Banks have gotten us used to two or three day waits for money transfers, or even for settling of operations when you sell. We’ll be fine even if we have to wait a few hours for a bitcoin transaction to be finalized. You have faster settlement layers if you need them, and you can always pay more if you want faster service.
Maybe you didn’t understand it as well as you thought. The current banking system is way slower and more wasteful, but it’s just hidden away from you so you don’t notice. The beauty of Bitcoin is that it’s all laid bare for you to see all the tradeoffs, the costs, the security, etc.
I would bet that the ratio of transactions/energy consumed for Bitcoin has to be really bad compared to any other system you could imagine. This has to be the case because miners are rewarded for burning energy running useless ASIC farms. The monetary reward for mining has to remain huge in order to avoid any unique entity to gather 50% of the processing power. The ledger cannot be secure otherwise. So miners spend millions and million on hardware and burning coal because it is the cheapest energy available.
The system is based on proof of work which is based on doing useless work…
All of that for what? A decentralised ledger… Which is not event something that the “banking system” claims to provides.
I would be quite surprised if it was. The big credit card companies like VISA or Mastercard handle many more transactions than bitcoin at a fraction of the cost. It’s so cheap to run such a system that even supermarkets like Coop or Migros run their own points systems, which can be considered parallel currencies. Immediately after you’ve paid, you can see your point balance increase in the app.
Or they could design the mining algorithm in a way that does not scale well on big server farms. Ideally, you should be able to mine on your smartphone with the same energy efficiency as a server farm does. Don’t know if it’s possible to achieve, though. The other issue is the cost of electricity around the World.
My understanding: You mine on top of the highest chain. If there are multiple chains of equal height (fork), then you mine on top of the one where you get more transaction fees.
In your example this would mean you mine on top of the newly mined block. In case you hear about a competing block of equal height, then you switch to the second block iff it offers more transaction fees.
Fair point. Maybe I just focus too much on the negative side. Letting the perfect be the enemy of good and so on.
You could make mining a little more democratic by doing a proof of work that is random/inefficient enough that an ASIC processor would not help. But that would not help with the power consumption I am afraid.
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The current banking system is way slower and more wasteful, but it’s just hidden away from you so you don’t notice. The beauty of Bitcoin is that it’s all laid bare for you to see all the tradeoffs, the costs, the security, etc.