Topic: Demurrage, transaction fees, storage fees & comparison to commodity money. (Read 16799 times)

Either you agree that old transactions have a 'cost' to the network, so there would be a benefit for some miners to forget these coins...
Or there is no 'cost' to old transactions... there for the entire idea of demurrage is stupid.

After theymos has explained me some things here:

https://forum.bitcoin.org/index.php?topic=7219.msg150688#msg150688

I don't think the argument "demurrage fees are not necessary because miners will forget old transaction" is valid.
If there's no hashing power incentive to forget, why miners would do that?
The fast miners/archivers specialization won't happen.

Am I missing something?

It might be useful to keep this thread on topic, namely creighto's proposal of demurrage and its advantages and disadvantages.


If you want a longer discussion about this, see http://forum.bitcoin.org/?topic=6284.0

But be ready for a long discussion with a handful of twists in it. Long story short, this is not as easy as most people like to think. The system isn't proven broken, but it looks like difficulty will fall unless for block size limits etc. Especially, the system is not proven stable. The topic is more of academic interest though, since I don't know whether we will need a lot of miners later on... I think it is best if we keep that discussion separate from the suggestion in this thread here.



@Topic:

Apart from the technical benefits, I think that a demurrage system might have a few more general advantages that mainly stem from the ability to tell stale coins from lost coins. Also, the higher incentive to spend is often named as an argument for inflation, and it's not entirely false. But I think demurrage should be really low, far below inflation, and not apply to people who spend their BTC in time -- or else a good portion of the current user base, those hating inflation, might be gone in the blink of an eye. So, the main argument against demurrage is psychology. People don't like their BTC disappearing, they might shy away from a cost even if it's reasonably low. It's another part of the protocol the users need to understand.

I believe demurrage has an advantage over the current situation technically, but I don't know whether it's better than the current system. Yes, it's nice to keep mining up, gather up lost coins, allow getting rid of old parts of the block chain. But Simplicity on the user side is a feat of its own, and stale coins don't do anything until they stop being stale coins. Mostly, I just dislike the idea of the total amount of BTC shrinking without re-mining of lost coins, but maybe that's just my personal opinion on aesthetics confusing my mind.

Most likely, the question will not be of importance, since it might be too hard to change the protocol now -- then we'll have to cope with current rules one way or the other.

I doubt the miners will resist if it is required to sustain the network. Users may object, but unless you are user/miner, it's moot.

A known collision course? You have proof that there won't be enough transfer fees to provide incentive to mine?

Here again I think getting over the fixation/hangup of only ever having one blockchain could help.

Maybe it is possible that by the time the minting of new bitcoins has decreased a lot, bitcoins will also be worth a lot.

Maybe even they could be worth enough that, like $10,000 notes-aka-bills, those who actually use such large denominations instead of exchanging them for smaller denominations will be relatively willing to wait longer and longer times for validation, maybe ultimately to a point where one does not consider a transaction verified until at least one hardcoded-in-clients checkpoint has been reached, fossilising the blockchain past the point where the transaction occurred.

Maybe if we start each next "denomination" (aka blockchain) each four years, when the previous "denomination" (aka blockchain) halves its minting-rate, the inauguration of a whole new blockchain that does give its miners 50 coins per block could help divert some of the frustration some miners - especially newcomers to the industry - might feel at the halving of coins minted in the earlier blockchain.

Wherever the miners focus should be useful for transactions needing relatively rapid verification and wherever the miners drift away from people can either exchange out of into the blockchain the miners move to or simply rely more and more upon actual human observations and checks, possibly including fraud investigations, computer-network attack charges, conspiracy to mess up international currency transfer investigations and so on, to arrive at "final" verification of transactions, ultimately fossilised by hardcoded checkpoints...

Miners having huge hoards of older "denominations" (aka blockchains) might prefer to mine the older blockchain{|s} in order to "secure" their wealth, at least up until the next client-version ith the checkpoints hardcoded that secure their wealth, while those more prepared to exchange their wealth into a new blockchain, or lacking significant wealth in old blockchains, might more readily jump onto the new chain...

-MarkM-

I think no miner would reduce its own profits to benefit all miners.

Even if the storage externality is not a problem in the future, we don't harm the system when discussing possible solutions.

I'm sure you can say it for any system that is working OK even though it is on a known collision course.

I'm convinced the current implementation of Bitcoin is unsustainable.It's not going to work when the inflation incentive to the miners is gone. The inflation is what makes hoarders currently pay for the service and when it's gone, the transfer fees will not be enough to pay for a proper miners support. The equilibrium will be a network of amateur miners working non-profit just for fun. With BTC valuation that corresponds to this "for fun" part.

I am yet to be convinced the system is fixable. And even if it is fixable, strong opposition to any changes is what makes me doubt it will be fixed.

Sounds right to me.

I don't know for certain, this is true.  But I do know economics.  I know incentives.  And I know praxeology.  The ultimate test of any science is the ability to make repeatable predictions about the future, otherwise the theory is flawed.  Economics has many theories, but in my opinion, Austrian Economic Theory is more accurate at ongoing predictions than any other theory.  And the reason for this is that Austrian Economic Theory is based upon the concept of the rational economic actor, and the study of how changes in the economic environment effects those rational economic actors and their behavior.  I look at the system as it is, and I see a small oversight in the picture.  I see an "externality" to use the lexicon of the modern world.  It probably will never be a problem.  I've admitted this.  And as such I have made a proposal that would only affect the system if it were ever to become a problem.  That's why I suggested an 'alternative minimum' miners' choice type fee, and not a hard rule.  If it's in place, and never really needed, it would cause no harm.  If in the future without any significant block reward, if it turns out that this really is a concern; those miners would have the choice of enforcing this known rule in order to establish a price floor.  I intentionally thought it out in order to limit the possibility of unintended consequences, another reason to have it as a miners' choice rule and not a hard|validity type rule.  If it were to have some unintended consequence show up, the miners' could simply stop honoring the rule, announcing their intent to do so.  Users won't object to the removal of a counter-productive fee, but they are likely to resist the imposition of new fees.

Correct.  We also haven't tested it with millions or billions of users, over a period of years.

When you look at the dynamics of very long term successful open source projects such as Linux or others, you don't see an "if it ain't broke don't fix it" approach to every proposed change. There is a healthy reluctance to break existing code for no reason but there is a also a willingness to invest in improvements that have no immediate benefit but are expected (and sometimes analyzed) to help longer-term future of the project (scalability, portability, maintainability, etc.).

In addition to the usual open source project management issues, bitcoin faces very significant additional challenges in terms of creating the right set of economic incentives that are likely to lead to a desired equilibrium outcomes in a large multiagent system.  For example, it's already the case that mining is too concentrated in the hands of some very large pools (and there are reasons to suspect this might actually become worse in the future), which suggests that something is broken about the current set of incentives.

Unfortunately, I don't really see the necessarily expertise within the project team to tackle these sorts of issues right now, but perhaps the continued success will attract it.

That could be done, but I'm not in favor of rejecting blocks based on fee rules (and that's not what I meant in my reply). Both fee reduction based on "old transaction deletability" and fee increase based on new transaction size can be optional.

I am speculating on what miners will do later as a free-market response to problems. I'm not proposing that any changes like these be made now, and certainly not in a way that would become permanent.

We haven't tested the current implementation without inflation driven mining which was the point smooth was making. We just don't have empirical evidence. We have nothing. There is no more reason to think this will work than something else without analysis.

We shouldn't change anything unless we have good reason to, but neither should we blindly cling to what we have without reason.

The empirical reason to prefer the current implementation is that it's working. It seems to be working quite well.

You could say that about inaction too.  In fact you could say that about having a bias in favor of inaction.

There is hardly any track record at all to say that bitcoin as it exists today "works" on a large scale over a long period of time.  It might, but there is no emperical reason to prefer the current implementation or policies in that problem space over anything else that also might work in that problem space.  The only real reason to prefer the status quo is that it costs nothing to implement, but that's a fairly small factor usually.

Any reasonable argument about long term success has to be based on some sort of analysis methodology (a simulation model for example) that is applied BOTH to status quo policies as well as some proposed alternative on more or less equal footing.

I think you are trying to fix something that isn't broken and have no way of knowing if it is going to be broken or not. A lot of assumption. There is a danger here. Unintended consequences. This is why we have the saying, "If it ain't broke, don't fix it". You might end up doing more harm than good.

Oh, I see. Blocks that don't follow size-based fee rules would be rejected by other miners.
I guess the fee reduction would be a function of the space save to the network.
But aren't then you punishing the archivers mentioned before? The old transactions would be "forgotten" faster.
Also you're not restricting the user from paying a higher fee (that compensate the enforced reduction) to persuade the archiver to "remember" his previous transaction.

By the way, as accounts can be forgotten by the network I guess the lost wallets and burned bitcoins aren't a technical problem that demurrage fees solve anymore. Is not a problem because miners can prune old transactions without introducing more rules to the network.
The demurrage fees would in effect "force" every miner to become an archiver while putting a rule to "forget" collectively.
"Force" with an incentive and "forget" after exhausting the account.
Also renewing transactions would require a transaction fee, or miners would just prefer to keep earning demurrage fees for the old transaction. In this sense, demurrage subsidizes indirectly (and artificially?) transaction fees like the max block size.
One through a limit in the "bandwidth" of transactions and the other through a limit on the store time of transactions.

Say that there are three transactions of 200 bytes with one spent output and one unspent output each. If someone spends all three of those unspent outputs in inputs in a 300 byte transaction, then the network has saved 300 bytes. I think miners will like this behavior enough to give a small fee reduction. Size-based fee rules would also promote this behavior somewhat.

Now I get what Gavin said.
The archivers would have an incentive to also ignore lost wallets and burned coins, although the first may be sometimes hard to know.
I still find the demurrage rule for the miners interesting.

I don't disagree.  I'm trying to create a standard for this that miners can turn to, and in this way also allow capital accumulators to plan out their best course of action before this point arises.  If my proposal, or something similar, is generally accepted by the miners as workable now, then current users will already begin to alter their behavior in a manner that limits their own costs in the future.