Topic: What if a looser money supply is unquestionably needed in the future? (Read 1244 times)

Mining isn't the whole point

Ps difficulty can drop

Miners will have to struggle to remain profitable as things settle down, and this will require them to be creative with waste heat, putting it to good use.  But this environment will favour smaller, more versatile miners.  It's a situation of "diminishing returns to scale".

It takes a lot more than a majority of miners to agree to change the inflation schedule.  Any full node who doesn't agree to the change will end up on a different chain.  SPV nodes would currently follow the miners like sheep, but there are known upgrades to the system that would prevent this.

I am assuming that this is what you mean by "looser money supply"?:

21 million coins isn't enough; doesn't scale
-One Bitcoin is divisible down to eight decimal places. There are really 2,099,999,997,690,000 (just over 2 quadrillion) maximum possible atomic units in the bitcoin system.
-The value of "1 BTC" represents 100,000,000 of these. In other words, each is divisible by up to 10^8.
-As the value of the unit of 1 BTC grows too large to be useful for day to day transactions, people can start dealing in smaller units, such as milli-bitcoins (mBTC) or micro-bitcoins (μBTC).

Concerning mining I am guessing that transaction validation speed will become fee based.  If you want a transaction validated quickly, you will end up paying a higher fee.

You need to remember that there are a lot of people out there mining for Satoshis to support the network.

You have made a number of assumptions that are likely to be wrong.

You assume that as the block reward goes down, the amount of mining or the number of miners will too. There are too many variables to make that assumption, and in fact the opposite has happened.

You assume that mining investment will exceed mining value. Actually, it already has, yet mining continues to increase. Regardless, the smart miners will continue to make a profit (though the margin is slim).

You also assume that as mining becomes less profitable, miners will look for some Pyrrhic victory, where they destroy the value of their bitcoins in order to obtain more. What if a looser money supply is unquestionably needed in the future? That will never happen. The need for a "looser" money supply will always be questioned.

Go make your own coin if you think you can do better.

I see your post as having two latent issues - that of market monopoly, Bitcoin is on a market basis, the early producers are the oligopoly-monopoly. So we have no democracy. Which actually bodes a little better for decision making than historic notions of democracy. But with good discussion (forum) and decision making tools through the internets the kind of transparency and rapid direct democracy from users, producers, and consumers is now possible in economics.

On the mining front, it's getting centralized. Friedcat skipped out on the 2nd gen to develop a model that could A. centralize more effectively, and B. reduce the depreciation costs from rapid equipment turn-over.

The days of 4-10 rig miners having a part in the network are coming rapidly to an end. For them it's not profitable until $1350, and that's why I put in a sell order of 1 btc at $1350, that's the current supply-demand dynamic in the industry.

If you're talking way into the future, well, I'll let others pontificate.

The miners who fail to make a profit will shelve or ebay their hardware and write angry blog posts about what a scam bitcoin is. Welcome to the free market.

I'd like a discussion of the future of monetary policy for Bitcoin.   Currently, bitcoin is capped, difficulties increase in relation to mining speed, and that older miners drop off as new efficient ones come on.  Yay.

For now, many miners are also big stakeholders, so the interest is in growth of stake and restriction of supply.   But the economy of this is changing very rapidly.   Very soon, perhaps only within a few months, miner capital investments will outstrip the perceived future value of their stakes.   

Bitcoin has survived two "changing of the guards" as it moves from cpu to gpu and then to asic.   Miners failing to adopt the new technologies slowly disappeared.   There's some evidence that the new "28nm" miners are already mining (cex.io's ghs price is dropping fast).

However, this raises some endgame concerns.   If mining ever becomes *too* unprofitable, because, say, transaction fees can't cover electricity costs even of those nice cool 28m chips, the pressure will build to add some inflation into bitcoin's protocol.   As technologies ramp up, there will be fewer and fewer entities profitably mining.  This is the consolidation people are concerned about.

Such a scenario is virtually guaranteed at 21mil coins.

If this starts to happen, and we don't add some monetary loosening at that point, the currency will either a) fail as mining fails or b) atrophy until 1 group owns 51%.  Of course, both scenarios are easily fixable by patching the protocol at some point in the future.

Miners control the current rules by which bitcoin is created.  So the set of future upgrades or changes to the core protocol that could happen can be reasonably be limited to "those that would benefit miners".

The phenomenon we have building is of "open source code and forum posts as a central bank", which is pretty cool.  Sure, it's not very central.  And yes, a majority of miners will have to agree to, download, and install a new protocol, so it's somewhat democratic. 

But still.

What are the currently known ways to address problems of long-term mining profitability.   Is the consensus that fees will eventually become profitable?  I've seen some discussion of the removal of upper limits.  Is Proof of Stake XX% Inflation ever discussed as a monetary loosening policy in connection with BitCoin.

I'd be curious to know what ideas people have been floating to address this issue.