Quote from: smooth on June 12, 2014, 01:37:55 AM

Quote from: hbadger on June 12, 2014, 01:22:13 AM

Ok, you say it forces consolidation. That doesn't seem intuitive at all. Do you have any evidence for it? All PoW coins seem to favor consolidation. I don't think it has anything to do with the relation between fees and inflation. Can you elaborate on this?

In a competitive market prices converge to marginal cost. In the case of transactions, this includes things like the cost of electricity to actually verify the transactions as valid, bandwidth, and the increased risk of orphans if you include more transactions in your block. It does not include the cost of performing proof-of-work. The only way miners who are "paid by transactions" are able get paid for performing proof-of-work is by overcharging by the transactions themselves, and they can only do this if they have some sort of market power. Thus it is impossible for mining to be competitive if proof-of-work is paid by transaction fees. It also results in further destructive incentives, as miners try to scoop up and horde transactions (for example using a sybil attack), since transactions are no longer competitively priced, but no represent a source of profit to be "mined."

There is also the free rider argument. If long-term-holders just hold and don't perform transactions (i.e. generate fees), miners won't do work, and the block chain won't be secure. The holders could do the mining themselves, but again only if they collude. Individually the incentive is for each holder to sit out and let the others holders pay the costs. The higher transactions fees go (to pay for proof of work, remember?), the greater the incentive to just sit on your coins and not pay them. This only reaches an equilibrium if some individual or group acquires all or most of the long-term holdings, so that individual or group can pay the mining costs without being exploited by free riders. Failing that, you have insufficient security, and likely such a coin will never become very successful (this includes bitcoin, although I think its possible now that bitcoin becomes a version of fiat).

So no structural mining reward means either extreme concentration of power, either in mining or holdings or both.

Pricing remains an issue though, as no one has come up with a good model for how much mining should be performed, and how it should be paid for. "None" is clearly wrong though, in the proof-of-work model. Using proof-of-stake (if that can be made to actually work) or something else is another question.

Bitcoin can't be a version of fiat even if it is consolidated. For example:

- Miners can't steal your savings
- Miners can't add inflation or anything like that, because they can't change the protocol

No one will hold forever just because it is deflationary. And even if someone does, he doesn't need to secure his own coins. Like I said your coins can't be stolen. You only need security at the time of receiving money, because you don't want to be played by a double-spender. Of course you also want security for the coins to hold value. But everyone spends. You can't live without spending. Imagine a world in which Bitcoin has reached its full potential. There will be no "Herp derp, I will hoard coins and only spend fiat". Even today, bitcoiners like myself are already paying for everything or almost everything in Bitcoin, simply by refilling their wallet after a spend, or periodically. A deflationary currency won't make you do anything you don't already want to do. Not letting people save is just cruel.

Forgive me for saying this again, but using inflation as a means to pay miners (or anyone else) sounds a lot like a government "trick". "Not enough money? No problem, just print more! Steal from the savers! Those idiots, lol!".

I have one example that might help further explain the unfairness of this. Imagine a person that is a huge saver, very responsible, very austere life, only spends on what he needs, and is always thinking about his and his family's future. If there is inflation, at some point the person won't be able to earn any more money. At some point, the percentage that is taken from him will be equal to what he earns. How is this possible? How can this be fair? One should be able to do whatever one wants with his own wealth. Want to save everything for harsher times? Good for you. No "Hey, u have too much! Gimme some!" bullshit.

I definitely think PoW consolidation is bad, and I'm excited about proposals like this one: https://bitcointalk.org/index.php?topic=584719.0

But I continue to disagree on that inflation can stop consolidation, or that it will let miners not "overcharge". Transactions cost what the free market decides they cost. If transactions end up being too expensive for small buys like a soda, I don't see what's the problem. Just use offchain transactions (like Satoshi predicted) or a separate and less secure currency (which you could think of as a subtype of offchain transactions).

Also, if you let miners live without transaction fees, won't they be able to manipulate us by overcharging? If you don't pay a huge fee, they don't add your transaction. They don't need it anyway, because inflation will pay for everything. Nothing good can come up from giving people free or unconditional money.

But if they need your transaction fees, an equilibrium will be reached between their need for the fees and your need for the service, or else they will run out of business.