Quote from: e4xit on October 13, 2014, 09:47:19 AM

Quote from: Cryddit on October 13, 2014, 05:30:58 AM

Honestly, I don't think he did come from a financial background. Had he come from a financial background, block rewards would not be adjusted downwards in 50% increments. In fact the kool-aid in the financial industry is universally that mild continuous inflation is a good thing, so if Satoshi were educated in that industry, then block rewards would probably eventually start going *up* by a few percent a year to keep the capital dedicated to hashing (ie, block chain security) in a constant proportion relative to the bitcoin money supply (ie, the value that must be secured), and we wouldn't be looking at a 21M coin maximum.

I am concerned that down the line the sudden drops in hashing reward are likely to create dislocations of capital and hashing infrastructure. Meaning, that at some point the financial return on miners' invested capital suddenly justifies only about half of it, and then what do they do with the rest?

The thing about ASIC hashing infrastructure is that the thing that's required to secure the blockchain -- that is to say, hashing power -- is the very same thing that's required to attack it. And the weirdo economics here have caused a huge amount of it to be built -- much more than will be financially justified three or four more halvings down the line. The miners have sunk costs in dedicated equipment, so that equipment is not going to just go away because there's not a financial justification for the amortized expense of acquiring it. And it's ASICs, so they're not going to be able to switch it as general computing power to any other purpose.

I'm concerned that when the profits from hashing go down suddenly, a bunch of people looking for the most profitable use of their dedicated sunk-cost in hashing infrastructure will start to consider attacks. Way back when we were working on this, I took it for a lark. I never *imagined* the current value of Bitcoin or the idea that eventually dedicated farms of ASICs that literally cannot be used for anything else except supporting OR ATTACKING the blockchain would exist.

So I would be much less nervous with a very gradual adjustment to keep the miners in something closer to a steady state. Gradual adjustments make gradual dislocations, with plenty of time for equipment to wear out, turn into doorstops, blow power supplies, etc. and keep the amount of active usable infrastructure close to the amount that's financially justified by the declining block rewards.

That, or the value of bitcoin will increase (in relative terms to native currency) as there will be fewer 'new' BTC being sold off on the market, pushing the price up. Surely that was always the original intention? This is also combined with increased transaction fees (either through purely increased transaction volume or through fee/tx increasing). Miners not making enough on block subsidy + free/low tx fee tx's can simply stop mining free tx's or tx's with "too-low" a fee.

The free market at it's finest should be able to naturally find the optimum point for all involved (rather than the current system we have of some old guys sitting around and arbitrarily deciding a position [which is sure to benefit them, and *might* benefit the wider economy])...

Yes, the dislocation risk is largest when the value of the system as a whole is smallest. Which is clearly how you'd want it. I think the logic goes:
1) If bitcoin as a whole were high-value, it probably entails high transaction volume.
2) High transaction volume probably entails non-trivial transaction fee revenue relative to subsidy, even if fairly early in bitcoin's emission curve.
3) That transaction fee rev has the effect of drastically smoothing the otherwise severe dislocation that a 50% reward drop would otherwise represent.

Correct me if I'm wrong, Ray, but it seems like Satoshi highly valued simplicity; specifically in terms of protocol rules. He probably realized these likely fee/subsidy dynamics and took the trade off of simple code and simple rules, instead of a smoother function that probably would've been more complex to implement and/or presented a larger attack surface somehow. So while a finance guy may have pushed for more intellectual purity, a seasoned engineer would push for simple-to-implement with the hope/confidence that the market would provide the smoothing naturally. Maybe Satoshi was both and the engineer side won out.