In Bitcoin, the promise of limited supply is huge. When I heard about Bitcoin, it was one of the biggest things that attracted me initially. “There will be no more than 11 million bitcoins!” However, in the long run, can this promise be fulfilled?
Has the promise been broken?
Some people would say that since the fork created a multiple of the 21m coin limit, it has violated the scarcity of Bitcoin, and the tokens of each chain control different market prices. However, in addition to this concern about forks, let us focus on a more modest goal: even a Bitcoin chain (such as BCH) can strictly maintain it for the next 100 years or more Is the release schedule?
The problem is that cryptocurrency is based on software, and the software can be changed at any time. Some people question whether the Bitcoin issuance schedule can maintain the security of Bitcoin or Bitcoin Cash for decades to come, but we will resolve this issue later. First, let’s check whether it is possible for users to agree on content that already exists.
Phrases such as Bitcoin’s “social contract” or “economic policy” have been thrown a lot, but what do they mean? In a word: change. Any major changes in the way Bitcoin works are usually equivalent to changes to core contracts or policies.
Bitcoin is not static
Since Bitcoin is software-based, the only real agreement contract or policy is the de facto standard, in which everyone agrees to run the software using the same rules as everyone else. Allegedly, this makes Bitcoin “difficult to change”, which may have a lot of truth. However, we know that these social agreements are not rock-solid revelations from the gods. Inevitably, the wind of change is blowing. Differences brewing. New actors can enter the ecosystem. Software developers can create new rules.
This leads to multiple possibilities. One possibility is that even the noble purpose of advocating the “social contract” may be left aside. First of all, popularity is largely influenced by public discourse, and public discourse may be influenced by false information and propaganda. We have seen this in Bitcoin’s BCH/BTC branch.
Forking is a free and fair mechanism for Bitcoin to resolve irreconcilable differences. No matter how the news is manipulated, the market provides an open, continuous mechanism to determine the value of tokens on competing blockchains.
Upon reflection, it seems that things like the “social contract” are more despicable than we hope. Before the BCH/BTC branch appeared, many Bitcoiners simply believed that “of course” the block size must be increased.
However, these are the assumptions of the early community, and opinions change over time. The famous “Overton Window” is a way of observing dynamics involving changes in public opinion. At first, an idea may be unimaginable at all, but as time goes by, the idea at least becomes worth discussing, and finally it is generally accepted.
Investors usually purchase tokens on the premise of long-term network rules, but this is not the case. Ledger rules can be changed at any time, at least in theory.
In fact, there are checks and balances built into encryption. Changes to the rules are regarded as forks, and forks usually only occur at certain predetermined times. Developers can’t just release “any code they want” because miners won’t necessarily run it. Even if they do, if any subset of the community prefers to use the old software (or alternative software), then the fork will cause controversy and cause the chain to split.
This split mechanism can protect investors, who automatically get coins on both sides of the split. Although it should also be said that spin-offs are not always a net positive outcome for investors. For example, if the split causes the community to lose too much network influence, then the total value of coins after the fork may be less than the price before the fork.
Therefore, we can conclude that the continuation of any blockchain rules can never be guaranteed. The best we can do is to rely on seemingly stable rules and hope that the rules we cherish the most will continue to exist in some form.
Even if everyone agrees, is zero inflation achievable?
Despite the blockchain governance issues, the next question we face is: even if the block rewards tend to zero, is it economically feasible to maintain the original Bitcoin issuance schedule in the near future?
An inevitable question is: Will transaction fees alone be enough to ensure blockchain security in the future? (You can ask Bitcoin BTC and Bitcoin Cash BCH at the same time).
A conflict point in the BTC/BCH split specifically addresses this issue. BTC Core developers believe that if the supply of block space is not restricted, the cost will be too low. By limiting the transaction capacity, this creates a fee-based market, thereby creating a sustainable level of security, assuming that users will continue to pay high fees on the BTC chain instead of using a backup blockchain.
In practice, this theory has been proven to be correct at least to a certain extent. We have seen that the total cost of Bitcoin blocks is comparable to the amount of block reward subsidies (and in some cases even exceeds). We have also seen some willingness to continue to use BTC regardless of high fees in the market.
Interestingly, the fixed supply of the block space of the transaction plays a role in the demand-supply equation, because the demand is just below the supply. You may want the demand to collapse completely, but it seems that the theory that people will pay more for transactions (because they are on the BTC chain) has some truth in practice.
Of course, based on only a few years of data, this is correct and may change at any time in the future. For example, if cryptocurrency users think that their money is not enough. It seems unlikely at the moment. Currently, BTC is mainly used for speculation and inflation hedging, so its users do not need fast or cheap transactions.
The rare case of Bitcoin BTC
At the same time, BTC seems to depend more on the benefits of its network effects to investors than on the actual functions it allows. The price of any coin depends on its network effects and functions, so this is not uncommon in itself. However, BTC is the only token I know of that intentionally charges high fees. Although in theory this does help solve the cost issue, it is not clear how long BTC can maintain this economic policy without shutting down users and investors.
Another charging method is the original charging method: a large number of transactions are carried out, so that the fee is relatively low, but a certain amount must be made up.As Cong said “I’m sure that in 20 years, the transaction volume will be very large or not.”
In terms of cost reduction, Bitcoin Cash follows the original design of Bitcoin. But how does it work? So far, it’s not very good. That’s because there is no actual increase in the number of BCH transactions. But again, it is still too early. In the next few decades, Bitcoin Cash may explode at any time.
The idea in Bitcoin Cash is that you want to make a large number of transactions. But what if it doesn’t happen fast enough? Another relevant factor is the price of coins. If the coin price keeps doubling every four years, the security level in dollars will remain the same.
Rising coin prices and increasing number of transactions can both help. These things can offset the diminishing block reward. But what if neither is enough? It seems that this is the worst case of Bitcoin’s elimination, but not everyone thinks it is unlikely. Some in the crypto community believe that the fixed supply model is simply impossible to achieve.
Some coins, such as Ethereum and Monero, avoid this problem by using so-called “tail launches”, which means that block rewards will last forever. Although the overall reward plan for senior years is small, because this reward continues, tokens cannot advertise that they have a fixed supply.
What other remedies and solutions exist? A simple idea is to let the miners raise the fees themselves. Miners can certainly do this without a fixed block size. If developers can formulate economic policies, then miners can do the same.
Of course, this will encounter the same problem, that is, the cost is so high that the chain cannot reliably support the use of “peer-to-peer cash”, but there may be a market-driven optimal position. In this case, larger transactions Fees may increase while still allowing cheap or even free transactions. In that case, it is clear that the existing pricing scheme that charges per kilobyte must be thoroughly reformed.
Beyond Proof of Work
In addition to taking direct remedies for higher prices, more transactions, or higher rates, improving security will begin to involve more esoteric and fundamental changes in technology. Proof of work is a powerful tool, but it has a limitation that it requires most networks to be honest. This is even more of an issue on minority chains like Bitcoin Cash, which shares its hash algorithm (SHA-256) with BTC.
For many years, Bitcoiners have been loosely discussing adding some kind of “proof of rights” element to Bitcoin security. In recent years, there have been many interesting developments in encryption technology and consensus mechanisms.
For example, Avalanche Coin (AVAX) brings a new way to achieve distributed consensus. Some people discussed attempts to bring elements of this technology into Bitcoin Cash in an attempt to “consolidate” it into existing PoW security.
However, it should be noted that all of these schemes are ultimately proof-of-stake variants, as they require coin holders to participate and provide security based on their holdings.
The ultimate goal of any such scheme is to ensure that the attacker must have both 51% hash power and 51% circulating supply. At least on the surface, if “work” and “benefits” are the two basic elements that work, it seems that we have nothing better than this. But this will greatly increase protection.
A less invasive method may be to use coin age as a determining factor in determining whether a block is sufficient to complete the work. This idea was originally proposed by Gavin Andressen, but it didn’t get much discussion. However, I think that if it is implemented as the entire trading day of a block transaction, the effect will be very good. Other schemes involving coin age and coin days offer different attributes and compromise schemes.
More extreme measures can be implemented, such as the time-based delay penalty I proposed last year to protect the organization. The idea is that if there is a significant delay between the time a node receives the block and the time it receives a competing block of the same height, then the malicious attack chain will not be considered effective.
However, this scheme (and the reorganization protection scheme in general) is not as robust as the pure Satoshi Nakamoto consensus. If the spare blocks are sent to different parts of the network in precise timing, the attacker may cause the chain to split. In theory, certain Internet outages may cause similar situations. Not to mention that new nodes that enter the network and synchronize do not understand these time delays. It is sometimes referred to as “weak subjectivity.”
Usually, solving such potential chain splits caused by incomplete consensus solutions will involve some centralized operations, for example, manual pool coordination in the event of a chain split attack.
For now, business as usual
I think the most important thing is that there is no conclusion as to how the Bitcoin experiment will continue. It has certainly surprised us so far, and it may continue to bring many surprises in the future. It is too early to judge whether some or all of the “commitments” are fulfilled. We have years or decades to continue to study and observe how things will develop. We will continue to focus on the security of the blockchain, but there is still time.
What do you think of Bitcoin’s 21M limit? Share your opinion in the comments section below!
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