Quantitative easing will inevitably bring about conflicts between vested interests and lost interests. The only way to prevent such conflicts is to abandon the discretionary power of monetary policy from the beginning.
Original title: “Viewpoint | Do Not Fear: Bitcoin Doesn’t Need Continuous Issuance”
Written by: Nic Carter, Partner of Castle Island Ventures, Founder of Coin Metrics, former Fidelity’s first cryptocurrency analyst. Translation & proofreading: Min Min & A Jian
Among groups other than Bitcoin fans in the cryptocurrency industry, there is a popular impression that “naive” Bitcoin supporters always refuse to discuss the topic of whether Bitcoin needs to be issued for a long time. In short, the reason Bitcoin skeptics like to say this is because they believe that in the long run, Bitcoin will be forced to issue more at a rate faster than Satoshi Nakamoto’s pre-set rate due to the inability to pay sufficient remuneration to the miners. . According to this statement, Bitcoin cannot be advertised as a fixed supply currency. But in fact, whether Bitcoin skeptics admit it or not, this view is usually to defend the discretion of other cryptocurrencies in monetary policy. In other words, these people believe that in the long run, the additional issuance rate of cryptocurrency should not be zero.
I think this view is completely wrong, although its core premise (the incentive mechanism driven by transaction fees may not provide sufficient security) is reasonable. In this article, I will give my reasons and explain why I think Bitcoin supporters have nothing to worry about, regardless of whether the transaction fees are sufficient to maintain the security of the network.
Talking about supply
First of all, I want to point out an obvious fact: a hard supply ceiling is not a necessary condition for assets to obtain value. Assets that continue to grow in supply are also valuable, as long as they are in continuous global demand. Except Bitcoin, other cryptographic assets have this feature, and they are obviously valuable. Secondly, whether it is physical assets or digital assets, even if their supply increases without our knowledge, they will not lose value. Gold is a reliable means of storing wealth, but we cannot accurately know its supply. Of course, Bitcoin is highly auditable because it is not affected by the physical world-and a software bug may cause it to be issued at will. This is the reason why we should pay attention to software bugs. The purpose of this article is not to promote the advantages of the hard supply ceiling or its role in maintaining currency prices, but to introduce the connection between the hard supply ceiling and the nature of Bitcoin.
For the sake of explanation, I will not discuss any predictions about Bitcoin’s long-term security budget. I happen to really think that Bitcoin is also very likely to achieve long-term security by relying on transaction fees alone, but this is beyond the scope of this article. In addition, a common assumption is that future Bitcoin transaction fees will reach a certain threshold to match current security expenditures. I think this assumption makes no sense. At present, the security expenditure of Bitcoin only depends on the unit price and circulation. Historically, Bitcoin’s security spending ranged from 0 to 54 million U.S. dollars per day.
The dilemma of inflationists
Let us return to the topic. Critics often point out that Bitcoin will definitely introduce an inflation mechanism. Therefore, Bitcoin’s current inflation-free nature is illusory. For clarity, we will use a syllogism to illustrate this controversial point:
- (Premise) A certain feature of Bitcoin (predetermined issuance plan) may become its weakness
- (Premise) In order to overcome this weakness, specific changes must be made (the circulation exceeds the predetermined plan)
- (Premise) If a certain characteristic of the system will definitely change in the future, we cannot call it eternal.
- (Conclusion) Bitcoin may change the current rules in the future, so we cannot say that it has the characteristic of a hard issuance limit.
I admit the possibility of (1), even though I think these results are unpredictable and not as taken for granted as critics have said. (3) It is undoubtedly correct. I think (2) and (4) are wrong. No one can guarantee that if the Bitcoin blockchain is reorganized due to insufficient security, Bitcoin supporters will definitely recommend the re-introduction of additional issuance mechanisms. In fact, in addition to inflation, we can also take many other measures to invalidate reorganization attacks, such as institutionalization of mining, coordinated reverse attacks, soft forks, and so on. The reason I oppose (4) is that if Bitcoin reintroduces the additional issuance mechanism, it will become a completely new system, which deviates from Satoshi Nakamoto’s description and our understanding of it.
According to our current understanding, whether Nakamoto, or Bitcoin community, do not assume that the supply of Bitcoin will from the current plan. Although someone may create another version of Bitcoin and change its predetermined supply plan, the new version of “Bitcoin” may be as controversial as other forks that change key characteristics of Bitcoin (such as BCH).
Therefore, we should not assert that Bitcoin contains the assumption that it is possible/must change its issuance plan. Although the Bitcoin created by Satoshi Nakamoto may fail, Bitcoin cannot deviate from the predetermined supply plan, otherwise it will create a brand new asset. Finally, if Satoshi Nakamoto’s version of Bitcoin must be transformed into a new asset, it will not necessarily be a disaster.
The reason why we say that Bitcoin’s supply plan cannot be changed is because the supply plan is inherent in the Bitcoin protocol, assets, and system. It is one of the few features clearly defined by Satoshi Nakamoto, and it is written into the original design code. In the eyes of most Bitcoin community members, the issuance limit of 21 million is an inherent characteristic of Bitcoin. If we let a Bitcoin supporter define the system, he would definitely mention “scarcity”, “fixed supply” and “21 million units”. There is no doubt that the Bitcoin system designed by Satoshi Nakamoto has strict regulations on the issuance volume, which continues to this day in the concept of Bitcoin.
example
The following is the first description of the Bitcoin system (taken from the white paper):
Once a predetermined number of tokens enters circulation, transaction fees become all incentives for miners, thus completely avoiding inflation.
Please pay attention to the word “reservation”. Before the agreement went live, Satoshi Nakamoto had already determined the total supply of currency. Moreover, the white paper (equivalent to a constitutional document) clearly stipulates that after Bitcoin goes online, the total supply cannot be modified. Satoshi Nakamoto has already preset how the miners will get profits after all bitcoins are issued.
The following is the description of Bitcoin on the bitcoin.org website:
The total supply is 21 million. All bitcoins will be distributed as block rewards to nodes in the network that create blocks, and block rewards will be halved every 4 years. (Therefore, the circulation of each stage is:)
The first four years: 10.5 million The second four years: 5.25 million The third four years: 2.625 million The fourth four years: 1.3125 million
So on and so forth……
On this page, Satoshi Nakamoto also described the “main characteristics” of Bitcoin. One of them is that there are no miners and other third parties. To achieve trust-free issuance and the discretion to never introduce monetary policy, a predetermined issuance plan must be followed. To determine the inflation rate based on changes in the environment, it is necessary to introduce a trusted third party to make the decision. Satoshi Nakamoto obviously didn’t want this.
Afterwards, Satoshi Nakamoto published several posts on BitcoinTalk, reiterating his commitment to a hard issuance cap:
Otherwise, we will not be able to set a hard limit of 21 million issuance, because the system always needs to provide a minimum reward for creating blocks. In the next few decades, as block rewards gradually decrease, transaction fees will become the main revenue of nodes.
The importance of supply to Bitcoin is self-evident. Bitcoin’s supply plan cannot be changed, because this is the core of Bitcoin. Once the supply plan is changed, a new asset is created.
Many Bitcoin supporters may disagree with my point of view, arguing that we should adopt a more moderate attitude and not dogmatically recognize “Bitcoin” in order to avoid binding ourselves. I disagree. I think if we reach a consensus on its core features, Bitcoin will become more specific and easier to understand. It is precisely because of this uncompromising that Bitcoin can leave those copycat projects far behind. Those fake and fake projects simply cannot realize the important features of Bitcoin. For Bitcoin, the biggest threat is not failure (for the community, accepting failure is very important), but conceptual compromise. Only by firmly adhering to the vision of Bitcoin can we work together around a specific concept.
Even if the wave behind pushes the wave forward, Bitcoin is the ticket
Having said that, this does not mean that if Bitcoin has fatal flaws, Bitcoin supporters will also waste time on this doomed chain. Although this is not a new point of view, it is worth repeating again. If Satoshi’s version of Bitcoin loses popular support, all Bitcoin holders will be concentrated on another valuable inheritance chain. This operation is no different from the upcoming transition of Ethereum. In addition to using the same name and holders of Ethereum 1.0 currency can get a proportional share of 2.0, Ethereum 2.0 has almost nothing in common with Ethereum 1.0. Although BCH and other chains that forked from Bitcoin have failed, from the point of view of distribution, they are all in the right direction. A valuable inheritance chain must be built on Bitcoin’s accumulated cost and security. These are the sources of Bitcoin’s vitality and decentralization. Nowadays, it is almost impossible to achieve fair distribution, on the one hand because the risk is too high, and on the other hand, because large investment foundations seize all the supply before the public, which is almost no different from pre-mining. To achieve true fair distribution like Bitcoin, the only way is to inherit it.
So, assuming Satoshi Nakamoto’s version of Bitcoin fails in the end, let it be. It will be a decent loser. Then an inheritance chain will appear on the basis of the block rewards totaling $19 billion already issued by Bitcoin and the UTXO set that has been formed. Fair distribution and supply planning are both essential design features. Therefore, Bitcoin supporters need not worry. Even if Satoshi Nakamoto’s version of Bitcoin fails, its value will be transferred to the inheritance chain, and they will still retain the ownership of this part of the value.
Other ideas
Finally, I want to say that there is no such thing as an optimal non-zero currency issuance rate. The issuance rate/dilution rate is a political issue, not an engineering issue. There will always be some groups that will benefit from the newly issued currency-the first month is given to the people near the water platform, and the people closest to the agreement can get the newly issued currency first. This is what we call the “Cantillon Effect”. On the contrary, other groups will oppose the issuance of additional currency because they do not want to dilute the currency they hold. All debates about currency can be boiled down to: the conflict between the vested interests and the lost interests of the quantitative easing monetary system. The only way to prevent such political conflicts is to abandon the discretionary power of monetary policy from the beginning, as Satoshi Nakamoto did. Any additional currency issuance is arbitrary, and supporters will always argue that a small amount of additional issuance will bring huge benefits (for example, funding for some new infrastructure projects). Therefore, those opponents will always be hit by supporters, and the rate of issuance will be reduced to a political pawn. In short: We cannot always implement a quantitative easing monetary policy, because there is no non-zero equilibrium in this world.
Bitcoin broke this cycle and used a predetermined supply plan to avoid all discussions about monetary policy. Before the first block is mined, the rules of the game are clear. No one complains about being treated unfairly or frightened by the rate of issuance. Thanks to the PoW mechanism, issuance is a highly competitive free marketization process, and the insiders of the agreement do not enjoy any privileges. Therefore, the originality of Bitcoin is that it completely abandons the discretionary power of monetary policy.
Before this, no monetary system did this. As far as I know, no other projects have done this since. I have not encountered any alternatives, like Bitcoin, which really gave up the discretionary power of monetary policy. This feature is very important and worth keeping. Monetary systems that retain discretionary power are common, and all governments and central banks operate in this way. In the cryptocurrency community, many “elites” who oppose Bitcoin always try to let us use the central bank to replace the protocol structure. But these are common things, and to put it bluntly I am not interested.
In short, Bitcoin, Satoshi Nakamoto’s version of Bitcoin, and Bitcoin with a 21 million issuance cap are a great experiment to eliminate monetary discretion. This is the only new currency project. Other projects just use high technology to rebuild the existing authoritarian currency system: it is convenient for elites to use additional currency for personal gain. If Bitcoin fails, then let it go. We will clean up its wreckage and move on. Bitcoin will have an inheritor with a different surname. However, we must leave a mark and keep our faith in mind, otherwise we will become water without a source and a tree without roots.
Source link: medium.com
