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Rant about Bitcoin inflation, security and the dev fund

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Avatar for lubokkanev
Written by   14
2 years ago

The end-game of Bitcoin is to have a limited number of coins, meaning that no more coins be created, ever!

Right now that's not the case - every block found mints 12.5 new coins in existence. This is done in a controlled fashion and a strict schedule exists: minting will continue until about the year 2140 and the total amount of coins will be 21million. It will not be even though - it started from 50 coins per block and halves every 4 years.

This, according to Satoshi, is done to fairly distribute the coins and to bootstrap the security of the chain. Bootstrapping security is needed because security is achieved by mining - computers spending electricity to do work and make the chain hard to reorg. Electricity costs money, so to be willing to spend the electricity, you will want to be paid. The end-game is security being paid off by transaction fees. For this to be applicable though, we need the network to be popular enough that it can get enough revenue from transacting users. Thus, the minting schedule.

So, let's recap. Until we have enough transaction fees to pay for security, we pay with newly minted coins. This coin minting increases the supply and thus devalues the previously existing coins a bit. Holders of BCH know about this coming devaluation of their coins, because it's been there since the Bitcoin start.

Now, about the dev fund proposal.

The proposal is that a percent of the block reward is shifted to go for development. So, the coins that are minted every block remain the same, but some amount of them don't go for security anymore. It goes for development, which, in the current situation, may be a better use of them.

So, what I'd like to argue is that the money for the fund will come from the BCH holders and no one else:

  • The money still comes from minting new coins, thus devaluating all the existing coins.

  • Spending them on development means less money for hashing, meaning that miners will do less work for the lowered payments, and all the BCH users get degraded security.

  • Not spending them on security doesn't mean it's miners that pay for our development. The same way that not spending your salary on cigarettes but on vacations doesn't mean that cigarette companies pay your vacations (no matter that the cigarette industry might shrink a tiny bit because you buy fewer cigarettes now).

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Avatar for lubokkanev
Written by   14
2 years ago
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That's the truth, I hope everyone can understand that the miners are not paying the devs. The reality is that the hodlers are paying the devs.

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2 years ago

The stock holders are paying the executives, the executives pay the devs. You are wrong and right at same time.

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2 years ago