12-31-2019, 10:58 PM
Bitcoin (network) 2030
<!-- SC_OFF --><div class="md"><p>No, the title is correct, while everyone is focusing on halving in 2020 let's take a look at 2030. </p> <p>I was reading 3 posts about Cardano network where they mention Bitcoin network and its PoW.</p> <p><a href="https://medium.com/@CardaniansI/blockchain-needs-a-viable-incentive-mechanism-fb92dc1795cd">https://medium.com/@CardaniansI/blockchain-needs-a-viable-incentive-mechanism-fb92dc1795cd</a></p> <p>" Bitcoin halving occurs every 4 years. In 2030 the Bitcoin block reward will be 1,56 BTC. One block is mined approximately every 10 minutes so there is mined 144 blocks per day. The network is able to process 7 transactions per second which are 604,800 per day. If one transaction would cost $0,01 then the network would generate $6,048 per day. We can neglect transaction wee if we want to presume it remains low. It cannot be like that and fees might rise to keep the network secure. If a transaction fee would be for $10 then $6,048,000 could be collected a day.</p> <p>So network subsidy is more important for Bitcoin than the collected transaction fees. As we stated above, the block reward will be 1,56 BTC in 2030 so the Bitcoin network would earn $2,246,400 per day if BTC costs $10,000, or $22,464,000 if BTC costs $100 000."</p> <p><a href="https://iohk.io/en/blog/posts/2018/10/23/stake-pools-in-cardano/">https://iohk.io/en/blog/posts/2018/10/23/stake-pools-in-cardano/</a></p> <p>" In the case of Bitcoin, we have both the above mechanisms, incentivization and pools. On the one hand, mining is rewarded by transaction fees as well as a block reward that is fixed and diminishes over time following a geometric series. On the other hand, pools can be facilitated by dividing the work required for producing blocks among many participants and using ‘partial’ PoWs (which are PoWs that are of smaller difficulty than the one indicated by the current state of the ledger) as evidence of pool participation. "</p> <p>" How do Bitcoin-like mechanisms fare with respect to the decentralization objective? In Bitcoin, assuming everyone follows the protocol, pool rewards are split in proportion to the size of each pool. For example, a mining pool with 20% of the total hashing power is expected to reap 20% of the rewards. This is because rewards are proportional to the number of blocks obtained by the pool and the number of blocks is in turn proportional to the pool’s mining power. Does this lead to a decentralized system? Empirical evidence seems to suggest otherwise: in Bitcoin, mining pools came close (and occasionally <a href="https://en.bitcoinwiki.org/wiki/GHash.IO#51.25_attack_controversy">even exceeded</a>) the 50% threshold that is the upper boundary for ensuring the resilience of the ledger. A simple argument can validate this empirical observation in the framework of our reward-sharing schemes: if pools are rewarded proportionally to their size and pool members proportionally to their stake in the pool, the rational thing to do would be to centralize to one pool. To see this consider the following. At first, it is reasonable to expect that all players who are sufficiently wealthy to afford creating a pool will do so by setting up or renting server equipment and promoting it with the objective to attract members so that their share of rewards grows. The other stakeholders that are not pool managers will join the pool that maximizes their payoff, which will be the one with the lowest cost and profit margin. Pool competition for gaining these members will compress profit margins to very small values. But even with zero profit margin, all other pools will lose to the pool with the lowest cost. Assuming that there are no ties, this single pool will attract all stakeholders. Finally, other pool managers will realize that they will be better off joining that pool as opposed to maintaining their own because they will receive more for the stake they possess. <strong>Eventually, the system will converge to a dictatorial single pool.</strong> "</p> <p>" The experiment leads to a centralized single pool, validating our theoretical observations above for Bitcoin-like schemes. From a decentralization perspective, <strong>this is a tragedy of the commons: even though the participants value decentralization as an abstract concept, none of them individually wants to bear the burden of it.</strong> "</p> <p><a href="https://emurgo.io/en/blog/features-of-staking-in-cardano">https://emurgo.io/en/blog/features-of-staking-in-cardano</a></p> <p>" over time, <strong>Bitcoin converges into a dictatorship model due to centralization of miners and the underlying reward sharing mechanism, which causes stakeholders to, myopically, choose pools that have minimized their operational costs as there are more rewards available to stakeholders from those pools</strong>. "</p> <p>Any thoughts? Will Bitcoin still exist in 2030?</p> </div><!-- SC_ON --> Kind Regards R
<!-- SC_OFF --><div class="md"><p>No, the title is correct, while everyone is focusing on halving in 2020 let's take a look at 2030. </p> <p>I was reading 3 posts about Cardano network where they mention Bitcoin network and its PoW.</p> <p><a href="https://medium.com/@CardaniansI/blockchain-needs-a-viable-incentive-mechanism-fb92dc1795cd">https://medium.com/@CardaniansI/blockchain-needs-a-viable-incentive-mechanism-fb92dc1795cd</a></p> <p>" Bitcoin halving occurs every 4 years. In 2030 the Bitcoin block reward will be 1,56 BTC. One block is mined approximately every 10 minutes so there is mined 144 blocks per day. The network is able to process 7 transactions per second which are 604,800 per day. If one transaction would cost $0,01 then the network would generate $6,048 per day. We can neglect transaction wee if we want to presume it remains low. It cannot be like that and fees might rise to keep the network secure. If a transaction fee would be for $10 then $6,048,000 could be collected a day.</p> <p>So network subsidy is more important for Bitcoin than the collected transaction fees. As we stated above, the block reward will be 1,56 BTC in 2030 so the Bitcoin network would earn $2,246,400 per day if BTC costs $10,000, or $22,464,000 if BTC costs $100 000."</p> <p><a href="https://iohk.io/en/blog/posts/2018/10/23/stake-pools-in-cardano/">https://iohk.io/en/blog/posts/2018/10/23/stake-pools-in-cardano/</a></p> <p>" In the case of Bitcoin, we have both the above mechanisms, incentivization and pools. On the one hand, mining is rewarded by transaction fees as well as a block reward that is fixed and diminishes over time following a geometric series. On the other hand, pools can be facilitated by dividing the work required for producing blocks among many participants and using ‘partial’ PoWs (which are PoWs that are of smaller difficulty than the one indicated by the current state of the ledger) as evidence of pool participation. "</p> <p>" How do Bitcoin-like mechanisms fare with respect to the decentralization objective? In Bitcoin, assuming everyone follows the protocol, pool rewards are split in proportion to the size of each pool. For example, a mining pool with 20% of the total hashing power is expected to reap 20% of the rewards. This is because rewards are proportional to the number of blocks obtained by the pool and the number of blocks is in turn proportional to the pool’s mining power. Does this lead to a decentralized system? Empirical evidence seems to suggest otherwise: in Bitcoin, mining pools came close (and occasionally <a href="https://en.bitcoinwiki.org/wiki/GHash.IO#51.25_attack_controversy">even exceeded</a>) the 50% threshold that is the upper boundary for ensuring the resilience of the ledger. A simple argument can validate this empirical observation in the framework of our reward-sharing schemes: if pools are rewarded proportionally to their size and pool members proportionally to their stake in the pool, the rational thing to do would be to centralize to one pool. To see this consider the following. At first, it is reasonable to expect that all players who are sufficiently wealthy to afford creating a pool will do so by setting up or renting server equipment and promoting it with the objective to attract members so that their share of rewards grows. The other stakeholders that are not pool managers will join the pool that maximizes their payoff, which will be the one with the lowest cost and profit margin. Pool competition for gaining these members will compress profit margins to very small values. But even with zero profit margin, all other pools will lose to the pool with the lowest cost. Assuming that there are no ties, this single pool will attract all stakeholders. Finally, other pool managers will realize that they will be better off joining that pool as opposed to maintaining their own because they will receive more for the stake they possess. <strong>Eventually, the system will converge to a dictatorial single pool.</strong> "</p> <p>" The experiment leads to a centralized single pool, validating our theoretical observations above for Bitcoin-like schemes. From a decentralization perspective, <strong>this is a tragedy of the commons: even though the participants value decentralization as an abstract concept, none of them individually wants to bear the burden of it.</strong> "</p> <p><a href="https://emurgo.io/en/blog/features-of-staking-in-cardano">https://emurgo.io/en/blog/features-of-staking-in-cardano</a></p> <p>" over time, <strong>Bitcoin converges into a dictatorship model due to centralization of miners and the underlying reward sharing mechanism, which causes stakeholders to, myopically, choose pools that have minimized their operational costs as there are more rewards available to stakeholders from those pools</strong>. "</p> <p>Any thoughts? Will Bitcoin still exist in 2030?</p> </div><!-- SC_ON --> Kind Regards R