Author: Eric Voskuil 2022-07-07 19:57:56
Published on: 2022-07-07T19:57:56+00:00
The discussion revolves around the security of Bitcoin and the role of technology and economic forces in providing it. The difficulty adjustment function, which only adjusts for changes in the observable, non-51% attacking hashing power, does not provide security against a chain split, 51% attacker or censor. Falling hash rate due to a perpetual 51% attack lowers the difficulty level, making it possible for everyone to CPU mine again. However, there is an inherent economic incentive to counter at any level of difficulty, as fees rise on unconfirmed transactions. This incentivizes the censor to subsidize the loss resulting from forgoing higher fee transactions that are incentivizing its competition. Reducing block size could help increase fee pressure and double-spend security while reducing the burden on node operators. The two factors that affect double spend security are demand and time. Less demand implies more time to secure a given amount against double spend, and also implies a lower cost to subsidize a censorship regime. Given Moore’s Law, the threshold for individuals to afford to validate is decreasing, making it cheaper over time for more individuals to validate. The difference for miners with smaller blocks is largely inconsequential relative to their other costs. Increasing demand increases double spend security and censorship resistance assuming fee-based reward. Rising demand leads to a rising overall hash rate despite block reward and profit remaining constant, making the cost of attempting to orphan a block higher, therefore lowering the depth/time requirement implied to secure a given transaction amount. Changes to inflation are likely off the table, and there is no agreement on how much security would constitute an optimum. An amount low enough to be easily affordable, but non-zero, is fine.
Updated on: 2023-06-15T21:27:13.593092+00:00