Author: Peter Todd 2022-07-09 12:46:47
Published on: 2022-07-09T12:46:47+00:00
The latest blog post by Peter Todd titled "Surprisingly, Tail Emission Is Not Inflationary" reveals that due to lost coins, a tail emission/fixed reward can result in a stable money supply rather than a monetarily inflationary supply. The article discusses how most currencies reward miners with both a block reward and transaction fees, with Bitcoin phasing out block rewards over time. However, no currency has ever operated solely on transaction fees, and academic analysis shows that in this condition, block generation is unstable. Monero has implemented tail emission, which is a fixed reward per block that continues indefinitely, resulting in a stable coin supply. The article further explains that coins are constantly being lost due to deaths, forgotten passphrases, boating accidents, etc., and these losses are independent. Therefore, the rate of coin loss at a given moment in time is proportional to the total supply at that time. As coins can only be lost once, the article models the loss as an exponential decay, where the rate of lost coins is proportional to the total supply at that moment in time. The result of this modeling is that a tail emission converges to a stable monetary supply that is neither inflationary nor deflationary, with the total supply proportional to the rate of tail emission and probability of coin loss.The article also discusses the short-term dynamics and economic considerations of tail emission, stating that even a 0.5% inflation rate over 50 years only leads to a 22% drop, while economic volatility dwarfs the effect of small amounts of inflation. Furthermore, the article suggests that adding tail emission to Bitcoin would be a hard fork, and it's unclear if it would ever be possible to achieve that for the much larger Bitcoin. Ultimately, for tail emission to be added to Bitcoin, a substantial fraction of the Bitcoin community needs to run full nodes and be convinced that it is a good idea.
Updated on: 2023-06-15T22:29:04.931436+00:00