This is the first deep, pioneering economics paper I've seen about Bitcoin and cryptocurrency: http://www.nber.org/papers/w24717 I really wish NBER working papers were ungated, so more crypto enthusiasts could read it.
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Yes - for some definitions of “hi” and “low”. And fees are the *only* thing that defends Bitcoin from censorship.
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Two points: (a) while I agree that fees will have to rise substantially to shoulder the bulk of security cost, surely you cannot ignore the sunk cost in mining equipments altogether?
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Investment in mining will be a lagging function of fees, true. But that sunk cost will also act as a strong barrier against attacks. Any analysis of majority attacks must consider cost of hardware (stock) - Budish did too. You can’t just look at fees (flow) alone.
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If you include cost of hardware in your analysis, then IMO 51% attacks are *not* inevitable.
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(b) If you think 51% attack are inevitable, then surely you must think Bitcoin is already a failed project. It is the only natural conclusion.
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Reason is no one knows what a “safe” level of fees is. Your marginal user would always try to pay the lowest fee he can get away with. Meaning there is no equilibrium. Bitcoin would fluctuate between being safe & unsafe. Who would want to use an unstable system like that?
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All buyers pay the lowest possible price, and sellers demand the highest possible. If the buyer is willing to pay the seller for sufficient security, then he will produce it and the buyer will have it. This is a praxeological truth.
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Ahh... There is your problem, when it comes to fees, there is no such thing as "sufficient security", at least on a per-transaction level. Neither the buyer nor the seller knows how to calculate this number. Only after you get 51-percent-attacked you'd find out.
End of conversation
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