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.
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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I did not ignore hardware cost. I stated that the absolute cost of hardware is not relevant to bitcoin security. “Surely” is an implicit statement of assumption.
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I'm confused... you said that "cost of hardware is irrelevant" & if Bitmain is forced to liquidate S9s at $10 a piece tomorrow, that will have no impact on Bitcoin security. How is that NOT ignoring hardware cost?https://twitter.com/hugohanoi/status/1029176495145533440 …
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If I call you irrelevant I have not ignored you.
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O...k?! You have a different definition of "irrelevant" than I do. Sounds hella confusing to me, but must be the fact that I'm not a native speaker ;-)
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You seem to have a unique interpretation of ignore. If something is valued at zero it is not ignored - it has been considered.
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You just made it more confusing... So you value hardware cost at zero always, now & future? And because you treat this cost as zero it doesn't factor into your Bitcoin security calculation? But you don't call this... ignoring?
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Maybe you should follow my subsequent posts.
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Read it, don't agree with it. What you call "absolute", I call extremely simplified abstraction of reality. What you call "relative", I call that real-world economics. Your theory is only as good as situations & factors on the ground.https://twitter.com/evoskuil/status/1029206261047279619 …
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