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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Replying to @Noahpinion
Read the ungated one, it’s not particularly revolutionary or impressive, and contains much which is wildly inaccurate. However, here’s some actual deep, pioneering work by
@evoskuil on cryptoeconomics:https://github.com/libbitcoin/libbitcoin/wiki/Cryptoeconomics …4 replies 6 retweets 41 likes -
Budish paper IMO raises interesting questions but its conclusions are built on highly unrealistic assumptions & an inaccurate pricing model (for mining hardware). My take herehttps://medium.com/@hugonguyen/a-review-of-budishs-51-attack-theories-what-is-the-fair-price-of-an-old-asic-59a7dcf9ff94 …
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Cost of hardware is irrelevant. Amount of energy is also irrelevant. An external irreducible (energy) cost is required for confirmation. Confirmation cost is controlled by demand for confirmation (supply is capped). As in all markets, competition maintains return on investment.
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Replying to @evoskuil @hugohanoi and
A 51% attack is not only possible, it’s inevitable once Bitcoin starts to really matter. Bitcoin doesn’t use hope as a defense. Fees rise on censored txs until the free market can overcome the censor’s ability to subsidize its operations, or it fails to do so.
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> A 51% attack is not only possible, it’s inevitable Let me make sure I understand... So you think 51% attacks are inevitable, and imagine a future where Bitcoin would go back and forth between being 51-percent-attacked (low fees) and censorship-resistant (high fees)?
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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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Replying to @hugohanoi @evoskuil and
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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Investment is never a lagging function of price. All investment anticipates price. Otherwise there can be no production.
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You are also making statements as if they are economic axioms ;-) Never? Please tell me Bitcoin's rising price did not *cause* more investment in mining. Price anticipation & current price are not mutually exclusive.
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