1.Remove the bitcoin as a currency narrative. 2. Remove the bitcoin as gold narrative. 3. ??? 4. Profit?
Peter Todd, a Bitcoin Core developer instrumental in maintaining the blocksize at 1MB of data every ten minutes and in removing Gavin Andresen from bitcoin development, is now arguing that bitcoin should have perpetual inflation.
“Bitcoin should have had a 0.1% or 1% monetary inflation tax to pay for security,” Todd said, further arguing bitcoin “will die” if it doesn’t change the limit.
Speaking publicly on Twitter, Todd further implied that miners, presumably in collaboration with devs, could at some point simply “cancel” further halvings to maintain perpetual inflation.
Bitcoin currently has a 4% inflation tax.
Why haven't people forked away from that already?
— Peter Todd (@peterktodd) March 22, 2019
The bitcoin network run by 10,000 nodes has specific rules which dictate just how many btc are given to miners for securing the network.
To change such rules, all these nodes and the entire ecosystem, such as exchanges, businesses, traders, Theymos and so on, have to upgrade to the new rules.
If a substantial portion disagrees, then the upgrade can get very messy. Hence why they haven’t forked away from the current 4% inflation because miners would resist it and because there’s a halving underway in a few months.
Miners have previously tried to resist such halving, but they’d have to create their own network and they’d have to persuade everyone to join them, which they were unable to do.
Yet if some prominent devs are backing such miners too, then it may get more complicated because the “opposition” would have to form their own dev team to build their own client while engaging in a debate on whether what currently might seem out of the question should actually be changed.
Well, we've got a good 10 to 20 years to argue about it anyway before either of our views is put to the test. 🙂
— Peter Todd (@peterktodd) March 22, 2019
That bitcoin’s blocksize should be increased was also out of the question until Peter Todd and others ferociously argued against it in a three years long debate that ended with Todd’s side winning.
The effect of that was “bitcoin the peer to peer currency” became just gold, just an asset. Something still attractive because it does still perform a currency function albeit to a limited extent.
Making that 21 million limit quite an important quality because there isn’t really much else that can claim such precision save for other bitcoin like cryptos.
The network, however, relies on miners providing security which they do in return for bitcoins. Such bitcoins currently come from the bootstrapping inflationary period. Once that ends, where would such bitcoins come from?
Transaction fees. Yet at 1MB of data or about 300,000 transactions a day, such fees would have to be extremely high, perhaps even $1,000 or $10,000 per transaction.
The suggestion during the blocksize debate was that the Lightning Network (LN) would bundle penny transactions into big $1,000 transactions.
With the Lightning Network now out, everyone can see you have to make an on-chain transaction first to join LN, that is you have to pay this $1,000 fee, not to mention the many other problems with LN.
Meaning “1MB blocks with huge fees will pay for security” is showing itself as unrealistic. So there’s now the suggestion that the gold narrative might have to go too. Meaning, as was stated during the blocksize debate, that constraining the blocksize will leave bitcoin without being cash and without being gold.
The “opposition,” which was the majority by far prior to the 2017 wave, argued that many transactions paying say ten cent can amount to $1 million or more.
So at 10MB, bitcoin can handle about 3 million transactions. At 10 cent each, that makes it $300,000. As technology improves, 100MB in a decade would be what 1MB is now, giving it $3 million a day.
That would require improvements to the base protocol, including pruning, sharding of the nodes, second layers like LN or Truebit or other bundling methods, and so on.
All of which would provide a method to pay for security while maintaining the 21 million limit as well as bitcoin’s ability to function both as gold and as a currency.
While at 1MB they’re already saying the limit will have to go, so gold is out of the window. As a currency it would hardly serve a village, so that too is out of the window. And just how you pay for security is still an unanswered question because if it is not a gold asset or a currency but has an inflation rate similar to the dollar, then what superior use does bitcoin have?
Without such superior use to attract demand, then it isn’t clear why a 2% inflation rate would be sufficient for its security as that would very much depend on bitcoin’s fiat price which in turn depends on its use case.
There are two bitcoins however. Bitcoin Core (BTC) which appears to have no interest in addressing scalability, and Bitcoin Cash (BCH) which is to implement Schnorr Signatures this May, has a 32MB blocksize, and intends to maintain capacity above demand.
There’s no suggestion of raising the 21 million limit in BCH. So that may end up in being both cash and gold if BTC remains constrained in capacity and loses its digital gold status.