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Comment by erulabs | Hacker News Reader

> If the network is valued at $568B, but costs $7.125B/year or more to secure, that’s a pretty big leak for something that is supposed to preserve value.

> Now some of you are already thinking, hey 7.125/568 is only 1.25% per year. But that’s not exactly how market cap works. This 1.25% system leak doesn’t necessarily translate to a 1.25% price decrease per year.

Far from “not exactly how market cap works”, this is more or less “not even close to how market cap works”.

Econ 101 time: value is subjective. Human beings merely use value as a description - it does not exist inside of any object or inside of any equation. A “store of value” has always been an ill considered term - but this is not the argument against it.

What Bitcoin is good for is being internet dollars that can’t be spent twice. That’s a nontrivial feature.

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> What Bitcoin is good for is being internet dollars that can’t be spent twice. That’s a nontrivial feature.

Funny. My bank account does that too and transactions don't cost me anything. I can even use trusted services to do direct banking when I want to buy something online so the seller can instantly verify the transaction and I don't have to deal with entering numbers.

But then again I live in Europe and our banking system doesn't run on physical paper checks delivered by carrier pigeons. I wonder how much it would cost to upgrade and maintain the US banking system compared to moving the entire US to crypto or Bitcoin.

That's something I've never understood as a benefit of Bitcoin. In my 20+ years of digital spending, I've never run into an issue (or know of anyone) that's spent the same money twice.

Do you live in a first world country? That may be why.

M-Pesa exists: https://en.wikipedia.org/wiki/M-Pesa

Crypto/Bitcoin is frequently touted as a solution for banking the unbanked. But the transaction fees alone make the technology useless for that. Existing solutions like M-Pesa are widely adopted and work. They don't even have to make up new currencies to use it.

If bitcoin was good at being internet dollars, people would use bitcoin in the same way that they use dollars. They don't.

Last time I checked, people can and do pay for things using Bitcoin and crypto.

Just because YOU don't doesn't mean it doesn't happen.

People sometimes treat established fiat currencies as a speculative or at least arbitrage-based asset, but they are a tiny minority compared to those who use it as well, currencies.

With crypto the proportions are reversed. Those who use it as a currency are a tiny minority compared to those who speculate on it.

lottin commented that people don't use crypto as a currency, which is flat out wrong. Nothing you said changes that fact. Just because the majority uses it as a speculative asset doesn't mean it's not being actively used as a currency.

I don't want to misrepresent their argument, and I don't want to go into a gotcha contest, but that's not what I got from the GP's comment. They said that bitcoin wasn't used the way dollars are used, which is different from saying that they are never used as currency. Currently, dollars are used as a currency first and an asset a distant second. Bitcoins and other crypto are used as an asset first and as currency a distant second. That might change, especially with Ethereum, but for now I agree with the GP that things are not looking rosy when it comes to functioning as an online dollar.

If crypto were a real currency, in real use, there would be valid criticisms of its future viability as a currency if it changed more than 1% in a day, or dropped in value > 10% a year.

Its as if someone traded a tulip bulb for a sack of flour and claimed it was the "new Danish currency".

> Econ 101 time: value is subjective. Human beings merely use value as a description - it does not exist inside of any object or inside of any equation

Econ 201 time: value is concrete, the definition of value is subjective. I can say that the value of two exchanged objects are concrete - that they have the same embedded value.

What is the point of this statement exactly?

That's a simplifying assumption used to make the accounting practical.

But knowing that someone bought something on Amazon doesn't tell you how much the buyer would have paid or how low the seller would have been willing to go. (There are gains from trade and who gets them depends on negotiations and the competitive situation.) Also, one or even both of them may have made a mistake. People return things they purchased all the time, and they may regret purchases they don't return.

We are fortunate that for many kinds of goods, we usually don't have to pay the full value of what we buy, due to competition.

No,that's econ negative 1. People don't exchange things because they are of equal value, they exchange things because each feels himself better off after the trade.

Give the guy a break. Everyone from Aristotle through Adam Smith and marx made this mistake.

That means money makes us lazy because it is superior over goods and we feel worse off when we give up liquidity.

and that's certainly happening. money now is better than money later (time value of money, net present value discounting), during economic downturns people don't start buying the dip like there's no tomorrow, even though it's very likely that they would make bank in 5-10 years. (because people are risk averse)

similarly we are bad at managing spread out risks (climate change, road traffic incidents)

That's why we impose inflation on the money: to make it rot at a comparable rate.

That's econ negative 2.

Most transactions below $100 or so basically happen because monkey brain like shiny banana.

Econ -3: there is no spoon.

There is no concrete value. Water has no value in a desert if nobody lives there.

>Far from “not exactly how market cap works”, this is more or less “not even close to how market cap works”.

>Econ 101 time: value is subjective. Human beings merely use value as a description - it does not exist inside of any object or inside of any equation. A “store of value” has always been an ill considered term - but this is not the argument against it.

Who cares? The general point here still stands: bitcoin's valuation will have to double every halfening (in terms of some indicator like USD) in order for the cost of security (total block reward) to stay constant in (terms of some indicator like USD).

>What Bitcoin is good for is being internet dollars that can’t be spent twice. That’s a nontrivial feature.

Any cryptocurrency can do this, and many do not have bitcoin's crippled market cap or development structure. The question is this: "Why bitcoin?". Bitcoin's sole advantage over other cryptocurrencies is its name brand.

No, it doesn't. Bitcoin's difficulty automatically scales based on how fast the previous blocks were "solved". With that, if miners start dropping off, then the protocol will adjust for the falloff in "hashrate".

the problem is that Bitcoin mining has to be sufficiently popular for the network to be secure. if the amount of miming ever drops too low, it becomes attackable.

Which has happened to many of the lesser altcoins.

Look for a boom in that, with all those underutilized GPU miners.

How would the amount of mining drop too low? There are only two cases:

- Miners fall off the face of the Earth. Bitcoin is still valuable so others rush to their place because there is money to be made.

- Bitcoin stops having any meaningful value due to other factors, so there is no reason to mine.

There is no option that Bitcoin is valuable and everybody stops mining thus opening the network to attack.

>- Miners fall off the face of the Earth. Bitcoin is still valuable so others rush to their place because there is money to be made.

Your logic does not follow. What I am saying is this: You cannot continue to halve the mining rewards while maintaining network security.

At some point you reach a point where the cost/benefit of attacking bitcoin (whether that be a deliberate 51% attack or a selfish mining scheme) outweighs the cost/benefit of mining faithfully.

There may be some irrational agents who continue to mine at a loss, but they will be outnumbered by rational agents with more capital.

Your argument assumes that the Bitcoin price stops rising after halving, which does not make any economical sense. And even when all Bitcoin has been mined, transaction fees will prop miners up (though it hasn't happened yet so it's valid to be doubtful this'll happen in practice)

And also depends what you mean by securing. All clients, miners and not, are capable of checking transaction and discarding "insecure" and invalid chains. I don't need a miner to tell me if your transaction is valid or not.

>transaction fees will prop miners up (though it hasn't happened yet so it's valid to be doubtful this'll happen in practice)

No, they won't. This is a common talking point, but it is rarely accompanied by facts. Consider that fees currently amount to about about a percent of the total miner payout. There is some research that indicates that bitcoin is vulnerable to a class of double-spending attacks known as selfish mining:

https://eprint.iacr.org/2020/094.pdf

http://fc14.ifca.ai/papers/fc14_submission_82.pdf

>And also depends what you mean by securing. All clients, miners and not, are capable of checking transaction and discarding "insecure" and invalid chains. I don't need a miner to tell me if your transaction is valid or not.

No they aren't. You misunderstand the fundamental design of bitcoin. The problem is not that the non-mining nodes cannot verify signatures or something, the problem is that these non-mining nodes will not be able prove to each other that the signatures to not refer to already spent funds. The non-mining nodes cannot conclusively prevent reorgs that can be used for double-spend attacks.

>All clients, miners and not, are capable of checking transaction and discarding "insecure" and invalid chains.

They do this by selecting the chain with the highest amount of PoW associated with it. If the network hashrate is low relative to an attacker, then any attacker will be able to easily overpower the network and decide which chains are invalid.

If you are new, I recommend this video on bitcoin's design: https://www.youtube.com/watch?v=bBC-nXj3Ng4

I am not new to Bitcoin but I appreciate the link to the two papers, which I should probably dive into.

All I've heard about the transaction fees problem is that "no one knows for sure, it's still too early to tell." From a cursory look, the papers suggest it's possible to update the protocol/consensus to detect and thwart that type of attacks, and while Bitcoin is slow moving, it's not static and there's still plenty of time to find a decent fix to that issue.

> no one knows for sure, it's still too early to tell.

This is true, no one knows for sure. But I am betting against bitcoin here. At some point the fees are just too high and it become prohibitive towards most people using it at all. So despite the fact that the fee/tx is higher, the total fees collected are lower than an equivalent cryptocurrency with more L1 bandwidth.

As the article I posted says, the real problem with bitcoin here is that the "L2" systems like the lightning network reduce load on the "L1", but also you need the "L1" to collect enough in fees to keep "L2" secure (and that's with L2 middlemen taking their own fees). It is a very delicate balancing act.

>the papers suggest it's possible to update the protocol/consensus to detect and thwart that type of attacks, and while Bitcoin is slow moving, it's not static and there's still plenty of time to find a decent fix to that issue.

Yes, it is quite possible to make these technical improvements to bitcoin. But it may be socially infeasible to convince bitcoiners to do this. The BTC/BCH fork was quite disastrous: not because it forked the cryptocurrency, but because it forked the community. The remaining BTC community is strongly anti-hardfork (they are opposed to any non-reverse-compatible changes). The part of the community that was proactive about change died with BCH. But attitudes may change, who knows really.

The literal hashrate is irrelevant. What matters is the comparative cost/reward of an attacker performing an attack on the network, which will continue to decrease for the reasons i've stated.

Sure, the protocol will adjust for the falloff in hash-rate as miners ditch their hardware- a perfect opportunity for a malicious entity to buy up their hardware and use it to attack the network.

But what is the comparative reward you're talking about here?

The world is filled with situations where something with lesser economic value secures something with higher value. That's a sign of efficiency.

My house is worth $250K. But you couldn't capture that much value by breaking in, so I haven't spent $250K on a security system. If I did need another $250K to secure my first $250K investment, it wouldn't be a great investment.

Suppose it only takes $3.5B to attack a $7.3T network. So what? Unless your plan is to burn billions of dollars for funsies, you'll need to capture at least $4B worth of value for that attack to be worth it. You think you can find someone to anonymously make a $4B crypto sale to you, who won't know where to hunt you down when you try to 51% away the transaction after the next block in 10 minutes?

You seem to be missing the existence of transaction fees.

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