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Bitcoin maximalism and a potential tail emission
Even prominent Bitcoiners are now discussing a tail emission as a way to maintain security. This negatively impacts Bitcoin as a store of value. We should consider moving on from Bitcoin.
What is a tail emission?
Certain cryptocurrencies such as Monero and Dogecoin don't have a fixed supply but perpetually reward an X amount of newly created tokens to block validators. This as opposed to Bitcoin, where there is a clear limit of 21 mln Bitcoin that will be issued in total. Bitcoin enthusiasts often mention this as a strong point for Bitcoin. A tail emission is a permanent block subsidy paid to block producers, which in Bitcoin would break the 21M coin limit and would make it more like Dogecoin and Monero.
Why might a tail emission be needed? Currently, miners in Bitcoin get paid through a combination of a block subsidy and transaction fees. As of today, the block subsidy is 6.25 BTC per block. Fee income per block? Well, on a good day about.. 0.1 BTC. In other words, about 1-2% of miner's income comes from fee income, while 98-99% comes from the block subsidy.
Satoshi always saw the block subsidy as temporary, a way to subsidise initial adoption, after which fee income could take over. The issue is.. We're not seeing transaction fees growing, at all.
In a few decades when the reward gets too small, the transaction fee will become the main compensation for nodes. I’m sure that in 20 years there will either be very large transaction volume or no volume. - Satoshi Nakamoto
The block subsidy halves every 4 years. Fees are not going up much. To put this into context: at the next halving block subsidies will decrease from 6.25 BTC to 3.125 BTC. To make up that shortfall, fee income would need to rise from the current ~0.06 BTC per block (~$1 per transaction) to 3.125 BTC (~$35 per transaction). Unless the price increases massively, total rewards seem like they might be declining into the future. This leads to declining hashrate and security.
This is a big issue. For more reading on it, @0xStacker has a great article on it here that I can very much recommend. This issue, the "elephant in the room", was also recently discussed by @ercwl and @Justin_Bons in @laurashin's podcast which is fantastic and can be found here. In it, Justin and Eric both mostly agree that Bitcoin's reward structure is unsustainable. It's not just them, more of the intellectuals in Bitcoin such as @peterktodd have recently entertained exploring the idea.
I think this subject will come up more and more in the near future and that at some point Bitcoin will have to implement a tail emission or make other drastic changes. There is simply no way security can be sustained under the current parameters.
What does this mean for Bitcoin?
This does make one wonder. Bitcoin is not very usable as money. At the very least, it doesn't come close to being great at transferring value, let alone the perfect form of money that we strive for in crypto.
Bitcoin doesn't offer a lot of utility in other ways. Despite Michael Saylor's absurd claims that NFTs should be issued on Bitcoin, the rest of the world realises that Ethereum and other chains are far more suited for such purposes and simply use the other chains.
Bitcoin doesn't work very well as a decentralized store of value. The hashrate that secures it centralizes over time, with bigger parties accumulating ever more control over mining. Bitcoin's design incentivises centralization, as I’ve written about before.
A tail emission doesn't even start to solve these flaws, but it does change the story. Bitcoiners used to be able to pride themselves on the fixed supply, the immutable 21 mln maximum coins. That will also need to disappear for Bitcoin to stand a chance of surviving.
Summarising: Bitcoin is not a good medium of exchange, offers very limited other utility, increasingly fails as a decentralized store of value, and either loses its security or loses its fixed supply selling point.
To me, all this means the writing is on the wall for Bitcoin. Which isn't bad, at all! Those of us interested in Bitcoin, or any specific crypto, should be happy that we can identify these flaws and improve on them. That doesn't necessarily need to be within Bitcoin. I mention all this not to dunk on Bitcoin. We should be thankful to Bitcoin and to all the brilliant developers that have pushed it forward.
But I feel like the time is coming to "pass on the torch". We're wasting a lot of time and effort on something that doesn't have a lot going for it aside from "it was the first, and it currently has the highest market cap".
There are so many exciting developments happening in crypto, so many projects that are pushing the envelope. Are they perfect? No, definitely not. Vitalik Buterin would say ETH still has a long way to go. Colin LeMahieu would say Nano is not yet "commercial grade". But while not perfect, they do have the advantage of building from a different, potentially stronger base than Bitcoin has.
At the end of the day, cryptocurrencies are not each other's enemies. We experiment, and sometimes experiments fail. The end goal is decentralized money, free from control of the state. If there are better ways to accomplish that, we should celebrate it.
So what is the point of this article? It's quite simple - try and look at different cryptocurrencies without prejudices. Crypto can get tribal when "your" coin is accused of having flaws. But we should all recognise this gut reaction, and try to overcome it.
Criticism makes us stronger as a whole. Sticking our heads in the sand doesn't. In the case of Bitcoin, let's try and rationally debate the issues that it might have, what the alternatives are and are doing, and whether their approach might fundamentally be better.
It might be time for Bitcoin to pass on the torch. If we do so, we might discover that other projects can turn the classic-looking but inefficient torch into a LED flashlight and usher in a new era.
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