mister_monster on Nostr: Alright. Let me take a deep breath real quick. So, miners are rewarded for securing ...
Alright. Let me take a deep breath real quick.
So, miners are rewarded for securing the network. If they're not, they don't do it.
In bitcoin, they're rewarded by the block subsidy, the coinbase transactions, and by the transaction fees of people moving money around. I'm going to call these "users" as opposed to holders, which are also users but I'll distinguish between them in that way.
The block subsidy is like a tax on all holders and users in the network, just as monetary inflation (which I refer to as "debasement" because that's what it is) is a hidden tax on all of us who work for and buy things with fiat.
Holders benefit from the security of the network. That is bitcoins entire value proposition, that's what gives it value, that it is infeasible for anyone to just steal your money without tying you up first. A coin with a supply of 1 and no security is valueless. Scarcity isn't the end all be all of value, as you can see from countless other supply capped altcoins, other considerations are, demand being the big one, but none of that matters if you can wake up to your money gone. The security of bitcoin is it's primary value proposition.
Network security is a commons in game theory parlance, to the bitcoin network, and a situation where some group can benefit from the commons without contributing to it leads to what is called a tragedy of the commons. Those people in game theory parlance are called "free riders", they benefit from it without any cost incurred to them, and for the commons to continue to exist, the cost must be incurred by someone else. That someone else in bitcoin is the users, those actually sending bitcoin and paying transaction fees.
There's a block subsidy right now in bitcoin, but since the supply cap is known, we can treat that yet to be issued subsidy as existing and just not being spent yet. It is "priced in" as you might say. It can be treated as if it already exists, just like satoshis coins can be treated as if they don't exist. Consider your share of the debasement via the block subsidy paid, consider your share of bitcoin as being out of a total supply of (slightly under) 21 million coins, that's what most people do anyway.
So what happens is, there's an incentive built into this game theoretical system that is bitcoin, where people are incentivized to hold and not to spend. They benefit from the security paid for by those who have to spend, and their wealth is secured for free. So as time goes on, more people do this. The more people that do this, the more users have to pay to spend money, the more pressure they feel to just hodl and spend something else, and so on. It has a compounding effect.
The end result of this is of course, a world where nobody or almost nobody spends bitcoin on chain, and where miners have to reduce cost and therefore security. And as security goes down, so does the value of the network, and therefore so does the value of your bitcoin holdings.
A solution to this is a tax on holdings. But that's messy, you need a way to just take money from people when mining a block, keeping track of everything and knowing what everyone has.
A simpler way to do this is to just create some press determined number of new coins every block. It taxes everyone equally in proportion to their holdings, everyone pays for security of their wealth in exact proportion to the benefit they derive from the security of the network. Simple, elegant, problem solved, as long as this money only goes to miners and nobody else.
This could be done on any number of schemes. You can do it on a geometric scale, 2% or 3% as central banks do (even though they don't need it to pay for security. They're just scammers), or you can do it on a linear scale, like Monero does with a set per block emission number that we call a tail emission. I could go into the reasons why this is optimal even though on the surface it may not appear to be viable long term as opposed to geometric debasement, but that's a whole separate thing.
Do you see it? It's not about "the miners have to be paid", it's about who pays the miners and who benefits from mining. The two have to be one and the same, and in proportion to their benefit, or any network is doomed to fail. Incentives are outcomes, always, with anything social in nature.
So, miners are rewarded for securing the network. If they're not, they don't do it.
In bitcoin, they're rewarded by the block subsidy, the coinbase transactions, and by the transaction fees of people moving money around. I'm going to call these "users" as opposed to holders, which are also users but I'll distinguish between them in that way.
The block subsidy is like a tax on all holders and users in the network, just as monetary inflation (which I refer to as "debasement" because that's what it is) is a hidden tax on all of us who work for and buy things with fiat.
Holders benefit from the security of the network. That is bitcoins entire value proposition, that's what gives it value, that it is infeasible for anyone to just steal your money without tying you up first. A coin with a supply of 1 and no security is valueless. Scarcity isn't the end all be all of value, as you can see from countless other supply capped altcoins, other considerations are, demand being the big one, but none of that matters if you can wake up to your money gone. The security of bitcoin is it's primary value proposition.
Network security is a commons in game theory parlance, to the bitcoin network, and a situation where some group can benefit from the commons without contributing to it leads to what is called a tragedy of the commons. Those people in game theory parlance are called "free riders", they benefit from it without any cost incurred to them, and for the commons to continue to exist, the cost must be incurred by someone else. That someone else in bitcoin is the users, those actually sending bitcoin and paying transaction fees.
There's a block subsidy right now in bitcoin, but since the supply cap is known, we can treat that yet to be issued subsidy as existing and just not being spent yet. It is "priced in" as you might say. It can be treated as if it already exists, just like satoshis coins can be treated as if they don't exist. Consider your share of the debasement via the block subsidy paid, consider your share of bitcoin as being out of a total supply of (slightly under) 21 million coins, that's what most people do anyway.
So what happens is, there's an incentive built into this game theoretical system that is bitcoin, where people are incentivized to hold and not to spend. They benefit from the security paid for by those who have to spend, and their wealth is secured for free. So as time goes on, more people do this. The more people that do this, the more users have to pay to spend money, the more pressure they feel to just hodl and spend something else, and so on. It has a compounding effect.
The end result of this is of course, a world where nobody or almost nobody spends bitcoin on chain, and where miners have to reduce cost and therefore security. And as security goes down, so does the value of the network, and therefore so does the value of your bitcoin holdings.
A solution to this is a tax on holdings. But that's messy, you need a way to just take money from people when mining a block, keeping track of everything and knowing what everyone has.
A simpler way to do this is to just create some press determined number of new coins every block. It taxes everyone equally in proportion to their holdings, everyone pays for security of their wealth in exact proportion to the benefit they derive from the security of the network. Simple, elegant, problem solved, as long as this money only goes to miners and nobody else.
This could be done on any number of schemes. You can do it on a geometric scale, 2% or 3% as central banks do (even though they don't need it to pay for security. They're just scammers), or you can do it on a linear scale, like Monero does with a set per block emission number that we call a tail emission. I could go into the reasons why this is optimal even though on the surface it may not appear to be viable long term as opposed to geometric debasement, but that's a whole separate thing.
Do you see it? It's not about "the miners have to be paid", it's about who pays the miners and who benefits from mining. The two have to be one and the same, and in proportion to their benefit, or any network is doomed to fail. Incentives are outcomes, always, with anything social in nature.