Three economic era Bitcoin

0

Three economic era Bitcoin

The first era: Free offer Satoshi (2009-2014)

In the early years, Bitcoin was little known and was of no value. The demand was so small that it was possible to send any amount for free. There was no real load, and therefore with bitcoin not worked no program, no business plans: service gambling Satoshidice translated at 1 Satoshi for losing bets, using a seemingly infinitely capacious blockchain as a signal level. All of this was free money.

Bitcoin was new, very few people understand technology. It was quite difficult to understand in the interaction of its constituent parts, not to mention the fact to suggest that it will mean in the future. Several factors aggravated the situation:

The pseudonymity and the lack of Central control is very attracted scams have become so ubiquitous that the leak of real information is extremely difficult and has spread mistrust.
The system’s success prompted others to try to imitate (often with the sole purpose just to make money), almost always with minimal understanding [1].
The pioneers were peculiar not only to the normal commitment to the nascent community, but also specific financial interest in mass adoption. The ensuing propaganda meant that any inconvenient facts was extremely difficult to seep into the broader ecosystem.

The result was a surprisingly low awareness of the fact that the phase “free money” was not the natural state of Bitcoin. The developers knew about it and therefore added to the original client some custom parameters to minimize the worst abuses. These rules do not change Bitcoin, but only the default behavior: they added the minimum Commission, [2], stopped the shipment of payments is too small [3] and improved code to reduce the size of unspent outgoing transactions [4].

The second era: Rewards Satoshi (we are here)

Bitcoin goes to the new economic policy, perhaps with higher commissions. – Jeff Garzik’s

The explosive nature of statistical building blocks, coupled with the volatile market for Bitcoins, was periodically to cause problems with network congestion. Previously, they were solved by optimizing the code and change miners settings; now they have become more regular and significant, which has led to a growing understanding that the first era of Bitcoin threatened its completion.

Of course, many wanted to extend free. The pressure was compounded by the fact that many programmes and services were not prepared for the conditions of dynamic commissions, as well as the complex nature of commissions: to calculate what the Commission would ensure that transaction in the next block, turned out to be extremely difficult, and even harder to explain it to users [5].

The General reluctance of developers to support the increase in fees was due to several factors:

Previous increase in the network led to considerable pressure of centralization, including the period when more than half of the network was controlled by a single pool [6].
It will be the first permanent change since the emergence of Bitcoin.
With a one-time increase associated moral hazards, since the promotion of the expansion cheaper and easier than engineering improvements.
Although changes were anticipated, the programs and services they were not ready. Perhaps they truly did not believe that the transition will take place [7].
Developers in General want to follow a community, not run it. Economically significant or controversial developments are fuelling an opinion about based on the developers [8].
Change in a large complex system should be as gradual to avoid unintended side effects. The second era is thus a gradual transition to the third, giving programs, and services time to gain experience with Bitcoin, what will it be in the future.

To solve the overload of the system the developers have made several improvements. First, it is extensive and significant optimization [9] for the smooth functioning of the network, now working at full capacity. The passage blocks has been improved through a global network of gateway transmitters [11], and new strategies [12]. Algorithms for the estimation of the Commission was complicated [13] and also returned the replacement transaction (to increase Commission) [14] and the recipients given the opportunity to speed up transactions [15].

Despite concerns about centralization in larger blocks, was added the possibility of expanding block in [16], which in the future will double the network bandwidth as software updates. Working on packaging units in a larger number of transactions [17], which will increase the throughput without risk of centralization because of the expansion blocks.

Not surprisingly, these attempts are considered as they are insufficient to maintain the first era. The use of Bitcoin as payment network, always uncomfortable due to fluctuations in the time when the block was even more difficult: a class of payments amounting to less than $20 became impractical. Entrepreneurs and users accustomed to the first era began with a longing gaze at oldoini, still staying in private the first era, and also to advocate for lower commissions. At this stage, a significant mining monopoly, which acceded to such attempts [18].

Although these attempts failed, it is important to note that while the number of those who would extend the first era, considered the third era are preventable [19], many just thought that it should not come now. The most convincing argument was that it would hurt the development that is the most important factor as the usefulness of, and resistance to regulation. Unfortunately, this argument loses its credibility and carries all of the above risks.

It is undeniable that the increase in throughput transaction reduces the net burden of the Commission and is the main motivation for growth plans implemented in this era [20].

The third era: self-Sufficiency (from 2028 (?))

After the treatment will include a certain number of bitcoins, the reward for miners may consist entirely of transaction fees, then the money supply of Bitcoin will be completely free from inflation.

– Satoshi Nakamoto “Bitcoin: a peer system of electronic money”

After completion of the initial phases of the “free money”, the system enters a phase of self-sufficiency, where the users bear the costs of protecting the network from double spending (currently billions of dollars per year [21]). This leads to the halving of the reward per block every four years [22].

Based on current levels in 2024 the Commission will be comparable to the remuneration from the issue of new bitcoins and 2028 [23] will naturally begin to exceed the size of the issue.

For established in the first era and flourished in the second business-oriented users, the third era will be particularly difficult. One big business declares that it accounts for 25% bitcoin transactions: 10 years at current levels it will pay $700 million a year for the protection of the network [24]. But no business telling investors about the impending costs, does not intend to reduce its stake in the blockchain [25] and does not recognize that these costs depend on the price of bitcoin [26].

For miners, the third era will be no less difficult. Directly supported users, they will be in constant friction because of the level of commissions and run the risk large businesses or enterprises users will be able to reduce their income. This may lead to further centralization, as the miners will be merged because of the risks for their income. However, such centralization is possible to resist, if businesses are to invest directly in mining [27].

The third era will start with the civil war

The mathematics of this situation it seems inevitable: miners and businesses with a high volume of transactions decide to re-enter inflation. For large businesses this will be the externalization of costs, and for the miners – just “free money”. The debate will remember the case of the new York agreement the beginning of the second era, only with more detail and scale, where the prevailing arguments are the following:

The founder was an economist. Economists recommend that inflation of about 1% to encourage spending [28].
The burden of supporting network must share the rich holders of bitcoins, not only those who actually use their bitcoins.

Counterarguments:

The limit of 21 million was a key reason for the success of Bitcoin.
The founder of the system consciously and deliberately chose to make bitcoins not so much tender as means of accumulation, abandoning inflation.
To change the rules now to Rob the pioneers (in particular but not only, the anonymous founder).

The main resistance to these changes will come from the developers themselves (it is believed that this limit is not subject to review [30]) and long-term holders of bitcoins. Businesses are divided: those who serve the latter (the insurance store) will be against the changes, and owning a large volume of transactions on the blockchain (exchanges, wallet providers) will support them.

Although this crisis is completely predictable on the basis of the original principles laid in the Foundation of Bitcoin, it can give unexpected results. And even if supply of bitcoin will remain limited [31], the consequences of the drama that can follow, not predictable [32].

Leave A Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.