Mashy wrote: ↑Tue Mar 02, 2021 8:09 am
Thank you for taking the time to write that up @Utisz ! I normally skip text walls but you ELI5AHAWFWACASAYAFSR (Explained Like I'm 5 And Had A Weird Fascination With Alternative Currencies At Such A Young Age For Some Reason)
That wall of text was also me trying not to write a wall of text.
I still don't full understand but hope to learn more every day. I have some questions, I hope they make sense.
Can you talk more about what happens when bitcoin reaches the 21M max supply? Miners won't be paid BTC to mine anymore? I see some altcoins have already reached their max supply? There is a crypto website I frequent that has a warning "Warning! This coin has no max supply!" about certain altcoins, why should that raise concern? I hear dogecoin has changing max supplies which makes it inflationary? How is that possible?
Correct yep! No more bitcoins for miners at that point. The payment will halve every 210,000 blocks (i.e., roughly every 2,100,000 minutes, or every 1,458 days) until it drops below 1 A Satoshi (0.00000001 BTC), at which point miners will not receive any more bitcoins, and no more bitcoins will be generated (the total maxes out at 21 million). This will happen in around 2140. Payments will become miniscule long before that of course. I found this graph here showing how the supply decreases with time:
In terms of what happens then, something I did not talk about before are transaction fees, which are used to prioritise which transactions to process.
There's a fixed amount of space in each block to store transaction fees, where currently about 2,000 transactions can be recorded per block. And a transaction is not official until it's recorded in a block for a while (with other blocks added after it, which makes it more secure in that competing chains of blocks will not arise elsewhere). And there's a fixed rate at which blocks are mined on average, namely every 10 minutes. So bitcoin can currently only process about 2,000 transactions every ten minutes. Often there will be more demand for processing transactions than can be processed. So to get in the next block, practically speaking, you need to bid within the highest 2,000 transactions. This is another limitation of bitcoin specifically: that it does not currently scale well at all in terms of the number of transactions.
Those who are still mining in 2140 will then only receive transaction fees, which will be how ever much people are willing to bid to get into the next block. Google tells me the current fee for one transaction is about $20, and that there are about 2,000 transactions per block, so aside from the 6.25 bitcoins they currently get, miners make around another $40,000 on transaction fees for each block.
Of course the value of the transaction fees will dominate the bitcoin payout long before 2140, even if bitcoin values reach really absurd levels.
I see some altcoins have already reached their max supply? There is a crypto website I frequent that has a warning "Warning! This coin has no max supply!" about certain altcoins, why should that raise concern? I hear dogecoin has changing max supplies which makes it inflationary? How is that possible?
Scarcity (i.e., limited supply) is an important resource for any money. If we found a cheap way to turn sand into gold, the price of gold would fall off a cliff, for example: gold would no longer be a good basis for money. Even if people thought that it was likely that a cheap way to turn sand into gold would be found, there would be zero confidence in money based on gold. It's a similar issue for cryptocurrency: if folks think there might be some trick where someone could cheaply and quickly create a massive amount of that cryptocurrency, then the cryptocurrency is doomed to fail.
Scarcity is also a concern for fiat currency (backed by a government, but not by a commodity of inherent value).
Take this note for 100 quintillion (thousand thousand thousand billion) pengő, the Hungarian currency of 1946:
Two years prior, the highest note needed was 1000 pengő. Prices at one point were doubling every 15 hours due to hyperinflation.
Part of the problem was that the Hungarian government started printing money to try to offset economic problems. And there was no theoretical cap on how much they might continue to print, so basically there was no cap on the scarcity of the money. The pengő was seen as more and more worthless, which spirals out of control as people lose faith in the currency, get their money out of the banks, buy physical things with it raising prices even more as things sell out, making it more worthless, leading to hyperinflation in order to have some sort of money you could try to buy a banana with.
So if there's no theoretical cap on an amount of money, there's going to be this question of scarcity. I don't think that there necessarily needs to be a max supply like Bitcoin, but I guess there should at least be a max supply over a period of time. Like if BTC continued to pay 1 BTC per block forever when it reached that level, I think it would not be a fundamental issue because everyone would still know how much supply there would be at a given point in time, and that there would never be enough to ever devalue what they hold. If, on the other hand, there's no max supply
over a fixed period of time, some serious questions have to be asked regarding how scarcity is guaranteed.
I read about 51% attacks and from what I understand it won't realistically happen to BTC - not impossible, just super super improbable. I've heard it happening to smaller coins with fewer nodes on the network.
It would take China (the government) to do it now. They have 60% of the pool. If Xi Jinping clicks his fingers, it could get done for bitcoin. But it would likely take someone like Xi Jinping to mount such an attack at this stage, yes. How likely that is, however, I don't know. It would wreck the currency, and it's hard to say what they would get out of it.
Executing smart contracts on the ethereum network is probably the coolest idea I have ever encountered in my lifetime so I am pretty excited to see how it'll play out in the coming years. But. I minted my first Non-Fungible Token yesterday (artwork on Rarible) and the ether gas fees were super expensive, like $40 AUD. I did a double take when I saw my eth balance in the morning. I heard they're coming out with Eth 2.0 to address scalability issues but I have no idea how it works and I read contradictory reddit posts on it all the time.
It seems smart contracts are still years away from optimised mainstream adoption. Although technology does grow exponentially, so maybe by next year developers will have improved the user experience so it's not so frustrating.
Smart contracts are a pretty interesting idea, yep. They remind me of the title of an Adam Curtis documentary: "All Watched over by Machine of Loving Grace". They are complicated and expensive though.
The first issue is that for smart contracts to become truly anarchistic in terms of no central control or middle-men, the people involved will have to understand, validate and maybe even write the code of the smart contract that they are agreeing to for themselves, which is not easy, even for programmers, and especially for complex contracts. Otherwise someone will have to be paid for that service (a type of nerd lawyer I guess), and can you trust them? The second issue is that Bitcoin and Ethereum allow Turing complete languages, basically any computer programme, which is a bit worrying as some programmes may not work on some inputs (they may run for ever and never output any result), and there is no way to know, in the general case, a priori, which programmes have this problem, on what inputs they will fail, or what should happen in this result (maybe the contract is declared null and void and everyone gets their original investment back somehow). The third issue is indeed the cost.
I hadn't read anything about Ethereum 2.0, but I've heard of proof-of-stake (basically proof of vested interest in the cryptocurrency continuing to function correctly). It would reduce the wasted computation compared to bitcoin mining, for example. But it seems less robust, maybe. For example, to me, proof-of-stake in a cryptocurrency does not imply a lack-of-an-even-bigger-stake in that cryptocurrency failing or being derailed in some way.
Sharding is also a known idea (splitting the verification into parts and solving each part on one machine, rather than having all machines verify everything). But it would by definition be "less secure" than something like Bitcoin.
That said, Bitcoin has proven "secure enough", so it might be time to explore solutions that are less secure (and still "secure enough") but more scalable.