This series has analysed future possibilites for funding Bitcoin network security. Part 1 argued that the popular hope that voluntary transaction fees will rise to provide funding is misplaced, part 2 attacked the idea that altruists might fill the void, and part 3 dismissed the viability of an extension of Bitcoin’s inflation or the enactment of demurrage. Part 4 then assessed the promise of blocksize limits and minimum transaction fees, and argued for a minimum fee based on transaction size as the best available funding candidate. Finally, part 5 analysed how an optimum funding level might be determined by an intelligent network.
This post sketches a basic funding model and concludes the series with some general comments on the issue.
Introduction
Based on the analysis presented in this series, a functioning future Bitcoin funding model would:
a) have a mandatory minimum fee per transaction kB — blocks not meeting the overall fee requirement w0uld be invalid.
b) have a dynamic fee target, determined by the continuous voting of network users.
c) require payment to cast votes, with votes weighted based on the amount of bitcoin spent.
d) have vote payments contribute to the block funding requirement.
e) delay the payout of fees gathered within a block to at least the first child block, to prevent miners gaming the voting mechanism.
These are just the bare essentials of this funding model. The many details of implementation are purposefully ignored. What matters is agreement on a response to the fundamental challenge, not the nitty-gritty of realisation. Once consensus were achieved for such a change, all other questions would be only a matter of collective problem-solving.
That said, one question of implementation is worth mentioning. It would probably be necessary for all transactions to incorporate a new fee, separate from the traditional existing transaction fee. But should this fee be given weight in the voting system, or should it be required to spend beyond the bare minimum to cast a vote? Given a system used by the entire world, would a voting voice for every transaction, even those paying the minimum, expose the network to dangerous collective tendencies of aggression and malice?
Trust and anarchy
This touches on an existential issue with this proposal: the likely behaviour of network users under such a voting system. Could we trust users to act responsibly, in the community’s best interests? What if malevolent groups sought to crash the voting reward? Could we trust others to respond with their own funds to balance out their efforts? Ultimately, such concerns are common among all proposals for more anarchic, self-organising social institutions. Most people are habituated to authoritarian rule, which poses a relatively low-risk, known factor in the life of the average person. The wisdom and ability of social peers is in comparison relatively high-risk and unpredictable. Thus a person’s response to anarchic proposals becomes a litmus test for one’s faith in the rationality of one’s fellow human beings.
That said, the alternative to self-governing systems are almost guaranteed to perform poorly. History is a testament to the endless vulnerability of all centralised control systems to corruption, over-reach, perverse incentives, hostile takeover, and ultimate abuse of authority, despite the best intentions and most careful preventative measures. A system which is architecturally designed to be inalienably participative for all users has the best chance of long-term resilience and success. At the very least, we could expect such a system to more effectively incentivise altruistic and voluntary contributions, because altruists (and self-interested parties such as large entities dependent upon network structure) would know that their contributions would lead to all network users paying more towards security.
Conclusion
The Bitcoin community seems largely unwilling to consider the consequences of a steadily decreasing block reward. Decreasing inflation rates are hailed as harbingers of increasing market prices for bitcoin, without regard for the possibility of degraded network security. Certainly, the next halving, and perhaps the next halving again, may not prove to dangerously undermine the network (coincidentally, this is a sure sign that the network is currently overpaying for security). Eventually however, without intervention, network security will degrade to an unacceptable level. In turn the utility of Bitcoin for transactions will begin to fail, with individuals forced to wait ever longer for an acceptable level of transaction confirmation. The process may be subtle and protracted, but eventually, without a resilient, sustainable basis for security funding, the network will die.
Idly hoping for altruists and large corporations to leap in and save the day is a poor response to this challenge. It is always better to be well-prepared, and thus the sooner responses are trialed the better. With this proposal in particular, there is no need to wait for the inflationary block reward to decline to a certain level, because the proposed voting system would form a mutually complementary overlay. The inflationary reward could be reprogrammed to contribute to the funding requirement; thus, if the minimum payment determined by voting was below the inflationary reward, there would simply be no fee requirement for a block. Over time however, after enough halvings, the reward would dip below the community’s desired security threshold, and the mandatory fees would smoothly come into play. Again, those who believe that altruism and self-interested corporations will play significant roles in the future funding landscape should realise that there is nothing to stop such parties from voluntarily contributing to funding requirements, and thus enabling underpaying transactions to be included in blocks.
Nevertheless, the Bitcoin community and Bitcoin development is rightfully guarded against proposals for drastic changes. This is completely fine, there is no reason why the community should be forced to accept a drastic change if they prefer a conservative approach. It is most likely instead that such a system would be pioneered on a side-chain, developed as a competitor offering a robust and efficient approach to ensuring network security. This has in fact been one of my key conclusions from writing this series, of the necessity of side-chains for enabling competition and innovation in Bitcoin architectural decisions, while preserving and enhancing the value of the core token itself.
Epilogue
If you have read this far, then I thank you! It has been a pleasure writing on this issue and sharing the results with the community, even if on a very small scale. I hope you too have enjoyed following these arguments, and at the very least taken away some food for thought. Personally, I am convinced of the necessity of some sort of response to this funding problem. I am yet to hear a good argument dismissing this as an issue, and I am also yet to hear any suggestion more reasonable than what I have presented here. I hope to see further exploration of this problem and more hands-on attempts to solve it in the future.
