With The Promise Of Scarcity Comes 21M Bitcoin

What Does Bitcoin Promise?

The promise of a limited supply is great in Bitcoin. When hearing about bitcoin, this was one of the biggest things that initially appealed. Ever existing is no more than twenty-one million bitcoins. Can this be but kept in the long run? 

Has The Promise Already Been Broken?

With each chain’s token commanding a different market price, some would say that Bitcoin’s scarcity has already been violated since forking creates multiples of the 21m coin limit. Let’s focus on a more modest goal but setting aside this concern over forks: over the next hundred years or longer, can even one bitcoin chain such as BCH strictly maintain its issuance schedule? 

As the software can always be changed, the issue is that cryptocurrencies are based on software. Later on, we will deal with the following question, as some have questioned in case Bitcoin’s issuance schedule can maintain security on either Bitcoin or Bitcoin Cash in the coming decades. On what is already in place, first, let us examine if it's likely or not for users to even agree. 

Bitcoin Isn’t Set In Stone 

A de-facto standard in which everyone agrees to run the software with the same rules as everyone else is since the bitcoin-based on software is the only real agreement contract or policy. There may be quite a bit of truth to that as this purportedly makes bitcoin hard to change. These social agreements are not set-in-stone revelations sent by the gods as we know, however. The winds of change blow inevitably. As disagreements brew, entering the ecosystem are fresh actors. Creating new rules are software developers.  

By which Bitcoin resolves irreconcilable differences, forks are the free and fair mechanism. The market provides an open-ended and continual mechanism that determines the value of the tokens on competing blockchains regardless of how manipulated the news maybe. 

The rules of a ledger can change at any time at least in theory whereas investors often buy coins with the presumption that the network rules are going to be there for the long term as it isn’t so. 

There are checks and balances built into crypto in practice. Forks generally only happen at specific pre-scheduled times as a change of rule is considered a fork. As the miners won't necessarily run it, developers cannot publish any code they want. The fork becomes contentious leading to a chain split as even if they do if there comes any subset of the community preferring to use the old software or an alternate software.  

Who automatically get coins on both sides of a split, this splitting mechanism protects investors? A split isn’t always a net positive outcome for investors although it should also be said. The sum value of the coins post-fork may be less than the pre-fork price for example if a split causes a community to lose too much network effect.  

Even If Everyone Agrees, Is Zero Inflation Achievable?

The next issue that confronts us is: even as block rewards tend toward zero, is it economically feasible to keep the original Bitcoin issuance schedule in place in the far future as blockchain governance questions notwithstanding. 

At least to a degree, in practice, this theory has been demonstrated to be true. It comes along with fee totals that are comparable to and also in some cases exceeding that of what is a block reward subsidy, as we have seen Bitcoin blocks. To keep using BTC regardless of the high fees we have also seen some willingness in the market. 

Playing into this demand-supply equation as demand sits just below supply is interestingly the fixed supply of the block space for a transaction. It looks like the theories that people will pay more for transactions as they are on the BTC chain has some truth to it in practice as you might expect demand to completely collapse.  

For example, if crypto users decide they aren’t getting enough for their money, of course, that is only true, based on a few years of data and it could change at any point in the future. Currently, BTC is used primarily for speculation and as an inflation hedge, so its users do not need fast or cheap transactions that seem somewhat unlikely at the moment. 

The Unusual Case of Bitcoin BTC

 Rather than the actual functionality it allows, at the same time, BTC seems to depend more on its network effect for investor dollars. This is not unusual in and of itself as the price of any coin is based both on its network effect as well as its functionality. 

Keeping fees relatively low but make up for it in volume, is having tons of transactions is the other approach to fees is the original one. 

Wanting to have a large number of transactions is the idea in Bitcoin Cash. Happening quickly enough, whereas what if it doesn’t? The price of the coin is one other relevant factor. The security level remains unchanged in dollar terms if the coin price keeps doubling every four years. 

Going Beyond Proof-of-Work

More transactions, or higher fee rates, increasing security would start to involve looking at more esoteric and radical changes to the technology beyond the straightforward remedies of higher prices. Having the limitation that it requires a majority of the network to be honest as proof-of-work is a powerful tool. Sharing its hashing algorithm (SHA-256), with BTC, this is more of an issue on a minority chain like Bitcoin Cash. 

Bringing a new method of achieving distributed consensus for example is the Avalanche coin (AVAX). In an attempt to bolt it, to the existing PoW security, some have discussed trying to bring elements of this technology over to Bitcoin Cash. 

To ensure that an attacker had to have both 51% of the hash power and 51% of the circulating supply as the ultimate goal of any such scheme would be. If work and stake are the two fundamentals at play, it doesn’t seem like we can do better than that at least on the surface. Quite an increase in protection would this be. 

Using coinage as a determinant in qualifying a block for having sufficient work done is a less invasive method. It hasn’t received much discussion as this idea was first proposed by Gavin Andressen. If implemented as overall coindays of the block’s transactions, however, it is thought it would work well. Offering different properties and tradeoffs are other schemes involving both coinage plus coindays. 

Less robust than pure Nakamoto consensus is this kind of scheme and re-org protection schemes overall. If alternate blocks are sent to different parts of the network with precise timing, an attacker can cause a chain split. For some internet outage to create a similar situation, it is also theoretically possible. Syncing does not have knowledge of these time delays not to mention that a new node coming onto the network.

Sometimes referred to as weak subjectivity is this. For example, manual pool coordination in the event of a chain split attack, in general resolving these kinds of potential chain splits caused by impure consensus schemes would involve some centralisation. 

For Now, Business as Usual

About how the Bitcoin experiment will continue to play out, the bottom line is that nothing is certain just yet. Continuing to hold many surprises in the future, it has certainly surprised us so far. To tell if some or all of the promises will come true, it’s too early. To continue researching and observing how things will unfold, we have years or decades. We still have time as the security of the blockchain is something we will keep an eye on.