Peter Todd, a Bitcoin Core developer that previously supported 1 MB blocks and removing Gavin Andresen from the Bitcoin development team, has said that “Bitcoin should have had a 0.1% or 1% monetary inflation tax to pay for security” and it “will die” if its hard limit is not changed.
Bitcoin currently has a 4% inflation tax.
Why haven’t people forked away from that already?
— Peter Todd (@peterktodd) March 22, 2019
Peter pointed out that Bitcoin already has a “4% inflation rate” and used this stat to counter the arguments that individuals would simply fork away from Bitcoin since they have not done so already. One method to accomplish this, though, would be for miners to cancel further halving, where the next one expected around Spring 2020.
The money for security concern arises out of the fact that some developers are concerned that fees will become too cheap to support miners running significant hardware to prevent network attacks. However, the counter to this logic is that if transactions are $0.10, but the network grows to 10 MB, 3 million transactions per day, then that is $300,000 USD a day. This is opposed to the Lightning Network that thought it could group multiple penny transactions into thousand dollar transactions, but ignored the fact that users would still have to pay obscene fees to get onto the Lightning Network if it ever worked as it is intended when the main network is clogged.
Creating network effects and inflation
Peter Todd knows how to argue his point since the Bitcoin network does, in fact, currently have inflation and has not seen that fact significantly affect its adoption rate nor cause many forks. The biggest chain split was with Bitcoin Cash and that was largely a block size debate. Part of the difficulty of creating a new network is gathering support behind the new coin, which not only requires developer hours to create the new network and infrastructure, but also hours achieving adoption so users can actually spend the money. This places those that want to split away at a huge disadvantage since the incumbent coin has so much less work to do on top of convincing individuals why their coin is the better choice.
Additionally, Bitcoin’s inflation can still vary since its block rewards are consistent, but have a larger inflationary effect if adoption is not significant and there is less demand than supply for those new coins. Conversely, if there is significant adoption, then demand is higher for those new coins added to the network than the supply, which makes their addition less inflationary and even possibly deflationary depending on the size of the demand. Following that logic, if Peter prefers inflation to help pay for security, he would also prefer less adoption to make the block rewards currently issued more inflationary. This seems counter-intuitive since Bitcoin was created as a form of peer-to-peer digital money, but then again Bitcoin has long abandoned the term digital money for digital gold and may even have to abandon that term depending on how the network continues to develop.
Dash attempts multiple solutions
Dash’s first solution to the security issue of mining is splitting those responsible for operating the network between miners, whom receive 45% of block rewards, and masternodes, whom also receive 45% of block rewards in addition to having a 1,000 Dash vested interest. Then Dash further improved upon this with ChainLocks, which helps make Dash even more secure by locking in the first block published to the network at each height. Dash does have additional sources of inflation via its treasury, but these funds are allocated for the express purpose of driving network adoption, which if large enough, will minimize the inflationary effects of the block rewards. The treasury funds that are not allocated are simply not created and thus help minimize network inflation.
Dash has long been striving to become digital cash, which requires it to be easy and inexpensive to use for everyday consumers on the margin to adopt the technology. So rather than dealing with bitter chain splits over how to scale that end up confusing and harming consumers, Dash has been able to utilize its structure to seamlessly upgrade its network with advanced features.
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