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21 sats \ 2 replies \ @SimpleStacker 17 Oct \ parent \ on: Bitcoin Economics And Finance Survey bitcoin
So do my kids, whose only exposure to economic transactions is video games :D
But to your broader point, yes, this paragraph was not very enlightening. The Iwamura paper looks interesting though, since it discusses the long run profitability of mining, one of the key debate topics within Bitcoin.
Ok, I read the Iwamura (2014) paper as well. It's only 15 pages, unpublished, and not even really a paper per se as there's no model or empirical analysis. It's just the authors discussing bitcoin with words and logic. Not necessarily problematic, but I didn't find anything inside that helped me better understand the long-run viability of bitcoin mining or the debate over deflationary money supply.
When it comes to the issue of deflation and mining profitability, the survey paper seems to be referring to a single paragraph in Iwamura:
Why did Nakamoto (2008) set a limit of total Bitcoin issues? Because he seemed to believe that a decreasing supply of money will not lead to inflation. A geometrical reduction of the money supply rate does not necessarily create deflation. But it will create a sharp drop in the profitability of mining activity, even if we take into account of technological growth based on the Moore’s Law. We think it is this real factor that determines inflation and deflation in the Bitcoin ecosystem.
Honestly, I didn't quite understand that. And it didn't come from a model or data or anything, just stated without evidence. It wasn't really a focus of the paper, and I'm a bit surprised the survey paper included this when discussing deflationary supply.
Interestingly, the paper very much reflects 2014-era thinking: a more idealistic time before the explosion of scam coins. The paper thinks that competition amongst many crypto will be healthy and that ultimately a crypto with better properties will supplant Bitcoin. The authors would definitely get called shitcoiners here on SN :)
The paper even proposes what it thinks would be properties of an "ideal" cryptocurrency, but these are stated in very abstract rather than practical terms. For example:
"The marginal cost of [ideal crypto] production must be discounted by the technological growth via the Moore’s Law and operational specifications of [ideal crypto]."
Not particularly helpful, imo.
All in all, this paper seemed like just a simple discussion of the authors' high-level thoughts and opinions, not a real serious analysis of the issues, so I'm a bit surprised it was cited in the survey paper.
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It seems like the expectations would be for bitcoin mining to approximate perfect competition, regardless of those factors. I'm not sure how someone would get much traction trying to model actual profits.
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