manusbuck

bitcoin

The set of forces which secure the Bitcoin transactions are defined as cryptodynamics. These forces not only help in understanding Bitcoin but also in differentiating it from other cryptocurrencies. The forces are 
1. Risk Sharing
2. Energy Sinking
3. Power Regulating

These forces are necessary to define Bitcoin. A private blockchain violates the risk sharing principle. A proof-of-stake blockchain has no energy sinking involved and blockchains with no transaction fees lack any power regulation.

_This is an attempt to simplify Eric Voskuil's Crypto-economics one chapter at a time. All the chapters are listed on my bio._

CE006: Cryptodynamic Principles

Bitcoin's consensus is different from the popular meaning of consensus. In Bitcoin, there is no fixed board of members or a jury which needs to form a consensus. All members of Bitcoin are in consensus as soon as they join the network. If someone disagrees, they can either leave the network or convince others to start a new network (a new coin).

![](https://m.stacker.news/69370)

Generally, large networks are more useful for each member and more secure due to risk sharing.


PS: This is an attempt to simplify Eric Voskuil's Crypto-economics one chapter at a time.
1. Axiom of Resistance: https://stacker.news/items/528424
2. Censorship Resistance Property: https://stacker.news/items/528771
3. Centralisation Risk: https://stacker.news/items/529015
4. Cockroach Fallacy: https://stacker.news/items/822116

CE005: Consensus Property

Many believe that the centralization of mining pools is harmless since the miners can switch pools when necessary (like cockroaches scatter when disturbed by light). This belief is flawed since it assumes that miners will do it just because they can.

![Mining pool distribution](https://m.stacker.news/69366)

Moreover, switching from one large pool to another large pool may not help if both the pools have been co-opted by the governments. And, governments do have tools (like IMF) to coordinate with each other to co-opt mining pools across their jurisdictions.

Miners have to find pools which have the willingness and ability to run covertly. Current financial incentives of large pools discourage joining such covert pools. We must reverse them to decentralize mining.

PS: This is an attempt to write a simplified version of Eric Voskuil's Cryptoeconomics one chapter at a time.
1. [Axiom of Resistance](https://stacker.news/items/528424)
2. [Censorship Resistance Property](https://stacker.news/items/528771)
3. [Centralisation Risk](https://stacker.news/items/529015)

CE004: Cockroach Fallacy

econ

Biden Unveils New Tariffs on Chinese Imports, Targets Green Technology Sector

TomK

Cars are now spyware. EVs are even worse. Imagine your auto company shutting down your car because you tweeted something wrong.

I would love to buy a car which doesn't emit data to anyone.

Weekend Book Recommendations

Taft

tech

Warren Buffett reacts to an AI deepfake video of him that was so good

ch0k1

It can also do the reverse. Deep fakes might weaken the role of photos and videos in court.

CE002: Censorship Resistance Property

Nation states can cooperate against a common enemy. Whether it's IMF, NATO or BRICS coordinating it.

IMF would help coordinate such a censorship

CE001: Axiom of Resistance

Be the example you are looking for. Sell something for Bitcoin.

CE003: Centralization Risk

We can have the best of both worlds. However, I feel the lightning experience is so magical in custodial and semi-custodial setting that it can  discourage the diligence required to maintain a node. If users can set thresholds like you, it's OK.

It is similar to how cheap fast food discourages cooking at home. You can eat out once in a while but you should cook almost daily at home.

There are two main weaknesses of Bitcoin:
1. Centralization (discussed here)
2. Pooling of miners (discussed later)

Centralization weakens the rules of Bitcoin, whereas pooling weakens censorship resistance. Both of these can be avoided if more people start sharing the risks.

Centralization happens mainly due to two reasons:
1. Bitcoin is too difficult to use
2. On chain transactions requires fees

To reduce difficulty, people tend to use easy centralized tools like
1. Wallets
2. Explorers
3. Payment processors
4. Exchanges

Using these tools delegates both the control of coins and validation of Bitcoin rules. Avoiding this delegation is not easy.

It's not enough to have a self custodial wallet if you don't use your own node. (Think Phoenix)

It's not enough to have your own node if you don't verify every update. (Think Umbrel)

It's not enough to use an open source payment processor if it's running on someone else's computer. (Think BTCpay on Voltage)

It's not enough to run all of them in your computer if you don't understand the software (and hardware).

These steps make it increasingly difficult to use Bitcoin securely, so people tend to gravitate to centralized solutions. This is especially true when the threat levels are low (bull market).

It's not enough to do this on your own. You have to either find like-minded trading partners or train the existing ones.

If you are a merchant, you have to either make it easy to pay in Bitcoin or offer discounts to justify the difficulty. Both of these efforts take time and money. If you are using on-chain transactions, you have to consider fees and confirmation time. On top of these, government controls will either increase costs or force the merchant to shutdown (think Wasabi).

PS: This is an attempt to write a simplified version of Eric Voskuil's Cryptoeconomics one chapter at a time. Read the last chapter: https://stacker.news/items/528771/r/manusbuck

Thanks for mentioning this tool. It would be ideal if it raises loud alarm when a transaction is being persistently excluded from fresh blocks.

It's not his opinion to pay higher fees. He made an objective conclusion in this chapter.

@manusbuck's bio

Thanks. I would love to discuss the chapters of Cryptoeconomics with you.

How do you measure Bitcoin adoption? Is it the price in USD or number/volume of transactions or the number of merchants selling goods and services for Bitcoin?

That's true. Math is just a tool. People have to take personal risk to secure Bitcoin.

Which feature of Bitcoin makes it censorship resistant?

Is it asymmetric cryptography? Is it block chain? Is it difficulty adjustment? Is it proof of work? Or is it the incentive to mine transactions?

Miners have two incentives:
1. block subsidy, which is currently 3.125/block
2. transaction fees, which is the difference between the sum of inputs and outputs in each transaction. Currently 0.3/block

![1000000215.jpg](https://m.stacker.news/29477)

Miners who want to censor a certain transaction will have to forfeit the corresponding fee while the non censoring miners would collect that.

If the censoring miner has deep pockets, it can continue making that loss. Imagine a state funded censor. Such well funded censors might outcompete the non-censors if the transaction fees are low. It would be up to the Bitcoin users to pay higher fees to keep the non-censors in business. Alternatively, the non-censors must accept the loss and keep mining.

Transaction fees won't matter if the censors hold the majority hash power. For example, if Foundry and Antpool join hands and start censoring transactions, other miners can't compete. It would be up to the mining groups to change pools in time. But how will they know if their pool is censoring transactions? I am not aware of any alerting system to detect active censorship. This centralization of mining pools is a common concern and is discussed in another chapter.

![1000000214.jpg](https://m.stacker.news/29478)

So, if you want to keep Bitcoin alive, be ready to mine at a loss. Be ready to mine in hiding. Be ready with your own source of energy. Learn to mine. Learn to keep the miners running. If you can't mine, be ready to support miners with higher fees. If governments start subsidizing the censors, they will also increase taxation to balance the subsidy. At that point, Bitcoiners would have to choose between paying taxes and transaction fees.

In conclusion, Bitcoin is censorship resistant because of transaction fees. It may not remain so if market doesn't pay high fees, if non-censors can't mine at a loss or censors hold majority hashpower.

PS: This is an attempt to rewrite a simplified version of Eric Voskuil's Cryptoeconomics one chapter at a time. Read the last chapter: https://stacker.news/items/528424/r/manusbuck

The premise of Bitcoin is that it is possible to set up a system which can resist state control. This system cannot be turned off by the government. It cannot be hijacked by the government. They have to let it coexist. Examples are Tor and Torrent.

If you can't accept that Bitcoin can resist government control, then there's no point in continuing this dialogue.

If at any point Bitcoin gets under state control, it's no longer Bitcoin. It will become just another state controlled technology. PayPal tried it and failed. Bitcoin is another attempt. It's a grand experiment to test this premise. So, it must treated rationally.

PS: This is an attempt to rewrite a simplified version of Eric Voskuil's Cryptoeconomics one chapter at a time.

Studying Bitcoin

Simplified chapters of Eric Voskuil's Crypto-Economics

1. Axiom of Resistance: https://stacker.news/items/528424
2. Censorship Resistance Property: https://stacker.news/items/528771
3. Centralisation Risk: https://stacker.news/items/529015
4. Cockroach Fallacy: https://stacker.news/items/822116
5. Consensus Property: https://stacker.news/items/822145