I already knew some of it but not nearly as detailed as you wrote it.
I admit I am more in favor of the proof of stake or the limited proof of work (IOTA) but overall we have to give credit to the first technologies that helped popularize the whole concept. What do you think will happen in the future when mining Bitcoin will not be as profitable as now? Will the miners keep the infrastructure?
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Hey @alexdory!
Thank you very much for your reply. I'm happy to read that the post contained some details that were new to you. I'm not against Proof of Stake or other consensus algorithms and follow some projects that choose to implement alternatives. I only had a brief look at IOTA and found their vision very interesting. Unfortunately, it seems that they're currently facing a lot of challenges. It remains on my watchlist, and I hope the team of IOTA can overcome the obstacles. I recently took my stand about IOTA in a comment related to an IOTA video. If your interest, feel free to check it out:
The last two questions are excellent but also very tricky to answer. I guess at the end, only time will tell. However, let me try to answer them:
In general, I consider both of your questions to be of economical nature. Economical in a sense that they follow rules of economics. For example, Bitcoin goes very well with the economic principle of game theory. In regards to your questions: I'd argue that the effort always strives towards the reward. In other words, if the price of Bitcoin rises, the gap between effort and reward gets more significant, which leads to more miners entering the playground. More miners elevate the hash rate and shorten the reward per miner. Since no one wants to lose money, people will stop joining, when the gap between effort and reward gets too small (risk of losing money becomes too high). If the price falls, miners will leave the playground because it isn't profitable anymore. It's a constant balancing of Bitcoin price, hash rate, and difficulty. Mining will always be profitable for a certain amount of miners providing a certain amount of hash rate. It is only when the hash rate rises above what the Bitcoin price can deliver in reward, that mining becomes unprofitable. It will become unprofitable for inefficient setups first (maybe you paid to much for your miner, have high housing costs(rent, cooling, power etc.). Eventually, the most inefficient participants will drop out, the efficient ones stay, and the game continues. If the price of Bitcoin rises again, more miners (probably also inefficient setups) will join the playground, and the game starts from the beginning. This isn't explicitly related to Proof of Work, but rather a general phenomenon of economics. Therefore it could be applied to PoS, DPoS, limited PoW etc. as well. It applies to everything: If the effort you put into something is smaller than the reward, you're good to go. The more people join, the more efficient you need to become since the effort strives towards the reward. I plan to have a closer look at the economic / game theory related aspects of Bitcoin (Cryptocurrencies in general). But I still need to run some numbers and do some research, so stay tuned. ;)
My conclusion: I think it will always be profitable for the most efficient participants since inefficient ones will leave first. Profitability is relative to price, difficulty and hash rate, as well as depending on the efficiency of your setup.
I bet they do. But probably only the most efficient ones. Today's stats on blockchain.info show that approximately 1.3% is earned from fees. Which means that there's still an approximate reward of 150'000.- $/Day, even without the block reward. Of course, that number strongly depends on the numbers of transactions as well as the Bitcoin price. Probably the total hash rate would drop a lot without the block reward. But it would remain profitable for the most efficient miners, so why shouldn't they keep the infrastructure.
Cheers - @sblue