cunicula, I haven't seen people share in your strong belief in this scenario.

I think that there are so many ideological and practical reasons to oppose a monopoly (even a "benevolent monopoly"), that it's practically obvious to a lot of people that such a monopoly would mean the death of Bitcoin. If this were indeed the case, then forming a (public) monopoly is not profitable endevour, because if one is successful in creating the monopoly, then the value of Bitcoin will plummet.

By these arguments, miners do not have an incentive to form a monopoly, and so the scenario we'll actually end up with is indeed competitive mining. I assume that some solution to the Tragedy of the Commons issue is indeed adopted, be it Proof of Stake or Dominant Assurance Contracts.

Can you explain how a monopolized Bitcoin is better than a central currency issuer? The entire point of Bitcoin is decentralization, if we don't have that, what do we have left? And why do we need the whole proof of work/stake thing, instead of the monopolist just synchronizing transactions in its internal database?

You could take pretty much any argument in favor of Bitcoin and use it against a monopoly. What if it charges exorbitant fees of $0.3 + 3%? What if its servers are down and nobody can process transactions? What if it is attacked by some government agency? What if it goes bankrupt due to bad management? What if it starts posing restrictions on how one can use their bitcoins?

I agree that competitive mining has some advantages. However, in other respects monopoly looks superior.  Just as importantly, mining looks like a natural monopoly. If monopolized mining is highly profitable, then bitcoin will likely become a monopoly. The system should be prepared to accommodate a monopolist. Proof-of-stake is a good way of ensuring that the monopolist will behave himself.

Transparent, psuedonymous, and irreversible txns. It is not clear how this can be maintained without an alternate currency system such as bitcoin. A company which owns the majority of bitcoins and maintains a centralized txn database is more trustworthy than a company which just maintains a centralized txn database.

The monopolist will have lower marginal costs because most of its hashing capacity could remain idle. Fees could go up or down. I think they would go down because the marginal cost savings are potentially extremely large, but it is an empirical question. Remember that implicit fees are currently outrageously high. Low fees should not to be a talking point when so much new money is being issued.

I think they would have strong incentives to keep their servers up. If they went down for a prolonged period, then private miners could take over. The monopolist would have strong incentives to recognize their txns.


Proof-of-work is just as easy to attack under centralization as it is under decentralization. If the monopolist is unable to maintain dominant hashing power, then  competitive miners or another monopolist could take over. If the gov't decides to maintain dominant hashing power, then competitive miners would be fucked anyway. Same goes for proof-of-stake, if a private actor can silently acquire a majority stake, then a gov't could do so easily.

If it ceases hashing, then competitive miners or another monopolist will take over. The blockchain will remain transparent and there will be a market for control over it.

If it does this voluntarily, it will lose a principal niche market for drugs, money laundering, etc. I don't think it would want to do this. If the government forced the monopolist to do this, then either a) another monopolist will take over who can operate more profitably in a jurisdiction without these constraints, or b) the gov't would act the same way against a p2p chain. In any case, it is not plausible for bitcoin to grow tremendously and simultaneously remain unregulated.

Natural monopolies are not monopolies, but temporarily dominant economic players. 

QFT

Are you describing the increasing-returns to scale as the scaling problem? If so, then yes it makes the scaling problem worse.

If the monopolist has say 55%, then he can reverse blocks made by other miners. Since other miners know that the monopolist plans to fire up his 55% if they try to mine, private miners have no incentive to keep mining. Therefore, private miners will take all there rigs offline. The monopolist doesn't need to keep his rigs running, he just needs to be able to credibly threaten to start them and recapture all privately mined blocks. Therefore, the monopolist can get away with powering just  2% of the networks hashing capacity and keeping the other 53% in reserve in case he faces an attempt at a competition. Like private miners, he will have a lot of capital costs (though less than they do), but he will have minimal electricity cost. This is likely a source of tremendous cost savings (and lower txn fees) under monopoly.

As a monopolist, it will make sense to pick the highest MH/$ solution for the vast majority of rigs. MH/J won't be important to him.

Proof-of-stake doesn't suffer from this additional scaling issue because everything is loaded into capital costs and electricity costs are unimportant.

Plunk it down on what, exactly? CPUs? GPUs? FPGAs? ASICs?

Or will they cover the bases, so that moving our own wealth out of bitcoins into oh lets pick litecoins out of our asses to start with and see if someone is a criminal deliberately attempting to disrupt other people's networking and data recording - a computing or data crime of some sort maybe in some jurisdictions - or an honest investor honestly interested in helping us achieve the objectives of our many and various branches of the cryptocurrency movement by supporting and enhancing the value and security of everyon'es cryptocurrency holdings won't help us elude their grasping grasp?

-MarkM-

No, I'm talking about the increasing-overhead to scale problem.  Or, at least the apparent overhead.

The bigger your mining operation is, the harder it is to ignore your overhead.  A couple hundred megahashes per second requires no infrastructure, since it is just a video card or two that you already own, and a small fraction of your monthly power and network bills.  A couple of terahashes per second is going to need its own building(s) with dedicated generators and multiple internet connections.

To sustain a similar level of security to that currently enjoyed by bitcoin, you would need 30.6% demurrage per annum. Similarly, bitcoin would need to generate txn tax revenue equivalent to 30.6% of demurrage per annum. Fee rates like these are incompatible with successful competition with existing technologies such as paypal. Good luck. You might consider some proof-of-stake system incorporating modest demurrage, since then you could avoid high fees.  I have no strong objection to demurrage.  In fact, since holding vast amounts of wealth in the coin creates an externality (it imposes increased security risks on other users), there is a strong theoretical argument for some modest level of demurrage in a proof-of-work or partial proof-of-work system.

I just dislike the idea of currencies that are not likely to be competitive with existing technologies except for niche uses.