Playing with Fire:
Adjusting Bitcoin's Block Subsidy
Anthony Towns

Scaling Bitcoin, 2018

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Apologies

First an apology: this was a terrible title
Twitter feedback:I just want to remind everyone that @ScalingBitcoin has
become a complete ****ing joke.
https://twitter.com/brian_trollz/status/1030934979885322241

Rusty's Civil War thesis:
The Third Era Will Start With Civil War  The mathematicsof this situation seem inevitable: The miners and businesses
with large transaction volume will both decide to (re)introduce
ination.
https://medium.com/@rusty_lightning/the-three-economic-eras-of-bitcoin-d43bf0cf058a

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Apologies

First an apology: this was a terrible title
Twitter feedback:I just want to remind everyone that @ScalingBitcoin has
become a complete ****ing joke.
https://twitter.com/brian_trollz/status/1030934979885322241

Rusty's Civil War thesis:
The Third Era Will Start With Civil War  The mathematicsof this situation seem inevitable: The miners and businesses
with large transaction volume will both decide to (re)introduce
ination.
https://medium.com/@rusty_lightning/the-three-economic-eras-of-bitcoin-d43bf0cf058a

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Apologies

First an apology: this was a terrible title
Twitter feedback:I just want to remind everyone that @ScalingBitcoin has
become a complete ****ing joke.
https://twitter.com/brian_trollz/status/1030934979885322241

Rusty's Civil War thesis:
The Third Era Will Start With Civil War  The mathematicsof this situation seem inevitable: The miners and businesses
with large transaction volume will both decide to (re)introduce
ination.
https://medium.com/@rusty_lightning/the-three-economic-eras-of-bitcoin-d43bf0cf058a

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Apologies

First an apology: this was a terrible title
Twitter feedback:I just want to remind everyone that @ScalingBitcoin has
become a complete ****ing joke.
https://twitter.com/brian_trollz/status/1030934979885322241

Rusty's Civil War thesis:
The Third Era Will Start With Civil War  The mathematicsof this situation seem inevitable: The miners and businesses
with large transaction volume will both decide to (re)introduce
ination.
https://medium.com/@rusty_lightning/the-three-economic-eras-of-bitcoin-d43bf0cf058a

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Not a pro-ination talkThis is not a pro-ination talk.
Other disclaimers:
This is not endorsed by Xapo
This is not endorsed by Bitcoin Core
This is not even necessarily endorsed by me

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Not a pro-ination talkThis is not a pro-ination talk.
Other disclaimers:
This is not endorsed by Xapo
This is not endorsed by Bitcoin Core
This is not even necessarily endorsed by me

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Not a pro-ination talkThis is not a pro-ination talk.
Other disclaimers:
This is not endorsed by Xapo
This is not endorsed by Bitcoin Core
This is not even necessarily endorsed by me

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Not a pro-ination talkThis is not a pro-ination talk.
Other disclaimers:
This is not endorsed by Xapo
This is not endorsed by Bitcoin Core
This is not even necessarily endorsed by me

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Not a pro-ination talkThis is not a pro-ination talk.
Other disclaimers:
This is not endorsed by Xapo
This is not endorsed by Bitcoin Core
This is not even necessarily endorsed by me

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

What is this talk?

My intent:
I've seen a potential problem
I've seen a potential x
We should discuss whether it's a real problem, a real x, andconsider it.

In decentralised development, review is critical:
Both to avoid letting bad things get in
But also to avoid forgetting about good things
This doesn't just apply to code!

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

What is this talk?

My intent:
I've seen a potential problem
I've seen a potential x
We should discuss whether it's a real problem, a real x, andconsider it.

In decentralised development, review is critical:
Both to avoid letting bad things get in
But also to avoid forgetting about good things
This doesn't just apply to code!

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Does Bitcoin use too much energy?

Jumping from one asco to another...
At least it's the right asco...

Subsidising blocks with brand new money has two benets:
a decentralised initial distribution of the currency (vs apre-mine or auction)
subsidising payment for proof-of-work security (vs transactionfees)

To be clear: saying Bitcoin uses too much energy is saying it
should be less secure.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Does Bitcoin use too much energy?

Jumping from one asco to another...
At least it's the right asco...

Subsidising blocks with brand new money has two benets:
a decentralised initial distribution of the currency (vs apre-mine or auction)
subsidising payment for proof-of-work security (vs transactionfees)

To be clear: saying Bitcoin uses too much energy is saying it
should be less secure.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Does Bitcoin use too much energy?

Jumping from one asco to another...
At least it's the right asco...

Subsidising blocks with brand new money has two benets:
a decentralised initial distribution of the currency (vs apre-mine or auction)
subsidising payment for proof-of-work security (vs transactionfees)

To be clear: saying Bitcoin uses too much energy is saying it
should be less secure.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Does Bitcoin use too much energy?

Jumping from one asco to another...
At least it's the right asco...

Subsidising blocks with brand new money has two benets:
a decentralised initial distribution of the currency (vs apre-mine or auction)
subsidising payment for proof-of-work security (vs transactionfees)

To be clear: saying Bitcoin uses too much energy is saying it
should be less secure.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Anecdata

Why might you even think Bitcoin uses too much energy?
Mainstream news paying attention to the problem?
Industry prots centred around mining rather than other value
adds?
7x increase in PoW during a bear market?
Coins with less PoW not getting attacked?
No concern from paranoid users about lack of security?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Anecdata

Why might you even think Bitcoin uses too much energy?
Mainstream news paying attention to the problem?
Industry prots centred around mining rather than other value
adds?
7x increase in PoW during a bear market?
Coins with less PoW not getting attacked?
No concern from paranoid users about lack of security?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Anecdata

Why might you even think Bitcoin uses too much energy?
Mainstream news paying attention to the problem?
Industry prots centred around mining rather than other value
adds?
7x increase in PoW during a bear market?
Coins with less PoW not getting attacked?
No concern from paranoid users about lack of security?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Anecdata

Why might you even think Bitcoin uses too much energy?
Mainstream news paying attention to the problem?
Industry prots centred around mining rather than other value
adds?
7x increase in PoW during a bear market?
Coins with less PoW not getting attacked?
No concern from paranoid users about lack of security?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Anecdata

Why might you even think Bitcoin uses too much energy?
Mainstream news paying attention to the problem?
Industry prots centred around mining rather than other value
adds?
7x increase in PoW during a bear market?
Coins with less PoW not getting attacked?
No concern from paranoid users about lack of security?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Anecdata

Why might you even think Bitcoin uses too much energy?
Mainstream news paying attention to the problem?
Industry prots centred around mining rather than other value
adds?
7x increase in PoW during a bear market?
Coins with less PoW not getting attacked?
No concern from paranoid users about lack of security?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

MathsCan we analyse this in some objective way?
Obviously yes:
Hashrate: TH/s or dicultyElectricity: kWh/year or GW
Value: Money (USD)

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

MathsCan we analyse this in some objective way?
Obviously yes:
Hashrate: TH/s or dicultyElectricity: kWh/year or GW
Value: Money (USD)

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Hashrate/Diculty

240
234

Difficulty

228
222
216
210
24
2010

2011

2012

2013

2014

Anthony Towns

Date

2015

2016

2017

2018

2019

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Value/USD
218

Reward

216
214

USD

212
210
28
26
24
22
2010

2011

2012

2013

2014

Date

2015

2016

2017

2018

2019

Problem: tells you what you pay for, not what you get.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Value/USD
218

Reward

216
214

USD

212
210
28
26
24
22
2010

2011

2012

2013

2014

Date

2015

2016

2017

2018

2019

Problem: tells you what you pay for, not what you get.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Hashrate vs Value

Combine the two measures of security: TH/USD
218
215

TH/USD

212
29

TH/Reward
X6500 FPGA @16c/kWh
S1 @16c/kWh
S3 @16c/kWh
S5 @16c/kWh
S7 @16c/kWh
S9 @16c/kWh
WM M10 @16c/kWh

26
23
20
2011

2012

2013

2014

Anthony Towns

2015

Date

2016

2017

2018

2019

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Hashrate vs Value

TH/USD:
Goes up and to the right as technology improves
TH/Reward measures how hard you have to work to earnrevenue
Miner values measure how much work you get at a given
electricity priceNot subjective!

Gives insight into market reaction:
Reward halvening makes TH/Reward double
Price increases makes TH/Reward drop
Can see TH/Reward increases as new hardware comes tomarketAnthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Hashrate vs Value

TH/USD:
Goes up and to the right as technology improves
TH/Reward measures how hard you have to work to earnrevenue
Miner values measure how much work you get at a given
electricity priceNot subjective!

Gives insight into market reaction:
Reward halvening makes TH/Reward double
Price increases makes TH/Reward drop
Can see TH/Reward increases as new hardware comes tomarketAnthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Hashrate vs Value

Aside: 16c/kWh  that seems expensive!
Why:
Includes other Opex costs (cooling, stang, etc)
Includes Capex not just Opex
Includes expected prots
Needs to cover risk that diculty will rise faster than expected
Mining isn't a completely ecient market

My guess:
4c/kWh electricity
1c/kWh misc opex
6c/kWh depreciation of capex
5c/kWh prot and risk premium

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Hashrate vs Value

Aside: 16c/kWh  that seems expensive!
Why:
Includes other Opex costs (cooling, stang, etc)
Includes Capex not just Opex
Includes expected prots
Needs to cover risk that diculty will rise faster than expected
Mining isn't a completely ecient market

My guess:
4c/kWh electricity
1c/kWh misc opex
6c/kWh depreciation of capex
5c/kWh prot and risk premium

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Hashrate vs Value

Aside: 16c/kWh  that seems expensive!
Why:
Includes other Opex costs (cooling, stang, etc)
Includes Capex not just Opex
Includes expected prots
Needs to cover risk that diculty will rise faster than expected
Mining isn't a completely ecient market

My guess:
4c/kWh electricity
1c/kWh misc opex
6c/kWh depreciation of capex
5c/kWh prot and risk premium

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions

Can we make any predictions based on this?
Yes, but we need to make some assumptions:
Where will the price go?
How much more ecient will miners get?
Will electricity get cheaper?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions

Can we make any predictions based on this?
Yes, but we need to make some assumptions:
Where will the price go?
How much more ecient will miners get?
Will electricity get cheaper?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions

Can we make any predictions based on this?
Yes, but we need to make some assumptions:
Where will the price go?
How much more ecient will miners get?
Will electricity get cheaper?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions

Can we make any predictions based on this?
Yes, but we need to make some assumptions:
Where will the price go?
How much more ecient will miners get?
Will electricity get cheaper?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions

Can we make any predictions based on this?
Yes, but we need to make some assumptions:
Where will the price go?
How much more ecient will miners get?
Will electricity get cheaper?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Price

Price model:
Assume Bitcoin succeeds (if it fails, energy use won't be anissue)
But try to be conservative
Log-log curve t, scaled down to act as a lower support
Sub-exponential, but still gives huge price rises over time

Over $10k by 2022, over $20k by mid-2023
Over $100k in 2028, over $500k in 2034
Over $1M in 2037, over $2M in 2041
Almost $8M by 2050
Too conservative? Support as at 2018-10-06 is at $1980
USD(Multiply by 2.91 to get back to actual tted curve)

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Price

Price model:
Assume Bitcoin succeeds (if it fails, energy use won't be anissue)
But try to be conservative
Log-log curve t, scaled down to act as a lower support
Sub-exponential, but still gives huge price rises over time

Over $10k by 2022, over $20k by mid-2023
Over $100k in 2028, over $500k in 2034
Over $1M in 2037, over $2M in 2041
Almost $8M by 2050
Too conservative? Support as at 2018-10-06 is at $1980
USD(Multiply by 2.91 to get back to actual tted curve)

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Price

Price model:
Assume Bitcoin succeeds (if it fails, energy use won't be anissue)
But try to be conservative
Log-log curve t, scaled down to act as a lower support
Sub-exponential, but still gives huge price rises over time

Over $10k by 2022, over $20k by mid-2023
Over $100k in 2028, over $500k in 2034
Over $1M in 2037, over $2M in 2041
Almost $8M by 2050
Too conservative? Support as at 2018-10-06 is at $1980
USD(Multiply by 2.91 to get back to actual tted curve)

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Price

Price model:
Assume Bitcoin succeeds (if it fails, energy use won't be anissue)
But try to be conservative
Log-log curve t, scaled down to act as a lower support
Sub-exponential, but still gives huge price rises over time

Over $10k by 2022, over $20k by mid-2023
Over $100k in 2028, over $500k in 2034
Over $1M in 2037, over $2M in 2041
Almost $8M by 2050
Too conservative? Support as at 2018-10-06 is at $1980
USD(Multiply by 2.91 to get back to actual tted curve)

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Price

Price
Price (estimated)
Price (min, estimated)

107

USD

105
103

101

10 1

2009

2014

2019

2024

Anthony Towns

2029

Date

2034

2039

2044

2049

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Miner eciency / Energy costs

Rough t of TH/USD
Split into miner eciency improvements, and decreasingelectricity costs
More ecient miners from better fabs / process improvements
Cheaper electricity directly, or due to less manufacturer
prots, or due to use of miners as heating elements, eg

These are not good estimates.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Miner eciency / Energy costs

Rough t of TH/USD
Split into miner eciency improvements, and decreasingelectricity costs
More ecient miners from better fabs / process improvements
Cheaper electricity directly, or due to less manufacturer
prots, or due to use of miners as heating elements, eg

These are not good estimates.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Miner eciency / Energy costs

Rough t of TH/USD
Split into miner eciency improvements, and decreasingelectricity costs
More ecient miners from better fabs / process improvements
Cheaper electricity directly, or due to less manufacturer
prots, or due to use of miners as heating elements, eg

These are not good estimates.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Miner eciency / Energy costs

Rough t of TH/USD
Split into miner eciency improvements, and decreasingelectricity costs
More ecient miners from better fabs / process improvements
Cheaper electricity directly, or due to less manufacturer
prots, or due to use of miners as heating elements, eg

These are not good estimates.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Miner eciency / Energy costs

Rough t of TH/USD
Split into miner eciency improvements, and decreasingelectricity costs
More ecient miners from better fabs / process improvements
Cheaper electricity directly, or due to less manufacturer
prots, or due to use of miners as heating elements, eg

These are not good estimates.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - TH/USD

231
226

TH/USD221

RewardOverall efficiency cap
X6500 FPGA @16c/kWh
S1 @16c/kWh
S3 @16c/kWh
S5 @16c/kWh
S7 @16c/kWh
S9 @16c/kWh
WM M10 @16c/kWh

216
211
26
21
2009

2014

2019

2024

Anthony Towns

2029

Date

2034

2039

2044

2049

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Miner eciency

107
106

MH/J

105
104
103
102
101
100

2009

2014

2019

2024

Anthony Towns

2029

Date

2034

2039

2044

2049

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Assumptions - Energy costs

0.25

USD/kWh

0.20
0.15
0.10
0.05
0.00
2016

2020

2024

2028

Anthony Towns

2032

Date

2036

2040

2044

2048

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions

So we have some assumptions. What can we predict fromthem?

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions - Reward in USD

220
217
214

USD

211
28
25
22

RewardReward lower-bound (estimated)

21
2009

2014

2019

2024

Anthony Towns

2029

Date

2034

2039

2044

2049

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions - Reward in USD

Things to note:
Only relies on the price assumption
Even over a 30 year timeline (2019-2049), decreasing reward in
BTC is mostly compensated for by growth in BTC priceThis is a simple result of the price doubling faster than theblock reward halvesThose little shocks at halvenings look a lot worse when you
don't use a log scale

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions - Diculty

261

Difficulty
Difficulty (predicted)

253

Difficulty

245
237
229
221
213
25
2009

2014

2019

2024

Anthony Towns

2029

Date

2034

2039

2044

2049

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions - Diculty

Relies on assumptions about price and TH/USD
Assumes that diculty immediately responds toprice/technology changes(Not economically unreasonable, given they're assumed to be
perfectly predictable)(Technically unreasonable, given diculty only adjusts every
two weeks though

Assumes the mining market is ecient and there's noprot/rents(Beyond what's implicit in the electricity price)

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions - Electricity Usage

GW

102

101

Energy use (predicted)
Energy use (estimated)
Energy paid for (estimated)Gold mining energy use (2018)
Banking system energy use (2018)
Japan energy use (2014)
10% of USA energy use

100

10 1

2016

2020

2024

2028

Anthony Towns

2032

Date

2036

2040

2044

2048

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions - Electricity Usage

Relies on all the assumptions: price, eciency, and energy cost.
Electricity usage increases even though reward in USD doesnot  because we assumed electricity prices decrease

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Predictions - Summary

Garbage in / Garbage out
We started from shakey assumptions, so should not have hugecondence in the predictions
We don't get to Bitcoin Mining on Track to Consume All of
the World's Energy by 2020
http://www.newsweek.com/bitcoin-mining-track-consume-worlds-energy-2020-744036

But we do get to levels that seem high enough to justify
thinking about reducing them.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage

The talk title is an obvious give away about how to go about
reducing energy usage:
When the price of BTC goes up, lower the reward tocompensate.
Because the overall reward in real terms does not go up as
much, there's less incentive to deploy lots of new mining
hardware.
Slower deployment of new mining hardware means less growthin electricity usage.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage

The talk title is an obvious give away about how to go about
reducing energy usage:
When the price of BTC goes up, lower the reward tocompensate.
Because the overall reward in real terms does not go up as
much, there's less incentive to deploy lots of new mining
hardware.
Slower deployment of new mining hardware means less growthin electricity usage.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage

The talk title is an obvious give away about how to go about
reducing energy usage:
When the price of BTC goes up, lower the reward tocompensate.
Because the overall reward in real terms does not go up as
much, there's less incentive to deploy lots of new mining
hardware.
Slower deployment of new mining hardware means less growthin electricity usage.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage

The talk title is an obvious give away about how to go about
reducing energy usage:
When the price of BTC goes up, lower the reward tocompensate.
Because the overall reward in real terms does not go up as
much, there's less incentive to deploy lots of new mining
hardware.
Slower deployment of new mining hardware means less growthin electricity usage.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage

But! The block reward is decided by software which doesn't
know the BTC price
But! It can detect rises in price indirectly, because people
deploy more hardware and the diculty rises.
There is no recursion problem here, provided:
miners can predict the drop in reward that will result fromhigher diculty
we don't try to cut the reward by exactly as much as the priceincreases

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage

But! The block reward is decided by software which doesn't
know the BTC price
But! It can detect rises in price indirectly, because people
deploy more hardware and the diculty rises.
There is no recursion problem here, provided:
miners can predict the drop in reward that will result fromhigher diculty
we don't try to cut the reward by exactly as much as the priceincreases

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage

But! The block reward is decided by software which doesn't
know the BTC price
But! It can detect rises in price indirectly, because people
deploy more hardware and the diculty rises.
There is no recursion problem here, provided:
miners can predict the drop in reward that will result fromhigher diculty
we don't try to cut the reward by exactly as much as the priceincreases

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage

A concrete example: Cut the reward by 20% everytime
diculty doubles
Easy to calculate reward given block height and dicultyConsistent behaviour no matter when the rule gets put in place
Exponential formula makes the math work out fairly nicely
Only applies once diculty is above 10e12

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage - Comparison

1017

Difficulty

1014
1011
108
105

Difficulty
Difficulty (predicted)
Difficulty (adjusted reward)

102

2009

2014

2019

2024

Anthony Towns

2029

Date

2034

2039

2044

2049

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage - Comparison

106
105

USD

104
103
102
101

RewardReward (predicted)
Reward adjusted (predicted)

100
10 1

2009

2014

2019

2024

Anthony Towns

2029

Date

2034

2039

2044

2049

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage - Comparison

RewardReward adjusted (predicted)

50
40

BTC

30
20
10
0
2009

2014

2019

2024

Anthony Towns

2029

Date

2034

2039

2044

2049

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Reducing Energy Usage - Comparison

28

GW

26
24

Energy use (predicted)
Energy use (estimated)
Energy use adjusted reward (predicted)
Gold mining energy use (2018)
Banking system energy use (2018)
Japan energy use (2014)
10% of USA energy use

22
20
22
2016

2020

2024

2028

Anthony Towns

2032

Date

2036

2040

2044

2048

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Implementation

Reducing block reward is a soft-fork:
Limit what miners can claim based on the diculty
Require them to burn the rest to an OP_RETURN address

Can we keep the reward?
Seems wasteful not to
Would allow increased ination later in Bitcoin's life when
price growth slows
Might defer the civil war even further

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Implementation

Reducing block reward is a soft-fork:
Limit what miners can claim based on the diculty
Require them to burn the rest to an OP_RETURN address

Can we keep the reward?
Seems wasteful not to
Would allow increased ination later in Bitcoin's life when
price growth slows
Might defer the civil war even further

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Implementation - Pay It Forward

Approach: have a miner's savings trust UTXO
Burned rewards from coinbase pay into it
Someday, take fees from it to supplement the coinbase reward
Consensus rules specify the amounts that each block can
withdraw and must deposit

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Implementation - Pay It Forward

Approach: have a miner's savings trust UTXO
Burned rewards from coinbase pay into it
Someday, take fees from it to supplement the coinbase reward
Consensus rules specify the amounts that each block can
withdraw and must deposit

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Implementation - Pay It Forward

Approach: have a miner's savings trust UTXO
Burned rewards from coinbase pay into it
Someday, take fees from it to supplement the coinbase reward
Consensus rules specify the amounts that each block can
withdraw and must deposit

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Implementation - Pay It Forward

Approach: have a miner's savings trust UTXO
Burned rewards from coinbase pay into it
Someday, take fees from it to supplement the coinbase reward
Consensus rules specify the amounts that each block can
withdraw and must deposit

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Implementation - Rules
Each coinbase spends burned rewards to a scriptPubkey 100
OP_CSV
Each block contains a savings transaction:
Single output: 1 OP_CSVInputs are (1) previous block's savings tx's output, (2)coinbase burn output from 100 blocks ago

Consensus rules validate:
Coinbase burn is (at least) some appropriate value(soft-forkable up)
Savings fees are (no more than) some appropriate value(soft-forkable down)

Nodes validating these rules need to only track an additional
100 UTXOs (one for each coinbase burn for the past 100
blocks) at any given point in time.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Implementation - Rules
Each coinbase spends burned rewards to a scriptPubkey 100
OP_CSV
Each block contains a savings transaction:
Single output: 1 OP_CSVInputs are (1) previous block's savings tx's output, (2)coinbase burn output from 100 blocks ago

Consensus rules validate:
Coinbase burn is (at least) some appropriate value(soft-forkable up)
Savings fees are (no more than) some appropriate value(soft-forkable down)

Nodes validating these rules need to only track an additional
100 UTXOs (one for each coinbase burn for the past 100
blocks) at any given point in time.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Implementation - Rules
Each coinbase spends burned rewards to a scriptPubkey 100
OP_CSV
Each block contains a savings transaction:
Single output: 1 OP_CSVInputs are (1) previous block's savings tx's output, (2)coinbase burn output from 100 blocks ago

Consensus rules validate:
Coinbase burn is (at least) some appropriate value(soft-forkable up)
Savings fees are (no more than) some appropriate value(soft-forkable down)

Nodes validating these rules need to only track an additional
100 UTXOs (one for each coinbase burn for the past 100
blocks) at any given point in time.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Implementation - Rules
Each coinbase spends burned rewards to a scriptPubkey 100
OP_CSV
Each block contains a savings transaction:
Single output: 1 OP_CSVInputs are (1) previous block's savings tx's output, (2)coinbase burn output from 100 blocks ago

Consensus rules validate:
Coinbase burn is (at least) some appropriate value(soft-forkable up)
Savings fees are (no more than) some appropriate value(soft-forkable down)

Nodes validating these rules need to only track an additional
100 UTXOs (one for each coinbase burn for the past 100
blocks) at any given point in time.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Pay It Forward - Other Uses

This approach has a variety of potential uses:
Smothing the halvening schedule
Smoothing fee income when a fee market eventuates
As a cost mechanism for allowing temporary increases in theblock weight limit

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Pay It Forward - Other Uses

This approach has a variety of potential uses:
Smothing the halvening schedule
Smoothing fee income when a fee market eventuates
As a cost mechanism for allowing temporary increases in theblock weight limit

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Pay It Forward - Other Uses

This approach has a variety of potential uses:
Smothing the halvening schedule
Smoothing fee income when a fee market eventuates
As a cost mechanism for allowing temporary increases in theblock weight limit

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Other approaches
Even if these are real problems, there are other approaches todealing with (some of ) them.
For instance, perhaps the invisible hand of the market will
already solve all these problems naturally:
Lower rewards will increase the price, perhaps enough tocompensate?
Perhaps mining manufactures will make the most prot bydelaying new hardware until the halvening when everyone
needs to upgrade?
Maybe electricity will get more expensive
Maybe 10% of US eletricity usage just means all mining isdone by hot water systems and there is no problem

Alternatively, if there is a crisis due to too much investment,that can be undone by changing the PoW algorithm, renderinghistorical investment void.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Other approaches
Even if these are real problems, there are other approaches todealing with (some of ) them.
For instance, perhaps the invisible hand of the market will
already solve all these problems naturally:
Lower rewards will increase the price, perhaps enough tocompensate?
Perhaps mining manufactures will make the most prot bydelaying new hardware until the halvening when everyone
needs to upgrade?
Maybe electricity will get more expensive
Maybe 10% of US eletricity usage just means all mining isdone by hot water systems and there is no problem

Alternatively, if there is a crisis due to too much investment,that can be undone by changing the PoW algorithm, renderinghistorical investment void.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Other approaches
Even if these are real problems, there are other approaches todealing with (some of ) them.
For instance, perhaps the invisible hand of the market will
already solve all these problems naturally:
Lower rewards will increase the price, perhaps enough tocompensate?
Perhaps mining manufactures will make the most prot bydelaying new hardware until the halvening when everyone
needs to upgrade?
Maybe electricity will get more expensive
Maybe 10% of US eletricity usage just means all mining isdone by hot water systems and there is no problem

Alternatively, if there is a crisis due to too much investment,that can be undone by changing the PoW algorithm, renderinghistorical investment void.

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Other Benets

Some people claim that halving the reward will force the priceto double, as a result of supply/demand
Even if it doesn't exactly double, less supply with the same
demand seems like it would force the price to rise.
Perhaps that is a reason for Bitcoin hodl'ers to want to reduceination sooner rather than later, independent of concerns
about energy usage or sustainability.
(If the price really will double everytime the reward halves; I
vote we halve the reward every day for the next two weeks!)

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Other Benets

Some people claim that halving the reward will force the priceto double, as a result of supply/demand
Even if it doesn't exactly double, less supply with the same
demand seems like it would force the price to rise.
Perhaps that is a reason for Bitcoin hodl'ers to want to reduceination sooner rather than later, independent of concerns
about energy usage or sustainability.
(If the price really will double everytime the reward halves; I
vote we halve the reward every day for the next two weeks!)

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Other Benets

Some people claim that halving the reward will force the priceto double, as a result of supply/demand
Even if it doesn't exactly double, less supply with the same
demand seems like it would force the price to rise.
Perhaps that is a reason for Bitcoin hodl'ers to want to reduceination sooner rather than later, independent of concerns
about energy usage or sustainability.
(If the price really will double everytime the reward halves; I
vote we halve the reward every day for the next two weeks!)

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Other Benets

Some people claim that halving the reward will force the priceto double, as a result of supply/demand
Even if it doesn't exactly double, less supply with the same
demand seems like it would force the price to rise.
Perhaps that is a reason for Bitcoin hodl'ers to want to reduceination sooner rather than later, independent of concerns
about energy usage or sustainability.
(If the price really will double everytime the reward halves; I
vote we halve the reward every day for the next two weeks!)

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Other Costs

This is probably not a win-win-win scenario.
Some people will lose out:
Less energy use by miners means less mining hardware means
less growth opportunities for miner manufacturers
Lowering rewards as diculty increases means equilibrium will
be hit faster, reducing excess prots for miners

Maybe those losses are compensated by reducing the risk of
black swan catastrophes such as:
Bitcoin economy deciding to switch to a dierent PoW
Governments legislating against mining in order to reduceenergy usage

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Conclusion

Open questions:
Are there reasonable ways of making better assumptions thanthe ones I made?
How robust are the predictions with dierent assumptions?
What is the likely impact on parts of the industry in real terms?
Is there a reasonable way to dene the burn and fee
formulas for pay-it-forward savings, that remains simple with
future soft-forks?
Is an implementation actually feasible?

Thanks for your time!
Slides and ipynb data sources will be up at

https://github.com/ajtowns/sc-btc-2018

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy

Conclusion

Open questions:
Are there reasonable ways of making better assumptions thanthe ones I made?
How robust are the predictions with dierent assumptions?
What is the likely impact on parts of the industry in real terms?
Is there a reasonable way to dene the burn and fee
formulas for pay-it-forward savings, that remains simple with
future soft-forks?
Is an implementation actually feasible?

Thanks for your time!
Slides and ipynb data sources will be up at

https://github.com/ajtowns/sc-btc-2018

Anthony Towns

Playing with Fire: Adjusting Bitcoin's Block Subsidy