> A 6 month investment with 3 months on the high subsidy and 3 months on low > subsidy would not be made…
Yes, this is the essential point. All capital investments are made based on expectations of future returns. To the extent that futures are perfectly knowable, they can be perfectly factored in. This is why inflation in Bitcoin is not a tax, it’s a cost. These step functions are made continuous by their predictability, removing that predictability will make them -- unpredictable. Changing these futures punishes those who have planned properly and favors those who have not. Sort of like a Bitcoin bail-in; are some miners are too big to fail? It also creates the expectation that it may happen again. This infects the money with the sort of uncertainty that Bitcoin is designed to prevent. e From: bitcoin-dev-boun...@lists.linuxfoundation.org [mailto:bitcoin-dev-boun...@lists.linuxfoundation.org] On Behalf Of Tier Nolan via bitcoin-dev Sent: Wednesday, March 2, 2016 10:08 AM Cc: Bitcoin Dev <bitcoin-dev@lists.linuxfoundation.org> Subject: Re: [bitcoin-dev] Hardfork to fix difficulty drop algorithm On Wed, Mar 2, 2016 at 4:27 PM, Paul Sztorc via bitcoin-dev <bitcoin-dev@lists.linuxfoundation.org <mailto:bitcoin-dev@lists.linuxfoundation.org> > wrote: For example, it is theoretically possible that 100% of miners (not 50% or 10%) will shut off their hardware. This is because it is revenue which ~halves, not profit. It depends on how much is sunk costs and how much is marginal costs too. If hashing costs are 50% capital and 50% marginal, then the entire network will be able to absorb a 50% drop in subsidy. 50% capital costs means that the cost of the loan to buy the hardware represents half the cost. Assume that for every $100 of income, you have to pay $49 for the loan and $49 for electricity giving 2% profit. If the subsidy halves, then you only get $50 of income, so lose $48. But if the bank repossesses the operation, they might as well keep things running for the $1 in marginal profit (or sell on the hardware to someone who will keep using it). Since this drop in revenue is well known in advance, businesses will spend less on capital. That means that there should be less mining hardware than otherwise. A 6 month investment with 3 months on the high subsidy and 3 months on low subsidy would not be made if it only generated a small profit for the first 3 and then massive losses for the 2nd period of 3 months. For it to be made, there needs to be large profit during the first period to compensate for the losses in the 2nd period.
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