What makes bitcoin value increase

June 22, 2021 / Rating: 4.9 / Views: 932

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Bitcoin mining centralization

Stack Exchange network consists of 178 Q&A communities including Stack Overflow, the largest, most trusted online community for developers to learn, share their knowledge, and build their careers. Visit Stack Exchange This is primarily a hypothetical, but not an impossible one. If a sufficiently large entity such as a massive company with a lot of cash or the U. Federal Reserve were to acquire more than half of the available Bitcoin, would it then become a more centralized type of currency given their control? Some alt coins start out like this, with a single entity owning the majority of the coins so that they can maintain centralized control. Is it a real danger or is my hypothetical a little too paranoid? Bitcoin has always been against that type of centralization, but if one of these entities decided they wanted to gain centralized control, could they do that by taking the action of acquiring a majority of the coins in circulation? Bitcoin has always been against that type of centralization, but if one of these entities decided they wanted to gain centralized control, could they do that by taking the action of acquiring a majority of the coins in circulation? Bitcoin had no premine, subsidy (new coins created in every block) is also predefined and halves every 210,000 blocks. However, there is nothing in the protocol that takes care of distribution because of free market. Everyone owning similar amounts is only possible in an ideal world or some game. In practice, some people will always own more than others. None of the above mentioned things involve supply of bitcoin. Maybe people with more money can have some influence but the 2017 soft fork proved that closed door meetings, corporations, miners etc. cannot decide things for Bitcoin ignoring users, devs and decentralization. The bitcoin protocol does not grant someone with a large amount of BTC any explicit control or influence over the consensus operations of the network. If someone owned a majority of coins, it wouldn't really make any difference to the rest of the users. However, there is a little bit of nuance here that wasn't explicitly addressed in @Prayank's (otherwise good) answer, in that an entity with a huge number of coins may have some amount of 'economic influence' over the outcome of a network fork. To explain: A network fork describes an event where network participants (nodes) disagree on what the valid chain is (in this case, due to a disagreement upon what the consensus rules are/should be), resulting in a network split (with some number of nodes following each chain that is valid in their view). If the fork persists, then any user that owned coins pre-fork, will own coins on both chains post-fork. This is the crucial point: if an entity owns a portion of coins, they may make a point of only adopting the post-fork chain that they prefer, while selling all of the coins on the post-fork chain that they don't prefer (and assumedly, using that money to buy more coins on the post-fork chain that they prefer). This action can push the price of the coins on each fork around, and that price action may influence other market participants to follow suit. Importantly though, note that owning a large number of coins grants the entity no extra influence over the ability to create a rule change / fork, it only allows them to push the price around, post-fork. All that said, there is even further nuance to the situation, and the game theoretical reasoning around most of it is messy at best. For example, the relative proportion of miners that are pointing hashpower at each post-fork chain is relevant to the conversation (it doesn't matter how much the entity holding a majority of coins wants to push their fork, if no miners are supporting it! There is also a consideration of soft-fork vs hard-fork (it is perhaps 'easier' to push a soft-forking change, as legacy nodes will still follow the same chain - though again miner participation is again a large and relevant variable that will decide whether or not the network segments). To further complicate things, there is no way to reliably predict this 'economic influence' over the outcome of a fork in consensus, it is at best only measurable in real-time as it plays out on the free market. To note, this exact sort of situation played out in ~2016-2017, as a large number of prominent businesses and miners pushed to change the consensus rules to their liking. Despite claiming to be an 'economic majority', these entities found themselves unable to force any changes upon the network, and ultimately their goal (naively raising the block size via a hard fork) failed. Perhaps the lesson to be learned is that the incentives for network participants to stay in consensus are quite large, and thus not even a rich entity can force other participants to change the rules against their will. In that case, it may be more reasonable to worry about their ability to unjustly influence a consensus rule change on the network. However, if one entity obtained that much BTC, then I think there would be other issues that would come up sooner. Assuming that the entity controlling the coins is a custodian for a huge number of users (which seems more likely than one entity actually owning a vast majority of the world's wealth), then it is absolutely relevant to worry about the potential censorship (and privacy) of that entity's depositors, as well as the authenticity of the funds (ie, is this entity only holding a fractional reserve of user funds? But this is an extreme situation that seems unlikely to be realized, especially if network participants are aware of the risks, and build out the bitcoin economy/infrastructure in a way that seeks to avoid this (seemingly unlikely) risk. This is much harder for governments to hijack, because there is very high demand for new energy-efficient Bitcoin miners. The government would be at loss if they used older miners 50% of the hash-power of the btc network? The other answers are correct in that btc is not Proof-of-Stake, so owning coins doesn't grant special privileges. If a large entity acquired Thus, since #2 is ridiculous, the US/EU/China/G20 would simply use #1 above and put peoeple in jail. Slow but sure shutdown of btc will probably happen too, since btc's lighting network allows laundering coins (anonymity), and SEGWIT was the segue to allowing LN. Thus everything downstream of btc's SEGWIT fork will require shutting down by tier-1 governments who don't tolerate anonymity anymore than they tolerated Ross Ulbricht's assasination markets and heroin markets. Imagine being a world leader and there's a live assasination market with prices on your head. Think you might want to shut down anonymity blockchains if you put yourself in their shoes? The "dark coins" are already (as of July 2021) getting shut out of trading exchanges who wish to remain out of prison. Research what's behind this tweet and you'll understand that the regulatory vices are beginning to squeeze anonymity out of blockchains. https://twitter.com/murphsicles/status/1417511858697871369? s=20 In 3 years, 99% of people in "cryptocurrency" won't even believe what the world looks like. It will be massively sterilized and cleaned by the slow hand of governments the world over. There IS a blockchain that avoids ALL of these problems, thus would conquer your fears in your question. But if I told you what it was, I'd get so many downvotes on this post that its not worth it. Satoshi Nakamoto is alive and knows what it is tho. Stack Exchange network consists of 178 Q&A communities including Stack Overflow, the largest, most trusted online community for developers to learn, share their knowledge, and build their careers. Visit Stack Exchange This is primarily a hypothetical, but not an impossible one. If a sufficiently large entity such as a massive company with a lot of cash or the U. Federal Reserve were to acquire more than half of the available Bitcoin, would it then become a more centralized type of currency given their control? Some alt coins start out like this, with a single entity owning the majority of the coins so that they can maintain centralized control. Is it a real danger or is my hypothetical a little too paranoid? Bitcoin has always been against that type of centralization, but if one of these entities decided they wanted to gain centralized control, could they do that by taking the action of acquiring a majority of the coins in circulation? Bitcoin has always been against that type of centralization, but if one of these entities decided they wanted to gain centralized control, could they do that by taking the action of acquiring a majority of the coins in circulation? Bitcoin had no premine, subsidy (new coins created in every block) is also predefined and halves every 210,000 blocks. However, there is nothing in the protocol that takes care of distribution because of free market. Everyone owning similar amounts is only possible in an ideal world or some game. In practice, some people will always own more than others. None of the above mentioned things involve supply of bitcoin. Maybe people with more money can have some influence but the 2017 soft fork proved that closed door meetings, corporations, miners etc. cannot decide things for Bitcoin ignoring users, devs and decentralization. The bitcoin protocol does not grant someone with a large amount of BTC any explicit control or influence over the consensus operations of the network. If someone owned a majority of coins, it wouldn't really make any difference to the rest of the users. However, there is a little bit of nuance here that wasn't explicitly addressed in @Prayank's (otherwise good) answer, in that an entity with a huge number of coins may have some amount of 'economic influence' over the outcome of a network fork. To explain: A network fork describes an event where network participants (nodes) disagree on what the valid chain is (in this case, due to a disagreement upon what the consensus rules are/should be), resulting in a network split (with some number of nodes following each chain that is valid in their view). If the fork persists, then any user that owned coins pre-fork, will own coins on both chains post-fork. This is the crucial point: if an entity owns a portion of coins, they may make a point of only adopting the post-fork chain that they prefer, while selling all of the coins on the post-fork chain that they don't prefer (and assumedly, using that money to buy more coins on the post-fork chain that they prefer). This action can push the price of the coins on each fork around, and that price action may influence other market participants to follow suit. Importantly though, note that owning a large number of coins grants the entity no extra influence over the ability to create a rule change / fork, it only allows them to push the price around, post-fork. All that said, there is even further nuance to the situation, and the game theoretical reasoning around most of it is messy at best. For example, the relative proportion of miners that are pointing hashpower at each post-fork chain is relevant to the conversation (it doesn't matter how much the entity holding a majority of coins wants to push their fork, if no miners are supporting it! There is also a consideration of soft-fork vs hard-fork (it is perhaps 'easier' to push a soft-forking change, as legacy nodes will still follow the same chain - though again miner participation is again a large and relevant variable that will decide whether or not the network segments). To further complicate things, there is no way to reliably predict this 'economic influence' over the outcome of a fork in consensus, it is at best only measurable in real-time as it plays out on the free market. To note, this exact sort of situation played out in ~2016-2017, as a large number of prominent businesses and miners pushed to change the consensus rules to their liking. Despite claiming to be an 'economic majority', these entities found themselves unable to force any changes upon the network, and ultimately their goal (naively raising the block size via a hard fork) failed. Perhaps the lesson to be learned is that the incentives for network participants to stay in consensus are quite large, and thus not even a rich entity can force other participants to change the rules against their will. In that case, it may be more reasonable to worry about their ability to unjustly influence a consensus rule change on the network. However, if one entity obtained that much BTC, then I think there would be other issues that would come up sooner. Assuming that the entity controlling the coins is a custodian for a huge number of users (which seems more likely than one entity actually owning a vast majority of the world's wealth), then it is absolutely relevant to worry about the potential censorship (and privacy) of that entity's depositors, as well as the authenticity of the funds (ie, is this entity only holding a fractional reserve of user funds? But this is an extreme situation that seems unlikely to be realized, especially if network participants are aware of the risks, and build out the bitcoin economy/infrastructure in a way that seeks to avoid this (seemingly unlikely) risk. This is much harder for governments to hijack, because there is very high demand for new energy-efficient Bitcoin miners. The government would be at loss if they used older miners 50% of the hash-power of the btc network? The other answers are correct in that btc is not Proof-of-Stake, so owning coins doesn't grant special privileges. If a large entity acquired Thus, since #2 is ridiculous, the US/EU/China/G20 would simply use #1 above and put peoeple in jail. Slow but sure shutdown of btc will probably happen too, since btc's lighting network allows laundering coins (anonymity), and SEGWIT was the segue to allowing LN. Thus everything downstream of btc's SEGWIT fork will require shutting down by tier-1 governments who don't tolerate anonymity anymore than they tolerated Ross Ulbricht's assasination markets and heroin markets. Imagine being a world leader and there's a live assasination market with prices on your head. Think you might want to shut down anonymity blockchains if you put yourself in their shoes? The "dark coins" are already (as of July 2021) getting shut out of trading exchanges who wish to remain out of prison. Research what's behind this tweet and you'll understand that the regulatory vices are beginning to squeeze anonymity out of blockchains. https://twitter.com/murphsicles/status/1417511858697871369? s=20 In 3 years, 99% of people in "cryptocurrency" won't even believe what the world looks like. It will be massively sterilized and cleaned by the slow hand of governments the world over. There IS a blockchain that avoids ALL of these problems, thus would conquer your fears in your question. But if I told you what it was, I'd get so many downvotes on this post that its not worth it. Satoshi Nakamoto is alive and knows what it is tho.

date: 22-Jun-2021 19:29next


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