The main selling point of Bitcoin (BTC), namely its supply cap which limits its total possible circulation to 21 million, is almost a truism at present. However, it seems that a growing number of people are concerned that a hard limit is not without its problems and that Bitcoin will run into trouble when its block rewards become too low (to stop completely afterwards).
The developer Peter Toddwho in July published an article titled “Surprisingly, Tail Emission Is Not Inflationary“, is causing the renewed discussion on this issue. Todd noted that “no proof-of-work (PoW)-based currency has ever been able to survive on transaction fees alone,” and that the lack of rewards could make block production unstable in the future.
Given the respect Peter Todd enjoys in the crypto community, many commentators have taken his arguments as the starting point for a study to determine whether Bitcoin monetary policy needs to be changed in the not too distant future. And there seems to be support for the introduction of so-called tail emissions, although this support is not unanimous.
Mixed Support for Residual Bitcoin Emissions
It is not very difficult to find personalities who would support the introduction of residual emissions, which in practice means that the block rewards would continue indefinitely. In other words, Bitcoin’s notorious 21 million hard cap would effectively be abolished, although any perpetual reward would likely be small.
“I have been insisting for two years already on the need to introduce residual emissions at some point for Bitcoin. They will only be necessary after four or five halvings, i.e. in about 15 to 20 years,” said the Dr. Julian HospCEO and Founder of Cake DeFi.
Hosp says most bitcoin proponents either don’t understand the need for residual emissions, or bury their heads in the sand in order to keep the simple – and appealing – argument for capping supply.
For Josef Tetekbrand ambassador Trezor, any attempt to change the 21 million BTC issuance limit will “fail,” largely because it is a “crucial part of Bitcoin’s DNA.” For others, seeking to change the ceiling is not necessarily doomed to failure, but it would certainly be a lengthy and contentious process.
“Generally, I welcome the discussion around Bitcoin’s long-term viability. ideas such as changing Bitcoin’s monetary policy might be more pressing than today,” Tetek said.
“Such a protocol change, which would change the fundamental economics of Bitcoin and can only be implemented through a hard fork, will be a long and difficult process,” said Nishant Sharmafounder of BlocksBridgean advisory and consulting firm for the Bitcoin mining industry.
In fact, the fundamental point is that Bitcoin and its proponents have long used the cryptocurrency supply cap argument and a reversal would imply a paradigm shift.
“I think it will be difficult to make an effective argument for bitcoin residual issuance. Much of bitcoin adoption has come from the argument that there is a predefined timeline around ‘supply’ says developer Bryan Bishop.
Other personalities simply refuse to enter the debate, a developer who wishes to remain anonymous told Cryptonews.com that these issues are all “quite speculative” and that “no one knows at this stage” where monetary policy stands.
Transaction fees
At the heart of the arguments that residual issuance is necessary is the sub-argument that transaction fees alone will not be enough to sustain Bitcoin and the mining it depends on.
“The transaction fees may be sufficient, but that would mean they would increase significantly over time. I would rather inflation be minimal and transaction fees be low, than just having to pay fees for security provided by miners,” suggests Julian Hosp.
Casual observers might assume that Bitcoin developers would be strictly opposed to tail issues. However, Bryan BishopBitcoin Core contributor, is also working on its own experimental digital currency, webcashand in the case of the latter, he admits that he plans to add inflation to the end of his supply schedule.
According to Bishop, this inflation is intended to “(1) keep people mining, and (2) pay for server expenses or other operational costs.”
That said, Webcash isn’t a direct analog to Bitcoin, since “mining doesn’t secure the network, so there’s a lot less danger for that kind of alternative architecture,” Bishop adds.
Other commentators argue that transaction fees would be enough to secure Bitcoin, and that base layer fees would be offset by the growing adoption of Layer 2 networks such as Lightning.
“As Bitcoin adoption spreads globally, on-chain transactions will likely become in high demand and transaction fees will rise accordingly. additional layers such as the lightning network, with the base layer of Bitcoin (blockchain) playing the role of final settlement”, explains Josef Tetek.
This is also the view taken by Nishant Sharma, who essentially argues that a rise in the price of BTC will make transaction fees more viable.
“As Bitcoin usage continues to grow, transaction fees collected by miners are likely to grow in inverse proportion to declining block rewards. Additionally, if market sentiment continues to push the bitcoin price, it will increase both streams of income for miners,” he explains to Cryptonews.com.
Carved in stone?
If the Bitcoin network becomes relatively insecure or unstable due to block rewards drying up, more people will buy into the idea of residual emissions. If this is not the case, and if the transaction costs turn out to be sufficient, then the weight behind a change in monetary policy will probably be negligible.
For some, the possibility of a change is not an option at the moment.
“I think Bitcoin’s monetary policy is truly immutable at this point and any attempt to change it will be met with stronger opposition than the block dispute of 2017. I will definitely be among those running a full node enforcing the limit of 21 million,” says Josef Tetek.
On the other hand, miners have great influence over Bitcoin, and if a large enough majority supports a change, then it will happen and cause a new fork.
As Nishant Sharma concludes,
“Bitcoin and bitcoin mining are gradually becoming institutionalized, the discourse around such proposals will evolve, and we may see protocol changes that were unthinkable in the past.”
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