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Exceeding the limit of 21 million Bitcoins: is inflation a taboo?
Exceeding the limit of 21 million Bitcoins: is inflation a taboo?
Bitcoin

Exceeding the limit of 21 million Bitcoins: is inflation a taboo?

By Lorenzo Dalvit - 24 Feb 2020

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In an article published a few days ago in Bloomberg, columnist Noah Smith explained that Bitcoin’s survival would be linked to an inflation rate that will inevitably make it exceed the limit of 21 million coins

In response, Peter Todd seems to confirm the possibility that this taboo will be broken.

Noah Smith’s opinion originates after having studied the analysis of some economists who observed a problem related to the survival of this cryptocurrency. Although it has proven to be very resilient compared to expectations, Bitcoin will face new challenges.

In order to establish itself and become a global alternative to fiat currencies, the cryptocurrency should make its strong point, preventing double-spending, an absolute certainty.

In order to achieve this, the network of miners will have to be rewarded for the security of the ledger and the scaling of the network outside of second-layer solutions such as Lightning Network or sidechains like Liquid.

Noah Smith and the economists he refers to are certainly not the first to realize that the controlled deflation imposed by the code with the 1MB block size limit is not enough to feed miners in the future.

This thought process is also intended to refer to a future where the cost burden of the network is not all on the shoulders of those who carry out transactions. Those who lock Bitcoins should still be able to contribute to the security of the network through an inflationary cryptocurrency, which would no longer be the case once it reaches 21 million

A Bitcoin veteran advocates for inflation

Peter Todd is a Bitcoin veteran and has been interested in digital money ever since he discovered Adam Back’s Hashcash as a teenager. 

A former developer of Bitcoin Core, Bitcoin’s most widely used client, Peter has emerged as one of the most authoritative voices in the industry and on this occasion he has endorsed that inflation should take place.

The maximum limit of 21 million BTC in circulation must not become an immutable dogma. This is the reasoning behind Peter Todd’s suggestion that an extra inflation of 0.5%, in addition to the one controlled by the halving process, would be acceptable to those with a minimum of expertise.

As can be observed on a daily basis, issues related to code changes become challenging. The religious atmosphere found in Bitcoin’s environments tends to generate a rigidity that is often unfounded.

It’s certain that at an ideological level there are those who, through the increase in block size and in the number of transactions on-chain, believe they can keep inflation controlled without making changes to the design of Satoshi Nakamoto, the mysterious creator of Bitcoin whose whitepaper is only invoked when necessary.

Comments from the Ethereum world

For this reason the Ethereum community – so criticized for supporting a Bitcoin-inspired code by modifying some axioms – did not miss the opportunity to express its point of view

Martin Koppelman of Gnosis observes how funny the situation is, ETH is criticized by bitcoiners for being openly in favour of mobile inflation, while the BTC community doesn’t realize that sooner or later its own developers will have to modify Bitcoin.

An interesting response that opens the debate comes also from Vlad Zamfir, one of the most brilliant minds behind the Ethereum developments. 

According to Vlad, it must not be a libertarian policy or a particular belief that determines the rules of protocol, not even those of inflation. 

This should be done through the governance of the blockchain via the dynamics with which systemic upgrades are made. That is why the Proof of Work and Proof of Stake models are so fundamental in their effects on the governance of the public code.

 

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Lorenzo Dalvit

Chief Operations Officer at Deepit AG

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