Kristov Atlas is a network security and privacy researcher who studies cryptocurrencies. He is currently a security engineer for bitcoin wallet provider Blockchain and co-founder of the Open Bitcoin Privacy Project.
In this opinion piece, Atlas discusses bitcoin’s ongoing block size debate, arguing that the economic analysis of potential changes to the system has been largely ignored by network developers. As many writers have proffered their short-term suggestions for addressing bitcoin’s transaction throughput, I’d like to take a step back and explore how we think about, discuss, and plan the future of bitcoin.
To date, much of the discussion around Bitcoin’s scalability has suffered from two major problems:
> We lack a systematic process to set and achieve goals with respect to security, censorship resistance and the overloaded term "decentralization".
We have a poor understanding of the relationship between engineering decisions and their economic consequences ("cryptoeconomics"). By "we," I mean myself foremost, but I can fairly include many stakeholders in the ecosystem including some protocol developers, wallet providers, miners, exchange operators, writers, and enthusiasts.
Because we lack these tools, we are ill-equipped to make protocol decisions and to plan bitcoin’s software future.
In this post, I’d like to focus on the second deficit in the list: economics. What is crypto-economics?
I define crypto-economics as the study of the production, distribution and consumption of goods and services in cryptographic consensus networks. In particular, it is the study of the economic implications of cryptographic design choices in such networks (like bitcoin).For example, suppose you created a cryptocurrency that did not have a predetermined supply algorithm for the currency units, but was instead determined on a month-to-month basis by majority vote among a few human keyholders.How would this system compare to bitcoin?Another example. A wallet client sending a bitcoin transaction must communicate the […]
