Bitcoin issuance warning

Recently, the issue of additional Bitcoin issuance has been making headlines. The reason came from a roundtable meeting of Satoshi Nakamoto, where an outside developer named Matt proposed to stop the Bitcoin halving mechanism: the reason was that during the multiple halvings of Bitcoin, the reduction in miners’ handling fees would lead to a sharp drop in miners, which would cause the Bitcoin network to face severe 51 attack problems.

Many industry insiders said that the additional issuance of Bitcoin is pure nonsense, and Matt has nothing to do with the Core team. However, Jiang Zhuoer, the founder of Litecoin, not only supports the additional issuance, but also revealed in an interview with Odaily Planet Daily: "Behind Grin are several bigwigs from Core, such as Maxwell."

On February 18, Jiang Zhuoer once again expressed his position on Weibo regarding the Core team's issuance of additional coins behind the scenes: "How many people will be slapped in the face about the issuance of additional Bitcoin in the future? If you are extremely afraid of the issuance of additional Bitcoin Core, then you will eventually thank me for everything I have done."

Hong Shuning, former head of blockchain at Suning Financial Research Institute, criticized the issue in a tit-for-tat manner in the Weibo post: “Let’s not talk about additional issuance. Handling fees are an extremely complex game process. If you move one hair, the whole body will be affected. I hope there will be more academic research results to support it. Fortunately, there is still plenty of time. In time, we will definitely find a better solution than the additional issuance and reduction of Bitcoin.”

Regarding the issuance of additional Bitcoin, in addition to triggering fierce confrontations among the bigwigs, supporters of BTC, BCH, and BSV have set up a special WeChat group to debate endlessly about whether additional Bitcoin can be issued and the consequences of the issuance.

As a result of the debate, 143 community members voted against the proposal, and only 39 voted in favor of the additional issuance. Among them, Jiang Zhuoer cast a representative vote in favor.

Whoever supports the issuance of additional Bitcoin is a fool

What consequences will it have on the blockchain industry if the upper limit of Bitcoin issuance is changed?

The introduction of "Blockchain Revelation - Satoshi Nakamoto's Collected Works" points out that it is impossible to prevent the modification of the upper limit. However, the modification of the upper limit of Bitcoin issuance requires the cooperation of the majority of miners. At the same time, even if the majority of miners agree to modify the issuance upper limit, it will lead to a hard fork of Bitcoin.

The result is two virtual currencies, one is the "original Bitcoin" which has the function of preserving value, and its version is called the preferred one; the other is the "quantitative easing currency" whose value will decline.

As stated above, if Bitcoin increases its issuance limit, it will just be another fork of Bitcoin, and the original Bitcoin will still be "crypto gold".

The modification of the issuance cap of Bitcoin means that Bitcoin will be issued indefinitely according to a certain block reward. If this is not a conspiracy theory of interested parties and is not groundless, it is necessary to discuss the impact of modifying the issuance cap on the industry.

As a cryptocurrency, Bitcoin has possessed currency attributes and gold attributes since its birth. Therefore, we can explore the impact of Bitcoin issuance from these two aspects, so that everyone can have their own opinions.

Yuanli founder Gu Shi does not think that whether Bitcoin is over-issued or not will have too much negative impact on the blockchain industry, but it should be adjusted up and down according to demand.

"If Bitcoin is used as a measure of currency, it is essentially a deflationary system, which is stable. If 1 million Bitcoins are issued in one day, 10 million Bitcoins will be issued in 10 days, and so on: what is the inflation rate on the first day? What is the inflation rate on the second day? The inflation rate is decreasing every day, and eventually the newly issued currency will account for a smaller and smaller proportion of the total currency, which is the same as the increase in the issuance of US dollars."

Bitcoin is essentially a deflationary system, which was already determined by Satoshi Nakamoto.

Liu Changyong, the founder of Zhimi University, said in an interview with Odaily Planet Daily: "If Bitcoin stops halving in the future, it means that the total amount will exceed 21 million and continue to grow. This subverts people's common sense that Bitcoin is limited in total and is a deflationary currency. The impact is indeed huge. However, since the new part is still rewarded for mining, mining has costs and is close to perfect competition, if community consensus can be achieved, there will be no actual negative impact. If the growth rate of Bitcoin's application is higher than the issuance rate, it will still be deflationary."

At the Satoshi Nakamoto roundtable, an outside developer named Matt proposed stopping the Bitcoin halving. His reasoning was that in the future, when Bitcoin miners have no coins to mine, the sharp decline in miners will greatly reduce the cost of Bitcoin facing a 51 attack.

In this regard, Liu Changyong believes: "Stop halving is a trade-off for coin holders. On the one hand, the increase in issuance will lead to a decrease in the value of the coin held, and on the other hand, the increase in issuance will make the entire ecological security more secure."

Cypherpunks used cryptocurrency technology to solve the trust problem, but in the ten years since the birth of Bitcoin, it has not only been praised by a small group of cryptographers who contributed theories and technologies such as Byzantine fault tolerance and asymmetric encryption, but also the influx of capital from early speculators and capitalists, and the capital and technological support from Internet giants, which have gradually laid the consensus and foundation for Bitcoin.

Gu Shi gave the following views based on the speculative attributes and demand attributes of Bitcoin:

1. The high or low price of Bitcoin will only affect speculators. Miners are considered infrastructure builders and real long-term investors. For them, I think the impact is not significant. Ethereum mining has no upper limit. Will it affect the value of Ethereum?

2. Existing people are speculators and investors who only care about the price of the currency. Good currency does not need to be hoarded. The more people use it, the more valuable it is. As a medium of exchange, the more people use it, the higher its price will be. The fewer people use it, the less valuable it will be.

3. Even if Bitcoin dies, it will not shake the foundation of blockchain. The foundation of blockchain is not the price of the currency. Blockchain technology solves industry problems, which is the foundation of the entire industry, not the price of the currency. Currency itself is not worth investing in.

Jiang Zhuoer, founder of the Litecoin Mining Pool, explicitly expressed his support for modifying the Bitcoin cap, with the same reason as Matt: "The small income of miners means the small scale of the mining industry, and the 51 cost of attackers becomes smaller. In the future, when [Bitcoin market value]/[total scale of mining industry] reaches a certain level, someone will inevitably choose to short sell first, and then spend a little money to make a profit by 51 attack. Even mining capital may have this internal motivation: I can get 10 times or 100 times the profit of turning the mining machine into scrap metal by attacking once, so why not do it?"

But the miners don't seem to buy into Jiang Zhuoer and others' account. For the miners, mining is a long-term, high-cost investment, and many people do not understand their belief in the value of Bitcoin.

Odaily Planet Daily interviewed several old miners hiding in the mountains and asked about the impact of the increase in Bitcoin issuance on the mining industry. These miners refused to give an answer and made it clear that it was completely meaningless to discuss this matter. One of the miners, Zhao Xin, who had worked for 11 years, said dissatisfiedly: "Whoever supports (the increase in Bitcoin issuance) is an idiot."

As Gu Shi said, most of these miners are long-term holders of Bitcoin.

Eat Bitcoin's rice, smash Bitcoin's pot

Hong Shuning, former head of blockchain at Suning Financial Research Institute, firmly opposes the revision of the Bitcoin cap: "Increases in issuance will severely undermine public trust in Bitcoin. The 21 million Bitcoin cap is fixed and unchanged, which has been agreed upon by the vast majority of people."

“Once the issuance hard fork successfully splits into two chains, it will be a strong blow to users of both chains. The coin price will fall sharply, and may even return to zero one after another. The chain that has not issued additional funds will also be dragged down by the chain that has issued additional funds.”

In addition, the price of the currency is based on miners' expectations for the future. The mining industry is at the top of the entire cryptocurrency industry chain and is the bottom of the industry. The value of Bitcoin comes from its universal acceptance (commonly known as consensus), which is based on the confidence of users.

Hong Shuning said: "Once the miners lose confidence due to the increase in Bitcoin issuance, the price of Bitcoin will depreciate severely or even return to zero. This is very unprofitable for the miners who support the increase in Bitcoin issuance, unless most miners are deceived or lose their minds."

"The speed at which the currency price falls must be much faster than the speed at which it is increased. The history of legal tender can prove this, for example, in Zimbabwe, Venezuela and other countries, but there is no cost for printing legal tender. Miners are different. Miners are both issuers and holders of currency. Miners have sunk costs in mining machines and mining farms. A fall in the currency price will lead to the bankruptcy of miners."

“Once miners go bankrupt, the current large-scale mining activities will be broken up. At this time, more independent miners will enter the market, which will also affect the mining pool business.”

In addition, Hong Shuning also believes that the issuance of additional Bitcoin will have a double-sided effect on other public chains:

“On the one hand, after the public has developed extreme distrust of cryptocurrencies, there may be a substitution effect, with a public chain replacing Bitcoin as the new leader.”

“On the other hand, the entire public chain may collapse along with Bitcoin. The reason for the additional issuance of Bitcoin is the Lightning Network, but after the additional issuance, Bitcoin is finished, and what about the Lightning Network? BCH and other public chains cannot completely eliminate the possibility of additional issuance, so there is a high probability that they will perish together, rather than being immune.”

Can the increase in Bitcoin issuance really lead to the above consequences? Hong Shuning gave his logic:

“The public chain is first used to issue cryptocurrencies. A good currency needs to ensure scarcity, security, damage resistance and high liquidity. This is the basis. Then, various crypto assets can be issued on top of the currency standard and related DAPPs can be developed.”

“In a free market, good money drives out bad money. No one is willing to accept bad money, and bad money will soon be forced out of the market. It is more than a regression. As an industry benchmark, once Bitcoin is issued, it is likely to lead to the end of the industry and the ideal of decentralization will be shattered. Blockchain as a technology will have no meaning to exist. The issuance of additional coins is only a superficial phenomenon. The core issue is whether decentralization is feasible.”

“The essence of blockchain is decentralization. Nothing else makes sense. Decentralized technologies before the emergence of blockchain failed to succeed because there was no feasible incentive mechanism. Blockchain introduced cryptocurrency as an incentive, making the decentralization ideal feasible for the first time. If this currency fails due to additional issuance, then blockchain will be meaningless.”

Dr. Victor Fang, founder of AnChain, supported Hong Shuning’s view: “The public chain economy is actually supported by BTC. If BTC is issued more, it will no longer be a gold asset. If other public chains fail in the short term, it will definitely collapse.”

In this regard, Hong Shuning emphasized: "The worst result of the increase in Bitcoin issuance is that all currency prices quickly return to zero, and blockchain becomes a historical legend. Confidence is more important than gold. If this industry can survive, it will take a long time to slowly restore public confidence, perhaps decades."

Hong Shuning called for: "The discussion triggered by this incident will have a great impact on the future. It can make more people understand Bitcoin and realize that only by participating more in the governance of Bitcoin, rather than letting a few developers and mining pools decide, can their own interests be protected. In particular, miners, as the security guardians of Bitcoin, must deeply understand the technical principles of Bitcoin and not be fooled into supporting wrong proposals."

In Liao Xiang's words: The issuance of additional shares is to eat the food of Bitcoin and smash the pot of Bitcoin.

How feasible is it to issue additional Bitcoin?

As of 2018, over the past nine years, the total production of Bitcoin has exceeded 80%, with less than 4 million remaining. By 2028, it is estimated that only 650,000 Bitcoins can be mined.

This result will lead to a surge in the money and time costs of Bitcoin mining by 2028, a sharp decline in Bitcoin miners, and a smaller and smaller ratio of the mining scale to the Bitcoin market value. Bitcoin's network security will be unsustainable, and many people expect the so-called 51 attack to occur at this time.

Hong Shuning also admitted: "Bitcoin issuance is an omission in our early popular science education process. Although this possibility is extremely small, it is not completely impossible. For some currencies with low computing power or high concentration, the possibility of issuance is still relatively large, and more attention needs to be paid. Before the issuance, miners should actively speak out and see the future more clearly. Long-term interests are the real interests."

Although the scarcity of Bitcoin at this time will lead to a sharp increase in transaction fees, Jiang Zhuoer believes that the increase in fees is capped by legal currency: "For fees of several hundred or even thousands of dollars per transaction, users would rather spend more time and energy and choose other methods such as off-chain transactions and second-layer networks." Therefore, the number of miners will still drop sharply, and the security of the Bitcoin network cannot be guaranteed.

Zhu Yu, founder of Biyin, said: "It is impossible for Bitcoin to be issued in larger quantities. The domestic public opinion atmosphere is mixed. I feel sorry for the newcomers who came in after 2017. It is really not easy for everyone to find real information in this environment."

Zhu Yu's understanding of miners' fees is different from Jiang Zhuoer's. He believes that there is no legal currency cap on fees: "Even if the number of bitcoins mined is decreasing, the legal currency value of the mined bitcoins is increasing. Now a block is 12.5 BTC, with a peak value of less than two million. In the past, a block was 50 BTC, worth only tens of thousands of yuan, which could not support the miners."

Zhu Yu believes that large transactions are the purpose of Bitcoin, so it does not affect the income of miners: "He (Jiang Zhuoer) still adheres to the concept of daily payments as on-chain transactions. If it is used as a daily payment of a smaller amount, a handling fee of 500 or 1,000 yuan is certainly not worth the loss. But large companies and conglomerates do not think so when making payments. If a payment of 10 billion yuan is charged a handling fee of 1 million, what's the problem?"

The issuance of additional Bitcoin requires consensus among Core developers, miners, mining pools and other stakeholders, as consensus is the foundation of their belief in Bitcoin. From this perspective, Zhu Yu believes that the issuance of additional Bitcoin is simply impossible: "Think about it, it took so long to expand the capacity in the past, from 1 terabyte to 2 terabytes, and then to 8 terabytes. How long did it take? It was discussed in 2014, and there were heated debates in 2015 and 2016, but BCH was only forked in 2017. The decision-making of even the smallest things takes a long time, so how could such a big thing as the issuance of additional Bitcoin be passed so quickly?"

Liao Xiang told Odaily Planet Daily: "It's ridiculous that an idea proposed by an outsider is regarded as the final conclusion of the entire (Bitcoin) community. The Core development team has more than 100 core members and hundreds of peripheral members. Everyone has their own thoughts and ideas. There is a huge gap between proposing an idea and the execution level, so there is no need to discuss this idea."

The issuance of additional shares is a sequela of the Bitcoin expansion dispute

"Total supply is 21 million, halved every 4 years, and all mined in 2140." For most Bitcoin investors, Bitcoin's "political program" is sacred and inviolable. They are waiting for the next bull market to come and achieve exponential wealth again.

If Bitcoin soars to 100,000 or even 1 million again, investors will realize their aspiration of "common prosperity". Why do they want to increase the issuance of new shares when they don't want to get rich quickly?

The underlying reason may not be the 51 attack. In an interview with Odaily Planet Daily, Gu Shi repeatedly stated that the 51 attack only exists in theory, but there are economic means to sanction it. For miners, the 51 attack is fatal to Bitcoin, and the cost and benefits are not worth the loss. Therefore, the actual 51 attack does not exist.

According to Nakamoto's original idea, Bitcoin will open up the block size limit based on the growth of demand. Liu Changyong told Odaily Planet Daily that the original debate on Bitcoin expansion actually changed the direction of Bitcoin's development and the economic model of Bitcoin has changed.

Gu Shi said: "Bitcoin has become what it is today because of these short-sighted people. Bitcoin blocks are so small, so of course the rewards will get smaller and smaller. It used to be 1 megabyte, and now it has been changed to 300K. How can miners get the transfer fees? The network is blocked, and your Lightning Network is a centralized network that can be banned at any time."

“For a good blockchain network, its system token is used as Gas to pay for the entire chain, and the stablecoins and tokens issued on it are its value. Over-issuance is just a reform of supply-side measurement, and it does not solve the more fundamental demand problem. Who will use your blockchain? The supply models of good blockchains are all very good, but the problem is that the user experience is too poor.”

Stopping the expansion and limiting the block size means that miners face the problem of insufficient rewards. Liu Changyong believes that it is for this reason that the seemingly impossible "Bitcoin issuance" event has become the focus of controversy.

Liu Changyong told Odaily Planet Daily: "With the Bitcoin main chain limited to 1M, if the Lightning Network succeeds, the entire ecological value will be great, and more computing power will be needed to ensure system security. However, the halving will lead to a decrease in miners' new block rewards, while the main chain transaction volume is difficult to increase and the transaction fee remains unchanged, so the growth of computing power will lag behind the growth of the entire ecological value, and the security risk will become greater and greater."

Therefore, stopping Bitcoin halving is an effective measure to solve the Bitcoin network security based on the future Lightning Network. But this also gives the BCH community a footnote to the rationality of the issue of additional issuance, that is, expansion is the way to go, so why limit the block to the Lightning Network?

Qiu Shaoxian, a staunch supporter of BSV, commented:

“Whether it is Matt’s proposal to modify the upper limit or Lurk’s proposal to reduce it to 300K, in essence, this is BTC trying to solve the problem of insufficient supply incentives for Bitcoin in the future through a planned economy.”

“I personally think that the block size should be determined by the market rather than an artificial cap. This is actually the difference between the expansion faction and the Core faction.”

“If the system is maintained by relying on the skyrocketing price of Bitcoin and letting future generations take over, in my opinion, this is actually no different from a Ponzi scheme.”

The additional issuance of Bitcoin serves the future Lightning Network to solve the problem of insufficient block rewards. The BCH community and the BSV community are on the same front at this time: limiting the block size to develop the Lightning Network is not as good as expanding the block size to solve practical problems.