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There has been some concern about the fact that transaction fees (in their current form) are not an adequate replacement for the current 50BTC block reward. Gavin has said as much, as have others. The issues of incentive misalignment are described in other threads.

I'm curious: as the 50BTC->25BTC block reward reduction approaches, there is a strong incentive for the miners to modify their clients to simply ignore this rule, continue producing 50BTC-reward-blocks, and ignore any blocks which try to reduce the reward. It requires changing only a single line of code!

It is in the best interest of every miner to do this, and the miners decide what winds up in the block chain. Therefore, I suspect that it might actually happen. Is there reason to believe otherwise?

Obviously if more than half the miners agree, they can change any aspect of the bitcoin protocol. But this is a bit different: it's easier to get a bunch of people to agree to not make a scheduled change in the protocol than to make a new change. It's also easier to do this if omitting the scheduled change is in all the miners' best interest. So I think that eliminating the reward reduction is a lot more likely than any other protocol modification. "Oops, I forgot to reduce the reward I pay myself!" It's also less likely to produce panicked "OMG they changed the rules of the game" and a crash in the BTC exchange rate, since what's really happening here is less change, not more.

Additional note: although pooled mining makes it easier for this to happen, no "agreement between pools" or collusion is actually needed. Think of it this way: the block that is supposed to reduce the reward to 25BTC is very likely to be a forking point in the blockchain. Every miner will decide for him/herself which side of the fork to work on. The fact that there is more reward on the non-reduced side of the fork means that a rational miner will choose that side. The fact that more miners work on that fork means it will ultimately become the "real" blockchain.

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    They can create as big a fork as they want--it won't become the "real" blockchain unless it's valued higher in the markets. Greater numerical bitcoins doesn't mean much if they're worth pennies on the dollar. They'd need to convince users to switch en masse as well. – eMansipater Sep 27 '11 at 19:55
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    This question needs to be reworked. As it stands, it's just an invitation for discussion, which doesn't belong on Stack Exchange. Generally questions of the form "BIG PROBLEM amirite?" aren't very useful. – Chris Acheson Sep 27 '11 at 20:52
  • Agreed. Voting to close. If the question is improved we can simply re-open. – eMansipater Sep 28 '11 at 15:42
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It's not just about the miners, it is also about people using bitcoin. If miners decide to fork the chain and keep block bounty at 50btc, they cannot use those bitcoins in any place where people have not also modified their non-mining bitcoin client. Protocol changes are not just about >50% of miners, but about >50% of user clients.

In this case, since users do not have any incentive to modify their clients to treat the new fork as legitimate, rather than the original rules fork, any miner that decides to spend his resources mining the new "50 btc forever" fork is just going to be wasting time, since he will not be able to spend his coins anywhere; they'll be rejected as illegitimate by users, merchants, exchanges, etc.

  • I beleive not just their 50 btc will be rejected, but their entire fork of the blockchain those miners are using would be rejected...exposing those miners to potential losses of usable blocks they could have been mining at 25 btc. – osmosis Sep 28 '11 at 4:47
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    Good answer nanotube. There's still the problem of users jumping ship when the hashrate plunges -- if enough miners switched the difficulty on the unmodified side of the fork would take a long time to come down to a reasonable level, and the network would become unusable in the meantime (days to get even 1 confirmation and months until the first difficulty drop). This actually happened to NameCoin so it's not just a theoretical problem. – eldentyrell Sep 28 '11 at 18:30
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    A similar question was asked over here, and it seems a completely different answer was arrived at, bitcoin.stackexchange.com/questions/1207/… – osmosis Jan 15 '12 at 8:55
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I don't think it would happen. If the market didn't go along with the miners, the Bitcoins they mine would be worthless. Meanwhile, the difficulty on the original chain would drop, increasing its profitability.

This might be a more realistic fear when the reward starts to drop more catastrophically in the future. But it's hard to predict what would happen then because we really don't know what the usage of Bitcoin will be like then.

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    How is a 50% drop in the reward less catastrophic now than a 50% drop later? – Andrew Vit Sep 28 '11 at 9:24
  • Two reasons: First, the reward will eventually drop to zero. Second, the reward will become a lower and lower fraction compared to the total number of existing Bitcoins. – David Schwartz Sep 28 '11 at 15:32
  • @David, it's worth noting that even if the block reward were never reduced, the reward would still "be a lower fraction compared to the total number of existing bitcoins" with each block compared to the previous one. – eldentyrell Sep 28 '11 at 18:27
  • Of course. You could make an argument that even if the block reward was constant, there would be a gradually increasing incentive for miners to push to raise it. (Assuming the value of the currency wasn't increasing.) – David Schwartz Sep 28 '11 at 18:29
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Who's going to continue to value Bitcoin if the supply inflates forever? Any miner that does this is shooting himself in the foot. Feel free though.

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