Peter Todd Advocates for Bitcoin to Raise Its Limit of 21 Million Coins, Argues for Perpetual Inflation
A prominent Bitcoin core developer called Peter Todd has recently proposed something utterly scandalous for the Bitcoin community: he wants to remove the cap of 21 million tokens. Now, pick your jaw off the floor and at least read his proposal before getting torches and pitchforks.
According to the developer's twitter, Bitcoin should have a monetary inflation tax in order to pay for the security of the network. However, he acknowledged that Bitcoin will most likely die before it can simply change this rule.
In my @WhatBitcoinDid interview I mentioned how Bitcoin should have had a 0.1% or 1% monetary inflation tax to pay for security.
Something I didn't mention – and should have – is I think the 21 million BTC limit is so fundamental it's more likely Bitcoin will die than change it.
— Peter Todd (@peterktodd) March 22, 2019
Why is he saying this? Because next year Bitcoin will halve its rewards and then this will keep happening until the maximum number of tokens is reached. After that, miners will stop getting block rewards, they will only receive the fees for payments in order to secure the network.
Todd, which is an important developer that was fundamental in maintaining the block size of the network in 1MB when Bitcoin Cash was being proposed, has implied that miners and developers could unite in the common goal of destroying the cap and making Bitcoin’s inflation perpetual.
Obviously, the community got very angry with him because the cap is seen as one of the most important pillars with basically upholds the BTC technology and value. It is supposed to be “digital gold” exactly because there is no inflation… or is there?
Peter Todd gave quite an interesting explanation for a Twitter user who disagreed with him. The user said that people would just fork away from BTC if it ever had inflation taxes, however, Todd explained that Bitcoin already has them and they are 4% a year.
Bitcoin currently has a 4% inflation tax.
Why haven't people forked away from that already?
— Peter Todd (@peterktodd) March 22, 2019
This “tax” is basically what is paid to the miners. They do not work for free, obviously, but not a lot of people in the community see these block rewards as “taxes” when they clearly are.
The most controversial aspect here is that there are simply too many variables in this equation. The community, especially the users and investors of Bitcoin, are against taxes and inflation. Miners, however, want their money’s worth and now mining as is not very profitable. There is a halving coming up in 2020, so inflation may go down, but some miners may abandon the network, too.
What A Fork Would Be Like
Let’s say miners decided that they did not want the halving to happen. That would be actually quite hard to pull off, in reality. They would have to fork or to create their own network and the public opinion is that only miners would benefit from perpetual inflation. This way, they would probably fail if they tried it alone.
However, if some prominent devs would be backing these miners, the situation could change very quickly and there is the chance that they may have some support. However, it would be foolish not to believe that there would be not a strong opposition to such a drastic change in how the ecosystem works.
In any case, we are years from seeing this happening. Todd affirmed that it would take from ten to twenty years for either side to be proved right since miners will still get their rewards for a long time.
“Taxes” Versus Fees
We go back to the original point: miners will not approve transactions for free. There is no free lunch, folks. If no taxes are implemented, the main problem is that miners will have to increase the fees and nobody knows how much a transaction would cost in a situation like this one.
Some people argue that fees could be really high, reaching insane values of over $1,000 USD, but this is only speculation so far. The fact is that miners are essential to the network and what may have seemed like lunacy at first is actually a very important question: how to balance paying miners and keeping Bitcoin stable and being “digital gold”?
The whole concept of digital gold is closely linked to how the supply is limited because there will no inflation at all (despite the fact that we kind of have it while the limit of 21 million tokens was not yet reached). Should we simply pay huge fees to keep Bitcoin being the so-called digital gold.
It looks like a choice between making Bitcoin a proper currency or an asset that you should store to increase its value is needed here. We can either have one aspect or the other, it seems.
Alternatives For Large Fees
Some people have suggested the use of the Lightning Network in order to bundle small transactions into a single 1MB block with a huge fee, but the LN is far from perfect, so the problem remains. If the LN gets better in the future, then yes, it may be a good solution.
Bitcoin has to improve in order to survive, but it changes too much, it will simply stop being Bitcoin. We have seen this with Bitcoin Cash (BCH). This is far from an easy discussion to have since there are so many interests and factors here.
At the moment, we can only speculate about the future, but it may come the day in which we need to decide whether we want Bitcoin to be one thing or the other.