Jackk on Nostr: Not exactly in the literal sense. The monetary supply remains fixed at 21 million ...

Not exactly in the literal sense. The monetary supply remains fixed at 21 million BTC. My argument is that the relationship between the monetary substrate and the informational substrate changes.

Bitcoin derives its value by conserving work through time. That conservation requires both a finite monetary substrate (sats) and a finite memory substrate (blockspace). Without conserved bits, there is no conserved place for value to be permanently expressed. The fee market exists to discover the exchange rate between those two finite domains.

If demand for blockspace increases, the protocol is supposed to allow sats to compete for that finite memory. Higher fees are not a bug, they are the market revealing the demand of irreversible memory and the value of the satoshi with respect to 1 current block of time at difficulty D. When we instead manipulate the size of that finite memory surface to suppress fees, we don’t eliminate the cost of demand, we redistribute it throughout the system to the nodes (a tax on the network).

Rather than users paying more sats to access a finite space, every node pays more bits by storing and propagating a larger permanent history. At the same time, miners receive fewer sats for securing and committing equivalent irreversible work. The work is equivalent, but the memory is not. This pushes difficulty artificially downward as less fees changes the relationship between the satoshsi from the block reward and the real cost of performing said work. The finite memory surface has a real thermodynamic cost. Every permanently committed bit must still be secured through proof-of-work, discovered within a finite nonce space scaled by network difficulty, transmitted, validated, and preserved indefinitely. Expanding blockspace without a corresponding increase in competition changes who bears that cost and distorts the entire economics.

Within this framework, increasing blockspace changes the exchange rate between sats and bits. The monetary supply has not inflated, but the memory substrate competing for that supply has inflated. A satoshi therefore purchases more permanent memory than it did under the original geometry of the protocol. The economics governing the relationship between finite money, finite memory, and finite work have changed.

You can’t make sense of this relationship thinking thru the fiat price. Fiat valuation fluctuates continuously and reflects external markets and the PoW cost converted back to fiat. If we push difficulty down, we are pushing the fiat price down vs joules while still maining equivalent competition for the 21M substrate. Miners pay too here. I’m trying to understand the protocol’s internal measure of value. Within Bitcoin itself, the value of a satoshi is inseparable from the amount of finite permanent memory it can command through the fee market. That relationship is where the protocol measures the relative scarcity of sats:memory:work.

If we change the size of the memory surface or arbitrarily change how different classes of permanently committed data are priced (SegWit discounting), then we are no longer allowing the free market to discover the exchange rate between finite sats and finite bits. We are changing the measurement itself.

Bitcoin’s value emerges from the conserved relationship between proof-of-work, finite blockspace, and finite money. Distort any one of those variables, and the entire economic relationship shifts. The protocol still has 21 million bitcoin, but it is no longer measuring the same relationship between work, information, and time that Satoshi originally defined. This is a defacto violation of property rights thru policy and a tax that should be repealed by the nodes.