Dan Held and Paul Sztorc: Debating Bitcoin’s Security

Host Tom Shaughnessy talks to Dan Held, Director of Business Development for Kraken Digital, and Paul Sztorc, an independent Bitcoiner. They debate the Bitcoin security model, with Paul feeling skeptical that fee rates will climb and Dan believing that fees are already growing and could subsidize Bitcoin security solutions.

Dan’s post (Bitcoin’s Security is fine) and Paul’s original post (Security Budget in the Long Run) for context on the episode.

Episode Highlights:

• Paul wrote a blog post last year proposing that we should use merged mining to keep security costs low.
• Ultimately, Paul is skeptical that fee rates could climb to over $50 per transaction as Dan believes.
• Paul notes that the fee rate to the miners is different from the total fees on a transaction.
• Dan explains that when you transact across a blockspace, you have to consider the transaction fee and the volatility fee, and a space with a lower transaction fee may have a substantially higher volatility fee that ultimately nullifies your savings.
• Dan believes a linear model doesn’t represent the growth in fees, you have to look at a logarithmic model.
• Paul believes people generally won’t care about rising fees unless they rise above a certain threshold.
• Dan uses other asset classes like wire payments and their associated fees to look at equivalents in blockspace.
• There’s a distinction to be made between the cost of a Bitcoin as a commodity and the cost of the blockspace to transact Bitcoin.
• The forces of supply and demand work differently on Bitcoin itself versus blockspace.
• Paul agrees with Dan that there are a lot of positive feedback loops within Bitcoin cost trends.
• Dan and Paul agree that the network effect of an asset is crucial.
• They agree that Bitcoin provides a consistent monetary policy that has created its staying power through market volatility that we haven’t seen since 1929.

Key Points:

1. There’s a significant debate about looking at transaction fees alone versus the full cryptocurrency exchange fee structure.
2. It’s important to look at volatility as a potential cost when transacting cryptocurrency.
3. The network effect of an asset is one of its most important components.

Tweetable Quotes

• “It’s not the case that new supply automatically lowers the price because it’s negligible when it’s less than $1-2, is my claim… People prefer having $1 or $2 to not having it, I don’t think they significantly care… I agree with you that there are many frictions.” –Paul Sztorc

• “If the security budget collapsed that means the value of Bitcoin either collapsed or no one’s transacting. It’s circular logic to say no one cares about Bitcoin, which means the security budget is meaningless bc Bitcoin doesn’t need to be secure bc no one values it.” –Dan Held

Resources Mentioned:

• Chain Reaction Twitter: https://twitter.com/chainpodcast
• Tom Shaugh