Threat Level Paradox
*As implied by the Zero Sum Property, presumably the only way to defeat external subsidy is to mine at a capital loss relative to market return on capital. Similarly it seems that only way to defeat tax, up to and including a 100% tax (prohibition), is to mine beyond the reach of the taxing authority, such as in secret. As with all black markets there is an increased cost to subversive mining. Competing against subsidized mining compounds the cost.
If one accepts the Axiom of Resistance one must assume that both tax and subsidy will be used to reduce the cost of controlling Bitcoin. Using the power to subsidize mining (via tax revenues), states can cause pooling in the region of the subsidy. Once majority hash power is focused the state can use its taxing (regulatory) power in the region to compel censorship.
Therefore in order to enjoy the benefits of a hard currency, it would seem that people will ultimately have to mine at a loss. However, censorship creates the opportunity for others to mine profitably to the extent that people are willing to offset this cost with fees. This black market is Bitcoin's censorship resistance. People pay a higher price for certain transactions, and in order to maintain that higher price the state must also suffer the expense, despite its ineffectiveness.
Paradoxically, this tool works well when money is under attack and poorly otherwise. If there was no internal pooling pressure these cases would be balanced. But risk distribution is essential to subversive mining, and pooling pressure works against distribution. So there is ever-expanding attack surface with no pressure to contract unless effective monetary alternatives are suppressed. The suppression of alternatives raises reward utility to the miner in the region of suppression. The paradox applies as well to centralization pressures.
The expected consequence is that Bitcoin will not be well prepared for attacks because it is financially disadvantageous for people in a low threat environment.*
GitHub
Threat Level Paradox
Bitcoin Cross-Platform C++ Development Toolkit. Contribute to libbitcoin/libbitcoin-system development by creating an account on GitHub.
