One of the biggest issues with Monero is the blockchain bloat. Full, node space requirements are growing very fast and are not extremely scalable, as they are tied to Monero's transaction volume. This limits how decentralized it can be according to how popular it becomes. Even though there is a penalty for mining extraordinarily large blocks, the penalty is based on an average which can grow substantially due to user demand, user demand which is not checked by supply constraints in the long run, though it is in the short run. This means that the greater the number of transactions it gets as it becomes more popular, the more centralized noderunning will have to be, unless its popularity grows significantly slower than hard drive space.
One of the best things going for it, in light of this, is that it doesn't have mass appeal. This is enforced by the tail emissions, which although clever as a way to replace lost coins, dilutes people's holdings compared to Bitcoin's emission schedule of having a hard cap. Bitcoin is therefore so scarce that its NGU is stronger than any other currency in the world, and this is constantly drawing more people to it as a way to not only store wealth, but grow wealth over time compared to Monero. Bitcoin is also the most established player and it is scaling with layers and very slow iterative changes within a voluntary consensus.
For Monero to work for as many people as bitcoin can now, let alone the whole world, it would need to make further changes have some way of enforcing not only a mean reversion of block size as it has now, but also tailoring this mean to reflect the growth in hardware capacity of a typical person to keep the network decentralized on the full node level. If it got really really popular, it would then also likely need layered scaling solutions like Bitcoin has, like Fedimint, Liquid, and Lightning. Even then, it will not be a global settlement layer, as that needs to be protected by ASICs, not general purpose CPUs. And given the choice between a sound issuance schedule like Monero's and an extremely sound issuance schedule like Bitcoin's, people, especially the big players, are going to converge on Bitcoin as the store of most of their wealth. Monero, if it implemented some of these changes, could continue to be a compelling private electronic cash system as it arguably is now. Until then, its future is uncertain, and lightning with BOLT12, Liquid, and P2P exchanges facilitate a similar experience on Bitcoin that holds its value better and scales to many many millions without losing its decentralization.
Replies (3)
If I have missed something, especially regarding dynamic block size and the economics of it, please let me know. I'm curious to analyze it further and I may not have gotten it exactly right.
This year will bring FCMP upgrade for Monero that will bring layer two solutions with it. In regards to centralizing nodes, I'm not sure you're factoring in that technology advances over time and rate of adoption. Certainly not guaranteed to centralize. Though I think it's fair to say, all things equal, that Monero centralizes faster than Bitcoin in resource requirements for nodes.
Tail emission + dynamic blocksize also keeps transaction fees low so Monero can actually function as p2p electronic cash. With more adoption Bitcoin fees will continue growing (the opposite is true for Monero) and becomes a terrible currency. The more it's actually used the more you hemorrhage in fees. Even lightning breaks with modest congestion on-chain just like we saw earlier this year.
Liquid isn't really comparable to Monero. It's mempool is a ghost town, you have to trust a federation, and it doesn't hide sender/receiver. Ecash isn't even in the same category as it's custodial (doesn't remove trusted third parties) and not a cryptocurrency. Lightning in thoery seems like the only real choice, but users are almost all relying on custodians and LSPs (third parties) because of the complexity of being sovereign on it. Look no further than Nostr.
Some very good points there. Layer 2 solutions on Monero should be interesting. However, for much of it you're also still comparing how things are now, and not paying too much mind to how they will develop. Lightning is very likely to become cheaper since the Bitcoin protocol consensus is most likely going to incorporate the CTV operation, which enables lightning to scale better. Existing implementations of Lightning are still in beta and will get better with development, and become more easy to spin up and to automate. Running a self sovereign lightning node even in this stage of development is quite easy for power users to do, and LSPs are plentiful and any one person can become one, so it's not a monopoly by any stretch of the imagination.
I'm uncertain how Monero scaling will work along with hardware and bandwidth constraints: these still have to be limited, I think, either to a specific maximum or average rate, or to some other kind of constraint specified and enforced by the noderunners. Bitcoin has this in simple form as a fixed number of weight units.
You may think bitcoin is bleeding value through transaction fees vs the alternative of bleeding very little value from low transaction fees, but this ignores the fact that holders of monero are paying _all the time_ for security of the network, via mild dilution of their holdings. It's a tradeoff. It's just a question of how do you want to pay for mining: mostly just transaction fees vs constantly while holding. You're paying for those tail emissions whether you think you are or not, unless you only use Monero as short term cash. I'm not implying that that's the only thing it's good for, but I am saying that that's the only way to avoid paying a nontrivial amount for security on it.
Arguably a non-transparent cash NEEDS tail emissions in the long run, in order to diminish the value of long term holdings that no one can audit, in case of someone who held on forever in the shadows gaining too much influence and destabilizing the price. Bitcoin makes more of that info of who holds what and who probably lost their coins public, which allows us to point to why sudden price volatility might be happening when old whales start exerting influence.