this issue is - are we willing to have the system ran by governments, because this is where its all going, Russia will be the first "government miner" but will not be the last... it won't take much longer, 10-20 years and minning bitcoin TX is now mostly done by the top 10 governments and governments dont care about profitability they care about Power and Control.
@Peter R
Nicola Dimitri, he's the guy that presented the economics talk at TFOB conference in Arnhem? If so he's someone who talks a lot of sense. As with Adam I find the game theory maths a little funky and hard to follow. The main problem I have with it is there's so many built in assumptions necessary to make it work, it becomes hard to take too seriously. Nevertheless it agrees with what i've been instinctively thinking so it would be great if this passed peer review from some other mathematician/economists.
I've thought about this before, by reducing it down to the simplest form of two mega miners. lets say USAPool and ChinaPool. The built in assumption, (and especially at global scale) is that miners interests will be governed by profit and economics. Common sense suggests this holds true as I really can't see one or the other lasting as a monopoly where they have to burn real resources to stay in the lead. A parallel here would be the Cold War nuclear arms race, where it was pretty much the same dynamics. Let's see who can make the most nuclear bombs and win the race. Obviously Russia was winning for a while (They made far more nuclear bombs that the US) - just before they went bankrupt. That's how I see a Bitcoin mining arms race playing out. It may be possible to create a monopoly but it's not stable.
In the two miner scenario the sweet spot is 50% hash rate each, my gut tells me that if one of the two gains 51%, that extra 1% is effectively redundant as they are then competing with themselves for efficiency. To examine this a little, imagine we have a perfect monopoly of a single miner with 100% hash rate. Without competition, what would economics predict they do? To me it seems obvious that lowering the hash rate and thus burning less resources would be the outcome. Why burn electricity and chips maintaining a certain level of hash rate when they can just turn miners off and lower the difficulty. This dynamic would persist until the difficulty was lowered sufficiently as to bring in competition. Or as Satoshi said.
"If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth."
Notice now (2010) that both sides have approximately 50% of the nuclear arms (hashrate)
Dr Damitris conclusion states "Finally, the mining activity seems to be intrinsically monopoly-proof, in the sense that if only two miners were to be active, their profits would always be positive regardless of the marginal cost of the opponent. For this reason, none of the two could exclude the other by cutting down his own costs, unless activities other than Bitcoin mining would have a higher rate of return."
I'd go further than this, and suggest that in the perfect duopoly the economic incentives remain the same and it would probably lead to a similar situation where they reached an hash rate arms pact and come to a peaceful agreement to de-escalate the difficulty in order to mutually cut expenditure. This in turn would encourage others to get involved.
In other words, I'm not worried about
@adamstgbit doom scenario, as with many governments involved, they would all be forced to play by the rules.
