This is an opinion editorial by Dillon Healy, a member of the institutional partnerships team at Bitcoin Magazine and The Bitcoin Conference.
A theme that has received more attention lately it is the concern about the future “security budget” of Bitcoin.
This is mainly due to concerns that miner income will not be sufficient to provide adequate security in the future, after block grant. Bitcoin miners play a crucial role in network security by proposing blocks of transactions that are then verified, accepted, and updated by nodes in the Bitcoin ledger. Competing against other miners to propose this new block to the chain, miners use intense computing power to complete the proof-of-work consensus algorithm and earn the right to propose the new block.
For this service, the winning miner receives a block reward, which consists of two components: the block subsidy and transaction fees. The subsidy per block is the number of new bitcoins minted in each block (currently 6.25 bitcoins), this subsidy of new bitcoin released from the total supply of 21 million is halving roughly every four years with the halving. The block subsidy currently accounts for the vast majority of total miner revenue.
Simplified, the concern is that the transaction fee portion of the miners’ rewards will not increase enough to compensate for the loss of the block subsidy, resulting in less security for the Bitcoin network and a higher probability of attacks, since miners no longer receive incentives. to participate. However, my opinion is that most of those who are concerned about this are misunderstanding Bitcoin’s long-term game theory, incentive mechanisms, scalability, and adoption potential.
That being said, this is a topic that should probably be discussed more publicly and not brushed off as a non-issue. exist people who advocate for tail emissions to be addedcreating an increase in the supply of 21 million Bitcoin as a solution to the problem of the security budget (finality of the liquidation), which is concerning.
I believe the solution (if you can call it that) is already built into the incentive structure and adoption curve of Bitcoin. There are two parts: one, transaction fees escalate with Bitcoin adoption and as a security measure and two, the transition of Bitcoin mining to an auxiliary tool.
Transaction fee escalation
When this issue is raised, it usually comes from someone who doesn’t understand how or why transaction fees will increase or advocates for proof of stake (here is an example). Ironically, one of the reasons for the increase in transaction fees could be a natural defensive reaction to an attack by a bad actor that mines empty blocks to prevent users from transacting. If empty blocks are mined, the mempool will fill up with fee-increasing Bitcoin transactions, competing with each other to get the next block. Riot Blockchain and Blockware Solutions launched a incredible report describing how this and similar attacks would be dealt with by natural defense mechanisms of Bitcoin’s immune system, most resulting in much higher transaction fees:
“Under an empty block attack or other attacks that attempt to prevent users from transacting, it is in the self-interest of Bitcoin users to increase their transaction fees to enter the next block. The more empty blocks (the longer the attack lasts), the more pending transactions in the mempool. Transaction fees could increase from 1 sat/vbyte to over 1000 sats/vbyte. The reward for a block could range from close to 0 BTC to more than 10 BTC, assuming the current maximum block size is 1,000,000 vbytes. The system is anti-fragile, and an empty block attack would be met with an endless market-based counter-attack of high transaction fees. And knowledge of this counterattack would likely deter the attacker from this attack in the first place.”
Another example of fee increases as a result of network defense would be a reaction to miners trying to censor merchants. This example is covered in more depth in This article:
“If a majority miner does not accept transactions from merchants, then the censored merchants must increase their fees or not transact at all. If a trader is unable to move their bitcoins, then they are worthless during the time they are being censored. We can deduce that, due to personal time preference, a merchant who is being censored will be willing to pay a higher confirmation fee proportional to the duration in which they are being censored, up to the theoretical maximum in which the fee is the entire transaction.”
In addition to the naturally occurring defensive incentives that would result in increased transaction fees, there are also myriad arguments in favor of increasing transaction fees as a result of Bitcoin adoption, specifically as a medium of exchange.
As adoption increases, competition to add transactions to Bitcoin’s scarce block space will increase, and this increases current fees, creating greater demand for scaling solutions. The market will continue to introduce these scaling solutions as required; some popular solutions now include batch transaction exchanges, the Lightning Network, and other Layer 2 and Layer 3 developments that can ultimately bundle thousands of Bitcoin transfers into one transaction that settles on-chain.
When you understand the Bitcoin adoption curve, it’s entirely reasonable to assume that most normal user transactions will happen on additional layers or sidechains. The final settlement of these more efficiently bundled transfers will be done on-chain, along with transactions that require higher security or institutions that move large values. The final agreement would guarantee a much higher transaction fee.
The second path that should lessen concerns about miners going offline and reducing overall network security is increased efficiency and a more recent realization that Bitcoin miners can act as an auxiliary tool for other business practices. A much-overlooked development in the mainstream of late has been the incentive for Bitcoin miners to search for stranded, wasted, or excess power.
Bitcoin mining offers a unique and new proposition to society, where untapped or untransportable energy can now be instantly sold to the on-site Bitcoin network through mining. One of the most interesting innovations in this sector is ocean thermal energy conversion (OTEC) merging with Bitcoin.
There is an incredibly detailed article on how OTEC and Bitcoin can increase energy production and efficiency here:
“Bitcoin has the potential to help unlock between 2 to 8 terawatts clean, continuous, year-round baseload power for one billion people, harnessing thermal energy from the oceans. that turns the Earth’s oceans into a huge renewable solar battery.
“It does this by combining warm tropical surface water and deep cold seawater to create a conventional heat engine. This simple idea is perfectly suited for expansion on a planetary scale because of Bitcoin’s unique appetite to buy and consume stranded power from the prototypes and pilot plants that will be required to prove it works. Furthermore, by harnessing virtually unlimited amounts of cold water to cool co-located ASIC miners, OTEC may very well be the most efficient and green way to mine Bitcoin.”
This is just one example of how mining can become even more efficient over time, and with increased efficiency comes ongoing network security as it makes less sense for miners to go offline.
Image source: Makai Ocean Engineering
Bitcoin mining is also becoming an auxiliary tool for other industrial processes. Bitcoin miners can pair up with different industries and businesses and offer huge benefits to seemingly normal business practices. One mind-blowing example: The ASICs used to mine Bitcoin generate heat, this heat can be used to boil water and create steam, condensing the water again is a form of purification, and ultimately this can result in the distillation of the water that was subsidized by mining, as discussed in a recent interview with trojan cross.
These ASICs that generate heat also need to be cooled with fans. Another amazing concept is to combine mining with businesses or industries that naturally create fresh air. One example Cross discussed was carbon capture facilities, which integrate huge banks of fans as part of their normal business operations. Combining these fan banks with a mining operation subsidizes the cost of ASIC cooling.
As these innovations develop further, simply adding Bitcoin mining to countless unrelated industries and businesses that generate cooling or need heating will improve efficiency and reduce costs. Bitcoin mining is already greenhouse heating Y distilling whiskeywhile at the same time monetizing stranded or wasted energy.
Over time, Bitcoin mining will continue to be paired with industries that make mining or normal business operations more profitable. Eventually it will be ridiculous not to use your company’s naturally generated heat or energy wasted in Bitcoin miners, or if your company has huge fan banks it will be ridiculous not to point them out to ASICs. All of this results in miners with more positive incentives over time, which maintains network security and has the potential to offset the dwindling block subsidy.
The combination of Bitcoin adoption naturally leading to higher transaction fees over time and Bitcoin mining becoming an auxiliary tool for a wide range of independent industries demonstrates how long-term network security is something to be optimistic.
This is a guest post by Dillon Healy. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
