This is an editorial opinion by Dillon Healy, a member of the institutional partnership team at Bitcoin Magazine and Bitcoin Conference.
A topic that has received increased attention Lately there has been concern about Bitcoin’s future “security budget”.
This is mainly due to concerns that the miner’s revenue will not be enough to provide adequate security in the future, post block subsidy. Bitcoin miners play an important role in securing the network by proposing blocks of transactions that nodes then verify, accept and update to the Bitcoin ledger. Competing with other miners to propose these new blocks to the chain, miners use their powerful computing power to complete the proof-of-work consensus algorithm, and earn the right to propose new blocks.
For this service, winning miners receive a block reward, which is made up of two components: a block subsidy and a transaction fee. The block subsidy is the number of new bitcoins printed in each block (currently 6.25 bitcoins), the subsidy of new bitcoins released from the total supply of 21 million is cut in half every four years by half. Block subsidies currently make up the majority of miners’ total revenue.
Simply put, the concern is that the transaction fee portion of the miner’s reward will not be raised enough to compensate for the loss of the block subsidy, which leads to a decrease in security for the Bitcoin network and an increase in the possibility of attacks because the miners are no longer incentivized. to participate. However, in my opinion, most of those who worry about this misunderstand Bitcoin’s long-term game theory, incentive mechanism, scalability and adoption potential.
With that said, this is a topic that should be discussed more generally and not treated as an issue. Someone is advocating that the emission of tails be increased, creating an increase in the supply of 21 million Bitcoins as a solution to the security budget problem (finality of settlement), which concerns.
I believe the solution (if you can call it that) is baked into Bitcoin’s incentive structure and adoption curve. There are two parts: one, transaction fees scaling with Bitcoin adoption and as a security measure and two, Bitcoin mining transition to auxiliary tools.
Transaction Fee Scaling
When this issue is raised, it usually comes from someone with a misunderstanding of how or whether transaction costs will increase or advocacy for proof of shares (this is an example). Ironically, one of the reasons for increasing transaction costs may be a natural defensive reaction to attacks from bad actors who mine empty blocks to prevent users from transacting. If an empty block is mined, the mempool will be filled with Bitcoin transactors raising their fees, competing with each other to enter the next block. Riot Blockchain and Blockware Solutions released a remarkable report that explains how this and similar attacks will be carried out by the natural defense mechanisms of Bitcoin’s immune system, most of which result in higher transaction fees:
“In an empty block attack or other attacks that try to stop users from transacting, it is in the private interest of Bitcoin users to raise the transaction fee to enter the next block. The more empty the block (the longer the attack), the more transactions are pending in the mempool. The transaction fee can increase from 1 sat/vbyte to 1,000+ sats/vbyte. The reward for a single block can go from close to 0 BTC to 10+ BTC assuming the current maximum block size is 1,000,000 vbytes. The system is antifragile, and an empty block attack will be followed by a market-based counterattack there is no limit to the high transaction costs.And the knowledge of this counterattack may prevent the attacker from this attack.
Another example of a fee increase as a result of the network defending itself will be the reaction to miners trying to censor traders. This example is discussed in more depth in this article:
“If the majority of miners do not receive transactions from merchants, the censored merchants must increase their fees or not make transactions. If merchants cannot transfer bitcoins, then there is no value during the censored period. We can conclude that, due to personal time preferences, censored merchants will be willing to pay a higher confirmation fee in proportion to the censored duration, up to a theoretical maximum at the cost of all transactions.”
In addition to the natural defensive incentives that would lead to increased transaction fees, there are also countless arguments for increased transaction fees due to the adoption of Bitcoin, specifically as a medium of exchange.
As adoption increases, the competition to add transactions to the scarce Bitcoin blockchain space will increase, and this increases the current fee, which then creates a greater demand for scalable solutions. The market will continue to provide solutions of this scale as expected – some popular solutions today include transaction batching exchanges, Lightning Network and other Layer 2 and Layer 3 developments that can eventually combine thousands of Bitcoin transfers into one transaction located on the chain.
When understanding the adoption curve of Bitcoin, it is completely reasonable to assume that the majority of normal user transactions will occur in additional layers or sidechains. The final settlement of the more efficient transfer-bundle will happen on-chain, along with transactions that want to increase security or large moving institutions of value. Final settlement will warrant a higher transaction fee.
Image source
The second route that should reduce concerns around miners going offline and reducing the overall security of the network is increased efficiency and a more recent awareness that Bitcoin miners can be a tool for other business practices. A neglected development in the mainstream lately has been an incentive for Bitcoin miners to pursue stranded, wasted or excess energy.
Bitcoin mining offers a unique and new proposal to society, where energy that is not used or cannot be transported now can be directly sold to the Bitcoin network on site through mining. One of the most interesting innovations in this sector is the conversion of ocean thermal energy (OTEC) that joins Bitcoin.
There is an excellent article on how OTEC and Bitcoin can improve production and energy efficiency here:
“Bitcoin has the potential to help unlock between 2 and 8 terawatts of clean, continuous baseload power per year – for one billion people – by harnessing thermal energy from the oceans. which turns the Earth’s oceans into massive renewable solar batteries.”
“It does this by combining warm tropical surface water and cold ocean water to create a conventional heat engine. This simple idea is well suited to be expanded to a planetary scale with Bitcoin’s unique appetite for buying and consuming stranded energy from prototypes and pilot plants that will be needed to prove it works.Furthermore, by using an almost unlimited amount of cold water to cool ASIC miners, OTEC is probably the most efficient and most ecological way to mine Bitcoin.
This is just one example of how mining can become even more efficient over time, and with increased efficiency comes continued network security because it makes less sense for miners to go offline.
Image source: Makai Ocean Engineering
Bitcoin mining is also now a tool for other industrial processes. Bitcoin miners can be paired with different industries and businesses and offer great benefits to seemingly normal business practices. One amazing example: the ASIC used to mine Bitcoin generates heat, this heat can be used to boil water and create steam, condense the water again as a form of purification, and finally can lead to the distillation of water subsidized by mining, as discussed in the Troy Cross Interview new.
This ASIC that generates heat also needs to be cooled with a fan. Another interesting concept is to combine mining with a business or industry that naturally creates cool air. An example Cross discusses is carbon capture facilities, which incorporate large fan banks as part of normal business operations. Pairing these fan banks with mining operations subsidizes ASIC cooling costs.
As this innovation develops further, simply adding Bitcoin mining to the countless unrelated industries and businesses that generate cooling or need heating will increase efficiency and reduce costs. Bitcoin mining has been heating greenhouses and distilling whiskey, while 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. Finally, it would be ridiculous not to use the naturally generated heat or wasted energy of your business in Bitcoin miners, or if your business has a huge bank of fans, then it will not go to ASIC. All of this results in more positive miners with incentives over time that maintain network security and have the potential to offset shrinking block subsidies.
The combination of Bitcoin adoption naturally leads to increased transaction fees over time and Bitcoin mining shifting to a tool for a wide range of its industries demonstrates how the long-term security of the network is something to be optimistic about.
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.