Context:

I'm pondering what will happen to Bitcoin (the network) in the distant future.

Preamble:

It's axiomatic that one of Bitcoin's biggest threats is a 51% attack. Today, a 51% attack would require enormous (read: unattainable) access to resources and capital. This is because of the huge number of ASIC miners on the network. Currently, 6.25 BTC are rewarded per block, in addition to transaction fees. In the year 2140, all 21M BTC will be mined, meaning that miners will rely exclusively on fee rewards from transactions.

Question:

What happens to the economic incentives for miners when the base reward equals zero and they are 100% reliant on tx fee rewards?

Discussion:

Taking a look at historical blocks, we can see that Block 500546 had a whopping fee reward of 14.82150630 BTC ($641,680.22). However, if we look at more recent blocks, even during busy mempool periods, we see for example Block 729861 with a reward of 0.25045025 BTC ($10,832.57) - a far cry from the base reward of 6.25 BTC

Thus: it would seem that the answer to the question posed above is "it depends". Specifically, it depends on these things:

How congested mempool is. This is where a sidenote on L1 vs L2 is needed. At present, L2 requires liquidity and thus has a disincentive and cost for large value functions. Or it simply doesn't work with large amounts as I have found. So L2 is for buying coffee, L1 is for final settlement of large amounts. This means there will always be demand for blockspace, and there should always be periods where mempool is congested.
The value of BTC. If BTC's value goes up a lot, the tx fee reward could be significant enough that many miners are chasing them.

The worst case is where the base reward is close to zero, BTCs value doesn't go up significantly, and mempool is relatively empty most of the time (as seems to be the case today). I believe in this scenario a 51% attack becomes more worrying.

If anyone knows of any good literature on this topic, please send it my way!

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83 sats \ 1 reply \ @cointastical 7 Apr 2022

Doing a bit of Googling, and I found these posts:

I've only scanned the first three ... they provide sufficient info. The rest the posts, I suspect not as good. Who knows.

The tl;dr: is that yes -- over the next 120 or whatever years, fees must rise to a sufficient level to maintain a sufficient level of protection against a 51% attack.

Some nocoiners, shitcoiners, and such make (in my opinion) this risk a much bigger deal than it actually is (to try and make their sthitcoin look less bad) or try to shill some "solution" (e.g., changing to some other type of mining, or proof-of-stake, whatever).

If bitcoin continues towards the path of mass adoption, on-chain transactions will be priced out for most anything but settlement transactions and channel open / close transactions. So a robust fee-marker may certainly return and thus fee revenues to miners would increase.

One of the problems is people think bitcoin mining today costs $40M per day (because that's what it costs to run today's ~200 EH/s of mining capacity. (The $40M number is based their revenues today ... 900 BTC/day X $47K BTC/USD, so over $40M/day).

But consider a bank whose vault walls are 24-inch thick steel. Is a bank with 12-inch thick steel walls only half as safe? If the main threat is a cutting torch over a 3-day weekend, then maybe no -- a 12-inch thick steel wall might be just as secure as a 24-inch thick steel wall.

That's the case with bitcoin. The reason it grew to 200 EH/s of mining is because that's what the current mining rewards will support. Hashrate follows price. If the bitcoin price doubles, then the mining hashrate essentially doubles as well (all else being equal). So after the next halving, the block subsidy revenue to miners will drop by half. That's a known fact. Let's say hashrate then drops by half (it won't, but hypothetically ...). Could bitcoin survive on just 100 EH/s? It did just fine on 100 EH/s a couple years ago. Why would that be highly risky once again? I suppose if there was 100 EH/s of discarded (then obsolete) ASICs that fell into the wrong hands, the technical risk of a 51% attack could increase. Economic game theory says that won't happen, but ... moving on.

Let's say a 51% attack was successful. There's always the nuclear option ... change the mining algo overnight to a new algo, where with no ASIC hardware existing, we start the race again, from millions of millions of CPUs, then GPUs, then genA ASICs, then genB ASICs, and so on.

As far as the future ... there's some people (such as Messari's CEO) who remain convinced the 21M cap won't stay forever:

Now that we’re finally at BTC Miami, I can finally send my recurring annual tweet that Bitcoin will eventually adopt 1-2% inflation for security purposes.

Thanks for coming to my ted talk.

https://twitter.com/twobitidiot/status/1511518638788026373

Of course, he's 100% wrong, because what he proposes would not be bitcoin, it would be something else. And because it would be contentious, we'ld see a contentious hard fork (if pushed), ... and then we'ld have Bitcoin and BitcoinInflate (or whatever name it gets). Tell me if you've heard this one before, and I'll stop. Actually, ... I'm going to stop.

The final word: If we knew the future, bitcoin would either be $2M BTC/USD or it would be $0. Because we don't know the future, BTC/USD falls somewhere in the middle. We don't know, for sure, if bitcoin will gain mass adoption. We don't know, for sure, if the number of on-chain fees will rise again and a fee market return. We don't know what hashrate level is required to be sufficient protection against a 51% attack. We don't know ... price, etc, etc ,etc.

What we can say is, ... people today trust the plan enough to value each of the ~19M BTC that exist at about $47K each. That's the only thing we do know, today, with absolute certainty.

20 sats \ 0 replies \ @shyfire OP 7 Apr 2022

Awesome, thanks! Alden's work is definitely the first I will be checking out.

10 sats \ 3 replies \ @Undergotten 7 Apr 2022

Isn't the price going up over time the correction to diminishing miner fees? As long as the network continues to grow, the fees should remain sufficient. That's my understanding, at least.

21 sats \ 0 replies \ @shyfire OP 9 Apr 2022

My TL;DR takeaway from Alden's post is this: the security of the Bitcoin network once it transitions from mining based rewards to fee based rewards is entirely dependent on adoption. If there is adoption, tx fees will be sufficiently high thereby securing the network.

Therefore: if you want to secure your future corn, focus on increasing adoption today. Such as smashing lightning on this post, or writing your own post, or supporting strike, or donating via BTC, or or or

5 sats \ 1 reply \ @BTCMiner 7 Apr 2022

From O

However, if we look at more recent blocks, even during busy mempool periods, we see for example Block 729861 with a reward of 0.25045025 BTC ($10,832.57)

Correct. Looking at Mempool's Mining Dashboard right now, I see:

909 BTC revenue to miners, in the last 144 blocks. It didn't say the duration for 144 blocks, but for general purposes, let's use the target rate, of ~24 hours per 144 blocks (as 1 block is targeted to occur every ~10 minutes).

https://mempool.space/mining

So that's about 1% of revenue coming from fees.

After 2024 halving, all else being equal, 9 BTC would be 2% of miner's revenue, but the revenue would be down 48% from pre-halving levels. If price doubles, then miners are seeing about the same revenue after that halving as today.

The problem might be, in my opinion, that with all the hashrate coming online from publicly traded and large industrial miners, that the hashrate gets too concentrated -- if the hashrate rises faster than the price, for a long period of time. 51% of the hashrate controlled by a small number of U.S. and Canadian corporations is as bad as when 60% of the hashrate (or whatever it was) existed in China. Maybe worse.

But as the ASIC hardware trends back towards commodity status, ... the hashrate share from big operators should drop, once again.

10 sats \ 0 replies \ @Undergotten 8 Apr 2022

Maybe we could start lobbying for tax incentives to home miners. I might be dreaming, though.

0 sats \ 0 replies \ @User21952 12 Apr 2022

Bitcoin needs mining, it doesn't need miners.

The question is what are Bitcoin users going to do?

They are going to mine. Because it's easy, and it means they control the rules, and protect their investment in bitcoin.

The notion that big miners are the future is the barrier to thinking sensibly about a peer to peer open network.