Consensus seems to be that as bitcoin issuance (the block reward) decreases, Bitcoin's security budget (amount incentivizing miners to continue securing the network) will come to rely on transaction fees. If the Lightning Network continues to grow in size and capacity, it seems likely that more and bigger transactions will take place on Lightning rather than the base layer, so how will Bitcoin maintain a sufficient security budget? I'd love to hear your thoughts or recommended reading/listening material!
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130 sats \ 1 reply \ @scampy 13 Aug 2022
Keep in mind that Lightning will always need to touch the main chain. Opening new channels for more efficient routes, rebalancing liquidity, withdrawing funds to cold storage, etc. If Lightning is popular but on-chain txs are cheap, channel operators will take advantage of this.
Also there are some advantages on-chain offers that Lightning cannot replicate. On-chain represents the highest form of security where funds can be stored offline indefinitely. Whereas Lightning and other L2s require hot wallets or counterparty risk.
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0 sats \ 0 replies \ @kuroba OP 14 Aug 2022
Thanks for clarifying this for me!
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110 sats \ 1 reply \ @notgeld 13 Aug 2022
So far, it grows. Year ago Typerbole estimated LN fees as 0.1% of total fees paid.
Just for the reference, in the end of 2017 it was 0%. LN payments will always inducing some onchain activity because economic actors will need to buy and sell liquidity in LN.
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0 sats \ 0 replies \ @kuroba OP 14 Aug 2022
Good point, good link!
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110 sats \ 1 reply \ @sb 13 Aug 2022
It's also important to remember that the opening and closing of Lightning channels require on-chain transactions. In the distant future, if Lightning scales to where I believe it's headed, there will still be a healthy number of on-chain transactions required to keep LN functional.
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0 sats \ 0 replies \ @kuroba OP 14 Aug 2022
Yes, good point!
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100 sats \ 4 replies \ @cryptocoin 13 Aug 2022
Can you quantify the amount of a "sufficient security budget"?
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50 sats \ 3 replies \ @kuroba OP 14 Aug 2022
I can't put a number on it, as it's always changing, but I believe a sufficient security budget would be the amount that incentivizes enough miners to secure the network to make it unfeasible to compromise, roll back, double-spend, etc.
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10 sats \ 2 replies \ @cryptocoin 14 Aug 2022
In May 2021 the bitcoin hashrate was 180 EH/s. Less than two months later it was under 90 EH/s (a >50% drop). Was security still sufficient at that time?
I believe so.
What I am getting at is the amount of hashrate we have is (mostly) because of the price, and not because that much hashrate is required for the bitcion network to be secure. As the price rises, the hashrate rises. Does that increase in hashrate make bitcoin more secure? Not really. Does a bunch of hashrate going away make bitcoin less secure? Well, it depends on how much is taken away, and who is exiting, and what happens to the hardware, etc., etc., etc. But essentially, just because bitcoin miners receive tens of billions of dollars worth of revenue each year currently doesn't mean bitcoin needs to pay tens of billions of dollars to remain secure. It was once secure when miner's revenue was just a billion dollars a year.
Plus, don't forget channel open and close transactions, and certain rebalancing methods. Those all go onchain. As LN gains, and people custody their own funds, LN will eventually increase the volume of onchain transactions.
And then you have things like this: RoboSats now has a way to receive onchain using a reverse-submarine swap. And Paxful, which has a 0.0005 withdraw fee for onchain transactions is suggesting to use LN withdrawals and then do a reverse-submarine swap. What users were doing was converting to USDT (Tether) and withdrawing that. So this lets you remain in bitcoin.
And then there's the time component. Over time bitcoin has seen much greater adoption,and with that greater demand for the limited block space. There is like a decade or so to come before the subsidy gets to be relatively tiny, in bitcoin terms. Greater demand bumps the price up as well. Both greater adoption and/or a rising price brings added revenue to miners.
And finally, if the worst case scenario (miners leaving in droves) occurs and there needs to be some change made ... a soft fork that reduces the block size limit (and thus presumably results in higher fees paid) is always an option.
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10 sats \ 1 reply \ @cryptocoin 14 Aug 2022
Also, look at chains that have had problems in that area. Did they disappear? No. The exchanges increased the number of confirmations required before crediting the account for the deposit. They increased their transaction monitoring and imposed withdrawal halts when they see a rise in the risk of a 51% double spend attack.
The saving grace is that a successful 51% attack doesn't give the attacker the ability to do anything other than double spend their own previous transactions. They can't take your coins. In other words, the reward is not that great, and the cost to attempt the attack are high and the risk of loss of funds in flight (due to an exchange halting withdrawals) is also high.
I'm not insinuating that a 51% attack is nothing to worry about, but it certainly would not be fatal to bitcoin. The exchange rate would definitely be impacted but no doubt the brilliant minds in bitcoin would find a way. For example, there is already a fork of the bitcoin core client that changes the mining algo. For emergency recovery if there was, suppose, a state actor that had built a collection of mining farms that controlled 101% of the existing hashrate. Change the algo and reorg from the last block before the attack that state actor at that point has 101% of nothing and no further power to do anything.
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50 sats \ 0 replies \ @kuroba OP 14 Aug 2022
Thanks for this thorough response; from this and other comments I see that I wasn't factoring in all the ways in which LN necessitates on-chain transactions. As you point out, the security budget has so far been more than sufficient; I'm just trying to game out if a major government decided the Bitcoin network was an existential threat, but it's hard to predict developments on the scale of decades. The replies here have at least convinced me that LN adoption isn't an obvious future vulnerability at present (which I figured but wanted to be able to explain why), and that there are options should it trend toward being one.
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20 sats \ 0 replies \ @DarthCoin 13 Aug 2022
LN is a payment network. Is not about reducing the transaction fees, is about to have a fast, almost instant payment, added some more privacy.
Be your own bank = think like a bank.
LN = your daily spending pocket
onchain = your "commercial bank"
cold wallet = your "central bank"
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10 sats \ 1 reply \ @based 13 Aug 2022
Paradoxically, I think it will both decrease and increase simultaneously.
The Lightning L2 scales L1 by reducing but not eliminating its load, as L2 settles on L1.
L2 adds additional value to users by means of higher speed, lower cost, or other benefits.
Thus, offloading L1 to value-adding L2s may increase overall usage above what pure L1 would as it adds capabilities and use-cases, thus increasing the L1 usage and "security budget" further rather than the other way around. I don't think this is controversial.
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1 sat \ 0 replies \ @kuroba OP 14 Aug 2022
Good point, thanks!
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10 sats \ 0 replies \ @tomlaies 13 Aug 2022
Interesting perspective to think of the mining reward as a security budget.
The answer is yes but it will be more than offset by Bitcoin becoming more mainstream, getting more users and thus more channel opening/closings.
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0 sats \ 0 replies \ @faithandcredit 13 Aug 2022
if no new ppl use bitcoin and the existing people who use it start using LN more then yes basically :) But its not going to affect BTC much, the market cap may shrink, but the incentive is still for miners to be honest regardless of how small the security budget is. The only disparity right now is the people who claim BTC can be a world reserve asset, but this will not be true unless the security budget increases massively, which i doubt it will. So basically BTC is "just" going to be peer-2-peer money, we will still have fiat and crap money, BTC will just be something extra we use every now and then. It will be complimentary to the financial system rather than outright replacing it, but lets see
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0 sats \ 0 replies \ @GRIN 13 Aug 2022
100 years or whatever is a long time.
When this block subsidy arrives at 0 - transaction volume could suffice or there could have been a change somewhere/somehow (either a protocol adjustment or a new currency that the masses use instead of BTC, not that they're using it right now though..).
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