The bitcoin security model endgame

(Part 2) Open questions on the dynamics of subsidy-free proof-of-work

Author’s Note:

This article is part two of a discussion around the dynamics of bitcoin’s transition to becoming reliant on transaction fees for network security. It consists of my views on potential long-term tail risks to the bitcoin network. None of them are fatal, but they are issues that I believe will need to be overcome.

The nature of these questions is such that we don’t currently have answers, yet are crucial discussions to engage before they become issues. I will provide my suppositions, but they shouldn’t be taken as expert opinion.

tldr;

If the trend in bitcoin fees continues, bitcoin will likely be fine but bitcoin miners will not. The network’s power costs are likely already near the peak that can be supported before accounting for positive externalities from mining. The fee-only security budget will likely never grow large enough to withstand an attack by a motivated sovereign superpower.

---

What are sufficient fees?

In part one of this writing, I discussed the current state of the bitcoin transaction fee market and how its contribution to miner revenues has begun to fall well short of modelling done only a couple years ago. Many people have used these decreases to suggest that fee revenue is too low, I do however shy away from agreeing with this sentiment.

On the topic of fee revenue being too low, Nic Carter is right on the money:

the 'fees aren't going to be sufficient' crowd need to understand that they are making a specific, burden-of-proof-on-them claim, and if they want to say that, they have to define sufficiency! what's sufficient?

— Nic Carter during an AMA on GM