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So here is the problem. The security of a Proof-of-Work network is proportional to the amount of work you put into it. You can call the work electricity or co

So here is the problem. The security of a Proof-of-Work network is proportional to the amount of work you put into it. You can call the work electricity or computation, but ultimately the work is money. And the money spent securing Bitcoin will be basically the mining rewards. Right now, at $10,000 / BTC, that's about $6.5 B / year (10k$ / BTC * 12.5 BTC / block * 144 blocks / day * 365 days / year). If you want to maintain the current level of security on the Bitcoin blockchain, you need to continue to pump $6.5B / year into mining rewards. You could spend less, but then you get less security. Right now BTC is pumping that money in through inflation and investment in the currency through exchanges. If you wanted to put that money in through transaction fees, then you need to have $6.5B worth of transaction fees per year. That is a lot. VISA has a yearly revenue of $13B, and a lot of that is interest charges and bullshit fees, not transaction costs. Mastercard and Paypal have yearly revenues of $10B. It's still not impossible. If Bitcoin processes a similar number of transactions to one of the major credit card companies at a similar fee level, that would probably work out. It would need to process significantly more transactions to make a lower fee work, and if it can't match the transaction volume, it needs a significantly higher fee. If the fees are insufficient, the size and security of the Bitcoin network will fall to match. How much security are you comfortable with? $1B / year? $100M / year? $1M / year?

jstanley 9y ago
Actually transaction fees already pay a significant part of the mining reward. And with the development of 2nd-layer technology like Lightning Network, fees for on-chain bitcoin transactions can go very high indeed without significant adverse effects on bitcoin users.
- saalweachter 9y ago
  Transaction fees are currently 11% of the mining reward, which isn't nothing. If the non-transaction mining reward went away tomorrow, you'd expect the mining power to decrease 10-fold, and the work securing the Bitcoin network to be about $700M / year. By itself, I'd say $1B / year might be enough security. Any malicious nation-state wanting to attack the network through mining power would need to spend on the order of a billion dollars, which is a lot even for a large government. On the other hand, if you did have a sharp discontinuity, and not a gradual turn-down in spare capacity over many years as the mining reward gradually decreases, you would have a unique opportunity for attackers: a huge amount of mining equipment would likely be dumped on the market at once, and an attacker might be able to build up their own capacity quickly and cheaply. The Lightning Network helps with scaling the number of transactions, but it doesn't change the need for an adequate amount of work to be done to secure the core network; you still need to spend a large number of dollars (or Bitcoins, if you prefer) each year mining, so that attackers cannot afford to attack the network through that venue. The Lightning Network gives you a larger tax base for this security tax to be levied on, but it doesn't change the fact that when you ask the question "How much money should we spend mining Bitcoin?" the only secure answer is "As much as we possibly can.".
  - jstanley 9y ago
    100% agreed.

jstanley 9y ago

Actually transaction fees already pay a significant part of the mining reward. And with the development of 2nd-layer technology like Lightning Network, fees for on-chain bitcoin transactions can go very high indeed without significant adverse effects on bitcoin users.

saalweachter 9y ago
Transaction fees are currently 11% of the mining reward, which isn't nothing. If the non-transaction mining reward went away tomorrow, you'd expect the mining power to decrease 10-fold, and the work securing the Bitcoin network to be about $700M / year. By itself, I'd say $1B / year might be enough security. Any malicious nation-state wanting to attack the network through mining power would need to spend on the order of a billion dollars, which is a lot even for a large government. On the other hand, if you did have a sharp discontinuity, and not a gradual turn-down in spare capacity over many years as the mining reward gradually decreases, you would have a unique opportunity for attackers: a huge amount of mining equipment would likely be dumped on the market at once, and an attacker might be able to build up their own capacity quickly and cheaply. The Lightning Network helps with scaling the number of transactions, but it doesn't change the need for an adequate amount of work to be done to secure the core network; you still need to spend a large number of dollars (or Bitcoins, if you prefer) each year mining, so that attackers cannot afford to attack the network through that venue. The Lightning Network gives you a larger tax base for this security tax to be levied on, but it doesn't change the fact that when you ask the question "How much money should we spend mining Bitcoin?" the only secure answer is "As much as we possibly can.".
- jstanley 9y ago
  100% agreed.