Bitcoin faces security budget issues: Seeking a path for stable transaction revenue growth and application innovation
The reduction in the Bitcoin security budget has led to a decrease in the number of miners, which in turn has reduced the hash power protecting the network, making it economically more feasible to launch attacks on the chain.Author: Jack Inabinet
Compiler: Deep Tide TechFlow
Bitcoin faces a significant issue: security budget!
Miners maintaining the Bitcoin network rely on inflationary block rewards and user transaction fees as income, but the issuance of Bitcoin is halved approximately every four years.
The next Bitcoin halving event, expected in April 2024, will reduce the block issuance, making miners more dependent on transaction fees for income. Without a corresponding increase in transaction fees, Bitcoin's security budget will decrease.
The reduction in Bitcoin's security budget leads to a decrease in the number of miners, which in turn reduces the hash power protecting the network, making it economically feasible to launch attacks on the chain. While this may not be an immediate concern, ensuring Bitcoin can afford security costs in the long term is a primary focus for the network.
The proposed actions may help Bitcoin avoid its future security crisis. However, the conservative community of the network is unlikely to consider alternatives to the existing network, as implementing these solutions would compromise core principles.
To ensure its future and reduce reliance on block subsidies, the Bitcoin network must increase transaction fee income, but for that, Bitcoin must first give people a reason to want to use it.
Undoubtedly, if Bitcoin users wish to increase transaction income and avoid integrating more radical proposals, they will face a tough battle, but their efforts are not without hope: because in 2023, transaction income on the Bitcoin network surged twice.
The surge in transaction activity is attributed to the emergence of ecosystems and applications like Ordinals and BRC-20s, which are built using Bitcoin's Taproot upgrade, facilitating chain utilization!
Unfortunately, as shown by the fact that transaction fees were less than 10% of Bitcoin's block rewards over a six-month period, the usage of these applications is highly unstable and entirely reliant on speculative activity in the market.
Fortunately, attempts to bring other vitality to Bitcoin are underway, which may encourage more stable transaction activity on the Bitcoin chain.
Botanix is bringing EVM to Bitcoin through L2 technology, with its testnet just launched. The support for EVM allows developers on Botanix to write and deploy their applications using Solidity (the primary programming language for crypto) and be compatible with existing Ethereum infrastructure (like MetaMask wallet).
Although BitVM does not require a fork and does not add extra complexity to the Bitcoin network, its two-party design limits its application, meaning BitVM cannot support large-scale decentralized applications with multiple parties.
Bitcoin Improvement Proposal (BIP-300) aims to bring programmability to Bitcoin through sidechains. However, this proposal would inject more complexity into Bitcoin and must be implemented through a soft fork. Given Bitcoin's conservative historical experience, such an upgrade is unlikely to occur.
Key Points
While the current hype around Bitcoin NFTs and meme coins may not represent the ultimate manifestation of technological innovation, the rise of emerging use cases capable of generating substantial transaction fee income indicates that Bitcoin has the potential to be self-sufficient without block rewards.
What Bitcoin needs now is true application innovation that guides people to engage in repeated transactions on-chain. The simplest way to achieve this is to create an environment conducive to developing useful applications!
Risk warning
Risk warning
