Online chatter about “90% of Bitcoin’s blocks being mined” reminded me of a subject that most people haven’t thought a whole lot about: The economic system underpinning Bitcoin. Or in other words, the system that keeps Bitcoin chugging along its merry way.
By now, most people know there will only be 21 million Bitcoins to ever exist — and they assign scarcity value to Bitcoin because of it (myself included) — but they aren’t aware of the requirements needed for Bitcoin to remain fully functional over the long-term. As long as it is recognized as a legitimate investment vehicle and people are making money off of it, I suppose it’s unsurprising this is overlooked. But in the long-term, it might be a mistake to skip over this section in the Blockchain textbook.
So, what are the requirements? To put it as simply as possible, it’s transaction volume — and lots of it.
Because as the 10 minute block subsidy moves to 0, and miners have to rely solely on fees from transactions, the revenue from fees must keep up with the costs of mining. If they don’t, the mining hash power will leave — since no business will continue losing money indefinitely — and the chain will then grind to a halt. The BTC 1MB (megabyte) block experiment will come to an end, and not even the all-powerful Lightning Network will be able to save it.
And to me, this fall from grace seems like an inevitability (granted, this would be well into the future). For I’ve seen the math from others interested in the longevity of Bitcoin, and the transaction fees + coin price required for profitability in a subsidy-less environment are far too high for it to work. Not when it can only process a paltry limit of 7 transactions per second. I mean, are you going to pay hundreds or thousands of dollars to send BTC to another wallet? That’s what would be needed for it to work.
Now, if there ARE enough transactions included within each block to satiate the miner’s profitability appetite, the wheels will keep on spinning. Round and round, new block after new block will be stamped into creation, and the internet of money can continue leaving its beneficial imprint on our world. But, it will need WAY more than 7 transactions per second to do it.
So, even though I’m going against the grain of the current market, the economics required for long-term stability is why I support and have built off of the notorious Bitcoin-SV Blockchain. Economically, by focusing on maximizing transaction capacity within each block, it is the Blockchain built for survival of the fittest. Maximizing the number of miners is NOT the goal; maximizing transactions per block IS.
Whether the transactions make their way to BSV’s public ledger over the long-term is an entirely different debate. My personal belief is they will, as I see the power and benefits of peer-to-peer micropayments and the use-cases they unlock, but we’ll leave that subject of conversation for a different day. For now, I encourage you to consider me full of it, and investigate the economics behind Bitcoin for yourself.
10% remain, what happens when it turns to 0?
