Could Bitcoin’s security model be weakening compared to other cryptocurrencies given declining network usage?
Bitcoin proponents claim that Bitcoin’s security is undeniable and that concerns about halving events are overdone. However, critics argue that transaction fees are rising while block rewards are falling, reducing the network’s security budget.
Although Bitcoin’s hashrate hit ATH in early 2022 and total miner revenue has increased by more than 400% since the halving, Bitcoin payments are currently in decline.
The Bitcoin halving was designed to limit the total number of coins issued to 21 million. It is a cyclical event every four years that halves miners’ rewards.
According to Satoshi’s vision and design, “in a few decades, when the reward is too small, transaction fees will become the main compensation.”
This assumption stems from the fact that bitcoin is widely adopted as network growth is expected to drive demand for block space and ultimately reduce the need for block subsidies.
According to Morgan “Mo” Bennett, the network needs more time to resolve this issue.
Independent Analyst pointed out, Bitcoin’s security budget, which protects the network from 51% attacks represented by block subsidies and combined transaction fees, has been steadily declining over the past 11 years.
Referring to CoinMetrics data, he argues that this is true in terms of both Bitcoin market cap and Bitcoin trading volume.
BTC Security Budget vs. Market Cap | Source: CoinMetrics
BTC security budget vs. transaction volume | Source: CoinMetrics
Furthermore, he argues that “if the block reward replacement fee would increase the over-issuance (F/I) fee forever.” However, recently this rate has dropped to the same level as in 2013.
BTC issuance fee rate | Source: CoinMetrics
The cost anxiety of attacking the network decreases as the true cost of an attack with 51% hash power is ultimately immense. Also, the BTC hashrate is currently at ATH.
Bitcoin hash rate in seven days | Source: Glassnode
At the same time, BTC miners’ earnings have increased by more than 400% since the halving.
BTC Miner Earnings: 7-Day MA | Source: Glassnode
According to a Bloomberg report, citing data from major crypto payments processor BitPay, BTC’s price has increased by 60% over the past year, but its use in corporate payment systems has fallen by about 65%, compared to 92% of the year Transactions processed in 2020.
At this point, however, BTC’s scalability problem is solved.
Layer-2 Lightning, Schnorr signature compatibility, and Layer-1 Taproot support are examples of scalable solutions designed to increase network adoption.
According to a senior Glassnode analyst, the network’s appeal and security are driven and underpinned by its adoption.
“Has bitcoin moved closer or further from global reserve asset status over the past four years? If it’s closer, don’t worry about the need for block space. If it’s further away, everyone should be worried. We’ll have plenty of time, up to decades, before it becomes a real problem, during which time the network will introduce a lot of new work and upgrades,” Checkmate said. conclude on twitter.
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