Maxi: There is No Second Best

Me: There is always a runner up. This is the Bitcoin Community’s Wake-Up Call. Embracing proliferation is key to Bitcoin’s future success. Transaction fees are meant to maintain the economic incentive to mine and secure the Bitcoin network through decentralization.

Yes, there is a second, third, and fourth best if Bitcoin doesn’t start adapting to the current environment. It must morph into a better coin through the BIPs process and proliferate faster. We substitute teachers at school, players in sports, and business solutions daily. Bitcoin is no exception. The substitute doesn’t have to be as good as the original and they are coming. Despite plenty of growth over the years, the same problems persist. The community has shifted focus from solutions and improvements to hype, pricing, and catering to a narrow scope of influential whales and institutions controlling the narrative.
Conferences now prioritize hype over substance, neglecting pressing issues like transactions per second and total number of transactions per day. The same problems Bitcoin faced in 2011 remain unsolved. Newcomers have moved away from providing solutions, and the community’s growth has exacerbated these issues. Any hint of dissent even if valid seems to get shunned and at times met with hostile opposition. Let’s get into some undeniable facts that every Bitcoiner should be able to agree

A Bombshell: Bitcoin’s Sustainability Crisis

In seven years (2032), the Bitcoin block reward will drop to 0.78 Bitcoins (1). This drastic reduction will push many miners out of business. Currently, larger miners and mining pools dominate hash power, easily controlling over 50% of the network (2). This concentration increases the risk of a 51% attack, which was less concerning 12 years ago when I started in this space.

The Alarming Reality

By 2032, every Bitcoin miner in the world will compete for less than one Bitcoin per block. This threatens the network’s security and Bitcoin’s use case. Transaction fees alone cannot sustain miners; the current average fee is less than a few percentage points. Most miners consider their transaction-based revenue negligible as the continue to depend on block rewards. With the block reward reduction, miners will struggle to survive. Even if electricity were free, new machines, repair parts, labor, and overhead still require substantial transaction volume to maintain a decentralized network with many independent nodes.
One more time in layman’s terms! Every Bitcoin miner in the world will compete for less than 1% of the initial 21 million Bitcoins over the course of 109 years. The transaction fees earned by completing and verifying Bitcoin transactions due to the quantity that circulates was always meant to sustain the network as block rewards dwindle. Currently, not one miner large or small confirms that they can operate off of their transaction fees alone. The 21M Bitcoins that make up the block rewards are simply in the initial push to get the simple going. The coins must circulate and proliferate for Bitcoin to reach its full potential as miners transition to sustaining themselves using transaction-based revenue. This is a legit security crisis for the network, because few miners earn more than one or two percent from closing out transactions.

Silent Threats to Miner Incentives

Each time maximalists celebrate large investments, like Michael Saylor’s billion-dollar purchases (4), I cringe. Siloed Bitcoins, vowed never to move again, directly harm miner incentives. This “hodling” mentality reduces circulating supply, decreasing potential transaction fees. Keep in mind that I fully support HODLing until we can get the Bitcoin Velocity Protocols into place to spur decentralization of an asset that is “re-centralizing” at an incredible rate of speed.
Any action that shifts transaction fees away from miners will eventually weaken the network. ETFs are among the worst in my opinion. Billions pour into Wall Street coffers to fuel Wall Street owned mining projects, sales fees, and paper Bitcoin. The Bitcoin-to-share ratio can change at any point in time. This opens the potential for “paper Bitcoin” which would be easy to inflate. The irony is that owners of Bitcoin ETFs shares are not owners of Bitcoin. It somewhat defeats the purpose of Bitcoin. (Note: Not everyone will want to self-custody their Bitcoin, so the service is viable for many people, but small quantities for the sake of the network.
Again, there is a second, third, and fourth best. Other coins will replace Bitcoin if they are not available to the populous. Other coins will replace Bitcoin if the network is not secure due to centralization mining. Other coins will replace Bitcoin if transaction fees are sufficient to provide the economic incentive to continue mining within the next two or three halvings. The Bitcoin community must start adapting to the current environment. HODLing will not work much longer. HODLing starves the network of financial incentives to continue mining. In this situation miners and users will eventually migrate away as the security of the network becomes as bigger issue.

References:
(1) Bitcoin Block Reward Halving Schedule
(2) Cambridge Centre for Alternative Finance, 2022 Global Crypto asset Benchmarking Study
(3) (link unavailable), Average Bitcoin Transaction Fee
(4) CNBC, Michael Saylor’s Bitcoin Investments