The security risks of Bitcoin
Today, I saw a tweet from Blue Fox Notes (@lanhubiji) (details can be found in the reference link at the end of the article), discussing a future scenario where the security budget for Bitcoin may no longer be attractive to miners. To maintain Bitcoin's security, one proposed solution is the emergence of a super meme coin on Ethereum, which is based on ERC-20 Bitcoin and secured by Ethereum.
This reminded me of a comment from a reader at the end of a previous article, which also addressed a similar issue. The gist of that comment was as follows:
Once the hash rate declines, the cost of attacking the Bitcoin network decreases. If miners exit, it would lead to network paralysis, thus posing a risk of Bitcoin's value dropping to zero.
Both discussions address the same issue, which I have also written about in earlier articles. This is not a new concern; as I recall, it was raised by Bitcoin pioneers back when Satoshi Nakamoto was still active on forums.
Interestingly, every time this issue is mentioned, it is quickly forgotten, only to resurface years later as a "stunning discovery," sparking another round of heated discussions in the community…
The security of the Bitcoin network is maintained by miners. The fundamental reason miners are willing to maintain this network is economic interest. Miners receive two types of rewards through mining: one is the Bitcoin block reward, and the other is the transaction fees included in each block.
After receiving these rewards, miners sell the coins, deducting costs for equipment, electricity, maintenance, etc., leaving them with their net profit.
After Bitcoin reaches a new high every four years, the lucrative mining profits attract a large number of new miners to join; however, each time a bear market follows a bull market, the losses incurred by miners lead many small and medium miners to exit helplessly.
This cycle repeats over and over, with such stories playing out time and again.
Since Bitcoin's launch, after several rounds of brutal market cleansing, only the financially strong miners have been able to persist until now. Thus, the overall trend is that the number of miners is decreasing, and the hash rate is becoming increasingly centralized.
Why have these financially strong miners been able to endure until now?
The fundamental reason is that Bitcoin's price has been continuously reaching new highs, ensuring that although the block rewards received by miners are decreasing, they can still profit overall due to the rising coin price.
During this process, one phenomenon has become increasingly evident: the rate of Bitcoin's price increase is getting smaller, and it is no longer possible to replicate the early days of skyrocketing increases of dozens or even hundreds of times.
Like any financial product, Bitcoin cannot continue to surge indefinitely; one day, its price will stabilize at a relatively steady level.
On the other hand, according to the halving schedule, around the year 2140, Bitcoin's block reward will approach zero, and at that time, Bitcoin miners' income will primarily consist of transaction fees.
Therefore, there will inevitably come a day when:
At that time, Bitcoin's price will remain within a very small range of fluctuations, and miners will only be able to profit from transaction fees.
If the current operational rules of Bitcoin do not change and it still relies on miners for security without external support, there are only two possibilities:
One is that Bitcoin's price rises extremely high, to a level we cannot currently imagine.
The other is that Bitcoin begins to support an application ecosystem, with numerous applications conducting high-frequency trading like Ethereum, continuously providing miners with substantial transaction fees.
Otherwise, Bitcoin will truly face the security risks mentioned in the two statements above.
The first possibility is not worth discussing now, as I believe such an event is not something our generation will witness.
The second possibility, however, is something our generation might see. This is also why I have been highly attentive to the emergence of the inscription ecosystem.
Unfortunately, after about two years of experimentation, I believe the practice of supporting an application ecosystem on Bitcoin is likely not optimistic.
However, I still see many VCs and venture capitalists actively investing in Bitcoin's second layer or ecosystem projects—this truly requires courage and earns my admiration.
Back to reality, I do believe that the security risks of Bitcoin do exist. However, each generation has its own challenges, and it is enough for our generation to witness and participate in this miracle and contribute our modest efforts. In our lifetime, we probably do not need to worry too much about this risk.
The next generation should have good solutions to this problem.
Reference link:
https://x.com/lanhubiji/status/1942803590910992622
On Saturday, July 12, at 7:30 PM, we will have an online discussion. Everyone can post their questions in the thread below:
https://x.com/Dao_Views/status/194113681517356684
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