On July 9, Justin Bons posted a long article on Twitter:
（https://x.com/Justin_Bons/status/1810357305390616839 ）
He published the argument that “BTC’s security model has been destroyed” and argued according to his logic.
I was very interested in this view, so I tried to analyze this view and the arguments.
Justin Bons' Logic
First, I sorted out Justin Bons’ logic in this tweet:
Hash rate does not equal BTC network security. The cost of producing hashes (and the cost of miners) is the guarantee of BTC network security. The current network security is lower than it was three years ago.
As block rewards decrease due to halving, the extreme situation of high fees on the superimposed chain is unsustainable, and miners’ income will and is decreasing;
Therefore, to maintain the current level of security, the price of BTC needs to continue to rise, which is unsustainable;
At that time, the dilemma can only be solved by canceling the 21 million hard cap or forking;
Ultimately, he concluded:
BTC's security model has collapsed, and in order to maintain the current level of security, its price must double every 4 years, a process that needs to continue for a century, otherwise extremely high fees will be maintained! This is impossible because it would need to exceed the global GDP market value in a few decades!
Let us analyze each key point and argument in its logic one by one.
Security indicators of the BTC network
>Hashrate Evolution
We often use hashrate to measure the security of the POW network. As can be seen from the figure below, the current hashrate is on an upward trend, so this is considered to be evidence that BTC's network security is constantly increasing.
Data source: https://bitinfocharts.com/comparison/bitcoin-hashrate.html#alltime
However, we also need to realize that changes in mining hardware have indeed reduced the cost of obtaining unit computing power. The following figure shows the models and functions of Bitmain's BTC mining machines over the years:
Source: https://www.asicminervalue.com/
Based on the above figure, I drew a graph of the evolution of machine efficiency as follows:
Producer: Dapangdun
As you can see, the efficiency of machines is getting higher and higher, and today’s equipment is 30-40 times more efficient than it was 10 years ago;
We also need to note that with the development of energy mining technology and the diversification of energy forms (green energy, etc.), the cost of energy is also decreasing, which will further reduce the mining costs of miners.
Therefore, the overall system security cannot be measured solely by hashrate. So is the cost of miners a good indicator of system security?
>Miner costs
Miners are the most important players in the “BTC distribution”, so the total cost that miners actually and continuously invest can indeed be regarded as the “safety valve” of the network. If you want to attack the network, you need to spend enough cost to achieve the effect, and this attack cost is directly related to the miners’ investment cost.
The calculation of miner costs is difficult because it includes "mining machine fees, maintenance fees, electricity costs, etc.", so we make some assumptions in advance to simplify the process:
Mining machine fees and maintenance fees are not considered for the time being, because the former also involves depreciation, discounts, insurance, etc., and the latter is related to the automation level and management level of the mine, so only electricity costs are considered (electricity costs are likely to be the largest part)
The mining machines in each period are calculated based on the best mining machines of Bitmain at that time.
Electricity costs fluctuate, so here we simply calculate it based on 0.12$/kw
The calculation results are as follows:
Producer: Dapangdun
It can be seen that the estimated cost consumed by miners is still showing an upward trend overall. Therefore, if the cost of miners is considered to be an important indicator affecting network security, the current network security is still showing an upward trend.
Why does Justin Bons say that security has been reduced? Because he uses miners' income as a measure of security, but income is only a judgment about the future, and miners' expenditure should be the guarantee of current security.
>Cost to market value ratio
Of course, there is a problem here, let's consider a situation:
Is it better to use 1M cost to protect 1B of assets or to use 10M cost to protect 100B of assets?
Some people would say that the ratio of 1M/1B is higher than that of 10M/100B, so it is more secure; others would say that the total amount of funds of 10M is large, so it is more secure.
Both have their merits, my personal opinion is:
When costs have not reached a sufficient level, cost will be a better measure, which is a threshold issue; if costs are already high enough, then the proportion of cost to market value will be a better measure.
Miners’ income
If the cost of miners is the most important factor affecting network security, then the miners' income is the most important factor affecting the overall miners' ability to maintain such security.
The miners’ income mainly consists of two parts: [Block Rewards] [Transaction Fee Subsidy]
>Block Rewards
The block reward is relatively simple. We all know that it follows the halving rule. So far, four halvings have occurred, corresponding to the following:
In November 2012, the first halving occurred, with the reward increasing from 50 BTC to 25 BTC.
In July 2016, the second halving occurred, with the reward increasing from 25 BTC to 12.5 BTC.
In May 2020, the third halving occurred, with rewards increasing from 12.5 BTC to 6.25 BTC.
In April 2024, the fourth halving will occur, with rewards increasing from 6.25 BTC to 3.125 BTC.
Because the cost is calculated in $, we also convert the revenue into the corresponding $. In order to simplify the calculation (reduce the amount of data), I made an assumption:
Take the average price of BTC for one month (the average of the opening price and the closing price) as the daily BTC price data for this month
The average block interval is calculated based on 10 minutes.
Get the following picture:
Producer: Dapangdun
Producer: Dapangdun
Combining these two pictures and comparing them with the graph of electricity expenditure, we can see:
Most of the time, the rewards for miners’ blocks can cover the costs and make a profit.
The early profits were very high, even if they were sold at the price at that time. This was also the bonus period for the development of the industry.
In the bull market, miners also make huge profits, and price is the key factor.
In the last round, the price of BTC started its main uptrend about 4 months after the halving.
At the current stage, judging from the block rewards alone, the profit level has been reduced
>Transaction fee subsidies
Another very important fee for miners is the "transaction fee subsidy", which is also considered to be a compensation for the reduction in block rewards caused by halving in the future. This is easy to understand. If the block reward is reduced, then as long as the transactions on the chain are more active, the miners' income can still be guaranteed.
Of course, we also need to consider another factor, which is the gas corresponding to the transaction. If there are too many transactions, the gas will naturally be high and the transaction fee will naturally be pushed up.
Let’s look at the actual situation with data:
https://bitinfocharts.com/comparison/transactionfees-transactions-btc.html#alltime
From the comparison curve we can see that:
The activity on the chain is generally on the rise, but whether this trend can be sustained is still unknown, as the activity on the chain from 2016 to 2023 is similar;
Transaction fees can be high during certain periods of time, but overall, the fees for most transactions are less than 10U
If we want to calculate the specific transaction fee subsidy, we need to multiply these two data and process them. Because the amount of data is large, I will use another indicator to observe: [The proportion of transaction fee subsidy in block rewards]
https://bitinfocharts.com/comparison/fee_to_reward-btc.html#alltime
I roughly sampled the data and calculated it, and got the following chart:
Producer: Dapangdun
Combined with the block reward, we get the following picture:
Producer: Dapangdun
Combined with the miners’ expenditure, we can know that:
According to the current BTC price level, transaction fee rewards have not yet shown a higher level than the previous round.
Because miners’ expenditure levels are rising, miners’ profits are indeed decreasing.
>BTC price
I think this should not need to be discussed, because rational people should easily judge that the assertion that "BTC prices have been rising" is impossible. It is impossible for the market value to exceed the world's GDP, right? !
Although we hope that BTC can continue to perform well in terms of price, it is also restricted by "objective laws". It is an obvious fact that the increase in BTC prices is decreasing in each round.
Since there is a limit to price increases and miners’ earnings will indeed gradually decrease, expectations for maintaining current security levels may change, ultimately affecting the security of the network.
Therefore, the problem mentioned by Justin Bons is real, but whether the solution is to “lift the hard cap” or “fork the big block” as he said, I think this requires another discussion.
Discussion of solutions
Miners' profits are affected by two aspects: cost and revenue, and we have some solutions in both directions.
> Cost
Things that can be done to reduce costs include:
Further improve mining efficiency, develop hardware, optimize algorithms, and further reduce the cost per unit of computing power;
Striving for lower-priced energy, of course, also requires taking stability into account;
We look forward to changes in the world's energy technology. For example, if commercial controlled nuclear fusion is developed, the price of energy will be greatly reduced, which can reduce costs.
Of course, we also need to realize that miners will inevitably gradually shift from the previous "era of making money by mining" to the "era of mining game", and investors need to fully consider the risks and input-output results before deciding whether to participate.
This is very similar to our current situation. Everyone feels that it is difficult to make money because the industry has passed its early bonus period and competition has become very fierce. It is no longer an era where you can make money by just buying anything. Gambling will be the main theme.
>Income
Block Rewards
This part is temporarily unchangeable. According to the halving rule, the miners' block revenue will gradually decrease to 0. This is an indisputable fact. One solution is to "eliminate the 21 million hard cap" and then set up "long tail rewards". But for the current cognition, it is extremely difficult. BTC's 21 million consensus is extremely powerful. If it is changed, it will have a huge impact on the consensus.
Transaction fee subsidy
Therefore, the natural idea is to work on the "transaction fee subsidy" and increase this part to make up for the loss of block rewards, and add a certain increase in BTC prices to allow this system to operate for as long as possible.
However, the performance of the current BTC mainnet cannot support large-scale transactions. Gas and block time are both problems. Possible solutions include:
BTC block expansion: Make the block bigger and improve efficiency, this is another plan of Justin Bons; but after the "big and small block dispute" that year, the right to speak was basically controlled by "small block supporters", so it is difficult to start such a plan at present. Of course, it is difficult for me to evaluate other impacts brought by this plan, such as the impact on the "degree of decentralization", etc., which requires a deeper understanding of the underlying industry.
Lightning Network: Make the Lightning Network more popular, so that it can replace part of the world's financial payment, and then add technological innovation to make the transaction fees on the chain shared by many people. The current number of main network transactions per day is about 300,000-500,000, while the number of transactions on Alipay alone on Double Eleven can reach 9.7 billion. The order of magnitude difference is too big, and there is still a lot of room for development.
Expansion of the BTC native network: The current functionality of the BTC network is still very weak. Based on its expansion innovation, whether on-chain or off-chain, as long as the main body increases the number of transactions on BTC, it will contribute to transaction fees.
Of course, there are some other ideas. For example, for some joint mining projects, the computing power can be operated in parallel to obtain additional rewards while mining BTC...
In general, my opinion on Justin Bons's point of view is:
Hash rate cannot be used as the only indicator to measure the security of BTC. The cost of miners can better reflect the security of the network. The current security has not decreased.
With the reduction of block rewards caused by halving and the unsustainable high fees on the chain, the price of BTC cannot rise indefinitely. The issue of network security is real and needs to be discussed.
However, the problem is not only solved by “canceling the hard cap” and “forking”. At least for now, there is a certain amount of time and ways for us to try to solve this problem through other innovations.
Therefore, it is premature to assert that “BTC’s security model has been broken.”
