On The End of Bitcoin

[This is a repost of a thread of mine from a dead social media platform. The original posting date was May 24th, 2022. I have not added new content.]

Is there some scientific literature/scenario planning on the End of Bitcoin? With the next two halvings mining income will shift significantly from block reward to transaction fees. Even though this has been going on for some time, we’re now closing in on the point where …

… the block reward is lower than the energy costs (exponential functions, yeah). This must lead to a significant rise in transaction fees (as in: factor 20). This will significantly discourage Bitcoin usage, which will negatively affect price.

Low price and low block reward means that miners will switch off mining capacity. Now, the difficulty will adapt, but this makes the network brittle. The reason for this: A mining operation consists of setup costs, access to electricity, and operational costs.

A switched-off mining rig already has the first two components available (and, likely, amortized), so it becomes standby. It is mining capacity that exists, and can be used at a moment’s notice, but is invisible to the difficulty regulation algorithm.

I see several different outcomes. An unstable equilibrium could arise, where capacity is switched on and off based on market rates. But, at some point between here and there, there could be a point …

… where a 51% attack (due to low difficulty and high standby capacity) is both feasible and lucrative. This would completely destroy trust in the system (since it can be repeated at any time) and crater the price, effectively ending Bitcoin.

In the meantime, high transaction fees making it unattractive to trade Bitcoin are also a problem for the miners, who are paid in Bitcoin. If no one wants to buy, they can’t pay their electricity bills. Now, the Lightning people will say this is no problem on Lightning.

But even so you’ll still need a couple of basic transactions to maintain the Lightning network. You know who doesn’t need to pay Bitcoin transaction fees? Miners. They would take their earnings (in Bitcoin) and convert them into Lightning and operate as Lightning hubs.

So another end result (though brittle, see above) has the current Bitcoin mining titans operating as quasi-centralized Lightning brokers.

This would theoretically be feasible indefinitely, but at some point, I hope, we will get the 5 companies that are running Bitcoin/Lightning by then to simply switch off Bitcoin and use a normal database, effectively turning them into regular (and: regulated) banks.