Context:
I'm pondering what will happen to Bitcoin (the network) in the distant future.
Preamble:
It's axiomatic that one of Bitcoin's biggest threats is a 51% attack. Today, a 51% attack would require enormous (read: unattainable) access to resources and capital. This is because of the huge number of ASIC miners on the network. Currently, 6.25 BTC are rewarded per block, in addition to transaction fees. In the year 2140, all 21M BTC will be mined, meaning that miners will rely exclusively on fee rewards from transactions.
Question:
What happens to the economic incentives for miners when the base reward equals zero and they are 100% reliant on tx fee rewards?
Discussion:
Taking a look at historical blocks, we can see that Block 500546 had a whopping fee reward of 14.82150630 BTC ($641,680.22). However, if we look at more recent blocks, even during busy mempool periods, we see for example Block 729861 with a reward of 0.25045025 BTC ($10,832.57) - a far cry from the base reward of 6.25 BTC
Thus: it would seem that the answer to the question posed above is "it depends". Specifically, it depends on these things:
- How congested mempool is. This is where a sidenote on L1 vs L2 is needed. At present, L2 requires liquidity and thus has a disincentive and cost for large value functions. Or it simply doesn't work with large amounts as I have found. So L2 is for buying coffee, L1 is for final settlement of large amounts. This means there will always be demand for blockspace, and there should always be periods where mempool is congested.
- The value of BTC. If BTC's value goes up a lot, the tx fee reward could be significant enough that many miners are chasing them.
The worst case is where the base reward is close to zero, BTCs value doesn't go up significantly, and mempool is relatively empty most of the time (as seems to be the case today). I believe in this scenario a 51% attack becomes more worrying.
If anyone knows of any good literature on this topic, please send it my way!