Key Takeaways:
- Bitcoin security system is flawed, says Jordy Alexander.
- Miles Deutscher offers several solutions to the mining rewards problem.
- Will the emission tail algorythm work, and will the Bitcoin community agree to lift the 21 million coin limit?
YEREVAN (CoinChapter.com) — Bitcoin’s security model has come under scrutiny despite its blockchain showing no evidence of being compromised in its decade-plus existence.
Bitcoin Security Model Threatened by Lower Rewards
The person raising concerns about Bitcoin’s potential to secure its users is Jordi Alexander, the chief information officer (CIO) of trading firm Selini Capital. He noted that the current Bitcoin mining rewards are sufficient but may not be forever should the BTC price keeps sliding.
Now we’re getting to the point where block rewards are decreasing. At some point the Bitocin price can’t keep up, and the dollar rewards will decrease further.
Alexander noted.
In addition, Alexander said the rewards incentivize the miners, and if the rewards decrease more, Bitcoin runs the risk of many miners shutting down completely.
Three Possible Solutions
As mentioned, Alexander outlined several possible solutions to the miners’ lack of incentive if the block rewards drop below the acceptable level. The analyst noted that increasing trading fees from network usage is an “optimistic” solution to the problem.
If that approach does not work, a third party might need to switch between BTC prices and miners. The expert called the possible NGO-type organizations “altruistic entities.” However, how an “altruistic entity” would pop up in a bear market is unclear.
Also read: Bitcoin mining vs. Gold mining – profits and sustainability compared.
Another way out, according to Alexander, is “changing the 21 million Bitcoin cap in favor of tail emissions.” This argument calls for additional information.
Bitcoin Tail Emissions vs. Maximal Supply
A ‘tail emission’ is an algorithm to prevent the block rewards received from mining from becoming zero. When it comes to the Bitcoin security model, there is an argument that bitcoin tail emissions could be “inflationary.”
In detail, the elusive Satoshi encoded a hard cap of 21 million BTC. According to the blockchain’s ledger, more than 21 million BTC cannot be mined, which causes digital asset scarcity, potentially leading to a supply squeeze.
Suppose the supply cap continues to stay in effect. In that case, one could argue that there will not be enough of a reward for Bitcoin miners to continue generating BTC without substantially increasing the transaction price.
So what is the way out? A possible alternative to creating bitcoin tail emissions is that the 21 million BTC cap is eventually removed, allowing a continued trail of bitcoin rewards for mining new bitcoin.
Also read: Bitcoin Price Eyes Crash Toward $15K in Early 2023
Removing the cap means changing the ledger, the fundamental ‘law’ under which the blockchain operates. It is not likely that the crypto community would agree to the solution. However, as Alexander noted, a discussion about the possible implications of mining reward declines could and should be held.
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