Bitcoin Security Budget Crisis, Turns Out to Be an Error?..."Fees Follow as It Grows"

▲ Bitcoin (BTC)

While the Bitcoin (BTC) security budget debate is being discussed as a weakness that shakes its long-term viability, a counter-argument has been raised that this claim is a 'category error' that conflates mining subsidies and transaction finality.

According to TheStreet on May 25 (local time), Pierre Rochard, a Bitcoin researcher and CEO of The Bitcoin Bond Company, appeared on TheStreet Roundtable and stated that the Bitcoin security budget debate stems from confusing different functions. Previously, Michael McGuiness, who appeared on the Bankless podcast, cited this logic as his reason for selling Bitcoin and choosing Ethereum (ETH).

The core of the security budget debate is transaction finality. Bitcoin miners receive newly issued Bitcoins as a reward approximately every 10 minutes, and this issuance amount is halved every four years through a halving event. Skeptics argue that as miner income decreases while operating costs remain constant, miner exodus and network risk could increase. They also point out that current transaction fees account for less than 1% of miner revenue, creating a significant void after subsidy reductions.

Rochard countered that the roles of new issuance and transaction fees should be separated. He said, “Ultimately, it is fees that provide finality to Bitcoin transactions, not newly issued Bitcoins. Therefore, even if new issuance is halved every four years, it does not actually affect transaction finality.” TheStreet explained that over time, a natural division of roles has occurred, with miners focusing on generating hashrate and separate nodes handling transaction verification and finality.

Rochard also offered a different interpretation regarding the criticism that transaction fees cannot replace new issuance. He said, “The reason transaction fees do not replace new issuance is that there is almost no censorship pressure. Because there is very little pressure for Bitcoin miners to exclude transactions, transaction participants have no incentive to bid up fees.” He explained that fees are a market-based process that rises when demand for finality increases, not a centrally determined budget issue.

Rochard viewed the premise that the Bitcoin network needs a predetermined dollar-based security budget as the deepest misunderstanding. He stated, “There is no central planning committee that sets a budget and specifies the desired hashrate size. Price determines cost, and transaction fees determine the network's hashrate size.” TheStreet cited the 15-fold increase in miner fee revenue in mid-2023 due to the surge in popularity of BRC-20 tokens and Ordinals as a real-world example of market activity driving up fees.

Rochard's conclusion is that as Bitcoin takes on a larger role in the global financial system, the demand for confirmed final transactions will also grow, and fees will follow accordingly. Contrary to the skepticism that interprets a low proportion of transaction fees as a crisis, he believes that the current low fees indicate a healthy network state with little censorship pressure.

*Disclaimer: This article is for investment reference only and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*