Last week, Hasu, James Prestwich, and Brandon Curtis released a research paper examining Bitcoin’s ability to function properly in an adversarial environment, A Model for Bitcoin’s Security and the Declining Block Subsidy.
In the paper, the authors introduce a model, which can be reduced to a simple formula, for assessing the Bitcoin protocol’s security based on a number of factors:
We can thus derive that EV(honest mining) > EV(attack mining) is the necessary condition for Bitcoin to be secure against rational attackers.
It follows then that the difference between EV(honest mining) and EV(attack mining) describes Bitcoin’s tolerance against an irrational (“byzantine”) attacker, who is not concerned with profit but will attack Bitcoin for arbitrary reasons.EV(attack mining) = p(followNC)* p(postAttackPrice) * (MEV + MR) – MC -[1-p(postAttackPrice)] * commitment
You’ll have to read the paper to figure out what that all means, but essentially it calculates the expected value an attacker with 51% of hash power could achieve.
The conclusion is that Bitcoin can currently tolerate a very high incentive to attack. This is largely due to countermeasures users can coordinate and implement to punish attackers and dramatically lower the value that can be extracted via attack.
This paper also delves into the effects of the declining block subsidy, which lowers honest miners’ revenue, on Bitcoin’s security. This is indeed a big question mark in Bitcoin’s future, that will begin to manifest itself in only a couple of decades time (block rewards will be <30 BTC per DAY in just 25 years) even though the subsidy continues until ~2140.
If a robust blockspace market fails to materialize, Bitcoin does not become unusable overnight. Instead, the block subsidy decreases steadily, and over a long period of time. Any problems that can arise as a result of lower MR will appear in weaker form first, before becoming more severe over time, giving users ample time to react and coordinate on possible solutions.
We find it important to note that even if these problems materialize, our outlook on Bitcoin remains optimistic. Bitcoin has the largest user base, the most widely respected supply distribution, and is increasingly integrated into financial infrastructure. Over the course of its short lifetime, Bitcoin has evolved from a technology to a socio-political movement with an ideological following and bitcoin as its currency. It is hard to imagine that Bitcoin could completely die from anything other than a total lack of demand.
I personally believe commoditized retail mining hardware, where millions of users the world over run a mining machine at home at a small economic loss as a form of civic duty, rather than the current regime of huge industrialized mining farms, will be the solution to security in the post-block-subsidy future.
Overall, this research paper is a seminal piece in the academic work on Bitcoin security and economics, that I’m sure will be referenced and expanded on extensively in the coming years. I salute the authors for their thought-leading efforts in producing this research and model.