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Executive Summary: The Ultimate Deep Dive Into Bitcoin's Security Model

In this article, I explore Bitcoin's security concerns due to diminishing block rewards and whether merged mining and the Lightning Network can provide a solution.
Executive Summary: The Ultimate Deep Dive Into Bitcoin's Security Model

Summary: The Bitcoin security model faces challenges due to the diminishing block rewards and the future reliance on transaction fees.

Challenges in Bitcoin's security model:

  • Reliance on diminishing block rewards:
  • Currently, 99% of miner revenue comes from block rewards, and only 1% from transaction fees.
  • The block reward is halved every four years, forcing the security budget to rely on transaction fees.

How BTC security works:

  • Miners validate transactions through proof-of-work.
  • Miner income consists of block rewards and transaction fees.
  • Miner expenditure comprises electricity and hardware costs.

Potential cheating and threats to the Bitcoin network:

  • Cheating is possible but discouraged:
  • Incentive for miners to be honest as long as income exceeds expenditure.
  • A 51% attack is possible, but the network is set up to discourage rational actors from attempting it.
  • Motives for attacking the network:
  • Two types of motivations: rational/economic or irrational/sabotage.

Risk factors and defense mechanisms for the Bitcoin network:

  • Defense against economic attacks:
  • The primary defense is the expected long-term value of honest mining.
  • Possible undermining of the network's legitimacy:
  • Successful defense mechanisms could potentially damage the network's reputation.
  • Importance of transaction fees in the future:
  • Transaction fees must provide a sufficient security budget to maintain the network's integrity.

Merged mining as a potential solution to security issues:

  • Merged mining allows miners to mine more than one blockchain simultaneously.
  • Increased profit for miners can contribute to the network's security and incentivize honest mining.

The Lightning Network as an additional layer of defense:

  • The Lightning Network is a layer-2 solution that enables instant, low-fee Bitcoin transactions.
  • It can help address scaling issues, in turn potentially increasing transaction fees from a greater number of transactions, contributing to Bitcoin's security funding.

Full article:

The Ultimate Deep Dive Into Bitcoin’s Security Model | CoinMarketCap
Is Bitcoin’s current security model flawed? What could be done to the Bitcoin network to ensure it is sustainable? Read on to find out.