> At that point, the incentive for mining [...] will disappear
The intention is that by that point, the transaction fees alone will be sufficiently high to incentivise mining.
The intention is that by that point, the transaction fees alone will be sufficiently high to incentivise mining.
The security of a Proof-of-Work network is proportional to the amount of work you put into it. You can call the work electricity or computation, but ultimately the work is money. And the money spent securing Bitcoin will be basically the mining rewards. Right now, at $10,000 / BTC, that's about $6.5 B / year (10k$ / BTC * 12.5 BTC / block * 144 blocks / day * 365 days / year).
If you want to maintain the current level of security on the Bitcoin blockchain, you need to continue to pump $6.5B / year into mining rewards. You could spend less, but then you get less security. Right now BTC is pumping that money in through inflation and investment in the currency through exchanges. If you wanted to put that money in through transaction fees, then you need to have $6.5B worth of transaction fees per year.
That is a lot.
VISA has a yearly revenue of $13B, and a lot of that is interest charges and bullshit fees, not transaction costs. Mastercard and Paypal have yearly revenues of $10B.
It's still not impossible. If Bitcoin processes a similar number of transactions to one of the major credit card companies at a similar fee level, that would probably work out. It would need to process significantly more transactions to make a lower fee work, and if it can't match the transaction volume, it needs a significantly higher fee.
If the fees are insufficient, the size and security of the Bitcoin network will fall to match. How much security are you comfortable with? $1B / year? $100M / year? $1M / year?
By itself, I'd say $1B / year might be enough security. Any malicious nation-state wanting to attack the network through mining power would need to spend on the order of a billion dollars, which is a lot even for a large government. On the other hand, if you did have a sharp discontinuity, and not a gradual turn-down in spare capacity over many years as the mining reward gradually decreases, you would have a unique opportunity for attackers: a huge amount of mining equipment would likely be dumped on the market at once, and an attacker might be able to build up their own capacity quickly and cheaply.
The Lightning Network helps with scaling the number of transactions, but it doesn't change the need for an adequate amount of work to be done to secure the core network; you still need to spend a large number of dollars (or Bitcoins, if you prefer) each year mining, so that attackers cannot afford to attack the network through that venue. The Lightning Network gives you a larger tax base for this security tax to be levied on, but it doesn't change the fact that when you ask the question "How much money should we spend mining Bitcoin?" the only secure answer is "As much as we possibly can.".
1) The new Bitcoin supply is tightly managed and the miners maintain the current deflationary pressure, ensuring a continued rise in Bitcoin's value.
2) The new Bitcoin is tightly managed, but with the aim of some modest amount of inflation akin to what most central banks aim for. In this model, transaction fees dominate mining profits since Bitcoin's value will stabilize or drop.
3) The new Bitcoin goes into hyper-inflation Weimar Republic-style, eventually becoming worthless.
I think it will be number 3. There is too much money to be made by attempting to time the inflationary spiral, and miners essentially acting as Bitcoin's central bank are in a perfect place to take advantage of it.
Unless a critical mass of actual users want the fork, it will never succeed, because the fork will not have enough value to be worth mining.
also I've never seem a response to this paper here from the Eth crew https://download.wpsoftware.net/bitcoin/pos.pdf