TL;DR: Economist Eli Dourado believes 2020 just might be when BTC’s fee market is truly tested. His argument involves trying to solve what he frames as three interconnected problems, a halvening trilemma: inflation or BTC supply, proof-of-work, and network security. Dourado maintains BTC can have two, but not all three without serious, looming consequences. Fascinating theory. This episode is available embedded in the article below, and on iTunes, Spotify, Google Podcasts, Stitcher, Radio Public, Breaker, PocketCasts, PodBean, YouTube for Newer Episodes, YouTube Older Episodes, and Overcast.
BTC’s Serious, Looming 2020 Halvening Problem
“In a few decades when the reward gets too small,” Dourado quotes of Satoshi Nakamoto back in early 2010, “the transaction fee will become the main compensation for nodes. I’m sure that in 20 years there will either be very large transaction volume or no volume.”
Revisiting Nakamoto’s words got Eli Dourado to thinking, especially about the upcoming halvening. “To prevent the total number of bitcoins from ever exceeding 21 million,” he explained, “the non-fee mining reward halves every 210,000 blocks. The block subsidy has already halved twice, first to 25 bitcoins and then to 12.5 bitcoins. In May 2020, it is due to halve again, to 6.25 bitcoins.”
They’re what’s known as halvenings, and the past two have mostly been thought to be positive, speculative-price-encouraging events. “Bitcoin’s price has increased consistently over the past two reward eras,” Dourado notes, “so that the dollar amount of the block subsidy is now higher than it ever was in either of the earlier eras. The price has also grown about as fast or faster than overall transaction volume.”
The next halvening, however, just mere months away, might “be more interesting. With the block reward falling to 6.25 bitcoins, Bitcoin may need for the first time to rely on fee revenue to provide adequate security,” Dourado insists. He believes theoretical higher speculative exchange BTC prices don’t solve the long-term problem, and that many analysts are in fact missing some huge issues.
- CoinSpice Podcast 52
- Host C. Edward Kelso
- Eli Dourado Twitter
- Eli Dourado website
- 2020 Could be the Year Bitcoin’s Fee Market is Put to the Test
- Dan Held Bitcoin’s Security is Fine
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