Data: Security threats facing Bitcoin are getting more serious

Source: LayerTwo Labs

For a long time, Bitcoin has been considered the safest cryptocurrency, with the highest mining power and the most nodes. The name of digital gold has become more and more famous. In the financial market, its hedging properties are frequently mentioned.

Compared with innovation and risk-taking, the Bitcoin community and the Bitcoin Core team also pay more attention to the security of the entire network, reducing or even refusing changes, trying to maintain such security attributes and the status it brings.

**But the actual situation is that the security problems faced by the Bitcoin network are becoming more and more real and close. **

The falling cost of Bitcoin security

Under the POW consensus mechanism, the security of the Bitcoin network is provided by the miners who perform mining, but it is not guaranteed by the computing power, but is determined by the cost/benefit of the miners, because malicious damage by hostile forces is eliminated and the motivation for attacks is eliminated. , is profitable.

Therefore, the security cost of the Bitcoin network is equal to the attacker's cost and benefit, where the benefit is the sum of block rewards and fee income.

We can find from statistics that the security of Bitcoin is declining.

Bitcoin monthly security cost - Figure 1 is BTC pricing Bitcoin monthly security cost - Figure 2 is in US dollars. The upper chart shows the changes in Bitcoin's monthly security cost since 2009. Figure 1 is priced in BTC, and Figure 2 is priced in US dollars. From Figure 2, we can see that the security cost of the current Bitcoin network is actually lower than that of 2021, even though the computing power of the Bitcoin network has doubled during this period.

The picture above shows the proportion of block rewards and transaction fees in the market value of Bitcoin. The picture above shows the proportion of block rewards and transaction fees in the market value of Bitcoin. Since these three data are all priced in Bitcoin, this The proportion shows a downward trend. **The proportion of block rewards is declining due to the halving, but the proportion of transaction fees has not increased at all. Under this trend, the continuous reduction of Bitcoin security costs will be inevitable. **

The increasing possibility of being attacked

One thing this chart also tells us is that the growth rate of Bitcoin's market value is much higher than the growth rate of security costs, because the price is rising, and the current block reward for the bulk of security costs is halved every 4 years. **Statistics show that the price of Bitcoin maintains an annual growth of more than 19%, which can offset the decrease in security costs caused by the halving of block rewards, but we all know that this is unrealistic in the long run. ** Taking a step back, even if such an increase is maintained, the decline in computing power and mining costs will make this price increase meaningless.

**As the market value of Bitcoin gets higher and higher, the benefits of attacking become greater, and the possibility of being attacked also increases. **

On the other hand, the cost of attacking is decreasing. Bitcoin’s energy consumption problem has always been criticized, but more and more miners are using clean energy and new energy sources for mining, including some government actions. These miners are already very low-sensitivity to energy costs, which means that these possible Attacker costs fall.

Increase miner fee income = improve Bitcoin security

Since the block reward is fixed most of the time and gradually approaches and eventually equals 0, the income from handling fees becomes crucial.

From this chart, we can clearly see that when the block rewards were almost equal, in May 2023, Bitcoin’s security costs reached the highest in the past year, and the fee income in May was the highest in the same period.

This has given us the answer. **With Bitcoin output halving every four years, increasing miner fee income is to improve the security of the Bitcoin network. **When all Bitcoins are mined, the income from miners’ fees is the entire security cost of Bitcoin.

Security is not only determined by its own system, but also determined by the entire environment. An ancient Chinese proverb goes, "The most dangerous place is the safest place."

Security, which is attractive to those outside the cryptocurrency industry, is less attractive than the potential for high returns for most people inside the industry. Even if you still trust the security of Bitcoin, it is more often used as a defensive option in a bear market rather than using Bitcoin to obtain profits.

**Due to the important role of handling fees in security, Bitcoin’s expansion, use value issues and network security form a flywheel that complement each other. ** Bitcoin needs to build its own security in different environments, and needs to use some innovative behaviors to increase its fee income, create benefits for holders, and increase its adoption rate.

Increase transaction volume instead of increasing single transaction fees

The increase in handling fees in May 2023 is due to the emergence of Ordinals. **We can also clearly see that it has not been sustainable. This has problems with Ordinals itself and with Bitcoin. **

During the popularity of Ordinals, the handling fee for a Bitcoin transaction was as high as hundreds of dollars, which was unacceptable to most people. Such behavior that only increases the unit price of handling fees will force people to give up using Bitcoin, which will ultimately lead to more destructive results. Because of the existence of altcoins, although the security is not that high, if they provide more use value, income opportunities and lower handling fees, then in the long run, these altcoins will become competitors of Bitcoin. Paul Sztorc, the founder of Layer 2 Labs, has already discussed this (

If we don’t want to see Bitcoin ruin or issue more, then expanding its capacity and increasing Bitcoin transaction volume are the only options.

Most Layer 2 transactions do not pay fees to Layer 1 miners. Lightning Network flows to other LN nodes to compensate them for risk, working capital, channel management, reliability, uptime, etc. For state chains, there may be no fees at all (or they may be paid via LN).

Transaction fees on Liquid go directly to Blockstream. For hosted L2, there may be no fees.

For OpenDime/ColdCard etc., IntelSGX/Teechan will not pay any fees to Layer1 miners.

DriveChain is bringing many use cases and transactions to Bitcoin in the form of side chains. Based on BIP-300 and BIP-301, DriveChain can bring various side chains to Bitcoin and allocate the transaction fees of the side chains to the Bitcoin mainnet miners without any additional costs for the miners.

Based on DriveChain, developers can also obtain a very friendly development environment and directly access the large-scale user group of the Bitcoin community. RSK’s community is already seriously discussing joining DriveChain as a sidechain.