Bitcoin’s long-term security budget problem: Impending crisis or FUD?

The key selling point of Bitcoin as a store of value has everything to do with the credibility of its monetary policy. As Bitcoin inventor Satoshi Nakamoto once wrote, the rules of the system were “set in stone” when the network first launched, and those rules included the 21-million-Bitcoin supply cap and the related issuance policy maintained by the roughly four-year halving cycle.

But are those rules really set in stone? Is there really no chance Bitcoin’s monetary policy will change at some point in the future? 

Some critics believe that after the block reward drops too low as a result of the halvings — and if transaction fee revenue has not risen substantially — there will no longer be enough incentive for miners to secure the network. They argue the Bitcoin network may be forced to increase the supply as a result. 

“If fees don’t magically grow orders of magnitude there are two candidate solutions: 1) add tail issuance, remove the 21M limit [or] 2) switch to proof-of-stake,” Ethereum Foundation Researcher Justin Drake wrote on X earlier this year. “Both ‘solutions’ seem to be cultural non-starters. Also tail issuance only works proactively, not after a 51% takeover.”

To Drake’s point, there is indeed strong resistance to potential alterations to Bitcoin’s monetary policy. As Plan B Network director Giacomo Zucco hyperbolically stated in a recent debate, “It should be punished by death if you propose it.”

And many Bitcoin holders also see the supposed security budget issue as nothing more than fear, uncertainty and doubt (FUD) from altcoin promoters. “The crypto orthodoxy is that Bitcoin has an unsolved security budget problem,” The Bitcoin Bond Company CEO Pierre Rochard posted on X. “Any arguments against this dogma are seen as heretical by the pious cryptobros.”

So, who’s right? Can Bitcoin remain secure over the long term, or is an impending crisis looming?

Bitcoin’s declining block subsidy

Throughout Bitcoin’s history, miners have been rewarded with both the block subsidy and transaction fees. The block subsidy is the newly created Bitcoin included in each block, while fees are the mechanism used to incentivize miners to include specific transactions. When you put these two together, you get the total block reward, which is what provides a reason for miners to spend resources on the mining process in the first place.

The block subsidy is cut in half roughly every four years via halving events. The subsidy started at 50 BTC per block when the system first launched, and it’s now down to 3.125 BTC per block in 2025. Despite the decline in the Bitcoin-denominated block subsidy over time, the value of it in US-dollar terms has increased due to Bitcoin’s price appreciation. But the block subsidy decreases and asymptotically approaches zero, meaning that the aspect of miner incentivization will eventually run out.

“Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free,” wrote Satoshi in the original white paper.

Increasing Bitcoin fees could fix the problem… of spam

Due to Bitcoin’s block size limit, increased fee revenue for miners would also mean an increased fee rate on a per-L1 transaction basis. In other words, an onchain transaction that costs $1 or less today may eventually cost $20. Of course, this increased cost at the base layer can potentially be offset by allowing many cheaper payments to take place on secondary layers before settling on the base chain.

While this raises costs for those who want to make transactions on Bitcoin’s base layer, some Bitcoin users see this as a potential benefit because it can crowd out non-Bitcoin use cases, such as Ordinals or Runes, as using the Bitcoin base layer as a generalized database would become more costly.

In the past, fee increases have had the side effect of pricing out inefficient use of the base Bitcoin blockchain. Examples of this phenomenon include exchanges dragging their feet on upgrading to Segregated Witness and integrating transaction batching (and later the Lightning Network), Veriblock going from 30% of all Bitcoin transactions to near zero, and Tether’s USDT moving to cheaper, alternative crypto networks such as Ethereum and Tron.

Of course, not everyone agrees with this assessment, and that disagreement ties into the recent conversation in Bitcoin regarding individual nodes’ potential use of filters on the peer-to-peer relay network, specifically for larger OP_RETURN outputs. While there are concerns from much of the Bitcoin userbase around “spam” from Ordinals and other meta token protocols, others see the lack of block space demand on the network more generally as a more pressing concern.

Up to this point, we haven’t seen Bitcoin operate in a consistently high-fee environment where fees account for more miner income than the subsidy. Some Bitcoin users see meta token protocols as potentially helpful for increasing fees rather than viewing them as nothing more than spam, but as noted above, these sorts of alternative use cases have historically tended to disappear after fees have risen.

While there was a lot of hysteria during the block size war regarding the need to immediately increase the network’s block size limit via a hard fork, the reality is various forms of offchain Bitcoin use, such as the Lightning Network and ETFs, have led to a situation where people are able to gain access to Bitcoin as a store of value and even as a medium of exchange without needing to touch the base network on a regular basis. However, this does not mean these offchain systems do not contribute to fee revenue at all, as they still eventually settle to the base chain.

Raising Bitcoin’s 21 million supply cap is a non-starter

So, what are the most viable options for replacing Bitcoin’s block subsidy as it continues to decline over the next 115 years or so? There are plenty of possible ideas to choose from, but some of them are much worse than others.

Due to the difficulties associated with making consensus changes to Bitcoin, potential increases to miner revenue that involve fundamental changes to how the system works today are complete non-starters. This would include options such as altering Bitcoin’s monetary policy to continue the block subsidy in perpetuity or effectively firing the miners and turning Bitcoin into a proof-of-stake network like Ethereum or Solana.

Increases to the block weight limit (the effective successor to the block size limit as a result of the Segregated Witness soft fork) could also potentially increase revenue in aggregate; however, raising the cost of operating a full node is also controversial (as illustrated by the block size war), as it increases the cost of verifying Bitcoin’s monetary policy and the validity of transactions without placing additional trust in a third party. So, expansion of fee revenue in that way is limited.

The largest #bitcoin mine in America calculates 10,500,000,000,000,000,000x algorthithms per second powered by 700 megawatts of electricity. pic.twitter.com/Nsjti8rOKt

— Documenting ₿itcoin ? (@DocumentingBTC) February 2, 2024

The most practical ideas involve high onchain fees

After the network started to reach its capacity limits for the first time in 2017, the base layer pivoted from a peer-to-peer digital cash system to mostly a settlement layer for a new monetary system. Over the long term, this planned, multilayer approach is still the consensus path forward in terms of the security, viability, and credibility of the Bitcoin network.

The idea is to increase the economic density of onchain Bitcoin transactions through upper-layer transaction protocols where a single onchain action can account for effectively an unlimited number of payments (at least in the case of the Lightning Network).

There are many upper-layer transaction protocols for Bitcoin in various stages of development, with the most notable and popular example being the Lightning Network. Statechains, Ark, Drivechain, Shielded CSV, federated sidechains and rollups are some of the other notable systems.

These upper-layer protocols allow Bitcoin payments to take place according to a specific set of tradeoffs, while final settlement and large-value transactions can still occur at the base blockchain layer. Centralized systems such as custodial e-cash or the aforementioned ETFs still use the Bitcoin base layer for settlement as well.

The recent support from various Bitcoin developers for the CTV+CSFS OP code changes may also have some relevance here.

“I don’t think that CTV+CSFS helps solve the long-term mining subsidy problem per se,” former Bitcoin Core contributor and supporter of CTV and CSFS James O’Beirne tells Magazine. “I think the most you could say is that CTV+CSFS simply makes the chain more useful (e.g., by providing primitive vaults), and that might be an indirect reason for chainspace demand to rise.”

Notably, some upper-layer Bitcoin transaction layers, such as Drivechain, Anduro and Rootstock, allow miners to collect fees on these merged-mined secondary layers as well as the base chain. LayerTwo Labs CEO Paul Sztorc has argued that these types of secondary layers have a key advantage in that miners are the ones who ultimately decide which transactions go into blocks on the base blockchain.

Demand for Bitcoin block space is the key

If there is not sufficient demand for Bitcoin block space to incentivize miners to act honestly, then it likely means that Bitcoin has failed to gain sufficient adoption as money. In other words, it is not the case that insufficient block space demand will lead to Bitcoin’s eventual failure; rather, it would be an illustration of a failure that has already occurred.

A 2021 research paper (PDF) on the matter previously stated, “It is hard to imagine that Bitcoin could completely die from anything other than a total lack of demand.”

However, it should be noted that perpetual issuance was included as a credible, albeit controversial, option in the paper.

“If we have no [or] few fee-paying users, it means that most people don’t care about what we’re selling,” Sztorc, whose writings were cited as one of the inspirations of the research paper, tells Magazine.

Potential soft fork tweaks to Bitcoin

There is also the potential for tweaks to the network to be made in order to keep the project going even in the face of user adoption issues. Soft forks could be implemented to add a minimum fee rate for transactions on the network, or a system of demurrage could be added where those who are simply holding Bitcoin also pay fees to miners on a regular basis.

There’s also the option of lowering the block weight limit, which would be ironic, given how many people previously thought the network’s fate depended on an increase to that limit. Much like the option of increasing the block weight limit, miners can potentially benefit from altering block space supply under certain demand conditions.

However, it should be reiterated that Bitcoin would likely already be in a bad spot if its survival depended on these sorts of options. As soft forks, these are the sorts of things miners can effectively implement on their own (as long as full nodes don’t revolt via hard forks), and they’re the ones who would theoretically need the revenue bump. There can be extreme difficulties associated with making changes to Bitcoin, but that goes out the window when the system is effectively broken without the upgrade.

If Bitcoin continues to grow as a strategic reserve asset, it’s also possible that incentives to mine will exist without the need for fees. This is a scenario where large Bitcoin holders, perhaps some combination of financial institutions and nation states, are incentivized to mine simply to protect the value of their holdings in the world’s most trusted reserve asset. Mining would also ensure their transactions would eventually be included in blocks (ignoring potential 51% attacks).

“Could there then be a global coordination to pay a necessary security budget through taxes to enshrine and secure Bitcoin as a public good?” Jal Toorey, who developed The Nashian Orientation of Bitcoin, previously wondered aloud in his writings.

Notably, Tether has already invested in mining while also using Bitcoin as partial backing for its privately-issued USDT currency. And there are likely to be synergies between large Bitcoin holders and currency issuers for the foreseeable future.

Then again, these entities could also simply make regular donations to miners rather than mining themselves, which ends up looking more like the demurrage scenario. In other words, the worst-case scenario appears to be some variation of the same concept: holders needing to pay a tax, which they effectively already pay today via the block subsidy-imposed inflation tax. The block subsidy, demurrage, fee-based donations, a minimum fee rate and savers choosing to mine to protect their savings are all different flavors of a similar concept.

“Ideally, the Bitcoin community gets together and fixes this problem with some kind of tax,” longtime Bitcoin researcher and Bitcoin Core contributor Peter Todd tells Magazine. “There’s a variety of ways to implement it. But obviously, money doesn’t come out of thin air, so regardless of what is done, it’ll be a tax. Maybe there is some other clever scheme that fixes this issue. But after years of discussion, no one has come up with one.”

This is where the key point of credible contention in terms of Bitcoin’s long-term security budget resides: Some think the fee market alone will be able to secure the network, while others see problems with a security model based solely on fees.

On top of concerns regarding sufficient fee revenue for miners, those who are worried about the lack of a long-term tax on holders to replace the block subsidy are concerned with potential issues around block confirmation reliability and mining centralization. However, this is a separate issue out of the scope of this article, and it can be less of a problem in a scenario where Bitcoin is widely used and there are plenty of transactions pending in the mempool.

“As for what is likely to happen… too early to tell,” Todd tells Magazine. “But there is a good chance the issue isn’t fixed, and it leads to permanent mining centralization.”

While the specific method by which Bitcoin will be secured over the long term is not completely clear, there are a variety of possibilities to ensure miners have some incentive to process transactions as long as enough people find Bitcoin useful as money or even just as a store of value. And this incentive does not need to come in the form of altering Bitcoin’s monetary policy.

Subscribe

The most engaging reads in blockchain. Delivered once a
week.

Kyle Torpey

Kyle Torpey has been covering Bitcoin and crypto since 2014. Notably, he covered Bitcoin’s blocksize war at Bitcoin Magazine and Forbes. Over the years, his work has also been published in Fortune, Vice, Investopedia, and many other media outlets