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Bitcoin’s Security Model is Flawed, Cap Increase as Solution?

by Chiwuike Owunwa
Dec 21, 2022 - 12:00 am
in Bitcoin
Bitcoin's Security Model is Flawed

On the 20th of December 2022, Miles Deutscher, a crypto analyst on Twitter shared an interview on Bitcoin’s security situation and possible solutions.

1. #Bitcoin's security model is flawed.

"If we don't talk about it, we might end up in a situation where we're unprepared." pic.twitter.com/TIHkTpVDCO

— Miles Deutscher (@milesdeutscher) December 20, 2022

Miles interviewed Jordi Alexander, the CIO of Selini capitals, about the state of Bitcoin, the BTC Vs ETH flip, and how all these would affect the next crypto cycle.

Block rewards are starting to decrease at a consistent rate, inflation is increasing the cost of operations. This situation would lead to a breaking point where incentives paid to block miners are not worth the cost of operations. Thus, the economic reaction would be to switch off.

Right now, the dollar value of mining rewards is still high, and there are some bad economic situations. He predicted that the incentive situation would worsen in 10 years, and it’s a conversation the industry needs to address now. If BTC miners back out of the ecosystem, it would negatively impact the security of the Blockchain.

This issue arises due to Bitcoin’s design. Bitcoin is designed so that new coins are mined at a predetermined and gradually decelerating speed. As of 2022, around half of the Bitcoins that were ever designed, have already been created.

The Bitcoin supply is set to increase by another margin between now and 2025.

This limited supply was supposed to be a clever design feature, but it’s turned Bitcoin into a speculative asset. The problem with this is that the amount of the currency doesn’t increase in line with the number of people using it.

According to Jordi, this makes the coins good investments in the long run, due to the supply squeeze. This means people would stop creating a new currency, and the existing ones would circulate. And with users who would rather hodl their coins, there’s the possibility of an explosive event.

On the other hand, he also outlined three possible solutions to the BTC security flaw problem. One would be to increase the incentives, and that would lead to increased trading fees from utilizing the Network. Another solution is the intervention of an entity that would support BTC mining without expecting financial benefits. Similar to an NGO.

The last option would be increasing the Bitcoin cap in favor of tail emissions, which would be a very difficult conversation.

But, Jordi believes that being able to resolve such issues and provide clarity sooner than later would make the industry more attractive, which would lead to favorable development.

Tags: BTCETHSecurity
Chiwuike Owunwa

Chiwuike Owunwa

Chiwuike is a frontend programmer and writer with 3 years experience in the Web3. He's meticulous researcher, enthusiastic about Blockchain and the future of crypto, DeFi, and the Metaverse.

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