In the New Era Of Bitcoin, Who Will Mine Limited Blocks?

News, Opinion | May 29, 2020 By:

With the recent halving of 2020 completed for all major Bitcoin chains, the aftermath was essentially as predicted; the price went sideways, and life moved on. Apparently a global pandemic is enough to keep the mainstream markets from paying attention to the digital asset markets. This marked the end of the era where belief that Bitcoin was immune to macroeconomic factors, such as monetary policy, kept the price and market afloat. The much-anticipated halving came and went, and the price hardly moved, let alone doubled. With this, came the realization that probably, this time around, the 3rd time is not a charm.

Miners in BTC have been, well, miners. They have generally worked behind the scenes, preferring to keep themselves and their business out of the limelight. This approach to mining is one that used to make sense. Take for example the gold rush panhandlers of yore, who didn’t need to register their business as a gold prospector, set up a store front, nor apply for a bank account. You simply needed a pick-axe, a metal pan, and to head out west to find your fortune. Similarly, miners in Bitcoin for the last seven years have mostly been of this sort. It is then not surprising how they did not foresee the tectonic change in their business approaching.

Bitcoin has a fixed inflation schedule. With every halving epoch, the block subsidy reward reduces. Economically speaking, the block rewards will become insignificant (under 1¢). If you are a miner on BTC, then the ability to sustain your business relies solely on the fact that the BTC price must appreciate constantly. But how long can an asset price appreciate indefinitely, when the asset has no intrinsic value besides being an object of speculation? This is the bleak economic reality of a BTC miner. One where an ever-shrinking pie is constantly fought over by a growing population of miners. So why would they continue to do so if there is an alternative?

On May 16th 2020, on the Bitcoin SV network, TAAL produced a 369mb block, with a total transaction count of over 1.3m transactions. This is exactly the kind of thing that the ‘small block’ proponents said could never be done back in 2015, during the height of the ‘block size wars’ in Bitcoin. With no limit on block size, allowing for unbounded scaling in the transaction dimension, a new era for Bitcoin opened up. For the first time, the focus changed from one based on mining inflation rewards to one centered around transactions, and the more that you can process, the more you can earn as an infrastructure provider.

This is the long-term sustainable model of Bitcoin. This is the model that incentivizes the infrastructure providers to grow and scale the network, so that they can grow and scale their revenue. And this results in the practical use cases for the platform to grow and scale as well. It is a virtuous cycle growth model, and one that was originally intended from the beginning. This is the end of the mining business, and the beginning of the age of transaction processors.