Is scaling Bitcoin heading it to a dead end?

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The immutability of any given blockchain is reinforced by the total hashing power behind it. Proof of work (ergo a financial commitment) is a necessity to ensure the party verifying transactions is incentivized to do so honestly.

Currently (April 2018) mining profitability is relatively low and may soon become limited to those with really cheap electricity. This is before any scaling solutions have really come into full force with Bitcoin.

With the next block halving in 2020 (one of many more to come) and scaling solutions becoming mainstream will there still be enough incentive for miners to support the blockchain?

Josh

Posted 2018-04-19T10:24:08.923

Reputation: 599

Answers

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You're confusing different things here.

Parties incentivized to verify transactions are those that receive payments. Miners are only incentivized to do Proof of Work. (Although they have to be careful to not include invalid transactions while doing so.)

Mining is actually very profitable now. You can tell by looking at how fast the hashrate keeps growing. In the long term though, profitability is supposed to be near 0 because of competition: if there's free money to be collected, it would be weird if nobody came around to take it. Those who have cheap electricity inherently have an advantage.

Scaling solutions don't have much to do with any of this, other than possibly hurting the entire system by having blocks become too big. Scaling implies more transactions per block so which means, all things equal, more total fees for miners. Of course not all things are equal in practice, but assuming enough demand to fill blocks, a new equilibrium will be achieved.

Jannes

Posted 2018-04-19T10:24:08.923

Reputation: 5 823

Oh, mining i.e. providing proof of work, isn't automatically validating transactions? (receiving transaction fees) – Josh – 2018-04-19T16:57:21.697

Miners need to be careful not to mine on a block that has invalid transactions, otherwise they won't get paid. So they'd be wise to do the validation. In practice most miners actually trust the pool server to have variates the transactions for them and don't do it themselves. Validating transactions required a full node. – Jannes – 2018-04-20T00:56:40.670

Ok, yes. I guess it brings up the next question of who is going to validate transactions once all the Bitcoin is mined and transaction fee's are virtually nothing. But a lot can change in 100 years ;) – Josh – 2018-04-20T09:30:52.513

That Q has been asked and answered many times on this site already. Short answer is: fees will have to be worth enough to pay for the mining. What "enough" means is still an open question. It does NOT have to be 12.5 BTC, especially if the price goes up a lot. But some equilibrium will have to form. That also means blocks will have to be always full, otherwise fees will go towards 0. That's another reason why "dumb" block size increases are pointless. Smart scaling like SegWit, LN and others on the roadmap, actually help set the stage for robust free market forces to develop. – Jannes – 2018-04-20T12:24:23.183

Asked: 2018-04-19T10:24:08.923

Viewed: 52 times

Active: 2018-04-19T14:06:23.273