Author: Adam Back 2014-10-25 20:27:30
Published on: 2014-10-25T20:27:30+00:00
The Bitcoin subsidy halving is an event which is known to market participants in advance, and thus it shouldn't result in significant changes of the Bitcoin price. However, Alex Mizrahi's analysis suggests that if miner's income margins are less than 50%, we might experience a catastrophic loss of hashpower, and more importantly, a catastrophic loss of security after reward halving. The security model of Bitcoin relies on the assumption that a malicious actor cannot acquire more than 50% of network's current hashpower. If the attacker-controlled hashrate is higher than 50%, attacks become virtually costless, as the attacker receives double-spending revenue on top of his mining revenue, and his risk is close to zero. According to the simple model, if for a certain miner MIM (miner's income margin) is less than 0.5 before subsidy halving and bitcoin and electricity prices stay the same, then mining is no longer profitable after the halving. In this case, if the majority of miners have MIM less than 0.5, Bitcoin is going to experience a significant loss of hashing power. This can lead to a situation where almost all available hashpower is available for a lease to the highest bidder on the open market, making it easy for someone who owns sufficient capital to pull off an attack.Different mining devices have different efficiency. After the reward halving, mining on some of these devices becomes unprofitable, thus they will drop out, which will result in a drop of mining difficulty. But, if before-halving MIM is close to zero and mining devices, as well as the cost of electricity in different places, are nearly identical, approximately half of all hashpower will drop out. However, there is still hope that it won't be critical since in the equilibrium break-even situation, hashpower drop is less than 50%.
Updated on: 2023-06-09T03:30:33.225014+00:00