The rapid evolution of blockchain technology has given rise to an intricate economic ecosystem, central to which lies the role of miners. Responsible for validating and recording transactions, miners form the backbone of any blockchain. The economic motivations and actions of miners, commonly referred to as ‘miner economics’, determine key aspects of a blockchain’s health and stability.
The current state of miner economics is unpacked in more detail in the new eBook – The next era in miner economics: Embracing coopetition and infrastructure. The ebook was written by Bryan Daugherty (Global Public Policy Director at BSV Blockchain Association) Gregory Ward (Chief Development Officer at SmartLedger), and Kurt Wuckert Jr (Chief Bitcoin Historian at Coingeek).
The opening chapter of the eBook focuses on the current state of miner economics, how we got to this point, and what to expect going forward.
Miner incentives today
Blockchain mining is a fiercely competitive field characterised by an ongoing race to solve complex computational puzzles. Miners aim to dominate in terms of hash power to secure valuable block rewards. However, this focus often leads to short-term and speculative thinking, which is prevalent in the wider cryptocurrency industry.
Block subsidies are vital for major proof-of-work blockchains like Bitcoin (BTC) and the BSV blockchain (BSV). These subsidies are set to halve approximately every 210,000 blocks, a strategy designed to control token supply and enhance network security and infrastructure. The next Bitcoin halving is expected around block 840,000, scheduled between February and June 2024, reducing the current reward of 6.25 Bitcoin to 3.125 Bitcoin.
Download the eBook – The next era in miner economics: Embracing coopetition and infrastructure
It’s crucial to understand that block subsidies are not infinite; they will gradually diminish until around 2140 when all 21 million bitcoins are mined. Over 98% of these bitcoins will likely be mined by 2030, necessitating a shift in miners’ revenue sources.
Historically, transaction fees played a secondary role, overshadowed by block subsidies. However, looking beyond speculation, transaction fees have the potential to become a long-term pillar of mining economics. The industry’s focus on token value often underestimates blockchain’s inherent value as a data utility protocol.
A maturing blockchain mining industry
As the blockchain ecosystem matures, new applications beyond payments are emerging. Enterprise-level utility applications suggest that transaction fees, tied to transaction volume and block space, will become more significant. For instance, in October 2022, a single BSV blockchain application processed over 1.5 million transactions in 24 hours and over 15 million transactions in less than 30 days, surpassing major cryptocurrencies like BTC and ETH in transaction volume. This trend highlights the importance of utility applications and their generated transaction fees in the blockchain’s future.
Moreover, BSV’s transaction volume continues to grow, with a recent record of over 85 million transactions processed in 24 hours in May 2034. This emphasises the increasing adoption of the BSV network and hints at a future where utility applications and their transaction fees will be central to mining economics.
A reevaluation of the blockchain mining business model is necessary
Given these circumstances, a significant reevaluation of the current mining paradigm is necessary. Miners must shift their focus from heavy reliance on block subsidies to becoming sustainable transaction processors. This transition is essential to unlock the potential of transaction fees and align the industry with Bitcoin’s original vision as a fusion of data and finance.
From a macroeconomic perspective, the global cryptocurrency mining market is on a dynamic growth trajectory, with a value of $1.92 billion in 2022, projected to reach approximately $7 billion by 2032.
North America is expected to lead this expansion, maintaining a dominant role in the global cryptocurrency mining market in the coming decade. These evolving trends underscore the need to understand and adapt to shifts in the mining industry landscape.
Download the eBook – The next era in miner economics: Embracing coopetition and infrastructure