The often-quoted finite BTC supply faces a major sustainability issue. A basic principle for network security of the distributed ledger requires that mining remains profitable, while attackers need to be economically disincentivized.
In Bitcoin terms, this implies that a certain hash rate needs to be maintained, which corresponds to investment in equipment and energy.
Since resulting bills can
be assumed to be paid in fiat (money), the reward for mining a block needs to have a certain minimum value in traditional currency.
At the time of writing in 2022, the lion share of the reward originates from the coinbase transaction which amounts to 6.25 BTC.
In an order of magnitude calculation, this
equals to about 100,000 USD, and, for simplicity, we assume 2,000 transactions per block. This back-of-the-envelope calculation essentially suggests that, currently, a cost per transaction of about 50 USD.
As long as this amount is mainly covered by the coinbase reward, the actual transaction fees paid by the user remain much lower. However, this necessitates that the ratio of demand-to-supply for BTC
on exchanges stays sufficiently high; a dropping USD-BTC pair also lowers the hash rate, and thus network security.
Let’s consider two examples while neglecting inflation, which will most likely affect the BTC price and mining expenses in a similar manner.
By the early 2030s, the coinbase transaction
will have fallen below 1 BTC.
So, by then, one BTC must be traded at approximately 100,000 USD to
keep transaction costs fairly constant.
After 10 halving cycles, in the middle of the 21st century, less than 0.05 BTC will be newly issued per block, meaning that one BTC would have to sell at about 2 million USD at exchanges in order to restrict transaction fees to present levels.
Therefore, and in addition to the limited transaction throughput, Bitcoin can only meet the economic requirements of a micropayment system if the number of transactions that can be crammed into a single block is substantially increased, e.g., by layer-2 solutions such as the Lightning network.
As a layer 1 with the current block size and clock rate,
Bitcoin will, otherwise, inevitably become “Digital Gold” where high transaction fees (and comparatively low
throughputs) are acceptable in the market.
