For quite some time now, people have attempted to gauge miner sentiment solely through hash power and difficulty adjustments. In reality, Bitcoin’s security model is much more dynamic, with multiple variables combining to form an intricate financial system backed by mathematical integrity and game theory.
In plain words, hash power is the amount of power that is going into the Bitcoin network by way of specialized hardware devices that solve high-level puzzles to earn Bitcoin. Hash power can be simply defined as the number of computational resources going into the Bitcoin network.
Security, on the other hand, is a much more complex phenomenon that cannot be easily defined. Bitcoin’s security relies on a number of factors such as mining distribution, full nodes verifying the blockchain, economic incentives for miners, the sustainability of said incentives, and many, many other things. Blockchain security truly is a spectrum just because of the many layers and variables that make it what it is.
One of the most underrated aspects of security is the sustainability of economic incentives. Only a handful of Bitcoin researchers are studying this with an understanding of how important this is to the network’s longevity. Without any proper incentives, it is near impossible to keep a network sustainable for a long period of time.
For example, imagine if the fees paid to miners remain static at the 2019 daily average of 56 BTC per day. As the block reward reduces from 12.5 BTC to 6.25 BTC, at 144 blocks per day the incentives halves from 1800 BTC per day to 900 BTC per day from block subsidies. Just to keep revenue constant, fees need to bridge that 900 BTC gap. The current outlook held by most people is that the price will rise and bridge that gap. But relying on the fiat peg to be the sole reason for network sustainability is far fetched.
Hash power increases need not be a sign of miner capacity expansion. It can also be a result of technological innovation that improves the efficiency of mining hardware. However, at this time, given the proof of miner expansion by the likes of Bitmain and SBI Holdings (among others), it is clear that the latest miner capacity expansion is contributing to hash power growth.
The point we are making isn’t to ignore hash power as a reliable metric. It is to simply temper this approach and support the narrative with additional facts and data to see if it truly holds up. Security is far more dynamic than most people think. Bitcoin’s security level changes on a day-to-basis, so there is no accurate way to discern exactly how secure the network is at one point in time.
Economic incentives go hand-in-hand with computational security metrics. The best-case scenario will see both scale upwards together as the Bitcoin network sees more usage and mining becomes a truly profitable industry on the global stage.