The Bitcoin Economy

I have the mindset that if Bitcoin succeeds with what it promises, it would usher in an age of abundance and prosperity for consumers. Prices on goods and services will go down over time relative to the price of Bitcoin and competition among productive businesses will skyrocket forcing the economy to operate purely in the interest of consumers.

Bitcoin has the potential to create this kind of economy through its increasingly deflationary model contrast to every other inflationary currency which exists currently and has existed before it. Even Gold is inflationary (Roughly 2%/year, and potentially infinite total supply within the universe). I see Bitcoin as a Hyper-Secure, corruption-resistant, and currently the most decentralized asset which currently exists. All of these attributes working together to create a singularity blackhole-like effect within the trade & finance sector where everything will naturally go down in value compared to the value of Bitcoin over time. The Inevitable Bitcoin Economy.

As is well known during historical times of economic deflation, people are less likely to spend and more likely to save. This effect will be a feature of the Bitcoin Economy. In this economy consumers will be far less willing to spend their Bitcoin on general things as they all devalue over time. This will have a direct impact on how businesses operate and which products and services will be able to exist. Only the most productive/desired products and services will be able to withstand the deflationary pressures of the Bitcoin Economy. Nothing else will be able to survive as people are simply unwilling to spend their appreciating Bitcoin on junk or wasteful products as they do in todays economy.

Competition will skyrocket among businesses which are productive enough to generate profit (in BTC). This competition will further ensure higher quality goods, better decision making, and compounding lower prices in all business ventures. The economy and businesses within are forced into an age that prioritizes serving consumers or failure. Even governments will be forced to always act in the best interest of the consumer. They will no longer be able to print infinitely. They will have to find productive means to continuously earn Bitcoin if they wish to remain in power.

The Problem

It is key to note that Bitcoin is currently inflationary, and will not become deflationary until all remaining Bitcoin have been mined over the next 120 years. Even though it is currently inflationary, Bitcoin undergoes halving cycles where the amount of inflation is cut in half roughly every 4 years. It may currently be the least inflationary currency/asset in existence making its rate of inflation overall less than most or all other things. However... It is still currently Inflationary and not Deflationary.

For the Bitcoin Economy to come true as described, Bitcoin needs to succeed in its upcoming attemptat transitioning from Inflationary to Deflationary. It cannot remain inflationary indefinitely otherwise fundamentally, Bitcoin would lose its most valuable quality; The Promise of Deflation through Digital Scarcity.

Bitcoin is secured through its mining network. Without going into too many details; the higher the total mining hash-rate of honest miners, the higher the degree of network security. It would require a bad actor to achieve at least 51% majority of the hash-rate in order to cause any harm to Bitcoin's network. So far this security network has been working well through the built-in incentive mechanism allowing miners to earn Bitcoin as the reward for contributing to the total hash-rate.

This security model works due to Bitcoins current inflationary model. It ensures miners can receive sufficient reward for the time, energy, and ultimately value they put in to secure the network. Once there are no more Bitcoin left to mine, the only reward will be from Bitcoin Transaction Fees. The question is; will these transaction fees suffice?

Will Bitcoin Succeed?

A few years ago, there was an article written on this topic by Dan Held called Bitcoin's Security is Fine.

The article outlines forecasted theories on how the security model may succeed. Notably, the article provides a forecasted transaction fee model which suggests that Bitcoin transaction fees will increase over time to remove the need for mining more Bitcoin to sufficiently reward miners. The chart was created by a now removed Twitter account; Awe_andWonder called "Crossover Point".

Awe_andWonder's chart forecasting tx fees to increase over time.

If you are like me, you will notice that this is a forecasted assumption, not something that is guaranteed, and also was made in 2019. Upon seeing this chart, I wondered how it looks today now that it is 2023. Thanks to CoinMarketCap's recently released Deep Dive video on the topic, I was able to find this information.

Recreation of Crossover Point. We can see fees are not going up as anticipated.

As we can see, fees are not moving as originally forecasted, but rather are lower now than ever before. As much as I like the idea of having lower transaction fees to make transacting with bitcoin more scalable, lowering fees create a potential threat to Bitcoin's security model. If fees are not sufficient in rewarding miners, they will have to shut down their equipment lowering hash-rates. This has the effect of lowering Bitcoin's protection from 51% attacks, and could compromise the integrity of the network.

In addition to the potential problem with fees, it makes me wonder if the way Bitcoin's Halving cycles work, will gradually lower willing mining participants as there are less and less Bitcoin to be mined to reward miners. I can see this one being solved so long as Bitcoin's price doubles every 4 years to compensate. However, it is fairly difficult to assume we can guarantee price will double every 4 years. It seems like we rely on consistent increasing demand and adoption over time, otherwise potential collapse through this potential security flaw.

Solutions?

I have had an extremely difficult time finding resources with good answers/solutions to this problem. This is why I am creating this thread... I need help! I think it is important to bring some awareness to this problem as I barely see anyone openly talking about this potentially major flaw. Could we all be buying into an asset and a story claiming inevitability of success, when in reality it is inevitable to fail? Bitcoin currently being inflationary is why it is able to work the way it works right now. Is a truly deflationary currency simply not possible within the laws of physics of our reality? Perhaps there is a reason why true deflationary value has ever existed before Bitcoin. I need to know.

I get the feeling of uncertainty on this topic among the Bitcoin community. Pretty much all other Bitcoin FUD has clear answers and solutions except for this one problem. Below are some ideas I have had and some that I have heard but do not fully understand. Feel free to refer to them as start points for researching this topic. Perhaps some of them may be the key to Bitcoin's inevitable success:

1. Maybe the Crossover Point chart is just having an unexpected setback, but will get back on track at some point. Unfortunately there is no method I can find to prove this.
2. Lightning network apparently can help with this as continuous adoption seems to be a key factor in solving this issue. Lightning network has its own set of drawbacks which cause this solution to remain uncertain as well. See CoinMarketCap's video or Till Musshoff's video for info on this.
3. Merged Mining. This one I do not understand at all, but all resources which cover it do not conclude on it being a certain solution, rather a potential one. More research required. Both above videos cover some of this as well.
4. My theory: Bitcoin's continuous natural adoption over the course of the next 120 years leading up to the final bitcoin being mined, will increase the value of the network enough that this problem just fades out of existence. Basically my idea is that over time, technological advancements in computing, energy and whatever else make it so that hashing does not cost much. Perhaps it could become nearly free to contribute to the network hash rate one day. This comes with the added problem of bad actors also having access to the same low costs. Perhaps in the future, excess computing resources will naturally get used by everyone similar to cloud mining. Everyone naturally contributes to the network. Maybe gaming companies will develop Pay to Earn models using bitcoin mining and offer 'profit split' to incentivize people to play their game and run the mining software on their systems. I have no idea if this idea is even remotely sound, its more of a top of my head kind of thing.
5. Some combination of all the above? Makes sense, but is it possible for us to be able to discover certainty, or are Bitcoiner's doomed to simply having faith that this issue will resolve and not death spiral out of control?

Conclusion

In contrast to my previous view on Bitcoin's success being unquestionably inevitable due to all of its traits where all counter-arguments fail, it seems there is one key argument which remains uncertain. This security subsidy schedule issue is the only problem I have identified so far with bitcoin of glaring concern.

I would like to recruit any willing reader of this thread to aid in educating me on what I am missing on this topic. How will this problem be solved? Is it a natural solution, or one developers/Bitcoiner's must work together through code changes/forks whatever else to solve? Is Bitcoin not as certain as we all have been led to believe this far?

I am looking forward to any engagement this thread attracts and am seeking the opportunity to converse. I am not completely convinced against Bitcoin as a result of these findings. I will continue to DCA in as there seem to be many potential solutions. Perhaps the fact there are potential solutions means one will inevitable come to save the day. I once had an unwavering conviction on Bitcoin where no argument was good enough to deter me, however this one is causing me to stumble. Lets see if we can put this issue to rest.

Thank you.

Additional Information & Resources

https://www.youtube.com/watch?v=8si1gB8siTA&t=806s&ab_channel=CoinMarketCap

https://www.youtube.com/watch?v=8GUFpBr1mwA&t=68s&ab_channel=TillMusshoff

https://joekelly100.medium.com/how-to-kill-bitcoin-part-1-is-bitcoin-unstoppable-code-7a1b366f65ee

https://joekelly100.medium.com/on-bitcoins-fee-based-security-model-part-1-beware-the-turkey-fallacy-4285e18d41ea

https://danhedl.medium.com/bitcoins-security-is-fine-93391d9b61a8