Original title: Bitcoin Needs Apps
Original author: Jack Inabinet
Original compilation: Luccy, BlockBeats
Editors note: With the upcoming Bitcoin halving event, Bitcoins security budget will be reduced, which may lead to the loss of miners and increase the frequency of on-chain attacks.
In order to avoid future security crises, Bankless analyst Jack Inabinet believes that the Bitcoin network must increase transaction fee revenue. But he also pointed out that the premise of increasing transaction fees is that Bitcoin must first give people a reason to want to use it, and the easiest way to achieve this goal is to create an environment where people can develop applications.
Bitcoin has one major problem, its security budget.
Miners who secure the Bitcoin network rely on inflationary block rewards and user transaction fees for revenue, but Bitcoin’s emissions are cut in half roughly every four years.
The next Bitcoin halving event is scheduled for April 2024, and the resulting reduction in block emissions will make miners more dependent on transaction fees for revenue. Bitcoin’s security budget will decrease without a corresponding increase in transaction fees.
Shrinking Bitcoin’s security budget will result in a loss of miners, reduce the amount of computing power needed to protect the network, and make attacks on the chain more economically feasible! While not necessarily an immediate issue, how Bitcoin should bear security costs in the long term is a top concern for the network.
Ethereum commentator Anthony Sassano recently teased Bitcoin’s security issues on Twitter, laying out alternatives for securing the Bitcoin network if transaction fees are insufficient to make up for the reduction in BTC issuance.
The above proposed actions could help Bitcoin avoid future security crises. Still, conservative communities are unlikely to consider alternatives to existing networks because implementing them would require compromises on core principles.
To ensure its future growth and reduce its reliance on block subsidies, the Bitcoin network must increase transaction fee revenue, but to do this, Bitcoin must first give people a reason to want to use it.
There is no doubt that Bitcoin proponents will face an uphill battle if they wish to increase transaction revenue and avoid adopting more drastic advice, but they don’t have to, as transaction revenue on the network soared threefold in 2023.
The surge in transactions has been attributed to the creation of useful primitives such as Ordinals and BRC-20, which were built using Bitcoin’s Taproot upgrade, stimulating chain utilization.
Sadly, as evidenced by transaction fees accounting for less than 10% of Bitcoin block rewards in 6 months, the intensity of usage of these applications is inconsistent and entirely dependent on speculation.
Thankfully, experiments are currently underway to bring other forms of life to Bitcoin, which may result in more consistent trading activity.
Botanix is introducing EVM to Bitcoin through L2 technology and has just launched the testnet. Support for the EVM enables developers on Botanix to write and deploy applications using Solidity, the mainstream cryptographic coding language, and is compatible with existing Ethereum infrastructure such as the MetaMask wallet.
BitVM is another solution that aims to make Bitcoin programmable by enabling Turing-complete Bitcoin contracts at layer 1.
While BitVM does not require a fork and does not introduce additional complexity to the Bitcoin network, the solution is severely limited by the two-party design, which means that BitVM cannot support large-scale decentralization with multiple transaction parties app.
Bitcoin Improvement Proposal 300 hopes to bring programmability to Bitcoin through sidechains. However, this proposal would introduce additional complexity to Bitcoin and would have to be implemented via a soft fork. Given Bitcoin’s ongoing conservatism, such an upgrade is unlikely to happen.
While traders flipping JPEGs and imitating spamcoins may not be the ultimate instance of innovation, the rise of emerging use cases capable of generating significant transaction fee revenue demonstrates the potential for Bitcoin to become self-sufficient without block rewards.
What Bitcoin needs now is real use cases that lead people to repeat transactions on the chain. The easiest way to achieve this is to create an environment where people can develop useful applications.