The only entities that would mine for insurance purposes would be those that have a big enough budget to buy the necessary hardware. In the event of bitcoin growing to a sizeable economy, if the landscape of bitcoin users include a large proportion lot of small businesses and individuals, I would guess that most of them wouldn't be buying their own specialized mining rigs for insurance against an attack. Because so the money spent on mining would probably be a lot less compared to today, and therefore would be a lot easier to attack.

Also, even if this was successful, bitcoin would then be in the hands of a few large corporations. It wouldn't be much of a stretch for them to form a consortium and use their muscle to start changing bitcoin to include exorbitant fees for themselves.

The problem is that the transaction fee isn't paid to support a large secure market. It's paid in order to add that transaction in the bitcoin block chain and broadcast it. It might be used to add more mining hardware, but the size of the network has no bearing on this function. So, (mark-up cost added to the transaction) + (the bitcoin reward) = (the revenue for the miners) which is proportional to the size of the bitcoin network. Since all miners provide the same service to the trader, the revenue of processing a transaction tends towards just the cost to rebroadcast the transaction data which is practically zero. So leaving that out of the equation, all we have is that the bitcoin reward is proportional to the size of the bitcoin market.


If someone implements a 51% attack, waiting for longer confirmations wouldn't work, because an attacker could always create a longer chain then the rest of the network. And, anonymous proxies would be enough to get around any ip blacklist.

Here is a scenario which would end in the destruction of bitcoin which I haven't seen mentioned before. Please give me your thoughts on it. It's entirely based on the fact there is no minimum transaction fee.

One assumption I'm making is that a certain segment of the population is out for their maximum own profit and will not hesitate to better their own situation to the expense of the entire system (For example, imagine a bunch of fishermen at a lake. It's assumed that certain number of them will catch as many fish as possible causing the fish to run dry.)

First, suppose some bitcoin traders will continually try to reduce their paid out transaction fees. If a bitcoin miner receives a transaction with a lower transaction fee and can still make money while accepting it, they'll do so. Then more traders reduce their fees to keep inline with the going rate. This will cause all the bitcoin miners with processes not efficient enough to still make money to go out of business. Once that happens, the network size will decrease. This will cause each surviving miner to be able to survive on a lower transaction fees because they will have the chance to process more transactions. The process then repeats. This will eventually cause the transaction fees to become practically zero, and the only benefit remaining for the existing miners is the bitcoin bounty.

As the bitcoin bounty decreases, the number of miners that can survive dwindles. This continues until the network becomes so small in size that it's vulnerable to a double spend attack. Once that happens, a group, which is an "enemy of bitcoin" (most likely composed of ex-miners, pissed off governments, etc.) does that very attack, which will destroy all credibility in the currency and that is when it dies (to be replaced by something else which doesn't have this issue, presumably)

I realize that there are many years before the bitcoin bounty decreases to miniscule levels, but I think the endgame of this scenario could happen much earlier. As soon as people start to recognize the downward trend of the network size, they will realize a double spend attack will be closer to reality and start to pull money out. This will cause the network size to reduce further resulting in a downward spiral and final crash of the currency.