Scaling Bitcoin for the plebs

[Pleb1234]

Hello Bitcoiners,

I think many of us have realised, especially after last year, that in the future plebs with lower stacks will be priced out of the main chain, at least for day-to-day transactions. So if we want Bitcoin to be a global transactional protocol we would need robust second layers.
So let’s say in 2032, when 99% of all Bitcoin are mined and Bitcoin miners will rely mainly on transactions fees, what will be the lowest amount of Bitcoin you will want to hold on chain. I think it will be higher then 3m sats (0,03BTC). So do you feel comfortable to hold this much on second layers like lightning right now? Are second layers robust enough now? Which one and why?
And don’t we need hardware wallet like setups for second layers like we do on the base chain? Especially considering in some countries 3m sats might be a year’s worth of salary right now, which you don’t want to hold all in just an app on your phone.

Or will higher Bitcoin prices also mitigate this transaction problem a little? As miners will be profitable at lower sats/vbite because 1 sat is worth way more?

How do you guys feel about scaling Bitcoin a a transaction layer

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[ABCbits]

So let’s say in 2032, when 99% of all Bitcoin are mined and Bitcoin miners will rely mainly on transactions fees, what will be the lowest amount of Bitcoin you will want to hold on chain. I think it will be higher then 3m sats (0,03BTC).

It depends on Bitcoin price.

Are second layers robust enough now? Which one and why?

Technology-wise, LN and few sidechain (RSK and Liquid) are robust enough. But each has limitation or concern such as,
1. LN useful if you frequently make transaction. LN also limited by how many people use it which affect transaction routing.
2. Both RSK and Liquid are federated, not decentralized. Although RSK is somewhat better due to it's merged-mining feature.

And don’t we need hardware wallet like setups for second layers like we do on the base chain? Especially considering in some countries 3m sats might be a year’s worth of salary right now, which you don’t want to hold all in just an app on your phone.

I don't think you can use LN on hardware wallet since you LN channel state may be updated even when you're not using your hardware wallet. Although few hardware wallet already support Bitcoin on sidechain.

[mocacinno]

I've googled around and found this nice graph: https://bitcoinvisuals.com/chain-block-reward

At first glance, the numbers hereon seem to be plausible.

Miners are businesses, they have to pay employees, hardware, power, rackspace, taxes,... so i guess they'll think in FIAT terms.
At this moment, it seems like mining is still profitable, since the difficulty doesn't really make "big" jumps, indicating the global hashrate doesn't grow or drop very suddenly.
 
With the current preev rate of ~$43k /BTC, a miner makes $268.750 from the coinbase reward. https://bitcoinvisuals.com/chain-block-reward tells me the maximum income/block was around $400k at the end of 2021. Right now its ~$284k (so on average, the fees result in $16k/block).

The last 30 days, the average amount of transactions per block was ~3500 (https://www.blockchain.com/explorer/charts/n-transactions-per-block)

Let's assume everything stays static from now on and see what kind of fees would be needed when the block reward goes close to 0 to keep our network "afloat" without a big outflux of miners... $284k (the amount needed to keep the miners interested) / 3500 transactions per block = $81/tx.

So, in order to keep the network "healthy" if everything stays status quo, we'd need a fee of ~$81/tx. That's the current equivalent of 0.00190 BTC.

Now, that's when we speak about a status quo...

• It's very possible technological advances make it interesting for some miners to mine way below the $284k/block income. At this point we might lose miners in countries with high power prices, and maybe the "gap" isn't completely filled by miners from low power price countries... We might be fine with that (the current diff is actually really high. It might be ok if it dropped a little bit).
• it's also possible the btc price rises (or drops). So the fiat value of $81/tx might be way less (or more) in BTC in the future
• protocol changes are also always possible. We had the segwit softfork a while ago that allowed us to move the witness data in the last 3Mb of a block. This increased the amount of transactions in a block. It's always possible something similar might happen in the future

Bottom line: if everything but the block reward stays the same, in a couple of halving we'll need to pay ~0.0019 as fee if we want the same level of network security. If the miners either use new tech, or we're willing to have a little less security, the fee will be lower. If the price rises, the fee will be lower (in BTC terms, not in FIAT terms offcourse).

Anyhow, if we're talking about FIAT, i would not be comfortable paying more than ~5% of the value of my transaction as a fee, so yeah, transactions with a value under 0.04 BTC ($1700 at current rate) would kind of defeat the purpose (at least, for me, and only if everything stays status quo).

So, yeah... I guess in the future we should rely on sidechains and altcoins a bit more than we did in the past... Use bitcoin for "larger" transactions (like opening or closing sidechains, or converting to altcoins, or making "big" transactions). But that's just if everything stays status-quo, and it's just my personal opinion

[BlackHatCoiner]

Bottom line: if everything but the block reward stays the same, in a couple of halving we'll need to pay ~0.0019 as fee if we want the same level of network security.

It's important to mention that what we might want or not want is a little irrelevant. Maybe half of the Bitcoiners think that it is already too secure, and the other half holds the opposite view. What matters is the natural outcome, and I think we can all agree that paying 1-2 mBTC for a median transaction is an overdose for the vast populace. That suggests the security will decline over the long term.

Another thing to note is that everyone wants these levels of security. The controversial part is what compromises does one deem acceptable in exchange for that security. Again, I think we can all agree that paying 1-2 mBTC for median transactions is unacceptable for the most part.

[Pleb1234]

I'm new on this forum and when I press quote, only comments which you guys quoted from me will be in quote brackets so I'll leave that for now.


@ABCbits

It sure depends on Bitcoin price and sats/vbite. But I wonder if this issue, like many Bitcoin related issues will figure itself out over the years. As Bitcoin miners are forced to find incredibly efficient energy sources, driving prices down so low and with it the necessary sats/vbite needed to be profitable. Making Bitcoin almost unnaturally (or some would say naturally) cheap compared to other final settlement solutions without having to compromise on the hashrate/security of the network.

I've only dabbled with the lightning network as a second layer and I was doubting robustness of it mainly due to things I read about 'The replacement cycling attack' for instance. Furthermore I've watched Stephan Livera's podcast with Ken Sedwig about using HSMs to reduce lightning hot wallet risk. Now do my best to understand these things but must admit that I have to rely on video's explaining me in Layman's terms what this is all about. Have you guys heard of this attacks and these possible improvements to hot wallet risks on the lightning network?


@mocacinno

Quite fascinating to speculate on what fees/tx would have to be to fund miners without the block rewards. What's also funny to think about is that the block rewards we're not only or maybe not even meant to be subsidizing miners but rather users willing to transact.
I agree with you that this is all speculation and things could go both ways. Like I said to @ABCbits, Bitcoin miners in the future, could be forced to find incredibly cheap energy sources, possibly lowering sats/vbite significantly, without compromising on network security.
Good points, thank you.

[mocacinno]

--snip--
I've only dabbled with the lightning network as a second layer and I was doubting robustness of it mainly due to things I read about 'The replacement cycling attack' for instance. Furthermore I've watched Stephan Livera's podcast with Ken Sedwig about using HSMs to reduce lightning hot wallet risk. Now do my best to understand these things but must admit that I have to rely on video's explaining me in Layman's terms what this is all about. Have you guys heard of this attacks and these possible improvements to hot wallet risks on the lightning network?

AFAIK, the most popular LN node implementations implemented a mitigation against this latest attack vector, but i think it's undeniable that the lightning network isn't as mature as the bitcoin network. I ran a full node + a lightning node (c-lightning) for years. I had to shut it down because the price for my dedicated server had increased exponentially. Even whilst running a full node + a regularly patched version of c-lightning, i only kept 'spending change' inside my open channels.

My philosophy vs lightning is that we need an L2 sollution, and if we don't start using it, it will never truly mature. That being said, i still think it's a bad idea to keep more funds than you're comfortable losing inside open channels. Lacking a full node, i now use a custodial lightning wallet (i should really look into using electrum), but i only keep the equivalent of a couple hundred dollars inside this wallet.

[ABCbits]

@ABCbits

It sure depends on Bitcoin price and sats/vbite. But I wonder if this issue, like many Bitcoin related issues will figure itself out over the years. As Bitcoin miners are forced to find incredibly efficient energy sources, driving prices down so low and with it the necessary sats/vbite needed to be profitable. Making Bitcoin almost unnaturally (or some would say naturally) cheap compared to other final settlement solutions without having to compromise on the hashrate/security of the network.

IMO with bigger block size and higher minimum fee rate to be relayed by node (currently it's 1 sat/vB),

I've only dabbled with the lightning network as a second layer and I was doubting robustness of it mainly due to things I read about 'The replacement cycling attack' for instance.

As stated by @mocacinno, many software already fix that weakness. In addition, that attack isn't practical one since you need to manipulate victim's mempool. Full node software and some light/SPV wallet already connect to several nodes to prevent various attack.

Furthermore I've watched Stephan Livera's podcast with Ken Sedwig about using HSMs to reduce lightning hot wallet risk.

HSM as in Hardware Security module? Many modern CPU already include it on their chip. For example, Intel Software Guard Extension and ARM TrustZone. Although it's hard to know whether certain wallet software use it or not.