5

It is clear that mining is responsible for securing the network, and it is incentivised by block payouts and transaction fees.

I've also seen discussions regarding different incentives for miners in the event block payouts and transaction fees are insufficient incentive for 51% of the good guys to mine the network.

Question

What are the current proposals (or theories) that will maintain a secure Bitcoin network in the event mining is not profitable?

3

If there are to be people that only mine Bitcoins for living, mining has to be profitable. However, it needn't be only profitable through transaction fees and block rewards. People could subsidize the miners if needed be. Moreover, miners could be providing some paid services while mining - for example giving priority to certain transactions, embedding some messages in the block chain (advertising?), or the like.

It would also be possible for various companies that profit form other sources than mining to run their miners at a loss. This would be similar to say, Google providing free email, social networking and web hosting, as they are gaining enough money from ads to soak up the costs. Moreover, some people could run some charity miners that would for example include 0 fee transaction or some other ones that would be shunned by normal miners. However, if such for-loss mining would be too popular, regular miners would have a smaller profit margin (higher difficulty to reward ratio). This could cause them to stop their business and leave the whole burden on the other miners.

In the end, miners have a semi-regular source of new Bitcoins. They can hoard them and sell them only when they have a profit. If they have enough money to get by for awhile, they can just not sell the coins at too low a value and eventually drive the price up. I'm not sure, however, how well this would work.

1

In the event of a loss in bitcoin mining capacity, it is my understanding that the network would respond within 2 weeks be decreasing the difficulty required (that is, increase the size of the SHA result pool that can produce a valid bitcoin.) The result would be that less effort would be needed to produce bitcoins, so bitcoin mining would be profitable again, at least for some users.

0

If mining becomes unprofitable in the short tern then bitcoin certainly could dwindle into obscurity. I believe this is highly unlikely. Have you seen the bitcoin prices lately!? New FPGA and ASIC technology on the horizon will secure miners at least a small profit for a long time to come.

  • 1
    No, if bitcoin mining becomes unprofitable, those who are the least efficient will be forced out. All that is needed is sufficient capacity to remain to dissuade an attacker. Bitcoin != Bitcoin Mining. – Stephen Gornick Sep 20 '12 at 10:16

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