The Future of Bitcoin Mining & Security with Sam Wouters

 
 

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“We honestly just don’t know how much we actually need to fend off all of these potential attacks…it’s kind of like with physical security: you could spend $100,000 every month on physical security and someone might still figure out a way to kill you. It’s just a tricky thing with security in general. This is absolutely not unique to Bitcoin. It’s just insanely difficult to model for.”
— Sam Wouters

SHOW DESCRIPTION

Sam Wouters is a Research Analyst at River Financial. In this interview, we discuss Bitcoin’s hash rate: what it is, the factors affecting its growth, what this means for Bitcoin’s security budget, and what this means for Bitcoin’s energy needs. In short, there is a symbiotic relationship between expanding Bitcoin’s real-world utility and securing the blockchain.

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Proof of Work is Bitcoin’s central innovation: the development of a process that through game theory keep the network honest, and provides security from outside attack. It enabled a global store of value that does not need centralised armoured physical vaults for security. However, the process of hashing that enables PoW requires large amounts of power, and, with the halving mechanism, requires an increase in Bitcoin’s price, transaction fees, or both, to maintain equivalent network security spending.

Bitcoin’s energy debate in 2022 was completely realigned: rather than being an attack vector for opponents, Bitcoin mining’s energy use has developed into a marketable attribute. Mega miners have sought new revenue streams and cheaper energy which has resulted in huge innovation in the industry. There is a growing realisation that Bitcoin’s utility is a powerful tool in supporting the energy transition and mitigating climate change.

This means that we are potentially entering a paradigm, where knowledgeable decision-makers desire an increase in hash rate to satisfy other needs. But, there is a long list of variables affecting this: Bitcoin’s price, base layer transaction demand, ASIC supply chains, ASIC efficiency, and domestic and international political pressures. This means there is a range of possible forecasts.

Irrespective of the potential future drivers that can influence Bitcoin’s hash rate, fundamentally the issue is that the hash rate must continue to grow. It is Bitcoin’s security budget that is of primary importance. All other demands fall away in this respect. Bitcoin’s adoption, use and price are all critical in relation to this. As are the efficiency gains in mining rigs. If people want to use Bitcoin mining for other purposes they need to be cognizant of these issues.

TIMESTAMPS

00:01:50: Introductions
00:02:36: From gaming to Bitcoin
00:09:02: Hash capacity, and an explanation of hashing
00:19:18: The hashrate history and technological advances
00:22:59: Hashrate projections
00:26:49: Security budget analysis
00:34:35: Future security budget scenarios
00:40:36: The importance of driving adoption and usage
00:49:23: The evolution of miners, and China's involvement
00:53:21: The impact of energy on hashrate, and future energy consumption
01:01:56: Mining and the environment
01:09:08: Bitcoin education
01:13:55: Constraints for reaching a zettahash
01:20:29: The future of Bitcoin mining
01:23:44: Final comments

 

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SHOW NOTES

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