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I completed an analysis of Bitcoin's post-halving security economics and found what appears to be an unsolvable coordination problem. I'm posting here because I'd value the LW community's perspective on whether the game theory holds.
Core Security Budget Problem:
Bitcoin's 2024 halving cut block rewards from 6.25 to 3.125 BTC, reducing miner revenue from ~$30B to ~$15B annually (at $50K BTC). Post-2140, when block rewards end entirely, transaction fees alone must sustain the $15B security budget.
The math: - Current volume: ~400K transactions/day - Required fee: $15B ÷ (400K × 365) = $103/transaction - Current average fee: ~$2
Even at 1M transactions/day (3x growth): $400/transaction still required.
This creates what appears to be a Nash equilibrium pointing toward network collapse: - If fees rise → users leave → volume drops → fees must rise further - If fees stay low → miners leave → security drops → confidence drops → price drops → miners leave
Additional Compounding Factors:
1. Velocity collapse: Bitcoin's transaction velocity has fallen to decade lows (comparable to failed currencies during hyperinflation) 2. Stablecoin displacement: Now settling $225B daily vs Bitcoin's $7.8B economic settlement 3. Energy paradox: 150 TWh/year for zero marginal utility beyond security (thermodynamic dead end)
The Interesting Part - Thermodynamic Successor:
I propose carbon-backed stablecoins collateralized by Direct Air Capture (DAC) futures. The inversion: instead of converting electricity → waste heat, convert electricity → permanent atmospheric carbon removal.
Mechanism: - 85% U.S. Treasury bills (ensures 1:1 redemption) - 15% DAC futures (forward contracts ~$400/ton for 2027 delivery, expected execution cost $150-250 as tech scales)
Built-in demand from regulatory inevitability: - EU CBAM: €50-70B/year (effective Oct 2026) - U.S. 45Q: $180/ton tax credits - Corporate net-zero commitments: $50B+/year by 2030 - Aviation mandates: 200M tons/year by 2050
Real infrastructure exists: Climeworks (36K tons/year), 1PointFive (500K tons/year operational 2025), Heirloom (targeting $100/ton by 2030).
Questions for LW:
1. Does the Bitcoin security budget game theory hold, or am I missing alternative equilibria? 2. Is "thermodynamic honesty" (entropy-reducing vs entropy-increasing systems) a valid framework for evaluating monetary systems? 3. What are the strongest counterarguments to the DAC-backed stablecoin model?
I completed an analysis of Bitcoin's post-halving security economics and found what appears to be an unsolvable coordination problem. I'm posting here because I'd value the LW community's perspective on whether the game theory holds.
Core Security Budget Problem:
Bitcoin's 2024 halving cut block rewards from 6.25 to 3.125 BTC, reducing miner revenue from ~$30B to ~$15B annually (at $50K BTC). Post-2140, when block rewards end entirely, transaction fees alone must sustain the $15B security budget.
The math:
- Current volume: ~400K transactions/day
- Required fee: $15B ÷ (400K × 365) = $103/transaction
- Current average fee: ~$2
Even at 1M transactions/day (3x growth): $400/transaction still required.
This creates what appears to be a Nash equilibrium pointing toward network collapse:
- If fees rise → users leave → volume drops → fees must rise further
- If fees stay low → miners leave → security drops → confidence drops → price drops → miners leave
Additional Compounding Factors:
1. Velocity collapse: Bitcoin's transaction velocity has fallen to decade lows (comparable to failed currencies during hyperinflation)
2. Stablecoin displacement: Now settling $225B daily vs Bitcoin's $7.8B economic settlement
3. Energy paradox: 150 TWh/year for zero marginal utility beyond security (thermodynamic dead end)
The Interesting Part - Thermodynamic Successor:
I propose carbon-backed stablecoins collateralized by Direct Air Capture (DAC) futures. The inversion: instead of converting electricity → waste heat, convert electricity → permanent atmospheric carbon removal.
Mechanism:
- 85% U.S. Treasury bills (ensures 1:1 redemption)
- 15% DAC futures (forward contracts ~$400/ton for 2027 delivery, expected execution cost $150-250 as tech scales)
Built-in demand from regulatory inevitability:
- EU CBAM: €50-70B/year (effective Oct 2026)
- U.S. 45Q: $180/ton tax credits
- Corporate net-zero commitments: $50B+/year by 2030
- Aviation mandates: 200M tons/year by 2050
Real infrastructure exists: Climeworks (36K tons/year), 1PointFive (500K tons/year operational 2025), Heirloom (targeting $100/ton by 2030).
Questions for LW:
1. Does the Bitcoin security budget game theory hold, or am I missing alternative equilibria?
2. Is "thermodynamic honesty" (entropy-reducing vs entropy-increasing systems) a valid framework for evaluating monetary systems?
3. What are the strongest counterarguments to the DAC-backed stablecoin model?
Full technical analysis with citations: here
I'm happy to defend the thesis and engage with critiques in comments.