Bitcoin After Block Rewards
For Bitcoin stakeholders, this paper provides a practical benchmark for assessing network security as block rewards disappear, though the analysis is incremental and builds on existing game-theoretic models.
The paper identifies conditions under which Bitcoin mining can deviate from honest behavior after block rewards end, showing that without block rewards, deviation can occur even with minimal transaction fees. It proposes a combination of protocol mechanisms to raise the deviation threshold and mitigate incentive breakdown.
Bitcoin's block reward is scheduled to decline to zero, raising concerns about whether the network can remain secure once miners rely solely on transaction fees. This paper seeks to identify the conditions under which large-scale and persistent deviation from honest mining can arise. We analyze and compare the payoffs of honest and deviating miners in a sequential decision model, and identify a deviation threshold $G_t$ at which honest mining ceases to be privately optimal. Around the 2024 Bitcoin halving, we show that current mining behavior does not exhibit large-scale or structural deviation. However, when the block reward is removed, the $G_t$ criterion implies that deviation can arise even with a very small fraction of transaction fees. Finally, we evaluate three protocol-level mechanisms: Base Fee, Fee Floor, and an adaptive maximum block size rule, and show that their combination raises the deviation threshold and mitigates incentive breakdown in a fee-only regime. These results provide a practical benchmark for assessing Bitcoin's security as block rewards disappear.