Bitcoin developers have found themselves in a bit of a pickle since the decision to lock the block size at 1mb. Despite the introduction of SegWit, we still can’t fit enough transactions in a block to keep mining profitable forever – especially if the price of Bitcoin continues to fluctuate significantly. In a bid to keep mining rewards high and miners flocking to the network, Bitcoin developers have been discussing the possibility of increasing the maximum supply.
The Potential Issues
It doesn’t take a genius to figure out that if Bitcoin does in fact increase its maximum supply it will be a very bad day for Bitcoin’s value. Truth be told, the second the supply increase is set in stone and the hard fork date is set the value of Bitcoin will tank. Fiddling with the economics of Bitcoin is a bad idea and it will eventually drive away almost all Bitcoin maximalists – creating the end of Bitcoin as we know it. If you double the maximum supply, suddenly Bitcoin will be worth half as much, if not more based on huge market selloffs. This is just one of the many futures for Bitcoin, and this could possibly be the worst future for Bitcoin.
Why Would Bitcoin Increase the Supply?
The main issue stems from the fact that miners don’t make enough in transaction fees to remain profitable when the mining reward hits a certain level – unless Bitcoin is worth more than $1 million by then. As block sizes are capped to 1mb – or a theoretical 4mb thanks to SegWit – miners can’t pack in more transactions, meaning less fees for miners. By increasing the maximum supply of Bitcoin, developers are hoping to keep the mining rewards flowing for another hundred years or so – long enough for it not to be their problem anymore. Without miners, the network will become vulnerable to attack and would eventually lead to its downfall, so it’s clear why Bitcoin developers want to keep the miners happy.
Increase the Block Size… It’s Simple
Sure, Satoshi Nakamoto limited the Bitcoin block size to 1mb and developers have opted to lock it in forever, but this can be changed with a hard fork. Bitcoin SV has been running 2gb blocks on its testnet, with the largest mined block on the testnet reaching a whopping 1.42gb. In these tests, miners made more from transaction fees than they did the block reward – highlighting that bigger blocks are going to be the future for Bitcoin.
Bigger blocks might not be the future that Bitcoin fans want, especially as it means every Tom, Dick and Harry can’t run their own nodes anymore. But, it’s a far better solution than increasing the circulating supply. You’ve got to pick your battles.