Analysts at Fidelity Digital Assets have challenged the common belief that regular reductions in mining rewards will weaken Bitcoin's network security over time.

In their report Bitcoin's Programmed Security: Part One, experts noted that the resilience of the first cryptocurrency is determined not only by the size of rewards but also by the economic incentives of network participants, which make potential attacks extremely costly.

Security Is More Than Just Hashrate

In the first part of their study, Fidelity specialists examined the concept of a security budget—the total rewards miners receive for producing new blocks. After each halving, Bitcoin's issuance is cut in half, prompting critics to warn about a gradual decline in the security budget. They argue that in the future, transaction fees may not be sufficient to maintain the current level of blockchain protection.

Fidelity considers this conclusion overly simplistic. According to the analysts, the security of digital gold cannot be assessed solely based on miner rewards or hashrate. Key factors include the market value of the asset, competition among miners, costs of equipment and electricity, as well as the economic impracticality of most attacks.

The company pointed out that before the first halving in 2012, the average daily income for miners was $26,300. The current figure is approximately $40.2 million, despite the block reward dropping from 50 BTC to the current 3.125 BTC during this period.

Average daily income of miners across epochs between halvings. Source: Fidelity.

However, Fidelity emphasized that one cannot bet on infinite growth. The model described in the report suggests that Bitcoin's price must at least double every four years for over 100 years, so the analysis must also consider attack scenarios.

51% Attack Remains Unlikely

The company notes that a potential attacker would not only need to gain control over the majority of the network's computing power. A successful attack would require significant expenses on equipment and energy, and its consequences would likely lead to a loss of trust in Bitcoin and a decline in the asset's value, diminishing the economic rationale for such actions.

According to the study's authors, discussions about cryptocurrency security often boil down to a single metric—the amount of rewards for miners. In reality, the network's resilience is determined by a range of factors, including market incentives and the behavior of ecosystem participants.

Hashrate distribution among mining pools. Source: Fidelity.

Double Spending and Blockchain Censorship

Theoretically, an attacker controlling a majority of the hashrate could rewrite old blocks. By generating blocks faster than other participants, they could "effectively dictate the history of the chain."

Double spending attack through creating a longer chain of blocks. Source: Fidelity.

While possessing 51% of the majority simplifies the task, it becomes practically impossible as one delves deeper into the blockchain. On a smaller scale, attempts to rewrite blocks are neutralized by the standard confirmation waiting time (at least six blocks for most Bitcoin exchanges), analysts emphasized.

An organization controlling more than half of the hashrate essentially monopolizes block production. In theory, this allows for censorship of their content.

However, in practice, even possessing 99% of the network's power does not guarantee this—discarded transactions will still make it into blocks generated by the remaining players. Another consequence is that rising fees in attempts to prioritize unconfirmed transactions will attract new miners to the network, according to Fidelity.

Research Will Continue

The published material is the first part of a series dedicated to the long-term security model of Bitcoin. In the second part, Fidelity plans to examine 51% attack scenarios in more detail and analyze how changes in miners' revenue structures could impact blockchain resilience in the future.

"At first glance, the reduction in block rewards seems like a serious problem. However, there are many mechanisms that enhance incentives for miners and, consequently, the security of the network," the analysts noted.

It is worth mentioning that the Bitcoin community is increasingly concerned about the potential threat to the network posed by quantum computing.