Introduction to the Security Budget Problem

Paul Sztroc formally introduces whats known as "bitcoin's security budget problem" in his post "Security Budget in the Long Run" and his part two post "Security Budget II, Low Fees, and Merged Mining".

The basic idea is that as bitcoin transitions to having miners paid with block rewards to fees only (because no more bitcoins are being newly minted) the fees must increase in total value to a point to pay for the security of the network. The argument is if there isn't enough demand for block space the system will get attacked and suffer significant harm.

The security budget problem is often cited as a reason to fear, be uncertain about, and doubt the long term security implications of a limited bitcoin protocol (ie doesn't scale base layer or lightning layer etc.).

The solution proposed is usually a fork to better use cases for bitcoin thus driving demand for blockspace.

Satoshi's Solution to the Security Budget Problem is What's Being Touted as the Problem by Paul et al

Whats interesting is Satoshi seemed to think that his implementation actually addressed the problem:

https://bitcointalk.org/index.php?topic=48.msg329#msg329

Closing the Game Theory Loop on the Security Budget Problem as the Solution to it

So how do people resolve the idea that Satoshi strongly felt bitcoin's fee market implied long-term security versus the description of the security budget problem?

They don't close the game theory loop in their discussion/inquiry.

Imagine a bitcoin noob that asks "What happens if a supercomputer starts mining all the bitcoin faster than the schedule?"

Well then you could explain how the difficultly adjustment will increase the cost/time to mine blocks.

That same person might say, "Well then no one will be able to mine because the difficulty will be too high!"

So then you tell them it can adjust lower and competition will catch up.

At any point if the conversation is cut before understanding the totality of the game theory loop then the asker will think the system is flawed.

Thats what Sztroc is doing. So how do we close the game theory loop to understand why the Security Budget problem isn't a problem?

Thats Nash's proposal Ideal Money.