Security Budget" refers to the budget used to pay the miners (and thus sustain the network) and the security of the same. If there are no more incentives to mine, the Bitcoin network could collapse. As the Security Budget decreases, the network would be less secure and therefore easier to attack.
WHAT KEEPS THE BITCOIN NETWORK ALIVE
To validate the blocks, miners have to solve algorithms by spending money both on machinery (hardware) and on operating expenses (electricity). The game theory is based on this: miners compete to mine the block and be rewarded.
So in exchange for their work (validation of blocks) they receive two rewards:
Block Subsidy, currently 6.25 BTC for each block solved (this value halves every 4 years due to the Halving, in 2024 the rewards will drop to 3.125 BTC per block and so on until 2140. In 2009 instead for each block the miners received 50 BTC, then 25 from 2012, 12.50 from 2016, 6.25 from 2020 and 3.125 from 2024. This is because the maximum Bitcoin supply is 21 million, they cannot be changed, unless a hard fork is implemented)
Transaction fee (this is the other reward received by miners and is obtained by moving Bitcoins from one address to another)
Both are also called "block rewards" and you can easily understand that, in the long run, the thing is profitable if these are higher than the expenses incurred. Saying "today I'm making a loss but in 5 years I'm making a profit because BTC goes up in price", makes no sense because at that point you would first buy BTC directly. The Bitcoin network is based on the assumption that 50+1% of miners behave well, but even if this were not the case, however problematic, BTC could not be created out of thin air or spent (not having the private keys that do not belong to them). ). However, part of the history of Bitcoin transactions could be erased by changing the protocol. However, precisely because of the "Security Budget" making attacks at 51% is (almost) impossible because they are very expensive and would not be worth it (tool cost 51% attack:
To date, miners have an average daily earning of almost $17 million, almost all thanks to the Block Subsidy (98%) and minimally to network fees (2%).
Almost all the revenues of the miners (17 million dollars a day) derive from the validation of blocks, so what happens when the rewards, every 4 years (Halving), are halved more and more, slowly going to 0? Miners Revenue (Blockchain):
HALVING EFFECTS AND SECURITY BUDGET
As a first approximation, it can be said that every 4 years we have seen increases in the price of BTC, precisely because the rewards for each mined block decrease, therefore inflation decreases (and with the same demand or if this increases, precisely because there is less supply of BTC, the price increases for what is referred to as a "Supply Shock"). Another feature to keep in mind is that over time, the hashrate is always increasing (hardware is always better and miners are increasing). In principle, if the rewards are halved every 4 years, in the same way the price of BTC should at least double every 4 years (precisely because the network fees, if there is no full adoption, are almost irrelevant).
As can be seen from the table below, already in 2040, the rewards are reduced to 0.20 BTC per block mined:
Will the transaction fees be enough incentive to continue producing blocks while keeping the network secure? The incentive of the fees will remain because miners make money by validating transactions and have no reason to censor them (they get paid to validate transactions!).
FEE SNIPING
When the fees will become predominant for the support of the network (therefore a reduction of the Security Budget) certainly "Fee Sniping" attacks will become very common, even if difficult to carry out. Through this attack, a miner mines an already mined block with the idea of taking the transactions fee. This attack consists in overwriting a block previously "worked" by other miners, hoping to be able to publish it sooner. How do you avoid this attack? Miners could delay the publication of the blocks, keeping them for themselves, wasting resources to miners who behave in this way, this obviously would greatly delay the validation and confirmation of a transaction by delaying it by several days. Today the confirmation of a transaction takes place after 6 blocks.
DOUBLE SPENDING
Another type of attack is the "Double Spending" or spend a certain amount of BTC, 2 times. I use my BTC by buying something, through a 51% attack by rewriting the blocks that also include those of the transaction in which the expense took place, removing the latter and replacing it with one that moves the spent BTC to another address. This attack is almost impossible to carry out precisely because of the Security Budget, in which I would have to spend more than all the miners divided by 2 (the more miners are paid by the network, the more I would have to spend for an attack of this type).
POSSIBLE SOLUTIONS
As you can easily understand, the network becomes more susceptible to decreasing Security Budget and therefore of halving in halving (every 4 years). The key point could be the adoption because if the network is used, not only the price grows but also the transactions and therefore the earnings for the miners (a single Satoshi could be worth more and more, even if in this regard there would be the problem that fees would increase so Bitcoin would be less usable).
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