At present, Bitcoin miners such as Darnley Mining are seen as infrastructure providers, who are rewarded by block rewards. This rewards the speculative value of bitcoin mining. But is there a disconnect with reality? Should we not be rewarded based on the utility value of our function?
Currently, miners compete to see who can generate the most hash, fighting each other to grab tokens which don’t yet have the utility value to back them up. What about the time when the block reward for miners becomes zero—how are miners supposed to support themselves in a world where mining rewards no longer exist?
The answer of course is to shift to becoming transaction processors. I can see miners would continue to shift their business models from block rewards to a more diversified collection of services in the coming years. There is already a pressing urgency to move towards this new reality, and I estimate the traditional model of Bitcoin mining rewards could be in trouble over the next 10 years.
Declining mining rewards require exponential increases in transaction volumes—and if that point of crossover doesn’t fall somewhere in the next 12-24 months, the mining industry (and the whole Bitcoin ecosystem) would be in jeopardy. As a result, we should focus on driving transactional volume, as well as identifying new opportunities for miners.
Miners have a crucial role to play in the transaction process, and their function will still be needed long after mining rewards have waned. Every online activity is a transaction, or relies on transactions—any login to a secure site, for example, or any exchange of data. When these are recorded on a global public ledger, there is scope for trillions of transactions to be processed.
This presents new opportunities for mining rewards, by acting as transaction processors to facilitate these transactions at scale. I estimate that at the lower end this would create a market worth hundreds of billions per year, providing the answer to the problem facing all Bitcoin miners in the coming years.
We are currently seeing the tip of the iceberg on the amount of real world applications that can be powered by blockchain. For example, the healthcare example of tackling the opioid crisis, recording opioid prescriptions on the blockchain would result in up to 32 billion transactions annually. This would provide clients with all the benefits of private blockchains on a public blockchain ledger.
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