Paying for Bitcoin’s security as the subsidy fades

Bitcoin relies on economic incentives to maintain its security without central oversight. Every block currently awards a subsidy of newly minted bitcoin to miners who commit computing power to validate transactions and protect the shared ledger. By design, this block subsidy halves every 210,000 blocks – roughly 4 years – and will eventually reach zero. The protocol assumes that transaction fees will seamlessly replace this subsidy, yet the empirical evidence shows that fees have not yet demonstrated the capacity to do so.

A new report published by the Cambridge Centre for Alternative Finance (CCAF) at Cambridge Judge Business School, in collaboration with Financial Innovation for Impact (Fii), investigates the long-term viability of this transition. Examining academic literature, on-chain data, and mining industry disclosures, the study evaluates how network security responds when the primary revenue stream funding it recedes.

Shrinking subsidies and fee volatility

The empirical findings highlight a stark imbalance in miner compensation. Over the 90 days to 4 October 2026, transaction fees accounted for just 0.67% of total miner revenue, remaining consistently below 5% for most of Bitcoin’s operational history. Substantial fee revenue materialises almost exclusively during acute mempool congestion, such as the short-lived fee spike accompanying the launch of the Runes token protocol in April 2024.

Furthermore, fee revenue exhibits extreme volatility, swinging 11.7 times more from day to day than the price of bitcoin itself. This dynamic creates a severe dilemma for network participants. Miners face compounded operational uncertainty, while the revenue intended to fund the entire security budget remains negligible outside temporary congestion events.

At the same time, block production has grown increasingly centralised. The three largest mining pools collectively accounted for 60.8% of all blocks mined over a recent one-month sample, whilst the top 6 controlled 83.0%. Widespread proxy pooling arrangements – where nominally independent pools share block templates produced by larger operators – mean that effective control over transaction selection is even more concentrated.

Assessing attack economics and resilience

Academic literature has long cautioned that relying entirely on transaction fees could induce structural instabilities, including selfish mining, block undercutting, and fee sniping. The report finds that none of these theoretical exploits have yet been observed on the Bitcoin mainnet.

This absence of observed instability is largely attributable to the formidable physical barrier required to rewrite the ledger. Executing a 51% attack requires controlling more computing power than the rest of the honest network combined. Model-based estimates evaluate the capital expenditure required to purchase new specialised hardware at tens of billions of dollars, and commercial rental marketplaces offer negligible SHA-256 hashrate.

However, the cost to mount an attack scales directly with miner revenue rather than with the trillions of dollars in value the network secures. As block subsidies fall, miner revenue declines unless fees or asset prices rise proportionally. A lower security budget reduces aggregate hashrate, lowering the capital barrier to attack just as Bitcoin becomes deeply integrated into regulated financial systems through exchange-traded funds and institutional lending facilities.

To move beyond speculative debates, the report introduces the Security Budget Health Indicator (SBHI). The framework tracks 5 distinct dimensions of network vulnerability, including the fee revenue ratio, fee variance, attack costs relative to market capitalisation, security spend, and mining pool concentration.

While continuous monitoring provides a necessary baseline, addressing these structural challenges requires proactive engagement. To that end, the research details practical steps that ecosystem participants can take to strengthen network resilience:

• regulators and financial surveillance bodies can monitor these indicators to assess systemic risks to asset-backed products
• exchange-traded fund issuers can harmonise prospectus disclosures regarding consensus-layer risks
• the community, mining pools and operators can promote and advance protocols that grant individual miners greater agency over block template creation

Wenbin Wu, Principal Researcher at CCAF says: “An issuance schedule has paid for Bitcoin’s security, and it is running down. Fees have not taken over yet. We built the Security Budget Health Indicator so the trajectory can be measured instead of argued about”. Research Lead for Digital Assets Energy and Climate Impact at CCAF, Alexander Neumueller says: “The game-theoretic instabilities identified in academic literature have not appeared on Bitcoin mainnet. However, today’s stability does not guarantee resilience in the 2030s. We have published empirical data on Bitcoin since 2019, and understanding how its security is funded is a critical question we are actively interested in monitoring.”

An issuance schedule has paid for Bitcoin's security, and it is running down. Fees have not taken over yet. We built the Security Budget Health Indicator so the trajectory can be measured instead of argued about.

Wenbin Wu, Principal Researcher, CCAF

We have published empirical data on Bitcoin since 2019, and understanding how its security is funded is a critical question we are actively interested in monitoring.

Alexander Neumueller, Research Lead, Digital Assets Energy and Climate Impact, CCAF