The Security Budget Is Real: A Rebuttal to Matthew Kratter's Wishful Thinking
Matthew Kratter, host of the Bitcoin University YouTube channel, recently published a video titled "Bitcoin's 'Security Budget' Debunked." The thesis is direct: the security budget is "an imaginary creature," "like an Ethereum unicorn sliding down a rainbow." Anyone who takes it seriously is, in Kratter's framing, either a confused Keynesian, a shitcoin shiller, a spam promoter, or some combination of the three.
The video is well-produced and Kratter's audience trusts him. It will be cited by people who want to dismiss the security budget question without engaging with it. This rebuttal exists because the security budget is not imaginary. It is a serious structural concern acknowledged by some of Bitcoin's most respected developers, and the wishful thinking Kratter is promoting will leave Bitcoin worse off than the architectural alternatives.
Let me walk through Kratter's argument point by point, address the receipts he himself cited, and then explain why drivechains on Ecash provide the structural solution that obviates the entire debate.
What the security budget actually is
Kratter opens by claiming the security budget "doesn't define" because "there's no such thing." This framing is the foundational error of the entire video. The security budget is a well-defined concept that Bitcoin researchers have been discussing rigorously for over a decade.
The definition is straightforward: the security budget is the total revenue paid to miners per unit time, expressed in real (purchasing power) terms. This budget determines the cost of attacking the network. A miner who controls 51% of hashrate can theoretically reorganize the chain; the cost of acquiring that 51% is bounded by the revenue available to honest miners. If honest mining is unprofitable, hashrate exits, and the cost of attack falls.
This is not an obscure heterodox view. Satoshi himself addressed it in section six of the whitepaper:
"Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free."
The word "transition" is doing significant work in that sentence. Satoshi anticipated that transaction fees would eventually replace the block subsidy as the primary miner incentive. The security budget question is simply: will that transition actually work?
Bitcoin researchers have been studying this question since at least 2016. Hasu and James Prestwich's 2020 paper "A Model for Bitcoin's Security and the Declining Block Subsidy" is the most cited modern treatment. Lyn Alden's "Bitcoin Security Modeling" essay addresses it directly. Eric Budish's 2018 NBER paper "The Economic Limits of Bitcoin and the Blockchain" formalized it mathematically.
None of these researchers are Keynesians, shitcoiners, or spam promoters. They are people taking the long-term security of Bitcoin seriously.
What Pieter Wuille actually said
Kratter shows a clip of Pieter Wuille, one of the most respected Bitcoin Core developers in the project's history, responding to the question of Bitcoin's biggest challenges. Wuille's answer:
"There there there there are there are many right there there's dwindling subsidy. I think dwindling subsidy of course is the block subsidy being halved every four years and the question of whether there'll be enough to pay the miners."
Kratter's framing of this clip is that Wuille has fallen for "fairy tales like the security budget." This is a stunning rhetorical move. Wuille is one of the original Bitcoin Core contributors. He co-invented Segregated Witness, designed Schnorr signatures for Bitcoin, contributed to Taproot, and is widely considered one of the most rigorous cryptographic minds in the entire project.
When Pieter Wuille — asked in a serious interview about Bitcoin's biggest challenges — names the dwindling subsidy first, the appropriate response is not to dismiss him as having fallen for a fairy tale. The appropriate response is to take the concern seriously.
The implicit argument in Kratter's video seems to be that anyone who acknowledges the security budget is wrong, regardless of their technical credentials. This is the kind of position that requires evidence proportional to its scope, and Kratter provides none. He simply asserts that Wuille is wrong, shows the clip without engaging with its substance, and moves on.
What Peter Todd actually said
Kratter's treatment of Peter Todd is even more revealing. Todd has proposed two responses to the security budget concern: tail emission (modifying the 21 million cap to add small ongoing issuance) and demurrage (a small holding fee that gets redistributed to miners). Kratter characterizes these as "awful awful things" that would "destroy Bitcoin in the process of trying to fix an imaginary problem."
But notice what is happening in this argument structure. Todd's proposals are radical because the underlying problem is severe enough to warrant radical proposals. Todd is not proposing demurrage because he is a Keynesian. He is proposing it because he has done the math and concluded that fees alone may be insufficient to maintain Bitcoin's long-term security.
You can disagree with Todd's solutions — many of us do, including Sztorc — without dismissing the underlying analysis. The fact that a Bitcoin Core developer of Todd's stature is proposing such radical interventions should signal that something serious is going on, not that the developer has lost his mind.
The rhetorical pattern in Kratter's video is to take the most extreme proposed solutions to the security budget problem, treat them as evidence that the problem itself is imaginary, and use this as a license to dismiss the entire concern. This is a form of motivated reasoning that any serious thinker should recognize and reject.
The numbers Kratter doesn't address
Kratter notes that Bitcoin mining revenue has been about $16 billion over the past 12 months and that no significant chain rewriting attacks have occurred. He frames this as evidence that the security budget is not a problem.
Let me supply the numbers Kratter omitted.
Of that $16 billion in 2025 mining revenue, approximately 93% came from the block subsidy and only 7% came from transaction fees. This is the critical statistic. The subsidy is not the long-term funding mechanism for Bitcoin's security; it is a temporary bootstrap. The question is what happens when the subsidy approaches zero.
The block subsidy halves every four years. We have already passed four halvings. Five more halvings reduce the subsidy to roughly 0.1 BTC per block. Ten more halvings reduce it to negligible levels. The trajectory is not theoretical — it is encoded in Bitcoin's consensus rules. By 2040, the subsidy will be approximately 0.39 BTC per block. By 2060, it will be approximately 0.024 BTC. By 2140, it will be functionally zero.
For Bitcoin's security to remain at current levels in real terms, transaction fees alone would need to fund roughly $16 billion in annual mining revenue. Currently, transaction fees produce approximately $1.1 billion per year. This is a 14x gap that needs to close as the subsidy fades.
Kratter does not address this gap. He does not explain how transaction fees alone reach the necessary level. He simply asserts that the security budget is imaginary and moves on.
The Justin Drake debate and Ethereum's argument
Kratter spends part of the video mocking a Bank list interview where a former Bitcoiner explains that listening to Justin Drake on the ultrasound money podcast convinced him to swap his Bitcoin for Ethereum. Kratter calls this "unbelievable" and says the person will end up "wrecked."
This is exactly the wrong framing. The Ethereum proof-of-stake argument is a competitive threat to Bitcoin specifically because it provides a coherent answer to the security budget question. Whether or not you agree with that answer (and there are legitimate technical objections to proof-of-stake), the fact that thoughtful cryptocurrency observers are migrating away from Bitcoin in response to Ethereum's security model is itself evidence that the security budget concern is real and motivating real-world capital allocation decisions.
You cannot simultaneously claim that the security budget is imaginary AND that people who change their minds based on security budget arguments are getting "wrecked." If the concern is imaginary, then people responding to it are responding to nothing, and there is no reason to expect them to be wrecked. If responding to the concern leads to bad outcomes, that implies the concern is real but the response is wrong, which is a different argument that Kratter does not make.
The honest framing is that Bitcoin has a real long-term security challenge, Ethereum has proposed one solution (proof-of-stake), and the question is whether Bitcoin can provide a competitive answer without abandoning proof-of-work. Drivechains are Bitcoin's competitive answer. Kratter's video pretends the question does not need to be asked.
The Marcellus solution and why it doesn't scale
Kratter approvingly cites a Twitter exchange where the user "Ghost of Unhosted Marcellus" argues that holders should simply pay for hashrate directly. Marcellus calculates that at current difficulty, securing the network costs approximately $2 per Bitcoin per day, and concludes that holders can simply spend $1.90 per Bitcoin per day to maintain security in a post-subsidy world.
The math here is real but the conclusion is unworkable for reasons Kratter does not address.
First, $2 per Bitcoin per day is $730 per Bitcoin per year. For a holder with one Bitcoin, that is a 0.7% annual cost relative to current prices. For a holder with 0.1 Bitcoin, it is $73 per year. For someone holding $100 worth of Bitcoin, it is over 700% of their position annually. The proposal that holders directly fund security through hashrate rental is a tax on holders, dressed up as a voluntary action. It functions identically to Peter Todd's demurrage proposal that Kratter elsewhere calls "awful."
Second, the proposal assumes that the cost of mining scales linearly with the value being secured. In practice, mining costs are roughly fixed in fiat terms while Bitcoin's value can grow. If Bitcoin's market cap reaches $100 trillion (Mr. Game and Watch's mature-monetization scenario), the required security spending grows proportionally. Holders would need to pay vastly more than $2 per day per coin to maintain security at scale. The proposal solves a current-state problem by assuming current state continues, but the entire reason the security budget matters is what happens at mature scale.
Third, the proposal has no mechanism to enforce participation. If holders are supposed to voluntarily fund security, free riders benefit just as much as participants. Game theory predicts that participation will collapse to a small subset of ideologically committed holders, who will end up disproportionately subsidizing security for everyone else. This is not a stable equilibrium.
Marcellus's analysis is interesting as a thought experiment. It is not a viable architectural answer to the security budget question.
What drivechains actually offer
Now we get to the case Kratter does not address at all, despite it being the most coherent answer to the security budget question that exists in Bitcoin discourse.
Drivechains allow Bitcoin's miners to collect transaction fees from sidechain activity through blind merged mining (BMM). The miner commits to a sidechain's block header in their main-chain coinbase transaction. Sidechain users pay sidechain transaction fees in BTC. The miner who included the commitment captures those fees, without needing to validate the sidechain's rules.
The economic implication is profound. On Ecash, every sidechain that achieves any meaningful adoption becomes a fee source for the same hashrate that secures the L1.
Thunder, the high-throughput payments sidechain, generates fees from every micropayment, remittance, and merchant transaction at scale. At Visa-level throughput, this is potentially billions of dollars per year in fees.
ZSide, the privacy sidechain, generates fees from every shielded transaction. At meaningful adoption, this is potentially hundreds of millions in annual fees.
Hivemind, the prediction market sidechain, generates fees from every bet placed. At Polymarket-scale volume, this is tens of millions in annual fees.
BitNames for identity, BitAssets for tokenization, CoinShift for decentralized exchange, Photon for quantum-resistant transactions — each one adds another revenue stream, all paid to the same hashrate.
This is what Sztorc means by "miners get paid twice." The L1 miner earns the standard block reward. The L1 miner who also commits to sidechain headers captures the sidechain fees. The math compounds with each sidechain that finds product-market fit.
Critically, this solution does NOT require any of the things Kratter (correctly) identifies as problematic. It does not require tail emission. It does not require demurrage. It does not require users to pay hundreds of dollars per L1 transaction. It does not require Bitcoin to pretend that 7 transactions per second is sufficient for global use. It does not require asking holders to voluntarily fund security through hashrate rental.
The drivechain solution generates new fee revenue from new use cases that would otherwise flow to other chains entirely. The miners get paid for activity that, in Bitcoin's current architecture, generates zero revenue for them because the activity happens on Ethereum, on Solana, on Polymarket's Polygon-based system, on every chain that is not Bitcoin.
The opportunity cost Kratter ignores
The deeper indictment of Kratter's video is what it omits. He spends twelve minutes arguing that the security budget concern is imaginary. He does not spend a single second discussing the architectural alternative that would render the entire debate moot.
Bitcoin's security budget problem exists primarily because Bitcoin's L1 cannot capture the fees generated by economic activity that takes place on other chains. Ethereum captures fees from DeFi. Solana captures fees from trading. Polygon captures fees from Polymarket. None of these fees flow to Bitcoin's miners, despite the fact that much of this activity could be hosted on Bitcoin-secured sidechains if drivechains were activated.
The security budget is not "imaginary." It is the direct consequence of a decade of architectural decisions that prevented Bitcoin from absorbing the fees that the broader cryptocurrency economy generates. Every essay on this blog has documented different aspects of this failure — the OP_RETURN gatekeeping that drove away tokenization projects in 2014, the Lightning derangement that consumed scaling attention for a decade, the activation theater that prevented BIP-300 from shipping.
Kratter's response to this comprehensive failure is to dismiss the resulting security concern as imaginary. This is not analysis. It is denial.
What Kratter is correct about
In fairness, parts of Kratter's video are correct.
He is correct that mining pool centralization is a serious problem. Five pools producing 90% of blocks is a real concern, and his advocacy for users running their own block templates is constructive.
He is correct that the security budget is not a fixed dollar amount that needs to be hit annually. It is a function of network value, attack costs, and economic alignment. A naïve framing where "we need exactly X dollars to be secure" misses the dynamics.
He is correct that historical Bitcoin has not suffered significant chain rewriting attacks despite varying levels of mining revenue. The geopolitical alignment that has prevented coordinated attacks is real.
He is correct that some advocates of the security budget concern have used it to justify questionable proposals. The David Bailey ordinals-justify-spam framing is genuinely weak. The Peter Todd demurrage proposal is genuinely radical.
But none of these correct observations support Kratter's broader claim that the security budget is "imaginary." They support a different conclusion: the security budget is a real long-term concern, and most proposed solutions are worse than the disease. The drivechain solution is the exception, and Kratter does not address it.
The deeper rhetorical problem
There is a pattern in Kratter's framing that deserves explicit acknowledgment. Throughout the video, the security budget concern is associated with people Kratter dislikes: Ethereum proponents ("Justin Drake," "Bank list guy"), spam promoters ("David Bailey," "Bitcoin Core"), Monero supporters ("Peter Todd presenting at a Monero conference"), and Keynesians ("the top Bitcoin developer is a Keynesian").
This is associational reasoning. The argument is not "the security budget is imaginary because of X technical fact." The argument is "the security budget concern is held by bad people, therefore it is wrong." This is a known fallacy, and it does not become more rigorous when applied to cryptocurrency technical disputes.
The serious technical voices who take the security budget seriously include Pieter Wuille (whom Kratter cites and dismisses), Lyn Alden, Hasu, Nic Carter, Adam Back at various points, and essentially every academic researcher who has worked on the question. These are not Ethereum promoters or shitcoin shillers. They are people doing rigorous analysis.
When the response to rigorous analysis is "you have fallen for a fairy tale," the appropriate update is to take the analysis more seriously, not less.
What the future actually requires
Bitcoin's long-term security requires one of several things to be true:
- Transaction fees on the L1 grow to dramatic levels (hundreds of dollars per transaction in real terms). This pricing structure would make Bitcoin unusable for ordinary users and would likely drive adoption to alternative chains.
- The block subsidy continues indefinitely through some form of tail emission or alternative funding. This violates the 21 million cap and undermines Bitcoin's monetary policy.
- Holders directly fund hashrate through voluntary or mandatory mechanisms. This functions as a holder tax and faces collective action problems.
- External revenue sources flow to Bitcoin miners without compromising the L1's monetary properties. This is what drivechains accomplish.
Option 4 is the only one that preserves Bitcoin's monetary properties while solving the security budget problem. It is the option Kratter does not address. The fact that the most coherent solution to the security budget problem is structurally invisible to Kratter's analysis tells you something important about the limits of his framework.
The honest version of Kratter's argument
The honest version of Kratter's argument would be: "The security budget is a real long-term concern that requires real architectural solutions. The solutions proposed by Peter Todd and others are worse than the problem. The drivechain solution is the only credible alternative, and it has been politically blocked for a decade. We need to either accept the architectural risk or push for drivechain activation."
That is the argument that follows from honest engagement with the technical reality. Kratter declines to make it, and instead claims the concern itself is imaginary.
This is the form of intellectual cowardice that Sztorc has been documenting for a decade. It is easier to declare the problem imaginary than to engage with the political reality that has prevented the solution from shipping. Kratter's audience trusts him, and his audience now has slightly less accurate information about Bitcoin's long-term security challenges than they would if he had engaged honestly.
What this means for Ecash
Ecash launches on August 21, 2026, at block 964,000. The fork inherits Bitcoin's UTXO set, monetary policy, and SHA-256d proof-of-work. The fork also activates BIP-300 and BIP-301 from genesis, enabling drivechain sidechains immediately.
For miners pivoting toward AI as covered in the Mining Stage to Energy Stage essay, Ecash offers an immediate hedge. Mining Ecash uses the same hardware as Bitcoin mining. The marginal economics, once sidechain fees come online, will likely favor Ecash over pure Bitcoin mining for the simple reason that Ecash miners collect fees that Bitcoin miners cannot.
If drivechains deliver the fee revenue Sztorc has predicted, the security budget concern on Ecash will be structurally addressed within years of launch. If they do not, then Kratter's preferred do-nothing approach will have been vindicated, but only for the chain that did not try the alternative. Bitcoin will continue to face the security budget question with no architectural answer.
The bet that Ecash represents is that the security budget is real, that drivechains solve it, and that the political process inside Bitcoin will not allow them to ship there. Each of these claims has been documented across the essays on this blog. Kratter's video does not engage with any of them.
A note on Matthew Kratter
Let me end with the same kind of editorial fairness extended to Greg Maxwell in the rebuttal essay last week. Matthew Kratter is a serious educator who has done valuable work explaining Bitcoin to retail audiences. His Bitcoin University channel has grown to hundreds of thousands of subscribers because he provides clear, accessible content on a subject that desperately needs more high-quality educators.
The criticism in this essay is not directed at Kratter as a Bitcoin educator. It is directed at the specific argument he made in this specific video, which I believe is wrong on the technical substance and uses rhetorical patterns that do not serve his audience well.
Kratter's audience will be making real financial and architectural decisions based on what they hear from him. They deserve accurate information about Bitcoin's long-term security challenges, not a comforting dismissal that the challenges are imaginary. The security budget is real. The Ecash architecture solves it. The dismissive framing in Kratter's video makes both of these realities harder to see.
If Kratter wants to engage with this rebuttal — on his channel, on Twitter Spaces, on any podcast — Sztorc has stated publicly and repeatedly that he accepts every invitation. The doors are open. The microphone is on. The architectural amnesty extends to anyone who wants to engage seriously with the technical case for drivechains, regardless of what they have said in the past about whether the security budget exists.
The August 21, 2026 fork is approximately three months away. The security budget will not become less real between now and then. The drivechains will activate on Ecash regardless. The miners who allocate early will capture disproportionate early block rewards from the difficulty reset. The market will then sort out which architecture actually solves the problem Kratter claims does not exist.
That is the standard the market sets. Wishful thinking does not survive contact with it. Pieter Wuille was right to name the dwindling subsidy as Bitcoin's biggest challenge. Peter Todd was right to take the problem seriously enough to propose radical solutions. Paul Sztorc was right to design the only architectural answer that does not require breaking Bitcoin's monetary policy. Kratter is wrong to dismiss the entire question.
The security budget is real. The solution exists. The fork ships in August. Anyone who wants to argue otherwise should make the actual technical case, not the rhetorical one.