Bitcoin Forum

Memory real-estate in the Block-chain is scarce. Some people want it for their transactions, others (the miners) want to charge for that space. That's a market.

If there are so many transactions occurring that some blocks become completely full, miners can charge more by refusing to sign transactions whose 'donations' are too small. This will progressively raise the cost of doing business until eventually an equilibrium is reached: the marginal value of attempting a new Bitcoin transaction will equal the marginal value offered by competing services. In other words, transactions will become too expensive for the network to grow any more.

Bitcoin's subjective 'value' has been discussed many times, but one thing is pretty certain: it's related to Bitcoin's usefulness as a medium of exchange. If the flow of transactions is limited, the exchange rate will eventually reach a ceiling. One question is: without increasing the block size, what is the maximum sustainable price of a bitcoin likely to be?

Given a limited block size, there's another possible scenario: a large, dominant miner playing the role of a "central bank" by strategically setting transaction fees. Let's look at an example:

The flow of currency is getting deflationary and may be forming a bubble?
Raise the fee. Thus, when this miner generates a new block, at first glance may appear to lose out by only accepting a reduced number of transactions. However (if I understand this correctly), this will create a backlog of unsigned transaction requests that other miners can snap-up in later blocks. This will create a flow-on effect where all miners will be enticed to raise their fees, and the flow of transactions will slow down. Depending on Bitcoin's 'sluggishness', some users will be compelled to use other systems for their business, and the sale of bitcoins will push the exchange rate down to a more sustainable level, thus indirectly protecting the dominant miner's stake by making Bitcoin seem more stable and robust.

Conversely, Bitcoin usage is falling and there's a risk of high inflation?
Reduce the fee. The large miner will therefore open up the market and introduce more block space, allowing transactions to be faster and cheaper.


I'm sure this is just scratching the surface. Your thoughts??

Isn't this the purpose of transaction fees?  And if I'm not mistaken the block size could be increased as well.  Do miners even ever hit the block size max?

The equilibrium of transaction fees will happen organically.  Once the block reward lowers enough to filter out miners willing to accept 0 fee transactions, we will start to see a transaction fee standardization.  There technically already is a hardcoded standardization, but its more of a spam preventing mechanism.  When this happens, it will be a balancing act between some of the larger miners creating an oligarchy of sorts.  Some may only accept transactions with fees over X amount to force everyone to start using at least that amount.  And others may accept any amount allowing people to still send transactions with fees under X amount.  Hopefully it never gets too centralized or we'll be over the 50% and have greater things to worry about.