Bitcoin Forum

BTC works as a decentralized digital currency because people all over the world verify transactions in exchange for being awarded new bitcoins.  This is known as mining.

Bitcoin creation is capped at 21million bitcoins.  What I do not understand is, why would anyone dedicate computing power to verifying transactions if they will not be awarded bitcoins in exchange for doing so?

It seems to me that once the creation process of bitcoin has ended that the network will cease to function in a way that has currently made it so appealing.

Am I missing something here?  I am excited about bitcoin but less so if it will cease to be useful in a little over 100 years.

transaction fees.

Also, I have heard of some people that apparently mine for the health of the currency instead of the boatloads of cash they get. I know, they are strange and horrible people.

I appreciate altruism but do not believe it is something to rely on.

Miners get the block subsidy (new coins) as well as transaction fees in the block reward.

The block subsidy slowly gets smaller and smaller (being cut in half approximately every 4 years).  Meanwhile, the value of the transaction fees slowly increases as bitcoin gains popularity.  The number of transactions available for each block increases.  The percentage of people voluntarily paying a transaction fee for fast inclusion in a block increases. As such, eventually the value of the transaction fees will be a larger portion of the block reward than the block subsidy.

I suppose transaction fees could be assessed and awarded to miners by the same mechanism that currently awards new coins to miners.

But, how are transaction fees to be assessed on a decentralized network?  If someone is just emailing someone else a string of code in exchange for goods or services, who assesses the fee?

Don't worry, fees are already going to the miners. It's included in the way it works right now.

Bitcoin is a voluntary system.  It is not "required" that you include a fee.  You are welcome to attempt to broadcast a transaction with no fee (some wallets prevent this under certain circumstances, others will allow you to do so regardless of the circumstances).

However, peers are not "required" to relay your transaction.  They are welcome to refuse to relay it for any reason they like.  Most peers will be running the "reference client" called Bitcoin-Qt.  In that case they will relay most all transactions, but if the transaction appears "spammy" or like it could potentially be part of a denial-of-service attack on the network, then they may refuse to relay the transaction if it doesn't include a sufficient fee.

Additionally, miners are not "required" to include your transaction in a block.  They are welcome to refuse to include it if they feel they can increase their profits by including some other transaction that has a fee instead of your "free" transaction.

This all being said, most all "free" transactions where all outputs are greater than 0.01 BTC and the total size of the transaction is less than 10 kilobytes, will be relayed and will eventually be included in a block by a miner.  Miners see a long term benefit to maintaining a system that is cheap and easy to use.  Eventually as the block subsidy shrinks, miners will likely become more stingy about which free transaction (if any) they will include in their blocks.

Meanwhile, you may find that large retailers subsidize mining organizations to ensure that transactions paid to them are quickly confirmed.  Perhaps Walmart will offer a few mining pools a contract that pays the miner a subsidy for every transaction that is submitted by them and confirmed.  That way the consumer has the fee hidden from them in the price of the products they buy.