Bitcoin Forum

First read the paper linked at the bottom.

Is Raphael Auer's paper fact or fud?

However, will the fees continue to sustain bitcoin's security forever, after all the coins are mined?

Also, we are in the early days of cryptoecnomics. There are developers that are experimenting to create a fix for the possible lack of mining incentives when all coins are mined by implementing a tail emission. There are other altcoins taking an inflationary approach with a transparent emission.

https://www.theblockcrypto.com/wp-content/uploads/2019/01/Screen-Shot-2019-01-22-at-5.01.08-PM-800x396.png

Raphael Auer, Principal Economist of Monetary and Economic Department at the Bank for International Settlements (BIS), wrote a paper titled “Beyond the doomsday economics of “proof-of-work” in cryptocurrencies.”

The paper starts with showing how the popularity of Bitcoin and other cryptocurrencies soared in late 2017, outstripping interest in sovereign currencies, or even gold. But yet Auer points out that according to research by Chainalysis, few people were actually using Bitcoin to buy things.

The paper defines ‘economic payment finality’ when it is unprofitable for any potential adversary to undo it with a double-spend attack. Auer argues that double-spending is very profitable and that attackers stand to gain a much higher bitcoin income than an honest miner because they collect the double-spent amount on top of transaction fees and block rewards. The paper states that “proof-of-work can only achieve payment security if mining income is high, but the transaction market cannot generate an adequate level of income.”

Auer argues that because the block rewards are decreasing with time, the security of payments decreases and transaction fees become more important to guarantee finality. He says that “the economic design of the transaction market fails to generate high enough fees.” Auer continues with saying that users are free-riding on the security provided by the transaction fees of other transactions in the chain, which causes the transaction market to be unable to generate an adequate level of mining income.

The proof-of-work and hence the level of security is determined at the level of the block in which a transaction is included, whereas the transaction fee is set by each user privately. Auer says that the key result is that the fee set on a decentralized basis is much lower than the optimal fee, which results in long times before finality is reached.

Auer concludes that Bitcoin’s liquidity will fall substantially in the long run in the absence of relevant technological advances. The block rewards represent the vast majority of miners’ income and thus underpin the security of payments. But since the block rewards are being gradually phased out, the paper argues that the security of payments is also set to deteriorate.

Read in full https://www.theblockcrypto.com/2019/01/22/bank-for-international-settlements-argues-bitcoin-is-not-sustainable-without-block-rewards/

Link to Raphael Auer's paper https://www.bis.org/publ/work765.pdf

A BIS source is going to be as hopelessly fudtastic as Nouriel Roubini after his Yobit account's been hacked.

I remember Greg Maxwell celebrating the fact that a block's fees outweighed the block reward for the first time during the height of Bitmain's probable spamming. It certainly sucked for us but it did prove it was possible.

Luckily we'll be dead or in nappies before this becomes a major problem. I am curious to see how it's going to pan out. If I'd been designing BTC I would've kept an eternal tail emission but you're not allowed to say such things.

It will be a fact if bitcoin today will the bitcoin until the last coins were minted. I think the developers know that, but it's way too early to be bothered with it, there are more important things to be done first. But some FUDs came from facts anyways, but were only solved that's why they became a fud afterwards.
Quite right. Let the people living on that time solve that and let us, the early bitcoin users, rest in peace.  :)

Yeah, if Bitcoin will keep being popular, the fees should be enough to sustain the PoW. Also, we don't know how much Hashpower we need to feel safe, generally it is the more the better, but there should be some diminishing returns. We're still to far from that moment to make any good predictions.


Many members of Bitcoin community think that any regulations = communism and any inflation = Venezuela/Zimbabwe. Even if it will be scientifically proven that emission is needed to subsidize the PoW, people would still be opposing it.

Bitcoin is the main protocol, there rest that will be built on top of it will be generating fees too, so it's not just on-chain fees that miners will be getting, but also the fees coming from side chains they merge mine, second layer fees (i.e. providing liquidity to LN, and remember that LN is just one second layer and that we will have many more), etc. We're not even close to a point at which we have seen what Bitcoin and everything running on top of it is truly capable of.

As long as people have an incentive to pay high fees, they will continue doing so. Speculation and both use as value transfer are pretty damn solid sources of incentives.

people DO NOT need to pay high fee's to make bitcoin mining functional. here is why

1. having an increased transaction count per block can offset this.
    EG 2000 tx of 25cents doesn't mean 2000 tx of 50cents after a halving. instead 4000 tx of 25cents offers the same solution
    this is not a point where the usual snake charmers shout out "gigabytes by midnight" or "blockchains cant scale".
    reality is they can scale. and it doesnt need to be jumping extra large real fast. but progressively over time

2. the 1.2fee:12.5reward wont 'flip' for a few decades. so shouting out we need fee wars now are empty argument

3. changing the mining algo to be less 'costly' to mine can provide solutions too

4. just because difficulty has gone up. doesn't mean it has to continue go up. difficulty can plateau,
    so COSTS may not increase continually thus not need to increase the fee

5. though the reward halves. the price of reward deflates(goes up) meaning 12.5btc today is worth more than 25btc pre 2016.
    so tx fee's are not essential replacement, because the btc price deflation is the replacement

6. if pools cant make profit. they wont mine as strongly. its not like they are forced to work.
    they can give up. leaving and letting the remainers have a larger slice of the pie to offset.
    EG if 100k asics was getting $50k per block($0.50 each) but were not making profit. then say half stopped.
    now 50k asics are getting $50k ($1 each)  

That's the most likely outcome, and we have all the real world evidence we need to know that it can work. I'm sure that in the coming few decades we will see that continue to happen with how adoption continuously picks up.

Every previously higher block reward has a much, but really much lower USD value than the current 12.5BTC block reward is worth in USD. A 50% deduction in block reward from here is compensated with a simple 100% price increase.

$8000 BTC is nothing in the grand scheme of things, and with time we'll turn the $20,000 peak into one of our future bottoms. Just let Bitcoin be Bitcoin and it'll work out just fine, people don't need to worry.

Was that something that we should celebrate about, however? I reckon people who might want to use bitcoin regularly might instead choose to use an altcoin because they get the same results without paying for the high fees.

Also, escaping by saying that we are dead before it becomes a major problem is like already accepting that there is no fix to the problem.

That's the luxury of being dead. All of one's problems are solved instantly and eternally.

All of this experimentation in recent years is heading towards what the core developers have been mumbling about all along - all necessary scaling is looking increasingly like an impossibility on chain.

There are two likely outcomes. Either something comes along that isn't BTC that does scale on chain which is more than possible though whether BTC is too entrenched by then is another matter, or it does the layer two thing.

If it is to be layer two then on chain transactions will be large and carefully planned which'll provide a much steadier fee situation than the current ad hoc spikes.

It really depends on which altcoin survive and how's their development I believe. Regular folks won't use Monero, and importantly most people know about Bitcoin and it is relatively more adopted than other cryptocurrency. I can pay subscription using Bitcoin at this moment on file hosting site such as Mega, where IIRC they don't accept other cryptocurrency.


Yeah, I believe 2nd layer will be the solution to scale Bitcoin. On-chain transactions will only be used for something which requires a very high security just as Murad Mahmudov said. And when this time come, how much will 1 BTC worth anyway? If it's $1 million/BTC then 1k satoshi for fees is more than enough.

The idea is that by the next time a spam-apocalypse happens, either by an attack by Bitmain, real organic transactions, or a combination of both (which I think is what happened during the last bubble) second layer solutions will be user friendly and ready to use on every exchange, otherwise we will have the same outcome. Bitcoin will always have value no matter how high the fees go, but a % of buyers that cannot afford the fees would move to some alt if there isn't second layer solutions by then and I assume there will be since probably the next massive bubble to $100k+ will not happen until the 2020-2023. I expect all these stylish and user friendly LN wallets to be working everywhere by then so it shouldn't be a problem. All these guys that want to buy 50 bucks worth of BTC should be able to do it through that.

Nonetheless, none of the alts offer the security of Bitcoin with faster and cheaper transaction, it just means the alts would be less crowded so if people want to buy alts for a cheaper fee in exchange of less security then so be it, but ultimately none of them are real competition for Bitcoin.

that is a misleading chart because it is only showing bitcoin amount and calls that "income" but at the same time it is talking about "costs" in fiat terms. so basically it is comparing apples and oranges.
let me first quote satoshi who said (paraphrasing) "in the future there will be many transactions or none at all". basically if the adoption grows, the price grows and the price rise covers the block reward halvings and then some. if the adoption doesn't grow and people stop using bitcoin, price doesn't rise so there is no point in talking about security of something that is not used!

Except you can't get the same results as Bitcoin by using any altcoin, no matter how good or bad it is. The differences are:

1. Alts are even more volatile than Bitcoin, so they are even harder to use as a currency.

2. Alts are less secure due to small number of developers and less talent among them. Also a lot of them have questionable network designs, which might make them inherently flawed.

3. Many of them are simply centralized or not protected enough in terms of consensus.

4. Very few merchants actually accept them. You'd have to go through an exchange a lot, which is an additional risk and fee burden.

5. Alts have high fees too when too much people use them, Ethereum had very annoying backlogs in the beginning of 2018.

Basically, alts are horrible for saving, even on a scale of months. It might make some sense to have a small altcoin wallet for "buying coffee", but if you include volatility and risks into calculation, using Bitcoin is cheaper than alts. And this is all while ignoring Lightning Netowrk, for the sake of argument.

The last mineable block is far away and won't be a problem as bitcoin continues to develop. It will probably switch to POS at some point with other stake incentives added in the decades to come

A layer 2 does not solve the miners' problem to be incentivized, I reckon. It competes with it in fee collection. How is that advantageous for the miners who already have their incentives halved every 4 years?

You don't get no layer two without accessing it via layer one. In a successful scenario demand for layer one space would be enormous. It would be an occasional thing to interact with it, not every single time you move money.

i think it cannot. vey hard to do that. do you think so?

the idea of lightning is that people that have coins on exchanges(cold stored for months/years anyway). where users do not withdraw them to the blockchain personal private keys.
but instead an exchange 'credits' a user with a unaudited/unconfirmed 12 decimal channel balance

this is where exchanges become "factories" (custodians) thus the amount of transactions occurring onchain REDUCE.

trying to say that there will be more transactions onchain is a false notion. as the whole point of LN is to take demand AWAY from bitcoin network

what happens will be that the bitcoin network will end up just processing custodian(factory) batch transactions as they swap reserves.

and individual users are left stuck in joint contracts(not 100% control) channels. or paying huge fee's if they want self control
all for the FALSE rhetoric that fee's need to be high and utility needs to be low

However, layer 2 will also make moving coins using layer 1 lesser in demand that would also cause the fees to go down? How would no incentives and low fees sustain the miners in securing the blockchain?

The introduction of the Lightning Network have open up a new source of income to these miners. They can host LN nodes and generate additional income from that and it can supplement their income from Bitcoin miners fees in the future.

I also think more second layer applications will be added to the Blockchain network in the future and running nodes for this will also help to cover their expenses.

Miners will have to adapt to survive.  ;)

I have been wondering the same thing though on a non-technical level since I am not good in deciphering many technical matters related to Bitcoin or cryptocurrency. Yeah, right, by the time this can be a big challenge all of us who are here in this era of Bitcoin would already be resting underground or if you believe in the Christian religion then we can be already in the Kingdom come. As always with anything in this world, as long as there is a market for that something then any problem can be given solutions as long as there can be rewards on doing so. Let's hope then that Bitcoin can be able to survive into those years.

That might be a solution hehehe. However, there is a more natural solution for miners and Asic manufacturers. To diversify and mine altcoins.

Are you finally admitting that the block size increase in Segwit was the right decision at the right time? 8)

You know there are trade-offs in block size increases, and that the Core developers need to make conservative design decisions to avoid breaking the network. It's not as easy as you make everyone believe.

no, he is still saying the same thing as ever. to increase the block size itself with a hard fork but instead of jumping to a ridiculous number like 32 byte, go at it with a slower pace like increase to 2 MB first then maybe a couple of years later to 3 or something like that.
although I still don't understand why he is denying SegWit's scaling that happened already!

I have this question earlier also and somebody suggested that LN will be able to solve the problem.  If bitcoin cost is high, major transaction will be done on LN and when the channel is closed it will written in blockchain and miner will get good fees for that transaction. But user will not mind it because they have transacted multiple times in LN channel so cost per transaction is still small for user.

Sorry: It is all from my memory as I recall, might be some facts get distorted.

the only way that LN can help miners earn some additional income is if they also run a Lightning Node alongside their Bitcoin Node that they have to run to be able to get transactions to include in their blocks. so they can earn additional income.
what you said doesn't make sense because in the end they are still making one transaction on-chain and that transaction has the usual fee like any other transaction so there is no additional income for the miners.

I am saying at that time that single transaction will not be costing a few cents, instead it will be costing some dollars for each transaction. User will be doing most of transaction in LN, so they will not  mind paying the high fees in blockchain when they will close channel.

people would still mind if the fees were high and remained high. no matter if they made thousands of transactions over at Lightning Network or if it is their one time transaction on-chain from their  wallet to another wallet. besides LN is not supposed to do everything, it is supposed to be the "second layer" and to perform seamlessly the "first layer" which is on-chain has to perform as it should meaning no huge backlogs and no unreasonable high fees.

He's not accounting for the transitional phase as we shift from inflation to fee market. It's possible that in these early years, speculation largely fuels mining security -- investors and miners are speculating on future transaction growth. He's not really allowing for the possibility that this transaction growth actually comes to fruition.

As long as scarcity of block space exists, transaction demand -- if sufficient to fill blocks -- should create a fee market. As fees rise, miner revenue increases. As fees fall, miner revenue decreases. Hopefully in the latter case, it would happen slowly enough that difficulty can adjust downward in an orderly fashion to allow continued mining profitability.

For now. The truth is that in the future those scenarios will be a lot more likely to happen and widely utilize with mass adoption. Think of a bank, what makes fees so powerful for them? Precisely the volume of costumers they handle for one part even when that is not their only revenue source.

The truth is that the market is still changing and adapting. In the future we will barely recognize what we are seeing right now in the sense of the way we do things and what we recognize or not.

Bitcoin and Cryptos in general are going to continue to evolve and adapt to continue to remain profitable and survive. Fees will be play a strong part in this.

Is that the best solution you can give? Miners to run Lightning nodes to earn additional income?? Miners would rather mine another coin, I reckon hehehe.

once the bitcoin lightening network gets implemented then we can see fees may get reduce all is in market conjunction and fast transactions

This comes back to the age-old question: What are "high fees?" Shouldn't we expect fees to rise over time, since they must replace the block subsidy? That was the original design, as I understand it.

Let's imagine a future decades from now, where speculation and block subsidy have much less influence on price. In the long run, shouldn't there be a strong relationship between transaction fees and the actual cost to mine transactions?

Right now, miners are effectively subsidizing that cost through speculation. They're willing to mine transactions for pennies on the dollar because they're in an arms race to mine the block subsidy. Many halvings out, that incentive will disappear. If we want similar or better security, we'll need to pay for it as users -- as fees.

After all the BTC are mined, I see it becoming  an asset more than a means for daily transaction. The reason been that the value is going to increase tremendously and ever investor will tend to hoard the BTC in there pocket so the transaction fee may sustain BTCas an asset not for daily transacting currency.

@squatter. However, there are also these age old questions. Will cryptocoin users begin looking for other coins to use for cheaper transactions?

Yes, bitcoin has been slowly losing dominance.

Will the miners leave bitcoin and mine coins with better incentives?

Maybe, however I speculate the answer might be a yes[/] in a few years.

I didn't say it is a solution, I said it is an option and it is not meant for miners to earn money that way. I was explaining to r1s2g3 that this is the only way they can benefit from LN not the way he explained it.


not when there is competition. nobody is going to even use bitcoin if the fees go up to something small like $10 when there can be an altcoin copy of bitcoin or even better implementation using newer innovative ideas (like DAG for instance) with 0 fees. they may be shitty shitcoins today but we are talking about a future when a couple of halvings happened and block reward is smaller, I think it is safe to assume in 20+ years there will be better altcoins!

Dominance in no. of transaction yes, but no with volume because bitcoin is still the most used coins in the crypto space.
Some will leave but majority will still continue to mine BTC.... the big miners that were here in the early stage are investors as well
so they will likely support BTC.

In few years maybe if bitcoin will loss its popularity, but so far as bitcoin dictates everything, it's still the best coin to mine, for long term.

are you sure about that?

first, you're probably mistaking altcoin speculation for actual usage. "cheaper transactions" has been an effective marketing ploy for many altcoins but their rise in price doesn't necessarily indicate people are using them for cheap fees. people are probably just speculating that cheap fees will be important for future utility. that doesn't make these speculators correct that bitcoin will be cannibalized by coins with lower transaction fees. the market will decide that.

second, as more and more coins are launched (with higher and higher circulating supplies), "bitcoin dominance" as a function of market cap should continue dropping. that really doesn't indicate that bitcoin has lost its dominance over the market. no altcoin comes anywhere near dethroning bitcoin in price, liquidity, usage, value transferred, etc and i think that will continue to be true.

My theory.

I believe that there will be a small group of people in the community who will FUD a narrative that the block rewards should not be halved.

After the next having of 2020, some miner, maximalist, developer, or Bitcoin oligarch will call for a change in the consensus rules to maintain the 6.25 block rewards on 2024, but without inflating the supply to "save Bitcoin".

I know it sounds preposterous now, but just watch.

It's inevitable, really. Peter Todd has been saying for years that a predictably low but permanent inflation rate (like 1% per annum) would be a superior security model for Bitcoin. He might be right, and he's not the only one thinking that. There is no precedent for Bitcoin's hard cap on supply. It's an experiment and no one can say from experience how it'll work out.

Since there is a hard cap on supply, it's incredibly important that we retain a hard cap on block size to force fees higher. Without inflation, that's the only way to guarantee that miners have incentive to keep mining Bitcoin.

Have you noticed that sportsbooks, dice sites and other businesses are also accepting altcoins and are increasing? Do you think the people will continue to use bitcoin when the fees are high? No, the people will look for alternatives, I reckon.

Fees can be the best source of bitcoin to survive but of course if its continues to grow we can expect a more good market and fees will just become a part of it. Its still cheaper compare to other coins and a lot more faster so I don’t see any threat with regards to the transaction fees.

yes, to some extent. this should be expected as the altcoin markets grow, especially when most merchants are using payment processors. with coinpayments, accepting altcoins is like flipping a switch on. this doesn't necessarily suggest altcoins are threatening to overtake bitcoin.


is that what happened in late 2017?

there's a pretty strong correlation between fees and price: they rise together. evidently, people have been willing to pay what the fee market charges.

i'm all for the market having different options, anyway. i think people will be willing to pay for bitcoin's superior security. for lower value transactions, there's lightning, sidechains, altcoins. it's hard to say how things will pan out exactly, but i think strong demand will remain for bitcoin because of its network liquidity and security.

I have said that before, and I know there are others who have said that before me.

I believe it's time to re-orient ourselves on what Bitcoin is and what it isn't. What it cannot be is a decentralized, peer to peer, digital cash that anyone can send for free. Decentralization has a cost as we have witnessed.

Yes the cost is still fairly cheap compared to other media. I also think that Bitcoin will grow even better.
What we need to do is continue to support the development of Bitcoin by increasing the number of transactions using Bitcoin every day.
This has become a thing that will help develop Bitcoin significantly in the market.

Shouldn't this debate be over the speed of processing transactions instead of mining income? Even if miners stop to mine, it will stabilize and even reduce the difficulty gradually which will give voluntary users a chance to keep the network secure. What I believe is the network will still remain secure (except a possible 51% attack which depends on the then number of miners and the hashrate).

2 things scare me for such times:
- Will the transactions still process the way they are processing currently? As the deduction in the difficulty ratio when miners back off will surely lead to gradual speed reduction in terms of processing individual transactions of same or higher block sizes (if a blocksize increase proposed till that time gets accepted).
- Will we see those price hikes in transaction fees too just like we witnessed during 2018? Will we need to pay very large transaction fees like $100 to get even $10 worth of BTC transacted?

2017 was only a temporary rise in fees. I am speculating on fees that are permanently high because 20 years from now the mining rewards will be very low for miners to support themselves. Miners might leave or users might be required to pay high fees.

Can bitcoin sustain itself on fees alone?

there used to be a correlation between fees and price back when fees were introduced and started becoming a thing. at first price was so low so the fees were high, something like 1000k-100k satoshi. then as price went up the fees went down to match the price to something like 10k satoshi fixed and then to lower amounts. then at some point since the blocks became full instead of fees being in accordance with price, they started becoming a tool of competition.

and that last part plus the spam attack was what happened in 2017.

That's what markets do -- they temporarily rise and fall. 2017 is indicative of what happens when there is strong demand for Bitcoin transactions.

You think they won't rise again? If long term adoption is growing, fees should rise over the long term too.


The mining subsidy will be very low. What makes you think the total mining rewards would also be very low? Because you assume adoption/usage is slowing down or dropping?

Nobody knows for sure if the zero inflation model will work, but it's the way Satoshi designed things. We'll have to wait and see. :)

@squatter. What makes me think total miner's rewards might be low? It might because there will only be 21,000,000 bitcoins in existence hehehe. Miner's rewards are going to 0, except for the fees. Can the miners sustain themselves from the fees alone?

Also, if the fees in bitcoin are permanently high, would it not make the people begin using other cryptocoins?

the value of bitcoin is very dependent on its users, if the demand is large, the price will rise and if the demand for a little price will go down, the one who can determine the price is market players, bitcoin mining is only a supply of available coins, so bitcoin cannot determine itself , everything related to bitcoin is the determinant of bitcoin.

I do not see any clear arguments to support the sustainability of bitcoin mining from fees alone. Can this prove that a tail emission similar to what Monero and Aeon has might be the correct way to maintain a blockchain's security? What about Grin's transparent inflation schedule?

firstly it is you segwit/LN lovrs that have been the ones spouting out gigabytes by midnight.. no one else
secondly segwit did not/does not offer any bettr scaling for the bitcoin network. sgwit actually if you count the bytes per transaction, segwit is WORSE than legacy.. however segwit hides the real bytes with the wishy washy witness scale factor, stripped data and vbyte crap

my stance for years has never been jump to gigabytes ASAP but instead do what happened before 2015.. which was scaling.
2009-2011 0.25mb
2011-2013 0.5mb
2013-2014 0.75mb
2014-2015 1mb

segwits 4mb is not actually 4mb.. its a tx data base area of 1mb and a tailend area for signatures. the issue is by bloating up bytes per average transaction via new features. and the cut out the signature in the bas area still keeps the max tx count roughly the same.
EG
1mb legacy had a 600k a day tx count implied offering which is a number known back in 2010
but due to bloated features and new use-case features. blocks surpass 1mb of data.. yet we have not had a single day that has surpassed a 600k transaction count for a day.  

secondly my stance of fee's is that making veryone pay an average. and that average being hit due to how much demand there is, is not useful for anyone. as all it does is promote stalling/stagnating bitcoin scaling purely to try keeping a fee average up.

however RE-introducing a fee priority mechanism that is more based on age of funds. EG spammers that have funds only 1 confirm age pay more than a user that have funds that are over 144 confirms pay less.
this means people still pay fee's even if blocks are full or not as fees are not linked to a stifled blocksize.
it also penalises spammers, and to flip the argument incentivise those spammers that multispend a day to see the benefit of LN.
whilst those that only spend once a day/week/month dont get penalised to the same average.. they also because they dont spend often wont see benefit of LN anyway so shouldnt be burdened with paying the same price as spammers