Bitcoin Forum

At each reward halving, to keep the miners running with same incentive, either the bitcoin price need to double or the fee income per block would compensate for the loss of the block subsidy, but it seems that the fee per block is impossible to rise in near future:

Currently the fee income per block is around 0.5 bitcoin, very little comparing with the block subsidy. So the only thing works to keep the miner's incentive is to raise the bitcoin price by 100%, otherwise miners will shutdown their operation due to unable to profit, resulting in weak security

In general, there is an extra delay when including one transaction, and that delay will increase the risk of a block being orphaned thus lose the whole block subsidy and fee income altogether. If you include 2000 transactions today (1MB block), that will add up to 1 minute delay when broadcasting to the whole network, which is about 5% risk of being orphaned (not precisely calculated from Poisson distribution, just an example, 10 minutes delay means the block will have a 50% chance of being orphaned), so 5%x25btc=1.25 btc is the cost of 1MB, divided by 2000 transactions, you get 0.000625 btc fee per transaction, which is a fee that is accepted by all the miners today, means the real cost is lower

If the cpu/network speed doubles at next reward halving, then each block can include double amount of transaction at the same opportunity cost, e.g. 4000 transactions for 5% risk of being orphaned. However, the block subsidy is 12.5 coins by then, 5%x25btc=0.625 btc will be the cost of 2MB, divided by 4000 transactions, that is 0.00015625 fee per transaction

So the fee per transaction will be cut to 1/4 at next reward halving, if bitcoin price doubled, then it means the fee is getting 1/2 cheaper for end user. If bitcoin price quadrupled, then the fee costs the same as today

Following this route, when block subsidy is cut by half, the fee per block will also be cut by half, with double amount of transaction capacity, resulting in 1/4 of the btc fee per transaction. It seems that the fee per block will stay small relative to block subsidy in foreseeable future, unless there is a fee market driven by limited transaction capacity

It is possible that during a bubble next year, the transaction per 10 minutes raised to 8000, then they will be competing for 2000 transactions per block, causing a rise in the fee dramatically. But that is a situation much more difficult to analyze, since they will also reduce the transaction frequency and even use clearing based services to avoid high fee

And this is the case that you directly use blockchain to do transaction, if you use clearing based solutions then the fee can be 0 for end user, and the real traffic on blockchain might grow even slower

So, as long as bitcoin scales well, the fee income for miners will never be able to rise to replace block subsidy

Probably. It's happened before. Probably will increase to about 0.0005 for average txes, not much. Or at most, 0.001 satoshi. That will more than cover the lost btc.

What i'm really scared for is when 2140 comes. If bitcoin is widely adopted, the price will be huge. But will the tx fee be 1+ plus bitcoin? Not that's a scary thought.

Yeah they will probably make the fee higher. Hopefully not to high or it may ruin Bitcoin completely. And who here really wants to pay more fees?

You really think that the fess will go up that high? Do you have any quotes from anyone or any links to websites saying this?

Although you ask a legitimate question, your argument does not prove this conclusion.

Estimates will be easier to make once it becomes clear where transaction volume is going and how much volume is handled by the bitcoin blockchain itself vs. how much is being moved to something like the lightning network.

This conclusion is based on the fact that the fee per block is decided by the orphan risk, and the loss from a orphaned block is decided by its subsidy. So as block subsidy goes down, the loss from a orphaned block also goes down, and the fee per block also goes down

If orphan risk rises exponentially above certain threshold, for example 2MB block to take 10 minutes to broadcast to majority of nodes, then maybe fee will rise quickly to get close to block subsidy

Of course, When something goes, something comes. The fees will probably have to rise to match the missing bitcoin, or to make up about half of it. That's a big problem that we face.

People say this but not necessarily. It's all an open market. If people are still mining with the current fees, it will stay as-is. If they stop mining blocks, people will raise fees.

Well hm.

Fact is miners live to make money, if there is no profit in mining people will stop doing it till mining is profitable. Right now there is a mad rush to buy .28w/gh mining gear (I'm not quite sure why) and probably a ton of .8-1.0w/gh equipment sitting on the sidelines.

But think about it: If the price of bitcoin suddenly dropped to 225, then the mining difficulty would drop to about 50 instead of where it is now. Because at a 25btc block reward, a difficulty 50 was enough to eek out a profit at 225 a bitcoin. Was the network any "less secure"? I don't really think so, your chances of breaking the chain were basically zero then as now.

So when the block reward halves, either one of three things will happen:

1) 50% of the miners will drop out.
2) The price of bitcoin will double
3) Fees will go sky high.

I doubt #3, although it is nice to see miners demanding fees these days. #2 is possible, but more likely the less efficient miners and people fed up with heating their homes will drop out. No biggie, the network will adjust and it will still take 10 mins to confirm a block.

Now some people will say "yeah, but you can take that 50% that fell out and do a 50% attack!". Sure, but first:

You have to find the miners, they're all over
You have to incent them to mine again on a super-evil blockchain. That will cost 25btc every 10 minutes
You have to get them all to agree to fuck the chain for money
You have to keep paying them to keep their less efficient farms running away.

I strongly doubt this will happen. So no biggie.

I already hate the fees. It annoys the hell out of me and I know its how the system works.
Its annoying to send .001 lets say to someone and get a huge % tax in fee's

Send the same $0.40 on PayPal or another like site and you've lost almost 100% of it to fees. BTC is still cheaper.

How about we just let the miner bubble pop and half of them shut down instead of subsidizing them?

Not everyone that bought a miner can win no? They bought an investment, a risk, some are going to loose, let them loose..

I couldn't agree more. Though some would argue that this leads to centralization (the richest get the cheapest hardware/rates so run the longest).

You want to send any amount of money anywhere in the world in just minutes, for less than $.04? Good luck designing that system. Such a reasonable request, it must be easy to do.

Technically, it IS easy. The cost of modern systems is because of all of the red tape surrounding everything. If they didn't have to comply with so many regulations and systems, it wouldn't be that expensive.

The ones that lose are hardware operators and not those 5-10 miners. It's not a big deal if the hardware operators lose.

The bigger companies are the only ones making profit. By nature, that means they continue mining. The little guys at home continue losing money so they stop mining. How are the big guys being hurt when they're making profit AND that profit keeps going up?

I think it all depends on the price of bitcoin. If bitcoin price stays at current level, fees will have to rise to keep mining profitable.

at the moment miners get $11,250 a block ($450x25btc)

or another way of looking at it

at the moment a block holds less than 1250 tx's per block
https://blockchain.info/charts/n-transactions-per-block
this leads to (based on bitcoins $ price divided by tx's) there being an average $8 per tx price
https://blockchain.info/charts/cost-per-transaction

another way to look at it
at 4.5cent a tx the most a miner would get (1250 tx or less) is <$50 right now in just tx fee's

if people want to only pay under 4cent fee, once the reward is not there, then each block needs to store 400,000tx just so that upto $16k a block just through fee's can be obtained..(or $10k at average current 62.5% capacity)

the solution would preferably that mining costs get cheaper, miners get less greedy so that the block limit doesnt need to increase to 200mb purely to pay them $10k plus every 10 minutes

Miners *can't* be less greedy. It costs money for electricity (yes I know everyone thinks it's free, but it's never really free), money for the ever obsolete hardware, and time to keep the things running (yes, they do blow up). At ten cents a kw/hr it's about break even at .5w/gh. Buying .25w/gh will make a small profit but not cover the cost of the miner anytime soon.

Likewise this will *always* be the case. Note the price of bitcoin doubled, and so did the difficulty. They are tracking right now. When the halving happens, either the number of miners will drop in half or the price will double.

There's really no greed here. Actually everyone is perfectly greedy, that's what makes bitcoin go. The people who make money are people who make miners (which isn't that profitable) and the people who run power plants (who are the final source of power and money).

What's going to happen is little guys are going to quit mining. This allows bigger companies to mine less (use less electricity/hardware to secure the network), which eventually leads to centralization.

I think 2 is almost guaranteed, anyway this is bitcoin's anti-inflation promise: given same demand, the price will at least double every 4 years due to supply cut by half

The block reward halving is a 100% sure thing, the market will already price in it several months before, when it arrives, almost nothing will change, this has been proved by 2012 reward halving

Of course months following that event, some dumb miner which have done nothing will feel diminishing return thus start to shut down their rig, but the new miners with higher efficiency will be quickly deployed to compensate the loss in hash rate. Bitfury just announced that their new chip is 5x more efficient than the last generation, so a reward halving would still give them 2.5x increase in efficiency, resulting in higher difficulty

Second, many miners are not mining bitcoin for profit, they mine it for transfer value. Mining equipment company currently are not regulated by financial regulations, unknown capitals can enter bitcoin mining and leave it in form of fresh mined bitcoin without any trace. I guess the large bitcoin bubble in china and forever increasing hash rate regardless of exchange rate has something to do with large scale capital fleeing China. If you think about the nature of these mining operations, the fee is the least concern for them

So, difficulty will continuously rise due to fast changing mining tech, while total mining cost will still get higher and higher due to more capital entering mining and exchange to transfer value, these will all raise bitcoin's price, to more than enough compensate the loss in block subsidy

It's not a fact actually, not for now at least. The current fee level is heavily influenced by default fees (0.0001 or so). In the future, when fees are fully market-driven, yes, they can be decided by orphan risk. But we also need to consider several proposals that can and will make orphan risks lower, and, more importantly, independent ( O(1) ) from the blocksize (provided miner cooperation). Things like IBLT. So, the problem is even worse this way.

We're all be dead by then. Bitcoin is sure widely use when that time come and so 0.0005 will be considered very little as well like how cheap we consider the transaction fee these days. You probably don't mind doing hundreds of transaction a day.

We will have a consensus to the blocksize limit before block reward drops to a concerning level. When the blocksize is increased, there will be less rising pressure on fees because users do not need to fight for a place in the blocks any more. Lower fees and more transactions will keep the miners happy. If fees do rise to unreasonable level, there will be offchain settlement systems developed and users will use them more for smaller transactions. In general, I believe fees cannot rise to a level that completely replaces block subsidy in the near future.

Speak for yourself about dying so soon. Some of us plan to live much longer than that.

If bitcoin is around in 2140 it means we reached mass adoption and solved the scaling problem.

Bitcoin didn't double in 2012 because of block halving. It went up because it became more known.

Ok then you can expect the same thing in 2016, now it is even more well-known

Wait a minute you mean you'll live that long?
good for you, hope you won't suffer skin decease at the aged 60+ till 2140 and that you scratch your ass every minute of your entire life in the home of the aged.

First, a fee market will develop. Bitcoin users have to compete (by the fee / kb, maybe including actual validation cost) for block space, which is a finite resource. This means, when blocks start to get full on average, the average fee will probably rise, and become dynamic. It'll be market driven - miners will then have to compete to set the lowest acceptable rate for a transaction to be included in a block.

So, it's impossible to answer your question :) When the subsidy halves a few times, probably, but who knows what the price will be then.

Even if there is no block space limitation in software, the bandwidth limit would still limit the amount of transactions that can be included in a block

For example, if I include only 100 transactions, I can include all of them for free since they don't add too much latency. But if I include 10000 transactions then my block will be orphaned all the time. So if all the miners will mine small blocks which only include 100 transactions, the transaction fee can be at 0 forever. Then you will have more and more transactions piled up in the mempool, and some of them would like to add some more fee to incentivize miners to include them

So when the fee rise to 0.03 btc per transaction,  a miner would possibly include 8000 transactions and have only 1 out of 10 mined blocks entering the blockchain (rest all being orphaned), since if he succeeded the mined block will bring him 265 bitcoins in one single block ;D

But there is a risk, if his block get orphaned almost all the time, then all those 8000 transactions would be included by other miners with smaller blocks, e.g. 2000 transactions per block, and he can not be sure there will be endless transactions with high fee. So I guess miners would not do that kind of high risk blocks

Still, no matter how high the fee is, the amount of transaction a miner can maximum process is limited by the whole network speed (or a software block size limit), so you eventually will have more and more transaction queued up in the mempool without any hope of being included, unless the internet infrastructure had a large degree of upgrade all over the world

It will go up in 2016 due to a separate thing: fear in the markets. Fiat is crashing and economies are plummeting. Bitcoin is a route of safety. But again, that has absolutely nothing to do with halving.

Well, you could pay for better connectivity. If not, someone else will, and will enjoy the fee's from 10000 transactions. This situation is just a miner being priced out, which happens for other reasons already.

You can not have better connectivity since you already have the best available, the bottleneck is on intercontinental internet backbone. In fact the speed between Chinese miners inside china is very fast, so the rest of the world is struggling catching up with their blocks since the connection into and out of china is miserable and they have the largest hash power

This is an interesting claim, but my understanding was that mining takes long enough that the latency isn't an issue (the chance of two mining blocks at the exact same second are almost non-existent). I personally have a sub-50ms ping to EU/Asia.

Try to open a couple of chinese website like youku.com or tudou.com you will understand what I mean

Far from attacking your argument, I just want to share a little-known fact:

• Under normal conditions, the probability than the next block arrives in less than 10 minutes is about 63%.

Thanks, take your number instead

Just a comment on current banking. I can transfer sterling to any UK bank account virtually instantly, and I can do that via a mobile or over MacD WiFi, and there are 4 levels of security for the transaction. There is no fee for this transfer. However with the arrival of NIRP there will be a charge for keeping fiat currency with a bank. This is not to knock Bitcoin. There are massive advantages in using Bitcoin as most members are aware. At the moment, I relish the thought of having a choice, and also in being able to move away from fiat currencies. I make this post because I believe that competitive pressures will keep charges low. My free bank transfers are probably the result of the arrival of Bitcoin for example.

Doesn't work in my case. Where I live is right by a major Internet backbone so regardless of where I'm connecting to, I always have extremely low pings (as in sub-32ms EU/Asia, sub-16ms in the west).

Of course. I think the fee will rise straight after the halving, but after bitcoin doubles in price, then the fees will return to their current standard.

So many people think bitcoin is magically going to double in price because of the halving. If this were true, why is every investor in the world not all-in on it?

ok lets give this question another bash

current fee=0.0001
1mb block = potentially 4000 tx a block =0.4tx fee total bonus potential (ftbp)

in 2016 bitcoin reward will 12.5btc and block limit will be 2mb (0.8tx ftbp)
the fee will decrease to 0.00001000 because bitcoin price hits $1000 and it needs to bring the fee down to roughly 1cent+ not 10cent+
4 years later 6.25block reward and block limit 8mb (0.32tx ftbp) - note it would be 3.2btc if tx fee stayed at 0.00010000
4 years later 3.125block reward and block limit of 16mb(0.64tx ftbp)
4 years later 1.5625block reward and block limit of 32mb (1.28tx ftbp)
4 years later 0.78125block reward and block limit of 32mb (1.28tx ftbp)
4 years later 0.390625block reward and block limit of 32mb (1.28tx ftbp)

so in 2028 the transaction fee potential will be nearly on par with reward, whilst allowing for progressive block size limit rising in previous years to a max of 32mb and keeping tx fee below 10cents (presuming bitcoin is below $10,000 to not require going down to 0.00000100)

in 2032 the transaction fee becomes more important than the block reward.

right now transaction fee's should not even be necessary as a payoff.. but more so to get people used to the fact that transactions cost a few cents.. that way by paying a few cents.. there wont be any shocks as its a standard practice.

there is NO REASON to raise the fee to cost more than 10cents.. EVER!!.. and it should not be an argument we have to have.. the only time tx fee's become important is well over a decades time. so not something to worry about now

Fully agree with you.

Any investment involves risk, there are so many technical and political uncertainty in bitcoin. But I think by now most of the agile investors already hold bitcoin

Theoretically, bitcoin is destined to double in value every 4 years due to lower and lower new coin supply each year. And if you consider the fact that fiat money just get more and more, and user base is going to grow, this performance is guaranteed

If the value doubles every 4 years, and block subsidy cut by half every 4 years, the fiat income for miners will not change. However, due to newer and newer mining technology, the difficulty raise caused by mining competition will dwarf the effect of reward halving (reward having have the same effect as difficulty doubling, which can happen in a couple of months when a new generation of chips come on line). And we all know that difficulty increase does not impact the fee, but raise the coin value