A world without block rewards

[cianuro]

Hi guys.
This has probably been discussed already but for the life of me, I cannot figure a search term to use that filters out irrelevant stuff.

Anyway, the latest block size debate has had me thinking about various inevitabilities.

What happens, specifically to the price of Bitcoin and transaction fees when the block reward drops to a negligible amount?

Let's assume tomorrow is the day that the block reward drops to 0.00001 BTC. Now, the entire mining process has to be subsidized by transaction fees. So far, so good. This was by design. However, at (I assume) 4000 transactions per block currently (I could be way off but let's go with that for now), that would mean that at today's BTC exchange rate, for miners to break even, transaction fees would need to be close to the same as the block reward for miners to bother. Let's keep it even, that would mean, at $300 per Bitcoin, the average transaction fee would have to be $1.87.


Current fiat reward for miners operating at close to break even: 25 btc* 300 usd =7500 usd
Transaction fees required for the same mining power to run the network: 7500 usd/4000 trx = 1.87 usd

Now I'm making some serious assumptions here, I get that. But at today's exchange rate/Bitcoin value, that puts  Bitcoin out of business in terms of being an affordable way to make everyday transactions, especially micropayments. Granted, for larger sums, this doesn't seem like a big TX fee at all.

Now I know that block size is mutable so does this mean it's inevitable? Or does it mean that the price of BTC will have to rise to at least the cost to mine a block divided by the transactions per block multiplied by the exchange rate to be worthwhile? Doesn't this then mean that the value of Bitcoin outside it's functional value, is then ultimately determined by the block size which markets ultimately don't have control of?

Would love for someone to clear this up for me. I'm obviously missing something. For the sake of explanation, it would be good to assume that we live in a world 40 years from now where there is either no block reward or that it's so negligible that the block reward could be considered a cup of coffee. Does BTC fiat price increase to meet the collective cost of actually hashing the transaction block or does the total block transaction fee value determine it?

Would love to get some input here to help me understand. If this has been discussed before, Apologies. I'd appreciate if you could link me to the previous discussion.

[Possum577]

Hey, great question and I look forward to getting the answer. I do have an additional question for you or someone else - are the miners really paying the transaction fees? I thought transaction fees were paid by the person who initiated the transaction. Why would miners have to pay if the fee for doing the processing work and keeping the blockchain alive.

If you think this is hijacking your thread, I'll delete the question. Thanks.

[cianuro]

No, miners don't pay transaction fees. They GET PAID the transaction fees from the transactions in the block they hash/verify.

My point is, when transaction fees are the ONLY incentive to mine (and that will happen eventually as a certainty) the total sum of the transaction fees must match the cost of mining the block they were included in. If the block costs more to mine than the value of the  transaction fees in a block, miners (most) will shut down. At least so many will shut down that the network becomes insecure and Bitcoin will die. 

Currently, at the existing transaction per block limit, that would mean that a fee of $1.5-$2 would have to be paid for EVERY transaction to be added to the blockchain. Alternatively, the functional or "real"  value of BTC should be ten times higher to compete with an average alternative payment processor. That is of course if you look at BTC from a purely transactional and transfer point of view.

So, I'm looking for ideas as to what the ecosystem as a whole will see as a solution to this. Either Bitcoin finds mainstream adoption and the price increases to at least match the cost of mining or the blocksize will have to increase to accommodate more transactions with a lower fee. Perhaps a bit of both.

Either way, if either are to happen, Bitcoin will need to find mainstream adoption before the block reward becomes less than the cost of mining. I think I read that Satoshi said that Bitcoin would be everywhere or nowhere in 20 years and this might be what he meant. 20 years is 5 halvings of the reward. We're almost 2/5s of the way there.

Of course, I may be way off here, this is all hypothetical

[LiteCoinGuy]

hello cianuro,

good question for a newbie 

yes, that question was asked i guess 10.000 times but anyway:

https://bitcointalk.org/index.php?topic=71176.0

http://bitcoin.stackexchange.com/questions/5275/what-will-happen-to-mining-after-the-20-999-999th-bitcoin

http://bitcoin.stackexchange.com/questions/11291/what-happens-to-transaction-once-all-the-blocks-are-mined

https://www.youtube.com/watch?v=2cMjR0mB9Sc

[Amph]

better to solve other problem that are more important for now and more pertinent, by the time that scenario happen many of us will be died, but it is known already that the price will need to accomodate mining activity or the network will deteriorate

also it seems that satoshi didn't care too, if he predicted that the verdict will happen in 20 years, essentially he didn't take into account that scenario

[NorrisK]

Also, one has to assume that mining will get more power efficient.. In 100+ years, if we still use the same amount of power per hash we have failed as humanity..

[Ingatqhvq]

It's not a new thing. Some altercoin such 100% pos coins as NXT and qora don't have any  block rewards. it works very well.

[LiteCoinGuy]

better to solve other problem that are more important for now and more pertinent, by the time that scenario happen many of us will be died, but it is known already that the price will need to accomodate mining activity or the network will deteriorate

also it seems that satoshi didn't care too, if he predicted that the verdict will happen in 20 years, essentially he didn't take into account that scenario

No!

[Kprawn]

You are working from the assumption that all existing miners will stay mining in a situation where their is minimal gain. Some of these miners will

obviously stop mining and the difficulty will decrease to make it easier for solo miners to get back into the action, even if it's for less reward.

If we ever reach a situation, where the existing miners fee's are not enough, some people would pay more fee's to get their transactions confirmed

and the miners rewards will increase.

I also believe some bigger companies would invest in FREE mining to sustain the network. {They would be so invested in the blockchain, that they

would have to provide this service, to continue doing business}

I am not really worried about such a situation.. there are too many people who are passionate about it, for it to fail. 

[Amph]

better to solve other problem that are more important for now and more pertinent, by the time that scenario happen many of us will be died, but it is known already that the price will need to accomodate mining activity or the network will deteriorate

also it seems that satoshi didn't care too, if he predicted that the verdict will happen in 20 years, essentially he didn't take into account that scenario

No!

hal finney tried that way, let's see if it will work for him, but remember that it require tons of money not everyone is rich enough for this, many will not see the fees era of bitcoin

It's not a new thing. Some altercoin such 100% pos coins as NXT and qora don't have any  block rewards. it works very well.

that's is different they work with minting which is their mining, so you should compare it more with the decrease of the interest and not the minintig itself

[LiteCoinGuy]

@Amph

yes i know he did that.....but that could also be the solution:

when we have a problem with bitcoin in the year 2140, Hal could solve that problem  

[ronald98]

...

It's not a new thing. Some altercoin such 100% pos coins as NXT and qora don't have any  block rewards. it works very well.

that's is different they work with minting which is their mining, so you should compare it more with the decrease of the interest and not the minintig itself

If we are considering what happens to Bitcoin when the block rewards become negligible, then Bitcoin mining will be similar to NXT and qora's minting process. All that the Bitcoin miners will get rewarded with is the transacton fees, which is all the NXT and qora minters currently get. If Bitcoin survives until almost all coins are mined then the transaction fees will be worth more because each Bitcoin will be worth much more money.

[futureofbitcoin]

Also, one has to assume that mining will get more power efficient.. In 100+ years, if we still use the same amount of power per hash we have failed as humanity..

That doesn't mean anything. The point of mining isn't to get more hashes, it's to keep the network secure. If you can get more hashes, so can a person or a group of people trying to break the blockchain.



Also, the block rewards will get "insignificant" long before 2140; the difference between 0.0000001 bitcoins and 0 is not that big.

[achow101]

Either the price has to go up, or more transactions need to occur in order to replace the current block reward with fees. However, there is also the question of how low are miners willing to accept before they stop mining. A few years ago the block reward was at 50 BTC but now it is 25 BTC and there aren't many people complaining about it. The reward from transaction fees won't need to be as high as 25 BTC. I think around 10 BTC is enough for miners, but we won't know until that time comes.

[InceptionCoin]

I think miners stop accept low-fee transactions when offchain technology came to scene. As I understand any offchain technology need some txs to be pegged to blockcain, so its possible that there will be only a few txs in the block but they will conceal thousands offchain-txs and will spend a lot of fee.

[pereira4]

Also, one has to assume that mining will get more power efficient.. In 100+ years, if we still use the same amount of power per hash we have failed as humanity..

This. And in 100 years 1 BTC will be like the GDP of a small country, so the fees the miners get will be enough even if they get small amounts of satoshis.

[S4VV4S]

@Amph

yes i know he did that.....but that could also be the solution:

when we have a problem with bitcoin in the year 2140, Hal could solve that problem  

Indeed he could, however, we have to solve his medical problem first.
Hopefully by then there will be a cure for his problem.

[jeannemadrigal2]

I think that the networks will always be self adjusting.  When there is less incentive, because of increased dificulty, lower block rewards, or whatever, then less capital will come in to the mining eco system, and will even flow out.  So when the block rewards are gone, then the miners will leave for some other coin, or they will turn off their equpment ni higer electricity cost areas, and only miners with an advantage can make money.  If you consider that interest rate returns are at best 5% or something a year, if bitcoins go more mainstream you can expect the profits to diminish as well when more players get in to the game.

[Hopalong]

If they operate close to break even now there will be an answer to your question when the next drop in reward come. Then the bitcoin price have to be higher or the fee must increase.

[MadAlpha]

Also, one has to assume that mining will get more power efficient.. In 100+ years, if we still use the same amount of power per hash we have failed as humanity..

This. And in 100 years 1 BTC will be like the GDP of a small country, so the fees the miners get will be enough even if they get small amounts of satoshis.

You think bitcoin will be the dominant currency after 100 years? You think in 100 years we won't think of anything better?

Are we driving the cars of 1915 today? Has there been any progress between now and then?

Bitcoin is the prototype, the Alpha version. The one with the bugs and missing features and blockchain bloat and 7 TPS capacity. Sure, it can be patched and improved, but eventually someone will figure out a totally different way to do things.