bitcoin mining without the coinbase block reward

[graphite]

In theory as the bitcoin block reward keeps dropping transaction fees would take the place as payment to miners but If the fees don't increase miners would not be profitable and the hashrate would drop drastically.

The fees from transactions pay for the miners so more fees equals more miners therefore the network security is directly proportional to transaction fees. So in theory having a bottleneck on the network via the block size/block rate creates competition for block space and increasing fees which also increases security. If this bottleneck is not sufficient, fees will be low and based on the current fee rate once the coinbase is gone the hashrate will drop to 1-5% of its current hash rate. granted by that time I'm sure competition for block space will increase but fees might still be so low that the hashrate will be a fraction of the current day. For the hashrate to remain the same without the coinbase block reward, transaction fees would have to be ~650 sats/vB.

If for example transaction fees remained ~25 sats/vB in the future and bitcoin is 250k USD then there would be an average block reward from fees of 62k USD which would require 9mil USD a day to take over the network. If fees do get up to 650 sats/vB it would cost 234mil USD a day. 65mil USD a day is required to do the same thing in current day.

My concern is if the fee rate doesn't eventually replace the coinbase then the network will become less secure. What would be the solution if fees don't increase? Should we reduce the block size/block rate? or flatline the coinbase at some point so there will always be a small amount for miners to gain?

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[bitmover]

My concern is if the fee rate doesn't eventually replace the coinbase then the network will become less secure. What would be the solution if fees don't increase? Or is there something I'm missing here that doesn't make this a concern?

This wall of  text is terrible to read. Learn to break lines please.

You can't predict what the price of bitcoin will be next month, how can you predict 50 years? 100 years?

You can't know how much miners will receive when fee is the only reward. Probably, it will be enough. Miners are making a lot of money now, there is nothing to worry about them for now.

[Faisal2202]

What would be the solution if fees don't increase? Or is there something I'm missing here that doesn't make this a concern?

TBH, I don't think mining alone is a profitable business, but if you are farming with others then profit will still be made. Miners are already making good profits. Let's break it down a little, they make a profit from block reward which currently is 6.25 right? After halving they will make 3.125. Considering the inflation rate, and other devaluation of fiat and BTC price. We can deduce miners are going to make a lose.

But I don't think they only have to depend on Blockreward or fee reward, they can make an equal amount of money if the adoption is doubled. If 2x people will start to use the BTC network, then there will be more tx in blocks waiting for to get processed. More miners will be in the network. Plus the price of one BTC is going to increase as well, if 2x people will adopt BTC than now. An increment in the BTC price and an increment in the adoption rate will still give them healthy rewards. Plus BRC-20 and ordinals are still functional, and according to some miners and CEOs of bitcoin.org miners are not in favor of stopping ordinal's functioning.

[pawel7777]

It's a well-known problem and there's no good solution as far as I know.
And it gets worse with solutions like the Lightning Network, which are helpful indeed in terms of sending txs at a very low fee, but (if successful) they would reduce demand for on-chain transactions.
Having a permanent bottleneck is also not a fix to the problem, as it would mean that sending bitcoins on-chain is unreliable as you wouldn't have guarantee that your tx will get confirmed in a timely manner even if the fee is high.
I believe the original idea was that there were meant to be many transactions with affordable fees, but that concept didn't quite account for the blockchain size issues.

Anyhow, I wouldn't worry about that too much as we still have a lot of time to sort that out. In a worst case scenario, we could change the algorithm, or hope that bitcoin related businesses will take on mining on themselves, as they have vested interest in keeping the network alive.

[stompix]

If 2x people will start to use the BTC network, then there will be more tx in blocks waiting for to get processed.

Space in blocks is limited you can't have twice as many transactions every time the rewards halves unless you increase the blocksize!
So, you either increase the blocksize each time by two and somehow force people to fill it up or you acknowledge that the maximum security the network can get will also come down by half each for years when expressed in the amount of $ it takes to attack it.

Miners are making a lot of money now, there is nothing to worry about them for now.

Some, for the rest...

Well the main farm was greatly reduced. we only have 1700 th when the ½ ing comes it would be just in the red with current diff and current price.
Now its great it earns 187usd  power cost is 88.5 so the profit is $88.50 usd a day
With current diff and current price we are fine
but in a month it will earn maybe 90 and cost 88.50 profit is $1.50 a day
So I may full shut down in April or go on for a month at break even hoping for prices to alter.

And that's the math for 6cents/kwh, raise it to 10 cents and you will need free gear!

[Zaguru12]

My concern is if the fee rate doesn't eventually replace the coinbase then the network will become less secure. What would be the solution if fees don't increase? Or is there something I'm missing here that doesn't make this a concern?

This question always comes up during halving period and the answer is always let’s wait till then. Many have worried in the past that at a reduction like this it wouldn’t be profitable but still we have miners. What will happen is miners who finds out that the process isn’t beneficial or profitable to them again will definitely quit, should it be large computational power that comes down then the difficulty target also reduces thereby inviting more miners too again.

As for the concern of whether the network will be decentralized I think yes the only concern will be if the mining nodes each decide to censor transactions they pick but maybe a node will try to harm the network carry out an illegal transaction? It will not happen because there would still be need for consensus

[Reatim]

These concerns have  been the talk of the community for a long time now but we are still talking about hypothetical scenarios. So, let’s also consider hypothetical solutions.

We are hoping to see some technological advancement in the next couple of hears through the lightning network that could reduce the pressure from the main chain. This would benefit us investors as well and could maybe lead to us using bitcoin as a payment method.

Another hypothetical solution is if miners were to be enticed by a different kind of reward mechanism this time. Maybe there would be some protocol change that could incentivize miners.

[hatshepsut93]

My concern is if the fee rate doesn't eventually replace the coinbase then the network will become less secure. What would be the solution if fees don't increase? Or is there something I'm missing here that doesn't make this a concern?

The real question is how much security we need? Bitcoin was less secure 10 years ago when hashrate was a fraction of what it is now, yet it didn't get attacked. It could be true that transaction fee rewards are sufficient to secure the network.

Also, there's another variable that almost everyone overlooks. Number of confirmations. If the network is more likely to get 51% attacked, then those who who accept transaction can just require higher number of confirmations. Today we used to treat 1 confirmations or 3 confirmations as secure, in the future it might be 10 or 20. No one is going to pay for coffee with on-chain BTC anyway.

[BlackBoss_]

The fees from transactions pay for the miners so more fees equals more miners therefore the network security is directly proportional to transaction fees. So in theory having a bottleneck on the network via the block size/block rate creates competition for block space and increasing fees which also increases security.

Bitcoin network security is from total hash rate and decentralization of hash rate. Lower hash rate, higher risk of 51% attacks. Less decentralization, higher risk of 51% attack.

Your thinking is wrong as you can see Bitcoin network hash rate does not go upward with a straight line but it has rises and decreases with time. Bitcoin transaction fee goes to miners each block increases or decreases too, it comes from demands of Bitcoin users and hypes on this blockchain.

Latest hypes are from Ordinals, BRC20 tokens and Bitcoin miners got a lot of bitcoins in transaction fees, it's their extra profit in 2023. Recent months, the hype cools down but do you see any worse security on Bitcoin network, to prove your thinking is right?

Inscriptions, Mempools and Miners

[graphite]

The real question is how much security we need? Bitcoin was less secure 10 years ago when hashrate was a fraction of what it is now, yet it didn't get attacked. It could be true that transaction fee rewards are sufficient to secure the network.

Im not sure but I believe this is a good question. back then bitcoins market cap was probably only a few million so making an attack wouldn't be worth the effort. but now the market cap is 2 trillion, which is probably a million times higher which means the hashrate would need to be a million times higher to have the same security to value ratio as 10 years ago.

So security of the network should be proportional to the total value of it or the total market cap of bitcoin.

Also I think It would be better to look at the energy consumption of the mining network instead of the total hashrate because the hashrate increases from more miners and improvements to mining hardware. So looking at energy consumption cancels out the hardware improvement factor and would give a better estimate of difficultly to pull off a 51% attack.

If energy consumption of the network remained the same hashrate would still go up giving an illusion of increased network security.

[BlackBoss_]

Also I think It wold be better to look at the energy consumption of the mining network instead of the total hashrate because the hashrate increases from more miners and improvements to mining hardware.

Mining hardwares, rigs improved with time by Mining Producers. Without stricter regulations aim at more Environmental friendly, Bitcoin Mining Rig Producers do their works to improve products and efficiency.

Bitcoin Mining History
Bitcoin electricity consumption: an improved assessment .

Also I think It would be better to look at the energy consumption of the mining network instead of the total hashrate because the hashrate increases from more miners and improvements to mining hardware. So looking at energy consumption cancels out the hardware improvement factor and would give a better estimate of difficultly to pull off a 51% attack.

If energy consumption of the network remained the same hashrate would still go up giving an illusion of increased network security.

Network hashrate increased with time, we witnessed it and I believe even improvements in technology, energy consumption are not quickly developed, network hash rate will still increase. Reality is we have both, network hash rate increase, mining rig efficiency increase but power/ energy consumption increase too but energy is consumed more efficient by better ASICs.

More hashrate, more security and if decentralization is better, more security.

[graphite]

Network hashrate increased with time, we witnessed it and I believe even improvements in technology, energy consumption are not quickly developed, network hash rate will still increase. Reality is we have both, network hash rate increase, mining rig efficiency increase but power/ energy consumption increase too but energy is consumed more efficient by better ASICs.

More hashrate, more security and if decentralization is better, more security.

I agree with you rigs are definitely getting more efficient with energy consumption but that efficiency gain doesn't help secure the network by itself. In theory if an attacker had the same hardware it would boil down to who has more available energy, the attacker or the network.

[BlackBoss_]

I agree with you rigs are definitely getting more efficient with energy consumption but that efficiency gain doesn't help secure the network by itself. In theory if an attacker had the same hardware it would boil down to who has more available energy, the attacker or the network.

It help indirectly because with less input cost for mining, Bitcoin miners will install more rigs, add more hashrate to the network, that makes the network more secured. It improves security.

[ranochigo]

And it gets worse with solutions like the Lightning Network, which are helpful indeed in terms of sending txs at a very low fee, but (if successful) they would reduce demand for on-chain transactions..

This is not true. The fee market and the demand curve will always have a point of saturation where additional fees and demands doesn't increase the total revenue. Lightning network is absolutely needed to offload some of it on the second layer while still maintaining on-chain settlement.

It help indirectly because with less input cost for mining, Bitcoin miners will install more rigs, add more hashrate to the network, that makes the network more secured. It improves security.

The cost is related of the revenue of Bitcoin mining, and thereby if your revenue of the miner drops, then the cost to attain X% of the hashrate decreases proportionally. The simple logical way of thinking is that miners won't mine at a loss and a drop in revenue equates to either a scaledown in operation or a slower growth. Even if your efficiency of ASIC gets ridiculously high, the cost of them would be a key factor in whether Bitcoin gets attacked or not.

In addition, we go through this so-called renewal of ASICs when newer ASICs are released. Miners will not purchase them unless it makes sense, ROI is better than the current ASICs and that all of the scrap and cost overheads are accounted for.
Block size increase, increased in demand for blockspace, etc. These are the key factors to consider. If Bitcoin doesn't go mainstream by the time coinbase rewards goes to negligible, then it would be an issue.

[stompix]

It help indirectly because with less input cost for mining, Bitcoin miners will install more rigs, add more hashrate to the network, that makes the network more secured. It improves security.

This is a misconcpetion,as ranochigo said.
You can have 10 million in reward, that would mean miners will be able to spend no more than 10 million each day on power, the efficiency will not matter at all, it could be 3 million s19 or  million s21, or 4 millions s27, the attacker will still need the same amount of power and roughly the same amount in gear price!

If you go back in time and look at the consumption of the gear used you will see that despite the hashrate being 1000 times less the security was not that lower.
So now you have a 1.4 trillion ecosystem protected by 15 billion of gear, back then you had a 12 billion bitcoin network protected by roughly 100 million! 

[franky1]

In theory as the bitcoin block reward keeps dropping transaction fees would take the place as payment to miners but If the fees don't increase miners would not be profitable and the hashrate would drop drastically.

fees (amount of sats) per transaction DOES NOT need to increase. they actually need to decrease

reasons:
a. the spot price per sat can increase to pay miners bills
b. the amount of transactions per block should and can and need to increase

by having more transactions and a better spot price per sat will incentivise miners, without making bitcoiners stop using bitcoin
by having more transactions per block means people individually can pay less, thus about to stay active, whilst giving a total tx income per block a boost
however
by having individual bitcoiners pay more and have less ability to transact will cause more centralisation due to lack of use of bitcoin due to limited transactions and costly transactions

miners are not paid per transaction. they are paid by total per block. so allowing more transactions is a better solution rather than enforcing individuals pay more and limiting how many transactions can be made, further pushing those remaining active to pay even more

analogy:
a rail-train operator does not increase profits, efficiency of passenger transport by removing economy seating of 60 chairs per carriage. replacing it for 6 business class chairs that are only reserved for the furry/cosplay convention
instead they extend the carriages to have more seating to allow more passengers to frequent the trains and get more income via the popularity of passenger transport(their purpose) via lower priced tickets individually but benefits by higher total income per carriage due to it

..
and please dont be idiots to respond that bitcoin then needs to suddenly jump or leap to millions of transactions a second.. thats just a stupid extreme fearmongering absurdity of huge numbers that dont even mean anything.. said just to ignore rational scaling.. (scaling does not mean sudden massive leaps)

[Synchronice]

In theory as the bitcoin block reward keeps dropping transaction fees would take the place as payment to miners but If the fees don't increase miners would not be profitable and the hashrate would drop drastically.

The fees from transactions pay for the miners so more fees equals more miners therefore the network security is directly proportional to transaction fees. So in theory having a bottleneck on the network via the block size/block rate creates competition for block space and increasing fees which also increases security. If this bottleneck is not sufficient, fees will be low and based on the current fee rate once the coinbase is gone the hashrate will drop to 1-5% of its current hash rate. granted by that time I'm sure competition for block space will increase but fees might still be so low that the hashrate will be a fraction of the current day. For the hashrate to remain the same without the coinbase block reward, transaction fees would have to be ~650 sats/vB.

If for example transaction fees remained ~25 sats/vB in the future and bitcoin is 250k USD then there would be an average block reward from fees of 62k USD which would require 9mil USD a day to take over the network. If fees do get up to 650 sats/vB it would cost 234mil USD a day. 65mil USD a day is required to do the same thing in current day.

My concern is if the fee rate doesn't eventually replace the coinbase then the network will become less secure. What would be the solution if fees don't increase? Should we reduce the block size/block rate? or flatline the coinbase at some point so there will always be a small amount for miners to gain?

I can't agree with you and everyone who follows this idea. Bitcoin can function without block rewards in the future. Let's assume that Bitcoin survives and will still be the mainstream currency in 100 years, when there will be no reward collected from mined blocks. If we assume this, then it automatically means that Bitcoin is a very popular currency, used by millions of people every day. If it's used by millions of people, we should also assume that Bitcoin's block size is way higher than just 4MB, it will probably be 64MB or something like that, or even flexible. So, now imagine, instead of 4K transaction per block, we have 200K transactions per block (don't forget that Bitcoin is popular and adopted). This automatically means that fees collected from blocks will be profitable for mining companies and on top of that, fees will remain low for users.

[franky1]

If for example transaction fees remained ~25 sats/vB in the future and bitcoin is 250k USD then there would be an average block reward from fees of 62k USD which would require 9mil USD a day to take over the network. If fees do get up to 650 sats/vB it would cost 234mil USD a day. 65mil USD a day is required to do the same thing in current day.

as for your math

a 4mb block is 4000000bytes
if fees are 25sat/b = 100,000,000sat (1btc)
if 1btc=$250k then a block gets $250k not $62k
which over a day(144 blocks)=$36m not $9m

you also say 25sat/byte
where currently there is a average of 4000tx per block (1kb/tx)
so individuals pay 25,000sat per tx, which assuming your demo of 1btc=$250k 25,000sat = $62.50 per tx average
if fees go to 650sat/b so individuals pay 650,000sat per tx,  = $1625 per tx average
people just wont want to use bitcoin if tx fee were $62.50 each minimum with your assumed tx fee increase to $1625

[graphite]

as for your math

a 4mb block is 4000000bytes
if fees are 25sat/b = 100,000,000sat (1btc)
if 1btc=$250k then a block gets $250k not $62k
which over a day(144 blocks)=$36m not $9m

you also say 25sat/byte
where currently there is a average of 4000tx per block (1kb/tx)
so individuals pay 25,000sat per tx, which assuming your demo of 1btc=$250k 25,000sat = $62.50 per tx average
if fees go to 650sat/b so individuals pay 650,000sat per tx,  = $1625 per tx average
people just wont want to use bitcoin if tx fee were $62.50 each minimum with your assumed tx fee increase to $1625

My math was just rough estimates based on the data from mempool.space. But from my understanding you use vBytes not actual bytes to determine fees. Blocks are on average a little over 1 mega vByte.

Based on my math the fees/transaction at 650sats/vB would be around $685/transaction. Either way I still agree with you, people will leave if transaction fees are too high but nonetheless if that fee rate is not achieved then the hashrate/power consumption of the network will stagnate.

miners are not paid per transaction. they are paid by total per block. so allowing more transactions is a better solution rather than enforcing individuals pay more and limiting how many transactions can be made, further pushing those remaining active to pay even more

I agree with this method as a solution. I think having a dynamic block size with an upper and lower limit that adjusts based on fee rate would be the best answer I can think of.

[franky1]

miners are not paid per transaction. they are paid by total per block. so allowing more transactions is a better solution rather than enforcing individuals pay more and limiting how many transactions can be made, further pushing those remaining active to pay even more

I agree with this method as a solution. I think having a dynamic block size with an upper and lower limit that adjusts based on fee rate would be the best answer I can think of.

a dynamic size that has upper and lower limits that adjust..
um going down in size is harder to control as you then have to do silly mile stones of accept 4mb upto X blocknumber(height) then only accept 3mb upto x block number if you want the size lower limit..

its much easier to just SCALE(slowly progress) in a upward way not a constant yo-yo up and down.. and when i say scale(slowly progress) in a upward way.. no its not leaping to millions of megabytes in a month... and no its not move to a small increase once a decade

but it doees mean doing things like each difficulty retarget.. where every Xfew months, year or halving move forward based on high % fill per block over X blocks as the decision maker where code sets the blocksize target growth.. not dev politics of having to code and adjust milestones every so often manually
EG if 52500 blocks(1 year) =X gb(of Y gb(95%)) then increase blocksize by Z%
whereby current would be x=200 y=210
where the code itself keeps the variables re-targetting/updated and not need devs to manually dictate/decide the next adjustment next year