Will transaction fees alone be enough incentive to keep miners mining?

[adamstgBit]

This question is subject to great speculation, It is perhaps the ultimate test of free market superiority. The short answer is we do not know, but in my opinion yes, the market will find the equilibrium.

To understand the effect of having all the bitcoins minted in less then 30 years, we must take a closer look at how the bitcoin network works. Minner use their hashpower to have a chance at generating a new block. Every 10 mintues one miner is rewarded for adding a new block to the block chain, with freshly minted bitcoins (50BTC) and all the transaction fees paid in that block. As we get closer to the 21 million bitcoin limit the block reward will be halved again and again, once we are very close to 21 million bitcoin the block reward will be negligible, at that point minners will only be rewarded with transaction fees. Not only do miners mint new bitcoins and process transactions, but they also secure the network. Right now the extremely high hash rate of the newtwork, makes a 51% attack unfeasible, but bitcoin could become vulnerable to a 51% attack if the hash rate drops.

To Conclude:
Bitcoin will continue to grow and with it the number of transactions every 10 minutes. Each block has maximum number of transactions it can record. I would speculate that in 30 years, transactions will exceed this limit. As a result people will pay higher fees in order to process their transactions faster. This competition for speedy transactions will create sizable rewards for miners processing the new blocks, Thus the bitcoin network will continue to thrive.

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[FreeMoney]

The ultimate test of the free market is not one innovation in the market. Bitcoin is just one thing, if the incentives are set up wrong that means bitcoin fails because markets weed out wrong ideas.

But if you all drop out I'll fire up my CPU miner and take all the fees every 10 miuntes.

[adamstgBit]

The ultimate test of the free market is not one innovation in the market. Bitcoin is just one thing, if the incentives are set up wrong that means bitcoin fails because markets weed out wrong ideas.

But if you all drop out I'll fire up my CPU miner and take all the fees every 10 miuntes.

if your CPU mining, i will pull out my GPU and start preforming 51% attacks

will their still be enough miners to make it very hard to take 51% of the network?

[notme]

The ultimate test of the free market is not one innovation in the market. Bitcoin is just one thing, if the incentives are set up wrong that means bitcoin fails because markets weed out wrong ideas.

But if you all drop out I'll fire up my CPU miner and take all the fees every 10 miuntes.

if your CPU mining, i will pull out my GPU and start preforming 51% attacks

will their still be enough miners to make it very hard to take 51% of the network?

What's the point of a 51% attack... to have all of something you've just made worthless when you could just have half of all transactions fees/subsidies?  Or is it to steal a few coffees?  I don't see the point.

[DeathAndTaxes]

One correction there is no limit on block size.  CURRENTLY the protocol enforces a block size limit as a secondary line of defense against spam but that is just arbitrary.

[FreeMoney]

One correction there is no limit on block size.  CURRENTLY the protocol enforces a block size limit as a secondary line of defense against spam but that is just arbitrary.

That might not be trivial to change though depending on the attitude and incentives of miners. It would be good to commit to a scheme for increasing that right now before anyone is making their livelihood from artificial transaction scarcity. iirc Gavin had a pretty good proposal that had max block size set like 110% of the average size of the last X blocks. That could allow for really fast growth if needed without allowing crazy outlier spam blocks.  Sorry if I'm mis-attributing and/or wrong about the proposal.

[cunicula]

iirc Gavin had a pretty good proposal that had max block size set like 110% of the average size of the last X blocks.

That guarantees, of course, a long-run equilibrium of negligible fees and negligible mining activity.

But whatever, it is either high fees / secure txns OR low fees / insecure txns and NEVER low fees / secure txns. Whose to say which is the lessor of the two evils? It doesn't really matter if bitcoin dies from a chronic, terminal illness (high fees) or an accident waiting to happen (insecure txns).

PS I like all the gloom and doom in this thread. It is delightful.

[FreeMoney]

iirc Gavin had a pretty good proposal that had max block size set like 110% of the average size of the last X blocks.

That guarantees, of course, a long-run equilibrium of negligible fees and negligible mining activity. But whatever, it is either high fees / secure txns OR low fees / insecure txns, whose to say which is the lessor of the two evils?

No, even with unlimited size blocks there is at least one force, let me describe.

Suppose all miners are negligible (less than .1% or so) and all are shortsighted and include any transaction at any price. Users will pay the minimum fee. Miners will not cover their costs and will start to drop out. Now each miner has a higher % than before. Maybe still not enough, but if not there will be no profit and more will drop out leaving a higher % still for each (in particular for the largest miner). Now this highest % miner has enough so that he individually can increase his own profits by declining some low fee transactions. This is because some users have a preference not just for getting in a block, but for a high probability of getting in the next block. A 1% miner for example can charge people for privilege of a 100% chance at inclusion in the next block, without paying what he demands the user has to settle for a 99% chance at next block inclusion. All miners will profit from the users who pay for certainty. This will start to bring some miners back in until the 'cover' the bigger miners are giving, miners who are thinking only of themselves.

Simple math example:

Everyone paying 1 satoshi. 1% miner rejects 10000 1 satoshi transactions and 1% of people choose to pay the 1000 satoshi min fee that one 1% miner requires. Now that miner makes 1000x100=100000 satoshis per block. Everyone else gets to continue collecting the 1 satoshi fees and the larger ones, the 1% miner doesn't give a damn about them though.

It's even possible a really really small miner could have some effect, like why not pay 10 satoshis if there is even a little chance it will help. So a tiny miner expects at least 10% of people (or clients default settings will be set to) will just say whatever 10 satoshis then.

[cunicula]

iirc Gavin had a pretty good proposal that had max block size set like 110% of the average size of the last X blocks.

That guarantees, of course, a long-run equilibrium of negligible fees and negligible mining activity. But whatever, it is either high fees / secure txns OR low fees / insecure txns, whose to say which is the lessor of the two evils?

No, even with unlimited size blocks there is at least one force, let me describe.

Suppose all miners are negligible (less than .1% or so) and all are shortsighted and include any transaction at any price. Users will pay the minimum fee. Miners will not cover their costs and will start to drop out. Now each miner has a higher % than before. Maybe still not enough, but if not there will be no profit and more will drop out leaving a higher % still for each (in particular for the largest miner). Now this highest % miner has enough so that he individually can increase his own profits by declining some low fee transactions. This is because some users have a preference not just for getting in a block, but for a high probability of getting in the next block. A 1% miner for example can charge people for privilege of a 100% chance at inclusion in the next block, without paying what he demands the user has to settle for a 99% chance at next block inclusion. All miners will profit from the users who pay for certainty. This will start to bring some miners back in until the 'cover' the bigger miners are giving, miners who are thinking only of themselves.

Simple math example:

Everyone paying 1 satoshi. 1% miner rejects 10000 1 satoshi transactions and 1% of people choose to pay the 1000 satoshi min fee that one 1% miner requires. Now that miner makes 1000x100=100000 satoshis per block. Everyone else gets to continue collecting the 1 satoshi fees and the larger ones, the 1% miner doesn't give a damn about them though.

It's even possible a really really small miner could have some effect, like why not pay 10 satoshis if there is even a little chance it will help. So a tiny miner expects at least 10% of people (or clients default settings will be set to) will just say whatever 10 satoshis then.

No. Competition will drive fees to a negligible amount. You are not selling spaces in already found blocks (which would give you some monopoly pricing power), you are selling spaces in blocks which you might find in the future. Your services are identical to competitors' services. If not, then competitors can easily make them identical. All business goes to whoever sets the lowest price. The equilibrium price approaches zero. End of story.

[FreeMoney]

iirc Gavin had a pretty good proposal that had max block size set like 110% of the average size of the last X blocks.

That guarantees, of course, a long-run equilibrium of negligible fees and negligible mining activity. But whatever, it is either high fees / secure txns OR low fees / insecure txns, whose to say which is the lessor of the two evils?

No, even with unlimited size blocks there is at least one force, let me describe.

Suppose all miners are negligible (less than .1% or so) and all are shortsighted and include any transaction at any price. Users will pay the minimum fee. Miners will not cover their costs and will start to drop out. Now each miner has a higher % than before. Maybe still not enough, but if not there will be no profit and more will drop out leaving a higher % still for each (in particular for the largest miner). Now this highest % miner has enough so that he individually can increase his own profits by declining some low fee transactions. This is because some users have a preference not just for getting in a block, but for a high probability of getting in the next block. A 1% miner for example can charge people for privilege of a 100% chance at inclusion in the next block, without paying what he demands the user has to settle for a 99% chance at next block inclusion. All miners will profit from the users who pay for certainty. This will start to bring some miners back in until the 'cover' the bigger miners are giving, miners who are thinking only of themselves.

Simple math example:

Everyone paying 1 satoshi. 1% miner rejects 10000 1 satoshi transactions and 1% of people choose to pay the 1000 satoshi min fee that one 1% miner requires. Now that miner makes 1000x100=100000 satoshis per block. Everyone else gets to continue collecting the 1 satoshi fees and the larger ones, the 1% miner doesn't give a damn about them though.

It's even possible a really really small miner could have some effect, like why not pay 10 satoshis if there is even a little chance it will help. So a tiny miner expects at least 10% of people (or clients default settings will be set to) will just say whatever 10 satoshis then.

No. Competition will drive fees to a negligible amount. You are not selling spaces in already found blocks (which would give you some monopoly pricing power), you are selling spaces in blocks which you might find in the future. Your services are identical to competitors' services. If not, then competitors can easily make them identical. All business goes to whoever sets the lowest price. The equilibrium price approaches zero. End of story.

Ah, ok.

[db]

Competition will drive fees to a negligible amount.

Negligible for each user but not necessarily negligible for the whole network. When the default fee is negligible users won't bother to change it. When lots of transactions with such fees are aggregated in a block the sum can be substantial. All that's needed is enough users making enough transactions in each block.

[cunicula]

Competition will drive fees to a negligible amount.

Negligible for each user but not necessarily negligible for the whole network. When the default fee is negligible users won't bother to change it. When lots of transactions with such fees are aggregated in a block the sum can be substantial. All that's needed is enough users making enough transactions in each block.

No, negligible for the whole network.

[db]

No, negligible for the whole network.

Why? What will motivate a large majority of users to actively lower whatever "negligible" default fee setting they have?

[cunicula]

No, negligible for the whole network.

Why? What will motivate a large majority of users to actively lower whatever "negligible" default fee setting they have?

Someone would make a binary with a default fee setting of 1 satoshi for everyone to download. Not everyone has to program the nuts and bolts.

[db]

Someone would make a binary with a default fee setting of 1 satoshi for everyone to download. Not everyone has to program the nuts and bolts.

What would motivate everyone to download that particular program?

[Foxpup]

No. Competition will drive fees to a negligible amount. You are not selling spaces in already found blocks (which would give you some monopoly pricing power), you are selling spaces in blocks which you might find in the future. Your services are identical to competitors' services. If not, then competitors can easily make them identical. All business goes to whoever sets the lowest price. The equilibrium price approaches zero. End of story.

No, your services are not identical to competitors' services. You are not just selling spaces in blocks which you might find in the future, you are selling spaces in blocks which you might find in the near future. People don't just want their transaction included a block eventually, they want their transaction included in a block immediately, and they will probably be willing to pay extra to make it happen. As long as there are some miners who refuse to accept small fees, there will be an incentive for people to pay higher fees, since this is the only to guarantee that their transactions will be included in a block as quickly as possible.

[db]

No, your services are not identical to competitors' services. You are not just selling spaces in blocks which you might find in the future, you are selling spaces in blocks which you might find in the near future. People don't just want their transaction included a block eventually, they want their transaction included in a block immediately, and they will probably be willing to pay extra to make it happen. As long as there are some miners who refuse to accept small fees, there will be an incentive for people to pay higher fees, since this is the only to guarantee that their transactions will be included in a block as quickly as possible.

Yes, but that requires selfless sacrifice from the refusing miners so the equilibrium price still approaches zero (given that there is no cost for the users to lower their fees).

[Foxpup]

No, your services are not identical to competitors' services. You are not just selling spaces in blocks which you might find in the future, you are selling spaces in blocks which you might find in the near future. People don't just want their transaction included a block eventually, they want their transaction included in a block immediately, and they will probably be willing to pay extra to make it happen. As long as there are some miners who refuse to accept small fees, there will be an incentive for people to pay higher fees, since this is the only to guarantee that their transactions will be included in a block as quickly as possible.

Yes, but that requires selfless sacrifice from the refusing miners so the equilibrium price still approaches zero (given that there is no cost for the users to lower their fees).

You are assuming that all miners are motivated solely by profit and would not turn down a fee of any amount, not even a single satoshi. Maybe I'm being hopelessly optimistic, but I think there will always be at least some miners willing to sacrifice a portion of their profit "for the good of the network", as it were. I also think that if the difficulty drops dangerously low, a large number of these self-sacrificial miners will emerge to try to save the network. It's even possible (or even probable) that if Bitcoin becomes a major global economy, major governments will get behind it, spending taxpayers' dollars (bitcoins?) on unprofitable mining operations to ensure the security of the network.

[cbeast]

In 30 years I imagine that internet connectivity and computing power will speed up. When rewards drop significantly, what would happen if you decrease difficulty to decrease block creation time?

[Foxpup]

In 30 years I imagine that internet connectivity and computing power will speed up. When rewards drop significantly, what would happen if you decrease difficulty to decrease block creation time?

In short, not much. Although miners would get the block reward more frequently, the block reward halving would happen more frequently as well, causing it to balance out exactly. To put it another way, there are only 21 million BTC to be distributed, the only difference is how fast you distribute them. Furthermore, each individual block would have fewer transactions, and therefore less transaction fees, but you get more blocks, again balancing it out exactly. 10 minutes was chosen because it's not so long that transactions take forever to be confirmed and not so fast that network propagation delays result in stale blocks.