A future of high transaction fees?

[Blinken]

Everybody knows that eventually, when all the coins have been mined, there will only be transaction fees to sustain blockchain formation, but is that day coming sooner than anticipated?

Back last December when the price was at $1200 miners were going nuts trying to buy equipment and get ASICs going and now we have it: huge farms of ASIC driving the difficulty relentlessly higher. The problem with this is that if the price falls, say down to $200 or whatever, equipment and electricity costs for some miners may no longer be feasible and they will have to turn out the lights. This will leave a smaller pool of miners around. Even for this pool, however, the difficulty does not decrease, it only increases.

So, what that this means is that they have to run their machines just as hard or harder to get a $200 bitcoin as they used to get a $1200 bitcoin. Any economist can tell you what will happen: there will be a lot fewer miners. Fewer miners means longer confirmation times. We potentially face a situation where to get a transaction done in a reasonable amount of time will require adding a transaction fee, possibly a large one.

On one hand this has the potentially positive effect of eliminate nuisance, or spam, transactions. On the other hand it may also lead to Bitcoin becoming a "merchant" currency which is only used for large transactions.

[BlindMayorBitcorn]

Very likely

[dalston5000]

Difficulty CAN decrease if the rate drops.

[franky1]

miners dont just make coins to sell to then pay electric companies.

i wont repeat myself as this keeps being discussed at length across many topics. so ill paste my response

miners are HOARDING not selling. the reason:
if i had $10million and wanted bitcoin. i cant simply throw it into a crappy exchange and buy coins(amlkyc flags and alerts will go mad). so i buy rigs and pay my electric with the $10mill. and keep the coins.

anyone selling bitcoins after mining are dumb, and definitely not bitcoin investors.. infact you should treat them as electric company investors as the end result is no bitcoins, no fiat. and only a piece of paper that says they paid a large amount of money to an electric company.

so if your one of these people cashing out over 50% of your hoard... slap yourself with a wet fish and change your mindset

for miners. out of the 3600 coins produced a day, estimates are that only 600 is cashed out to fiat. the rest is hoarded. and of that 600 cashed out very little of it is done on the public crappy exchanges.
example of 2 separate miners on different block rewards
https://blockchain.info/address/19vvtxUpbidB8MT5CsSYYTBEjMRnowSZj4
~6000 coins earned from mining
~5000 coins NOT SPENT

https://blockchain.info/address/1GcF7j3YH8Qs8hvNEe7zbrQZftMU6sRLfu
~5000 coins earned from mining
~3500 coins not spent

anyome mining this month with the mindset to sell out to pay this months fiat lifestyle, will lose out.. and to be honest, thy dont understand bitcoin, thus im half glad that they will give up. as for the smart ones. they will continue

[Rampton]

Difficulty CAN decrease if the rate drops.

It most certainly can. I'm not sure why the OP thinks otherwise.

Exactly, this is why I think bitcoin can survive any potential problems that gets thrown at it. I'm sure it will all work out in the end, but we must remember that bitcoin is still essentially an experiment.

[PolarPoint]

Fewer miners means longer confirmation times.

This statement is completely wrong. Confirmation times do not depend on the number of miners or their hashing power.

[kokojie]

Fewer miners means longer confirmation times.

This statement is completely wrong. Confirmation times do not depend on the number of miners or their hashing power.

Not completely wrong, confirmation time will be slowed until the next difficulty adjustment. If the adjustment is drastic, confirmation time might be slowed for over a month. This slowness of confirmation time is well observed among altcoins, sometime they go months without a single confirmation due to sudden drop from high difficulty to nearly no difficulty.

The same thing will happen to Bitcoin, if for example the price suddenly drops to $10. PoW mining has many weaknesses like these.

[Blinken]

Ok, maybe I don't get how difficulty works. I thought it could only monotonically increase.

[ticoti]

Ok, maybe I don't get how difficulty works. I thought it could only monotonically increase.

if mining is not profitable,people turn off the miners,if that happens difficulty decreases,so  it will only mine the people who have the most efficient miners
besides,we hope that when reward decreases,the price has already gone up to cover a good marketcap

[DannyHamilton]

Ok, maybe I don't get how difficulty works. I thought it could only monotonically increase.

I suspect that you don't get how mining works at all.

[williamj2543]

Well once we reach that limit, I suspect the btc price will be a lot higher, and maybe transaction fees may even be LOWERED, because of the higher btc price, making the equivalent in fiat (for elecricity) too high for a transaction. If the tx fees outweigh the power costs in fiat, miners will mine.

[BTCmoons]

Back last December when the price was at $1200 miners were going nuts trying to buy equipment and get ASICs going and now we have it: huge farms of ASIC driving the difficulty relentlessly higher. The problem with this is that if the price falls, say down to $200 or whatever, equipment and electricity costs for some miners may no longer be feasible and they will have to turn out the lights. This will leave a smaller pool of miners around. Even for this pool, however, the difficulty does not decrease, it only increases.

Why would the difficulty increase if there are less miners on the network? Would the miners left be more efficient and increase their hashrate? Does the luck of the remaining miners go up?

In case you do not know how difficulty works (you don't), every 2016 blocks the network readjusts so that if the hashrate stays where it was on average over the last 2016 blocks, then it would take exactly 14 days to mine an additional 2016 blocks. This has almost always meant an increase in the difficulty in the past, however with 100% luck and a decreasing hashrate then the difficulty would go down

[maurya78]

If btc prices stay tepid or go lower sustainably, it seems inevitable that tx fees will have to increase in some form unless tx volume goes through the roof to pick up the slack

[Some1else0]

Bitcoin is set to be created at 1 block per 10 minutes. If enough people stop mining, then the difficulty can decrease in order to hit this target.

[bkava]

The confirmation time won't change, by design, but there are risks.

It seems that the risk of a double spend attack is increased.

If the price dropped precipitously and enough miners dropped out, a block of miners could purposefully turn on all of it's capacity, operate at a loss, and take over the network. Other miners who had dropped out due to economics wouldn't have an incentive to compete. In fact even the miners that hadn't dropped out might at that  point drop out, leaving the single entity (operating at a loss) as the sole mining block.

Does anyone else see this as a possible threat. Does the protocol deal with this?

[mnmShadyBTC]

If btc prices stay tepid or go lower sustainably, it seems inevitable that tx fees will have to increase in some form unless tx volume goes through the roof to pick up the slack

The concept of declining block subsidies assumes that the volume of TXs will increase over time. Also, as evidenced by the rate the blockchain is growing (as measured by size data size) we are seeing an increasing rate of TXs occur.

The blockchain is also really more secure then it needs to be right now. We could see TXs increase substantially and the difficulty decrease by a good amount and the blockchain would still be sufficiently secure.

[zipmaster]

I don't know guys. If bitcoin were to become an actual full out, fiat defeating currency, governments will be forced to centralize all mining efforts to guarantee the stability of the financial system.

The plus side to this is that taxation for sales could be implicitly built into the blockchain since governments could collude to set transaction fees.

[warpio]

Bitcoin doesn't even need the huge ASIC farms that exist today. The difficulty right now is way overkill.

Honestly, I think it would be a good think if a bunch of ASIC farms were forced into shutting down because of falling profits. Bitcoin can function perfectly well without them. With USB ASIC miners available at $5, there's always going to be a low barrier option available to enthusiasts who can support the network on their own if professional mining becomes unprofitable.

[itsAj]

Most understand the price is volatile and understand it will take time to increase prices so they see it as an investment. No matter at what difficulty rate.

[Get.BTC.Now]

Bitcoin is set to be created at 1 block per 10 minutes. If enough people stop mining, then the difficulty can decrease in order to hit this target.

Oh great..  10 minutes is pretty long though.