"Transaction fees need to be $10+ in order for Bitcoin to survive"

[benjamindees]

This was an assertion that a lot of people made, starting a couple of years ago, after the first block reward halving.  Many seem to still believe it.  It seems to be a major reason for arguing for keeping the 1mb limit on the block size.  Many are still hoping (beyond hope) that this limit will lead to skyrocketing transaction fees, for exactly this reason.

I have never bothered to understand what makes people think this, until recently.  It just always seemed too idiotic to bother with.  But it really needs to be debunked.  Even some developers seem to believe it.

The argument is simple, that "artificial scarcity leads to higher fees which replace the block reward and ensure that the network remains secured."  It seems basic enough.  Many have said, probably even including Satoshi, that fees would eventually replace the block reward.  So it seems natural to think that this should start to happen as soon as the block reward starts falling.  Right?

No.  This simple, failed extrapolation stems from a very basic misunderstanding of the reason for even *having* a block reward in the first place.

The block reward is not a perpetual miner subsidy.  It is a distribution mechanism.  It has nothing to do with securing the network, even though that is a side-effect.  The reward started at 50 BTC per block.  A naive analysis would claim that, at the time of the first block halving, transaction fees should have "risen" to "make up for" the falling block reward.  The simple arithmetic shows that fees of at least $10 per transaction would have been required to produce the necessary 25 BTC per block.  That was the source of this entire school of thought.

But that would mean that block rewards would no longer *be* a distribution mechanism.  They would be a perpetual subsidy.  And it would have been an *enormous* subsidy.

In fact, if that had happened, Bitcoin would have been forever hobbled with built-in subsidies worse than the average inflation suffered by any fiat currency in existence.

A 50 BTC block reward (or transaction fees or some combination of both), continuing forever until all 21 million Bitcoins have been mined, would equate to a 12.5% annual subsidy paid to miners.  (At the moment it would be nearly 19%.)  That is worse than the Catholic church at the height of the crusades.  That is worse than the 4% cost of the US military.  It is worse than the 3% inflation tax of the Federal Reserve.  Only Zimbabwe and Weimar and a few other countries, at certain times, could claim a bigger drain on their economies.

Is anyone going to seriously argue that the Bitcoin economy should subsidize mining at a rate three times higher than the cost of the US military?  Who the hell would sign up for that?

No one.  No one signed up for that.

So, let's put this argument to rest once and for all.  Transaction fees aren't going to climb to 25 BTC per block.  When the next halving occurs, they aren't going to climb to 12.5 BTC per block.  Nor the time after that.  And not the time after that, either.  They don't have to.  No one ever intended for that to occur.  If Satoshi had wanted that, he would have just made the block reward perpetual and static, instead of what it is, a temporary distribution mechanism that falls over time.

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[newIndia]

First of all, how do you denominate something in USD when talking about a part of the Bitcoin protocol ?

1. USD is not an universal currency like Bitcoin.

2. FIAT value is varying from exchange to exchange.

[inBitweTrust]

First of all, how do you denominate something in USD when talking about a part of the Bitcoin protocol ?

1. USD is not an universal currency like Bitcoin.

2. FIAT value is varying from exchange to exchange.

I look forward to one day ignoring the value of even thinking about USD , but the reality we currently face is USD is still the largest reserve currency worldwide by a healthy margin and one of the more stable currencies so it has some semantic use when discussing the value of something to a world audience.

P.s... please stop promoting ponzi's by Whoring yourself out with that sig... think of the children. I know, I know.... We have heard all the excuses before, so you don't need to reply to this.

[AgentofCoin]

First of all, how do you denominate something in USD when talking about a part of the Bitcoin protocol ?

1. USD is not an universal currency like Bitcoin.

2. FIAT value is varying from exchange to exchange.

First of all, your response is not relevant to OPs statements and opinion.

OP says that transaction fees for miners, should not increase at each block halving, as some in the community are arguing.
This is related to the 20mb block issue and I agree with OP.

[inBitweTrust]

Many have said, probably even including Satoshi, that fees would eventually replace the block reward.  So it seems natural to think that this should start to happen as soon as the block reward starts falling.  Right?

I completely agree. I am open to discussing other methods for securing the blockchain, but the notion that bitcoin will survive with a 10 dollar and higher fee is absurd and will certainly make me migrate over to another alt. Some people have the hubris to assume that bitcoin could survive this competitive disadvantage when I believe they are foolhardy and Bitcoin is still very vulnerable.

[RodeoX]

If bitcoin costs $10 to transfer then it is not going to be used by anyone. This will not happen because the market will not pay that much. Maybe miners want a $10 dollar bill, but they will always receive the lowest competitive price for a Tx. If they wont take that then another miner will.

[CryptoTrout]

Nah, if bitcoin takes off there will be WAY more transactions per block, all those fees will replace block rewards.

[matthewh3]

The Kryder rate function for hard drive density and cost has been about 15% year on year for the last five years averaged.  If that rate of growth continues long term.  Then the blockchain can afford to grow as a function of that in including larger block sizes.  To accommodate more transactions from the growth of the network.

[NEM minnow]

To the OP, what is the end game after all the Bitcoins are distributed?  You state that block rewards are meant to be a form of distribution, and they are that, but not limited to just that.  They are also a reward for miners to cover their expenses.  And right now they have A LOT of expenses.  It works out to at least $3 a transaction. 

Here is how to figure it out.  The most efficient mining operation in China is producing bitcoins at $80 a piece.  Lots others are of course have to spend far more than that to get a Bitcoin but lets assume the best case scenario that miners are willing to mine for $80 a coin. 

Each day there are how many Bitcoins produced?  lets see......  6 blocks per hour times 24 hours = 144 blocks times 25 coins per block = 3600 per day

Now the most efficient and best miners need at least $80 per Bitcoin to keep the doors open.  So 3600 x $80 is $288,000 per day.  Now on a very good day (again best case scenario) we will have 100,000 transactions per day.  That means the price of each transaction being paid to miners is at least at a bare minimum $2.88.  In reality that number is actually much higher than that.  That is where the $10 figure comes from. 

Now someday there will be no block reward at all.  Who then is going to pay the miners their standard $2.88 - $10 fee?  One would assume at that point the only place it could come from is the users paying fees. 

So therefore at some point in the halving of blocks game we reach a turning point.  That is the point where block subsidies no longer cover the price for all those hashes.  Again this is inevitable because sooner later the block reward is 0.  And even by the 10th block halving it is under 1 Bitcoin per block. So if the miners don't get their cash then they shut down their hashers and the network dies.  We all know that miners are selfish and are there for the profit.  Take away their reward and they leave. 

 

[bitllionaire]

high transactions, or high volume, or miners turn off mining equipments, offer and demand...

[SargeR33]

If I had to pay $10 per bitcoin transaction just to feed some fat chums wallet because he spent all his money on mining rigs, I'll ditch the network. Stupid fat greedy man.

[NEM minnow]

high transactions, or high volume, or miners turn off mining equipments, offer and demand...

right, it isn't like they are going to work for free or at losses.  take away their profits and they take away the hashes.

[tokeweed]

"Transaction fees need to be $10+ in order for Bitcoin to survive"

[HeadsOrTails]

First of all, how do you denominate something in USD when talking about a part of the Bitcoin protocol ?

1. USD is not an universal currency like Bitcoin.

2. FIAT value is varying from exchange to exchange.

I look forward to one day ignoring the value of even thinking about USD , but the reality we currently face is USD is still the largest reserve currency worldwide by a healthy margin

We live in some prosperous times - no wars, nothing to want for, choices/freedom so diverse it can be overwhelming... I think the only reason people speak shit about fiat/USD is because they've never lived through real adversity. And by that I mean fighting a wars in far away lands, or starving through the great depression, or the 6 or 7 years in the 70s when dunking was not allowed in the NBA.

I like Bitcoin, but the DOWN WITH FIAT!!![ and chant-worthy diatribes (not you per se, but like a college demonstration screaming... 2 bits, 4 bits, 6 bits, a dollar, all who hate the Feds in here, give me a hollar!)

[Tdowns]

If this happens, probably the end of all of us to even use bitcoin,

[sakira]

even if the cost is too high, they are reluctant to use bitcoin 

[NeuroticFish]

You may be right, but I think that you are wrong.

Bitcoin can and should easily survive with 1% of the mining power it needs now (or less!).
People started realizing it's not worth it and started shutting down their rigs.

I know, the usual problem is that 51% attack will be piece of cake for somebody used to mine. And this is the problem to be solved. The only idea that comes into my mind is the infamous PoS, but I am sure that smarter people than me can find a solution. (maybe AuxPoW can be another solution, but yeah, that means admitting the King is in trouble).

Else we will remember Bitcoin as a great technology, destroyed by greed.

[Q7]

Probably that is not something for us to figure out or worry about the best possible solution. I wont be around by then. Anyway i hope when the day comes the transaction fee will be based on bitcoins worth not in dollar's worth of equivalent value. So setting a $10, $100 or whatever value in dollar might not be relevant by then.

[roosmaa]

I think that having 0 block reward would be what fixes one aspect of Bitcoin. Currently the arms race miners are participating in is just plain right stupid. It's a gold rush, people see only dollar signs, and it's all due to those block rewards. Not only aren't we creating centralised mining pools, but since most of the pools can be treated as just a handful of full nodes, they do more harm than good overall (weak network, big energy usage).

Yeah, it's necessary to popularise Bitcoin, but do we really need this for more than 100 years as it is currently? I personally would prefer to stop the giveaway much sooner and find a new way to reach the 21m cap.

Down the road I would like to see Bitcoin to be something that people support voluntarily, not expecting any rewards. If you're involved in a Bitcoin business you set up enough full nodes to give back to the network, you do it because you want to, not because there is money to be made there. Same goes for people who want to run a node in their garage to actually support the network.

Just my 2c.

[redsn0w]

...
Down the road I would like to see Bitcoin to be something that people support voluntarily, not expecting any rewards. If you're involved in a Bitcoin business you set up enough full nodes to give back to the network, you do it because you want to, not because there is money to be made there. Same goes for people who want to run a node in their garage to actually support the network.

Just my 2c.

All we know the money part is necessary in the bitcoin blockchain, but maybe you are right : people see only  FIAT money, nothing else. I want to see what will happen after the next halving ( 25 BTC >> 12.5 BTC) will the miner stop , or will the price rise

If the bitcoin revolution/experiment will fail, the blockchain will stay for sure.