Topic: Bitcoin enhancement proposal - page 2. (Read 1447 times)

Miners can collectively demand a fee as high as people are willing to pay.  And mining will become cheaper with future technology, and will also become cheaper if a lot of people stop mining.  There's not much we can do now, though.  The block reward can't continue forever, so the only reward will be the fees.

There is limited space in the blockchain.  As such, transaction creators that want their transactions confirmed in the next block will voluntarily offer a higher than average fee with their transaction to provide an incentive for miners to include the transaction in the next block.  Those who want their transaction confirmed in the next few blocks will offer an average fee to provide an incentive for miners to include the transaction before including those transactions that offer a less than average fee.  The transactions with a below average fee will have to waif until the transaction volume is low and there is spare space available in the block.  If the fee offered is less than the cost of increased orphan risk, then most miners will never include the transaction in the block (providing a floor to the acceptable transaction fee if the sender, or receiver, ever wants the transaction to be confirmed).

Bitcoin is an experiment to see if the interaction of these economic forces are sufficient to provide incentive for a secure system.

There are several economic forces all influencing each other:

• Diminishing block subsidy
• Voluntary transaction fees
• Limited block size
• Target difficulty
• Limited total bitcoin supply
• Initial inflationary circulating supply
• Eventual deflationary circulating supply
• Random distribution of "winning" blocks weighted by hashing power
• Perhaps some forces I haven't thought to include?

Only time will tell if the experiment is a success or not.  Either way, it will be interesting to watch.

I'm not sure I understand the economics here. I'm concerned about the final stage which is fee-based. I'm not sure how this fee would get set. Would the fee structure mimic the profitabity of mining for bitcoins? If not, would that drive out a lot of the network perhaps to the detriment of security?

It depends on what you mean whan you say "mining".  The process of adding transactions to blocks, solving for a hash of appropriate difficulty, and claiming the block reward will never end so long as bitcoin continues to exist.

What will eventually end (somewhere around the year 2140), is the block subsidy.  The block reward consists of the sum of the block subsidy and the total of all transaction fees voluntarily paid by all transactions that the miner chooses to include in the block that they solve.

Over time, the block subsidy (currently 25 BTC) is reduced.  It is cut in half every 4 years.  This means that if bitcoin continues to increase in usage in the future, the portion of the block reward that comes from the transaction fees will likely increase while the portion from the subsidy will decrease.  Eventually more of the reward will come from fees than subsidy (though a significant portion will still come from subsidy).  The percentage that is derived from subsidy will taper off until eventually the entire reward is coming from the fees.


When you create a transaction, you don't choose the miner (or mining pool) that will confirm your transaction.  You simply broadcast it to all your connected peers.  Miners choose which transactions they want to confirm.  Any transaction that is not confirmed by the "largest transaction processor" ( I assume you mean "largest mining pool"?) will be available to be confirmed by smaller mining pools.  While the smaller mining pools may not solve as many blocks, they won't have to split the revenue among as many mining units and therefore will be able to pay a larger portion of the block reward to each participant.


It is.  It's called the block reward (coupled with an automatically adjusting "difficulty").

I am unable to find much work regarding what happens after mining ends. A hundred years from now does seem like a long time, but to ignore it is irresponsible. Assuming the community consensus is to shun regulation, here is what I imagine will happen. Everyone will flock to the largest transaction processor since they will likely offer the lowest rates. As their market share grows they will bankrupt all the other processors by offering even lower rates. When the smoke clears they will look around for any other competition like VISA, if they still exist. If VISA has a rate of 2%, they will offer 1.9%. They will be so large that the cost of entry for competition will be prohibitive. This would seem to defeat the entire purpose of the Bitcoin spirit.

The solution: In processing transactions there must be an incentive to maintain an optimally sized network for competition and security of the blockchain. It must be built-in.