Topic: Mining cost $9.51 per transaction! (Read 1382 times)

I wonder if circumstances like this will give rise to off-chain privately run blockchains, where basically a main few aggregators of transactions run private ledgers that are cheaper to operate, and then sync to the BTC blockchain every so often, like once every couple days or so, to cut down on the amount it costs in transaction fees per transaction. I imagine they would charge a fraction of what it costs to conduct an on-chain transaction, then keep the difference between what they charge and what it actually costs to sync to the blockchain. Although we're a far way off from transaction fees making up the bulk of block rewards, it's interesting to think about how the system will have to adapt in order to keep transaction costs from becoming prohibitively expensive for small transactions.

The OP might think if the cost of transaction is $9.51 each, the miners might stop supporting the network if the total reward is reduced below $9.51.

This is a quite good summary, and it is really a large combination of variables

From miner's perspective, there are several major variables for each block:
Exchange rate
Block reward
Difficulty
Fee per transaction
Transaction amount in a block

Let's dig further

1. If the exchange rate X2 and block reward /2, then the miner's income will not be affected fiat wise

2. If the exchange rate do not change and block reward /2, then miner's income will be cut by half, thus immediately cause lots of miners running under water, some of them will quit mining and the hash rate and difficulty will drop and eventually rest of the miners become profitable again

3. If fee per transaction rise to replace the block reward, then the miners would be able to maintain the same income. However this requires large amount of transaction, with a larger fee than today

If 4000 transaction per 1MB block want to give miners 25 bitcoin fee income, each transaction will cost 0.00625 bitcoin, which is 2.6875 USD at current exchange rate of $430. This fee is not very high from a investor point of view since they typically buy or sell more than 1 bitcoin, so it is around 0.5% for 1 btc purchase. And for large transactions it will be even cheaper

If in future we could run 8MB blocks, each block can contain 32000 transactions, this will put the fee back to 0.00078125 bitcoin if the fees in a block totals at 25 BTC, that is 0.336 USD per transaction, can satisfy majority of users that do purchase larger than $35

If in such situation the exchange rate already rose by 10x to $4300, then the fee will become 3.36 USD per transaction, again not practical for casual spending. But in this case the miners will get super income from those 25 bitcoins thus the incentive is extremely high. In fact the difficulty will quickly rise 10x due to mining competition in such a highly profitable market

So I think the decisive factor is still exchange rate, if the exchange rate continuously improve (at least doubles every 4 years), then any kind of reward halving or low transaction fee will not be a problem to affect miner's incentive


By the way, bitcoin fee structure is a one size fit all solution: the fee is based on transaction, not transaction value. This will unavoidably benefit large transactions while hinder small transactions. Suppose that I'm transacting 100 coins, 0.01 btc fee will be extremely small for me, but for those transacting 0.1 bitcoin, it is prohibitively high

Based on a research paper from FED researchers, the majority of the bitcoin transactions are larger than 0.2 bitcoin, or $80, so the fee should be targeting this threshold, around 0.002 bitcoin level to not hurt majority of users. The problem is, without a block size limit, the fee per block will always be a small fraction of the block reward (I have detailed analysis here), thus there is almost no way to reach such high level of fee. So if blocks are not full, the only hope to keep miner's incentive is a continuously rising exchange rate

This is not a useful metric because it doesn't say anything about the network or the cost of transactions, or anything else relevant to bitcoin. So what's the point in bringing it up?

No other banking system costs $9.5/payment, and neither does bitcoin.

Well people that has been around for a while has become accustomed to paying next to nothing for transactions and they believe that this is sustainable in the long term. Sure we can raise blocksize but in long term it's not really the answer, because you may end up with nodes being too big, just to save some pennies for a transaction which is crazy.

Yes, at the moment transaction fees are not high enough to cover mining operation costs.
The system of mining rewards (block subsidy + transaction fees) and difficulty adjustments is designed such that it adjusts itself.

Simply stated, in an equilibrium state of the system, mining rewards just cover operation costs + return on investment for miners. Since operation costs and ROI are still mostly expressed in fiat currency values, exchange rate for BTC plays a role in this.
When block subsidies go down to near zero, mining rewards come primarily from transaction fees. There will be a self-adjusting feedback loop between exchange rate, number of miners, energy efficiency of miners, and transaction fees paid by bitcoin users. Most likely block size will play a role as well as it allows a higher number of transactions to be processed in a given time.

Since transaction fees cannot grow arbitrarily high in "real value", either the mining network operation must become so cheap that transaction fees suffice to cover them, or on-chain transactions will be used only for high-value transactions, with off-chain processing being used for micro-transactions. For the network to become cheap enough, the total throughput of transactions per hour probably has to be increased. To me, both outcomes seem possible.

Onkel Paul

that's why it is not going to zero today, but every 4 years it is exactly the reason why it it wac built in that way, to prevent such scenariow ith the miners

it would been useless if the bitcoin value would have been enormous sinc e the beginning, because at that point miners can profit with fee already, so the block reward would be useless

That is a good point.  But I think it is not that simple. If FED didn't print any more money, you could still pay with dollars with the same cost as before. But if blockchain reward would go to zero today, it would either increase transaction fee or put most of the miners out of businesses.

That is a good point. For the time being, $9.43 is the subsidy, it will reduce over the years, and the transaction cost (not just per transaction cost, but the total) will rise to compensate.

that's why the blockchain size increase is good for them; in order to use all of the guesses to serve the transactions to minimize the cost per transaction. however the block reward is ready to half; if the bitcoin price could not go up, then the mine would be probably busted. any idea?

Yeah, we might be overpaying for more network than we need, but hopefully this will be sorted out in the future. The benefit to this is that it has provided the incentive for investing is such a large, secure mining network. Transactions fees would have never resulted in such a high hash rate.

I think you can't calculate exact things from this numbers, because most of them is wrong transaction fees and money laundering fees. We've seen a lot of transaction fees which paid more than 1BTC, regular person don't do this. Either they accidentally paid bigger fee or some mining companies launder money from it.

This is a really strange way of calculating transaction cost  

FED just printed 3 trillion dollars, and you made some transaction, would you say that it costs 3 trillion dollars to do those transaction with USD?

Similar to miners digging out gold from the ground, money creation has nothing to do with transaction cost. Most of the bitcoin miners do not process any transaction at all because what they are interested is the money creation

Yes. Of the $9.51, $0.08 is paid by the senders and $9.43 is paid by holders of bitcoins. If you hold bitcoins, you are subsidizing the payment system. That's why the 25 BTC per block is called the "subsidy".

BTW, in the same way, you are subsidizing the U.S. debt if you hold USD.

but the one who is sending bitcoin are only paying 0.081$ per transaction on average can't find out how you get that 9.5$ per payment.

Mining is not a worth work. Those data are updated every day and can change everyday. I am not expert in this field but I know well that the value earned from a miner depends mainly from the difficulty of mining and if mine himself even from other costs (mainly cost of mining hardware and electricity). All those factors (especially the difficulty which is totally unpredictable) make this kind of activity extremely risky to not tell not worthy since the beginning. It is enough a big increase of difficulty for two-three times in a row and everything goes at the trash. You can mine all your remaining life and will not be able to earn even the money spent.

this is good, don't forget that miner need to be alive, and need to be rewarded because they are the one that support the network

the more that value grows the more it mean that the usage of bitcoin is higher, which is positive

We still have long time before block reward become zero. But what if bitcoin value rises and the block reward worth more in the future even after halving happen, the fees may be still as low as under $.5 per transaction

Yes. I was not talking about that. My point is, that if we devide payments to miners/transactions, we get 9.5 dollars/transaction and that is a lot.

No other banking systems costs 9.5 dollars/payment. And Yes, I undesrstand, that at the moment that money comes from block reward.

The transaction fee is 36.33. It is worth $16,166 on  198618 transactions. So the per transaction fee is $0.081. That is expected.