Topic: The fee income is the future for bitcoin (Read 2832 times)

I don't think that what you fear will materialize on a general level. To become an universal pseudo-fiat, the vast majority of (offchain) transactions would have to be processed by a single payment processor, that practices fractional reserve scam. Currently there is no indication that such a player is emerging. I think there will always be some attempts at implementing a fiat-scam, but these will most likely be of smaller magnitude and will not determine the general use case of Bitcoin.

In addition with side-chains / lightning, new ways are being developed to bundle small transactions together and ultimately settle them on the blockchain. This way, fees are saved and sufficient security against fractional reserve scams is ensured.

ya.ya.yo!

I understand your point of view, but I actually think that it is not realistic. And more, in such conditions, given that mining will be increasingly expensive, mining will be already centralized...

I think its clear that we'll need to find some sort of consensus level between a fee market and a higher blocksize, and we need this pretty soon so we can start expanding Bitcoin towards a global payment system and not only a settlement network between big players.

Most of people use bitcoin for long term saving and international remittance, both are not fee sensitive. Currently the fiat money international remittance is slow and the fee is around 3% at best, much less competitive than bitcoin

When it comes to daily spending, there are already 0 fee mobile payment solutions out there, and there will be more, bitcoin is impossible to compete in that space

Western union does not compete with bitcoin whatsoever.

PayPal, Visa et al. too.

Whatever fee is decided, it MUST be below current competitor services like Western Union / Money Gram for remittance and lower than MOST banks, or people will simply use those

services and not Bitcoin. Make it too low and the miners will stop mining, make it too high, and the people will stop using it. 

The low fees are ONE of the most important advantages Bitcoin has at the moment over other payment methods.

Thinking and projecting is irrelevant.

Bitcoin works as is and that is what matters.

I can't see a scenario where the fee reward will be low for the end user and the block reward will be negligible, unless there is a huge adoption and the block size is heavily increase.

At 1 MB of block size, I think the fees will be too high

That's absolutlety right! Once issuing BTC is done in 2140, the miners will continue do do their work and continue to receive an economic incentive which will be comprised by fees.

I guess most of the pool do, otherwise no one will join that pool

what happens right now with the collected fees? do mining pools keep it, or share it with the miners who are connected to their pool?

I would say what now a days a bitcoin miner gets as a block reward, 25BTC*240USD, the same amount they will get in any future days/years. If reward decreases price of one bitcoin raises.
Other wise, in the case bitcoin price is not raise to significant level, then number of reward per day goes high because of less difficulty.

I think overall, the fee structure is decided by 3 factors:

1. If the infrastructure is capable

2. If the miners are motivated

3. If the users are satisfied


If technology does not allow free block space (to ensure decentralization through small blocks and fast propagation), then a fee market will automatically appear and raise miner's fee income

If technology advancement allows we to always have free block space to process the transactions, with diminishing mining subsidy and slowly changing bitcoin price, miners will need fee to be motivated to run the network to resist attack and confirm transactions. Otherwise more and more miners will quit and the network hash power drops and becomes insecure

So, as long as the users are satisfied, miners should get enough motivation, since they are maintaining the infrastructure. And they even have the mission to re-distribute the wealth in the ecosystem so that wealth concentration can be avoided

To measure user's satisfaction, you can look at the amount of bitcoins in each transaction. Now the majority of the transactions are larger than 0.1 bitcoin, we can predict that a fee of 0.0005 btc (about 0.5% of 0.1 btc) will satisfy majority of the users (In fact it is a fee that almost guarantee a confirmation in 10 minutes). For 2000 transactions in each block, you will get 1 bitcoin. With 8MB block in future, the fee income per block will reach 8 bitcoin, already quite significant.

However, if bitcoin price rise by 10x, then the fee income per block will drop to 0.8 bitcoin, since the average transaction value will drop to 0.01 btc. I guess the fee income depends on the minimal value of majority of transactions, so it could go higher if most of the transactions become larger

Exactly. It costs almost the same network/cpu resource to confirm a 100 bitcoin transaction or a 0.1 bitcoin transaction

If miners charge same fee to all transactions, then the fee will be extremely generous for those rich guys/institutions doing large transactions if the fee can also be accepted by casual users doing micro transactions

The decision of including a transaction is totally up to each miner. Even the block space is more than enough, a miner would still be motivated to exclude a transaction without fee, to reduce the chance of his block being orphaned

I remember that you have some reseach about the market behavior of fee setting, it says that supply and demand will find its balance

Miners might compete for a lower fee, but I don't think this vicious competition will last too long. Major miners will eventually reach some kind of consensus to promote an enough high fee to maximize their profitability, while still satisfy most of the users

For example, if they observed that majority of the transactions are larger than 0.1 bitcoin, then they will promote a minimum fee of 0.0005 bitcoin to not disturb the majority of the users and at the same time greatly increase their mining income

Of course, a small mining farm might include all the transactions with <0.0005 fee, but since his blocks are only mined every 24 hours, his block will always be full, have higher risk of being orphaned, and with very little fee income. Why should he do that? From user point of view, any fee less than 0.0005 bitcoin will take more than 24 hours to confirm, so they will just raise the fee to get a faster confirm. Confirm in time is much more important than fee

I think the scenario that you are trying to project here is the ideal condition assuming nothing changed and calculation works as it is. However, don't forget still a long way to go and I'm skeptical on how things would turn out. Probably something that we can't totally imagine. The transaction turnover rate has to be every high to support that. But one thing I'm sure is that I won't be there to even witness it.

Will the fee raise in the future?

For each user transacting different amount of money, the absolute value of the fee that they can tolerate is different. Typically a fee of less than 1% is considered acceptable by majorities, since that does not cause significant loss of the fund. If you transact 100 dollars, you are fine with 1 dollar fee, and if you transact 1 dollar, you don't feel that 1c is a pain. People's pain point is around 5%, that's why credit card company set their rate below that level and still be able to attract lots of merchants. In fact, many people using western union are paying more than 10% for the transaction fee and still be fine with it

The statistics showed that over 70% of the transactions are larger than 0.2 BTC, e.g. $40, so a fee of 0.002 ($0.4) will not cause panic for majority of the users, and is still much lower than credit card /international wire fee

Extremely low fee is not a selling point for bitcoin, because the exchange risk in and out of bitcoin is much higher than 1% daily, which makes any saving in fee totally non-existent

By the way, in some latest mobile payment solutions, you get instant confirmation and 0 fee, and you transact directly in your domestic currency without exchange risk. Bitcoin will never be able to compete with those solutions made by centralized financial institutions. So low fee is not going to bring bitcoin more users. Users who are attracted by bitcoin are not here because of its low fee

I don't get the point of getting 50 coins per block, how that can be possible with the increasing no. of transaction size and low reward per block. I think fee is more related to wallet handler like blockchain.info but i may miss some point about how that fee is distributed on bitcoin tranasaction. But i think that 50 bitcoin per block mining seems completely impossible in future after several halving.

I think not if it will be offer hardware with high mining potential and reasonable prices. And it is not to forget the fact that for the most of the miners mining is a "religion" and not only an work. So they do it even if they don't earn. I have meet online such guys and I am amazed by them. But it is true.

Both reward halving and having fee as the source of reward for miners are in the design of bitcoin to create an equilibrium. However, if the price for bitcoin is not increased after reward halvings, the deflationary nature of bitcoin will cause miners to lose interest.