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.

I think that the miners cannot be rewarded by penalizing the users. The two communities must be in concordance and not in war with each other. Then what you mean with fee market? The fee we are talking about is the fee which goes to the miners. The market must be the place when bitcoin is used and not produced.

a 50btc txfee total is at the moment 0.012btc a tx.. (50btc/4200tx), lets average it to 1200txs of fee paying users = 0.04btc (over $9/tx)
who would pay $9 a tx right now to give miners a 50btc tx reward if block solving reward stopped today.

even in the future of 20mb the average customer usage and voluntary addition of a fee (cos not all blocks are filled and not everyone wants to pay) would be 45c at current btc price.

even if bitcoin went to $1000 a coin when the 20mb block limit was in place and every byte of the limit was filled with tx data, and every tx had a fee..

50btc/84,000tx =0.00059524btc/tx = 60c/tx

i think 50btc tx fee reward per block at any fiat price is asking too much.. i think the bases of keeping bitcoin active and useful would be a 1c/tx fee..
which based on a full 20mb limit and all users paying a fee. and btc value being $1000 each would be a 0.84btc total reward... definitely not 50btc.

That is a lot of but's and if's We hope to see a increase in transaction volumes, but we need massive adoption for that kind of transaction volumes. I also think most pools will combine efforts to get those 50 Btc blocks and the smaller individual pools will be pushed out of mining.

Let's hope the adoption increase enough to surpass the block rewards, long before it reach zero.

as mining rewards decrease. then yes transaction fee's would be more important to miners.

the issue is that USERS wont want to pay $10 a tx. they would want to pay 1c a tx.
so lets work out how much a tx will need to cost to keep miners happy.

so, matter what the value of bitcoin is or how many satoshi's are required.. a 1c/tx equates to a maximum of $42/block right now
(1c x 4200max tx)
(yes not everyone will want to pay a fee, and not all blocks will contain 4200txs so its going to be far less than $42 mining income)

even if the block limit grew to 20mb. the maximum potential would become at most $840(again dont expect that much, as its just a maximum potential).

so whilst current mining income via blocksolving reward is $6,000, this means that eventually on a 20mb block each tx would need to cost 8c to keep the mining reward in the $6000 range per block.

again 8c a tx is based on max potential if all 20mb of block was full and all tx's contained a fee.

so i predict that to keep the miners happy the tx would be on average atleast 20c each, which is where users will start to think its not as 'free' to use bitcoin compared to debit/credit cards.

Being a newbie, my understand is when bitcoin mining rewards goes to almost zero Satoshi. Price of one satoshi would go to approximately $10 or even higher. At that time people would pay their fees in decimals of one satoshi. yes at that time one bitcoin would be divisible for more than 10 decimals.

Are you suggesting that I'd pay $20 to move $10,000, and only $0.002 to move $1? 

The problem I see with this is that I suspect it won't be possible to enforce this 0.2% fee structure.  The reason is that from the miner's perspective, it costs him the same amount to produce a kilobyte of block space whether he uses it to record the $10,000 transfer or the $1 transfer.  This means that a miner would make a huge profit on the large transfer and perhaps even lose money on the small transfer.  How would you stop miners from undercutting each other?  For example, I would be happy to include the $10,000 transaction in my block for $10 (rather than $20) because my profit margin for that TX would still be huge. 

That's a very large topic, I will go for sleep now and analyze that later 

Rewarding the miners for their POW verification ensures the network's security.

Considering that the block reward will halve until it reaches 0, a fee market shall emerge naturally to sustain the system.

I know this but the tendency of this fee in time (if I'm not wrong) it is the decreasing and not the increasing as you propose. I remind that three years ago was much high than today's days. Your propose is in the the opposite. You think that your proposition have future?

It is the fee for every block, and there can be thousands of transactions in each block (today it is about 1000, thus the fee per transaction will be 50/1000=0.05 bitcoin, a bit high when you are sending 1 bitcoin, but still manageable)

Bitcoin's fee is fixed per transaction regardless of transacted amounts, this greatly benefit the rich people who are doing large transactions while punish the micro transactions, this is good mechanism to reduce blockchain spam, but still not a balanced design suits human behavior: Human normally don't care about the fee less than 1%, regardless of transacted amount. From network point of view, the cost is bandwidth and CPU time, so it can only be set on size of transaction data

If you are talking about of every transaction this mean that this fee must be applied even when someone will send bitcoins or use bitcoins to buy something. If this is the meaning of your reasoning this fee will be the dead of bitcoin. No one will use it because of it. So, I want to send 1 bitcoin and must pay other 50 as a fee? No way. Then this kind of fees are being decreased from the beginnings times and increasing.

Ironically, the only detailed analysis of bitcoin transaction value distribution is from a 2014 paper by Federal Reserve, it seems central banks really have the over view  

http://www.federalreserve.gov/econresdata/feds/2014/files/2014104pap.pdf



This statistic is from 2014, and if you look at www.bitcoinmonitor.com or www.bitlisten.com, it seems majority of the transaction value is now above 0.1 bitcoin

More about miners' motivation:

If you are an industry miner, you would like to grab significant share of the total amount of bitcoin, in order to benefit from the growth of this decentralized financial system. It is quite similar to investing in a company's stock, a larger share of stock will give larger benefits to the stock holder. But the block reward halving every 4 years put bigger and bigger pressure on miners so that they can not get enough amount of share later on

Imagine a group of powerful enterprises researched about bitcoin later and discovered that 75% of coins are already digged out and there is no way to get significant fee from processing transactions. They might just turn around and never look back, because even if they command all the hash power in the world, they would still mine maximum 25% of all the coins, just maintain the network for early adopters, that is not attractive at all

However, if they discovered that miners could now receive 50 bitcoin fee per block, then if they command all the hash power, they would be able to mine 50% of the coins in just 4 years! This ability to turn around wealth distribution table sounds extremely attractive and democratic, they would gladly join the mining industry, deploy high efficiency mining farms and become part of the ecosystem

Of course 50 bitcoin is a bit exaggerated, but 25 would still make it very attractive: In 4 years miners could get 25% of the whole bitcoin money supply, especially it will be extremely expensive if you want to buy 25% of the bitcoins from open market

Bitcoin's success rely on no barrier of entry, it should have total free entry for everyone, no technical,monetary or political barrier. Block reward halving created a monetary barrier of entry (so called early adopters advantage, the same barrier exists for land/gold/stocks etc... ) The fee is a way to remove this barrier

There is no difference. It is effectively 1 mining entity.

Anyway this is beside the point which really was that subsidy would return to 50 BTC.

There is a difference in CPU miner run by one person and a mining farm ran by a company or pool of individuals.
You cannot say mining will be as easy for one person as it was 6 years ago.

Large industrial miners are solving blocks alone everyday. What is this sorcery you speak of?

He was probably referring to big farm operations that exist now, but wither way, they could just create a pool of such farms and split the profit anyways.
It's not the "who" will/could of get such high block fee's reward, it's the amount that shouldn't even be considered possible due to high potential of influencing natural development of
bitcoin as it was designed.

Even when fee reward is 50 BTC, there no single miner who can earn it.
In the early days, you could mine blocks yourself, but with 50BTC fee reward in the year 2140 it will all be done by pools.

 

Explain.

By the time that happens, there will be no single miner able to mine the block alone and collect the 50 BTC fee reward.
Your logic doesn't take the increase in adoption into account.

Miners have a huge cost, if they collect 100 coins fee in each block, they might have spent 90 coins in infrastructure/management/electricity. In fact, miners might raise the fee to compensate for their income if the bitcoin price is not improving, this can be market based behavior

The fee, although small from individual transaction point of view, is huge from all the transactions combined point of view. Imagine that average transction is 0.5 btc, and every one is totally fine with 0.2% of fee, and a large block in future can handle 100000 transactions per block, then the fee collected by miners per block will be 100 bitcoins, is there any problem?

The biggest benefit of bitcoin monetary system is total limited money supply. This character will never change even the miners are collecting more fees. Satoshi has indicated that in future mining fee will replace the block reward, but he never said the fee should be lower than block reward, maybe he has envisioned a future of 100+ bitcoins per block fee

As time passes by, with bigger and bigger blocks (hopefully), more and more transactions will fit into a single block, reducing the need for high fees (or at all?!)
I do not see nor want a future where miners have such power as u describe, it's counter productive imho; not the way it was created to be

Miners aren't going to just dish out coins, especially given their scarcity at that point. Your logic doesn't convince me.

Imagine that in future, the transaction fee income for each block raised to 50 bitcoins, while the block reward almost decreased to zero, then every miner would become the early adopter: They can mine bitcoin exactly like early CPU miners at 50 coins per block, and if they want to accumulate coins, after 4 years they would have accumulated 50% of the total coin supply!

Technically, that scenario is not unrealistic: Given average transaction size of about 0.5 bitcoin and a transaction fee of 0.005 bitcoin (1%) is tolerable, you only need to process 10000 such transaction in each block to collect 50 bitcoins in fee, which can be filled within a 4-8 MB block, still manageable even at today's technology

This means, we can bring back the good old days of 50 bitcoins per block already in a couple of halvings!

The benefit? The miners will always redistribute the coins in bitcoin ecosystem to constantly rebalance the wealth distribution, so that centralization of wealth is prevented. At the same time, mining is a risky business, miners have to constantly striving for more efficiency to stay profitable, thus any kind of wealth concentration around miners are only temporary. They also need more incentives to keep investing in mining infrastructure

There is another even bigger benefit: This solved the biggest concern/doubt about bitcoin being a ponzi / pump and dump scheme that early adopters are riding the wave and trying to profit from the late adopters. In fact, if the block reward is 50 bitcoins or even 100 bitcoins in future, late adopters can mine more bitcoins than early adopters, thus make the whole system very long term sustainable and attractive for any participants from future