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> depends on the block reward AND the price of bitcoin The direct block reward goes to zero over the years, but the miner's fee will still be a positive amount

> depends on the block reward AND the price of bitcoin The direct block reward goes to zero over the years, but the miner's fee will still be a positive amount. Each miner will be competing for the miner's fee, and will buy more electricity if they can mine more blocks (and get more miner's fees). The rewards will be proportional to the market cap of bitcoin. If it goes up, so will the investment in electricity. > making sweeping statements here The sweeping statements that poster made are the results of a microeconomics analysis. There is a large & "efficient" market competing for bitcoin mining rewards by buying more electricity. This is tapping into laws of economics on the level of supply/demand curves: Well studied scenarios that become more accurate the more efficient the market is.

cowtools 4y ago
>The direct block reward goes to zero over the years, but the miner's fee will still be a positive amount. Yes. >Each miner will be competing for the miner's fee, and will buy more electricity if they can mine more blocks (and get more miner's fees). Yes. >The rewards will be proportional to the market cap of bitcoin. If it goes up, so will the investment in electricity. No. You're conflating two different things here: A reward-dominated bitcoin and a fee-dominated bitcoin. The reward takes money from bitcoin owners in the form of inflation. It decreases the market cap by increasing supply. The fees take money directly from bitcoin users. In the reward-dominated case, miners are funded by new demand for bitcoin, which props the market cap up. In the Fee-dominated case, miners are funded by bitcoin users who compete with each other for limited bandwidth. In either case, the money being given to miners by these two parties is always greater than or equal to the money spent on mining (power, hardware). What we've seen so far is a reward-dominated bitcoin in which demand is very high and the market cap increases as the block reward decreases. I predict the demand will stabilize and the reward will continue to decrease. This means there will be less mining. Eventually the reward will asymptotically trend to zero in which case bitcoin will become fee-dominated. Fees are dependent on the supply/demand for bitcoin bandwidth (the supply is a static 1MB/10 mins), not market cap or price.
- dlubarov 4y ago
  You're right that there isn't a direct causal relationship between fees and market cap, but I think the ratio between them is important. If miner revenue becomes a tiny fraction of market cap, 51% attacks become a very real threat. Then the community would need to do something to increase the ratio, such as establishing a permanent block reward.
  - cowtools 4y ago
    I agree. In fact, some cryptocurrencies like have implemented constant "tail emission" block rewards. The problem is that this scares off investors and speculators because there's not as much scarcity.
- hn_throwaway_99 4y ago
  It's weird how so many of the arguments against what I've originally written pretend that it matters whether the reward comes from a block reward or transactions fees. It does not matter. Certainly miners don't care how they get paid - for them they have a simple calculation of "bitcoin value I get out must be greater that electricity cost I spend". And the fundamental idea behind proof-of-work that they amount of work you're "proving" must be enough to make double-spend attacks infeasible. If the electricity cost to mine a block is low enough compared to the value that could be gained by a double-spend attack (which is of course comparable to total BTC market cap), then the network is not secure.
  - cowtools 4y ago
    >It's weird how so many of the arguments against what I've originally written pretend that it matters whether the reward comes from a block reward or transactions fees. It does not matter. It does matter. Block rewards are a transfer of value from bitcoin owners, which increases as people BUY bitcoin. Block fees increase as people USE bitcoin. Those are two separate things. What we are seeing now is mining that goes far beyond the mining necessary to secure the network, and that's due to (temporary?) speculative demand which increases the value of the block reward. >And the fundamental idea behind proof-of-work that they amount of work you're "proving" must be enough to make double-spend attacks infeasible. well, infeasible by a single antagonistic party. There's also the cost associated with the depreciation of the hardware. Even if mining somehow required no electricity, then the network would still be secure because there is some Time-Value cost associated with owning computer hardware. >If the electricity cost to mine a block is low enough compared to the value that could be gained by a double-spend attack (which is of course comparable to total BTC market cap), then the network is not secure. I agree. I think bitcoin will eventually succumb to selfish mining attacks.

cowtools 4y ago

>The direct block reward goes to zero over the years, but the miner's fee will still be a positive amount. Yes. >Each miner will be competing for the miner's fee, and will buy more electricity if they can mine more blocks (and get more miner's fees). Yes. >The rewards will be proportional to the market cap of bitcoin. If it goes up, so will the investment in electricity. No. You're conflating two different things here: A reward-dominated bitcoin and a fee-dominated bitcoin. The reward takes money from bitcoin owners in the form of inflation. It decreases the market cap by increasing supply. The fees take money directly from bitcoin users. In the reward-dominated case, miners are funded by new demand for bitcoin, which props the market cap up. In the Fee-dominated case, miners are funded by bitcoin users who compete with each other for limited bandwidth. In either case, the money being given to miners by these two parties is always greater than or equal to the money spent on mining (power, hardware). What we've seen so far is a reward-dominated bitcoin in which demand is very high and the market cap increases as the block reward decreases. I predict the demand will stabilize and the reward will continue to decrease. This means there will be less mining. Eventually the reward will asymptotically trend to zero in which case bitcoin will become fee-dominated. Fees are dependent on the supply/demand for bitcoin bandwidth (the supply is a static 1MB/10 mins), not market cap or price.

dlubarov 4y ago
You're right that there isn't a direct causal relationship between fees and market cap, but I think the ratio between them is important. If miner revenue becomes a tiny fraction of market cap, 51% attacks become a very real threat. Then the community would need to do something to increase the ratio, such as establishing a permanent block reward.
- cowtools 4y ago
  I agree. In fact, some cryptocurrencies like have implemented constant "tail emission" block rewards. The problem is that this scares off investors and speculators because there's not as much scarcity.
hn_throwaway_99 4y ago
It's weird how so many of the arguments against what I've originally written pretend that it matters whether the reward comes from a block reward or transactions fees. It does not matter. Certainly miners don't care how they get paid - for them they have a simple calculation of "bitcoin value I get out must be greater that electricity cost I spend". And the fundamental idea behind proof-of-work that they amount of work you're "proving" must be enough to make double-spend attacks infeasible. If the electricity cost to mine a block is low enough compared to the value that could be gained by a double-spend attack (which is of course comparable to total BTC market cap), then the network is not secure.
- cowtools 4y ago
  >It's weird how so many of the arguments against what I've originally written pretend that it matters whether the reward comes from a block reward or transactions fees. It does not matter. It does matter. Block rewards are a transfer of value from bitcoin owners, which increases as people BUY bitcoin. Block fees increase as people USE bitcoin. Those are two separate things. What we are seeing now is mining that goes far beyond the mining necessary to secure the network, and that's due to (temporary?) speculative demand which increases the value of the block reward. >And the fundamental idea behind proof-of-work that they amount of work you're "proving" must be enough to make double-spend attacks infeasible. well, infeasible by a single antagonistic party. There's also the cost associated with the depreciation of the hardware. Even if mining somehow required no electricity, then the network would still be secure because there is some Time-Value cost associated with owning computer hardware. >If the electricity cost to mine a block is low enough compared to the value that could be gained by a double-spend attack (which is of course comparable to total BTC market cap), then the network is not secure. I agree. I think bitcoin will eventually succumb to selfish mining attacks.