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>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

>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.
  - buzzin_ 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." Miner do not care, so it does not matter. This is amazing to watch. hn_throwaway_99 complains that he only gets handwaving and circular arguments against this, only to get multiple answers which are exactly that. Mining will always spend a large chunk (>50%? depends on the complete distribution of efficiency off all miners) of rewards on electricity. A quick search shows this to be 0.5% of all electricity used in the world. If Bitcoin price goes up 10x right now, this would shortly increase to around 5%. But, there is also a thing that miners still have to pay electricity in dollars or whatever, so they are forced to sell on exchanges. This creates a downwards pressure on Bitcoin price. Currently this could be somewhere around $billion per month. So, you need a billion a month of fresh sucker money, just for the bitcoin price to stay the same.
Closi 4y ago
When market cap / price goes up, more people enter the market to mine until supernormal profits are gone - This is the relationship being discussed. People will enter the market which pushes up the difficulty / electricity and hardware consumption until profits are brought back down to a normal level.
- cowtools 4y ago
  Yes, but I predict people will cease entering the market once the hype dies down and people learn how flawed bitcoin is.
  - Closi 4y ago
    People will always enter the market (to produce) if there is a difference between the price of a Bitcoin and the cost to produce a Bitcoin (electricity, equipment etc). If the price goes down and it costs more electricity to produce a Bitcoin that is economically viable, people will leave because the juice isn’t worth the squeeze. So the same relationship works inversed too - difficulty to mine and electricity consumption is related to market cap / price from an econ perspective. I agree with your point on Bitcoin hype, but the production side is just economics and people trying to make a buck if there is money on the table.

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.
- buzzin_ 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." Miner do not care, so it does not matter. This is amazing to watch. hn_throwaway_99 complains that he only gets handwaving and circular arguments against this, only to get multiple answers which are exactly that. Mining will always spend a large chunk (>50%? depends on the complete distribution of efficiency off all miners) of rewards on electricity. A quick search shows this to be 0.5% of all electricity used in the world. If Bitcoin price goes up 10x right now, this would shortly increase to around 5%. But, there is also a thing that miners still have to pay electricity in dollars or whatever, so they are forced to sell on exchanges. This creates a downwards pressure on Bitcoin price. Currently this could be somewhere around $billion per month. So, you need a billion a month of fresh sucker money, just for the bitcoin price to stay the same.

Closi 4y ago

When market cap / price goes up, more people enter the market to mine until supernormal profits are gone - This is the relationship being discussed. People will enter the market which pushes up the difficulty / electricity and hardware consumption until profits are brought back down to a normal level.

cowtools 4y ago
Yes, but I predict people will cease entering the market once the hype dies down and people learn how flawed bitcoin is.
- Closi 4y ago
  People will always enter the market (to produce) if there is a difference between the price of a Bitcoin and the cost to produce a Bitcoin (electricity, equipment etc). If the price goes down and it costs more electricity to produce a Bitcoin that is economically viable, people will leave because the juice isn’t worth the squeeze. So the same relationship works inversed too - difficulty to mine and electricity consumption is related to market cap / price from an econ perspective. I agree with your point on Bitcoin hype, but the production side is just economics and people trying to make a buck if there is money on the table.