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Competition for limited block space. https://jochen-hoenicke.de/queue/#BTC,30d,weight https://jochen-hoenicke.de/queue/#BTC,30d,weight Constant supply and flu

Competition for limited block space. https://jochen-hoenicke.de/queue/#BTC,30d,weight https://jochen-hoenicke.de/queue/#BTC,30d,weight Constant supply and fluctuating demand will lead to times where you must choose between paying low fees and waiting a long time for confirmation, or paying high fees for faster confirmation. If you zoom out all the way, you can see this has played out with every halving so far.

paulgb 4y ago
This argument made sense when Bitcoin was still a “peer-to-peer electronic cash system” as Satoshi envisioned, but it doesn’t make sense under the current “store of value” narrative. If people are just buying and holding, they aren’t creating much demand for block space.
- TakeBlaster16 4y ago
  People do hold this viewpoint, and that's why I linked hard data. You can see the fees fluctuating from day to day. On Sep 3, many transactions had 10x the normal fees. On low volume days such as Sep 11, very few transactions had high fees. You can argue philosophically about whether a chosen narrative makes sense or "should" create demand for block space, but I'm ignoring philosophy and looking at empirical data. Since this is already happening, and has been for the history of the project, it's not a stretch to predict it will continue happening. If there was no competition for block space, the fee market would look like white noise, like BCH or DOGE: https://jochen-hoenicke.de/queue/#DOGE,30d,weight https://jochen-hoenicke.de/queue/#DOGE,30d,weight
  - paulgb 4y ago
    There's day-to-day fluctuation, sure, but the overall share of mining rewards that transaction fees make up has been trending down over the last year[1] to around 1-2% today. That means that to maintain the current level of security in the system, aggregate transaction fees will need to go up 50-100x over time to offset the lower block rewards. Even just considering the next halving in 2024, transaction fees would need to go up ~50x from where they are today to make up for the incentive lost to miners. [1] https://bitinfocharts.com/comparison/transactionfees-btc-sma30.html#1y https://bitinfocharts.com/comparison/transactionfees-btc-sma...
    - TakeBlaster16 4y ago
      If I zoom your chart out, I could make all the same arguments about 2018. It looks like just another cyclical metric that follows the halvings. In the year after the 2018 peak, fees approached zero, but in the year after the 2021 peak, they stayed higher. As long as that keeps up and they don't actually go to zero, and people are competing for block space, miners will keep lining up, and the network will be fine. Halvings matter less as time goes on. I didn't shed any tears for miner incentives when the reward went down by 25, and I won't shed any tears when it goes down by a mere 3.125. Mining was never meant to be profitable beyond BTC's bootstrapping phase. In fact the protocol actively makes difficulty adjustments to keep profitability near zero. Let their profits go down. As long as people are competing for block space, and transaction fees keep coming in, miners will continue competing for their fractions of a percent, and the network will be fine.
      - paulgb 4y ago
        I don't understand the relation you're alluding to between halvings and transaction fees. As far as I'm concerned, they're entirely unrelated. It's true that both big spikes in transaction fees happened to occur four years apart and in the vicinity of halvings, but that could just be coincidental -- if it's not, I don't understand the mechanism that would cause it. In any case, neither spike was particularly long-lasting, and even if they were sustained at their peak, neither would make up for the mining incentive lost in the next halving.
        TakeBlaster16 4y ago
        I only brought up halvings because it explained the chart. But let's ignore halvings and talk about mining incentive then. Fees are the less important half of the story. The main driver is difficulty adjustments. If scarce fees come in, difficulty goes down so profitability increases. If plentiful fees come in, difficulty will go up so profitability decreases. Fees are actually damped by the adjustments so the absolute amount of fees doesn't really matter. So long as fees are above 0.00000000, the network will be fine. I predict that there will always be some baseline level of competition keeping fees above 0.00000000, but if that is wrong, then things would likely fall apart one day.

paulgb 4y ago

This argument made sense when Bitcoin was still a “peer-to-peer electronic cash system” as Satoshi envisioned, but it doesn’t make sense under the current “store of value” narrative. If people are just buying and holding, they aren’t creating much demand for block space.

TakeBlaster16 4y ago
People do hold this viewpoint, and that's why I linked hard data. You can see the fees fluctuating from day to day. On Sep 3, many transactions had 10x the normal fees. On low volume days such as Sep 11, very few transactions had high fees. You can argue philosophically about whether a chosen narrative makes sense or "should" create demand for block space, but I'm ignoring philosophy and looking at empirical data. Since this is already happening, and has been for the history of the project, it's not a stretch to predict it will continue happening. If there was no competition for block space, the fee market would look like white noise, like BCH or DOGE: https://jochen-hoenicke.de/queue/#DOGE,30d,weight https://jochen-hoenicke.de/queue/#DOGE,30d,weight
- paulgb 4y ago
  There's day-to-day fluctuation, sure, but the overall share of mining rewards that transaction fees make up has been trending down over the last year[1] to around 1-2% today. That means that to maintain the current level of security in the system, aggregate transaction fees will need to go up 50-100x over time to offset the lower block rewards. Even just considering the next halving in 2024, transaction fees would need to go up ~50x from where they are today to make up for the incentive lost to miners. [1] https://bitinfocharts.com/comparison/transactionfees-btc-sma30.html#1y https://bitinfocharts.com/comparison/transactionfees-btc-sma...
  - TakeBlaster16 4y ago
    If I zoom your chart out, I could make all the same arguments about 2018. It looks like just another cyclical metric that follows the halvings. In the year after the 2018 peak, fees approached zero, but in the year after the 2021 peak, they stayed higher. As long as that keeps up and they don't actually go to zero, and people are competing for block space, miners will keep lining up, and the network will be fine. Halvings matter less as time goes on. I didn't shed any tears for miner incentives when the reward went down by 25, and I won't shed any tears when it goes down by a mere 3.125. Mining was never meant to be profitable beyond BTC's bootstrapping phase. In fact the protocol actively makes difficulty adjustments to keep profitability near zero. Let their profits go down. As long as people are competing for block space, and transaction fees keep coming in, miners will continue competing for their fractions of a percent, and the network will be fine.
    - paulgb 4y ago
      I don't understand the relation you're alluding to between halvings and transaction fees. As far as I'm concerned, they're entirely unrelated. It's true that both big spikes in transaction fees happened to occur four years apart and in the vicinity of halvings, but that could just be coincidental -- if it's not, I don't understand the mechanism that would cause it. In any case, neither spike was particularly long-lasting, and even if they were sustained at their peak, neither would make up for the mining incentive lost in the next halving.
      - TakeBlaster16 4y ago
        I only brought up halvings because it explained the chart. But let's ignore halvings and talk about mining incentive then. Fees are the less important half of the story. The main driver is difficulty adjustments. If scarce fees come in, difficulty goes down so profitability increases. If plentiful fees come in, difficulty will go up so profitability decreases. Fees are actually damped by the adjustments so the absolute amount of fees doesn't really matter. So long as fees are above 0.00000000, the network will be fine. I predict that there will always be some baseline level of competition keeping fees above 0.00000000, but if that is wrong, then things would likely fall apart one day.