Can transactions scale sufficiently to compensate the diminishing block reward by fees?


The blockchain is public, and every block has (amongst other things) the following information for each transaction (or it can be calculated):

The size of the transaction, in bytes The fee paid by the initiator of the transaction

Miners in future are likely to calculate the earnings per byte for each transaction when selecting which ones to include in a block, so that they earn the maximum profit from the block. At the moment they mostly just include them all, provided there is at least a token fee.

Furthermore, transactions that have not yet been included in a block are publicly available.

From this information a user could estimate the transaction fee they will need to pay to get their transaction included in the next block, or within one of the next few blocks. Of course in the long run, it won't be a user that has to seek out this information; it'll just be part of the information readily available as they initiate a transaction. At least, that's how I...

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Miners provide an important service: network security. A large network hash rate keeps Bitcoin safe from attacks by bad actors.

Miners need an incentive to pay for electricity and hardware costs. ASIC mining hardware keeps Bitcoin secure through proof of work. Right now, miners are paid through a combination of Bitcoin’s block reward and transaction fees.

Bitcoin’s block reward is still large and provides the majority of miners’ earnings. The block reward started at 50 bitcoins per block. Currently, it is 25 bitcoins per block. In July 2016 it will drop to 12.5 bitcoins per block.

Transaction Fees

Once the majority of bitcoins have been mined, the block reward will become an insignificant percentage of miners’ overall earnings. Instead, mining fees–paid by users who transact on the network–will make up the majority of miners’ earnings.

Mining fees are paid each time a user sends a transaction on the network. In the example below, a user...

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Find answers to recurring questions and myths about Bitcoin.

Table of contents


What is Bitcoin?

Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.

Bitcoin is the first implementation of a concept called "cryptocurrency", which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority. The first Bitcoin specification and proof of concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the project in late 2010...

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What is Dash?

Dash is an online currency which aims to play a dominant role in the cryptocurrency market, along with Bitcoin, covering the privacy and anonymity needs that Bitcoin cannot cover due to its transparent nature.

There is an increasing number of Bitcoin users who do not want their transactions or account balances to be publicly available for everyone to see. Dash will ensure that this doesn't happen by combining the best anonymity technologies and IP obfuscation.

More importantly, Dash is a development platform for new technologies that are gradually integrated to the Bitcoin protocol with the intent to provide additional functionality.

You can read more about Dash here:

Who is behind Dash?

Evan Duffield (eduffield on is the creator and main developer of Dash. Kyle Hagan (InternetApe on is the Network Engineer of Dash.

Up to June 2014, Duffield has...

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Bitcoin is not over yet. But the pseudo-currency is close enough to collapse to merit an early retrospective.

My prediction is controversial. Many fervent fans are persuaded that this government-free currency is for real. Their ardour may keep it going for a while, but equally bitcoin could disappear very quickly – that’s the way with speculative bubbles. So now is the moment to learn some economic lessons before the whole phenomenon is forgotten. Here are five.

Money without government appeals to people without law.

Legal tender has the backing of the issuing state. The government has a proprietary interest in maintaining a reliable currency. It also has the necessary powers to do so. It can regulate lending institutions, pursue fraud and create new money to keep the system afloat.

Bitcoin has none of that protection. On the contrary, governments are either hostile or hands-off. For anyone in the legal economy, the lack of official support is a...

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If you've ever wondered where Bitcoin comes from and how it goes into circulation, the answer is that it gets "mined" into existence. Bitcoin mining serves to both add transactions to the block chain and to release new Bitcoin. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The first participant who solves the puzzle gets to place the next block on the block chain and claim the rewards. The rewards incentivize mining and include both the transaction fees (paid to the miner in the form of Bitcoin) as well as the newly released Bitcoin.

Security of the Network

Bitcoin mining is decentralized. Anyone with an internet connection and the proper hardware can participate. The security of the Bitcoin network depends on this decentralization since the Bitcoin network makes decisions based on consensus. If there is disagreement about whether a block should be included in the block chain, the decision...

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Miles Carlsten

Harry Kalodner

Arvind Narayanan

Miners no longer incentivized to mine all the time. The future of mining hardware. Impact on the bitcoin ecosystem. Implications and assumptions of the model.

Are minting rewards and transaction fees the same? Transaction fees are time-dependent. A miner can only claim transaction fees as transactions are added to their block. As transaction fees start to dominate the block reward, they become time-dependent. We are modeling this block reward as a linear function of time, we have this factor B which might be initial minting reward, and we have some scaling factor, the block reward is like "b + at". Something that can be added to this plot is that miners have a set expense to mine, and if miners are not going to recoup their costs, it's not worth them to mine that block.

Above that threshold of worth their time to mine the block, and below it is not worth the time to mine the block. You could see this...

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3 engage in speculative trading with deposited assets, and their defaults are bailed out on a nepotistic basis with government funds

(taxpayer’s money)

without any regard for citizen approval. Banks only hold a fraction of their balances in reserves. All money is created out of debt from nothing. The amount of money depositors think they have is not supported by the funds the bank actually owns to repay them.

The truth is only ever a bank run away.

Cryptocurrency offers a revolutionary new basis upon which to build economies.

It allows permissionless transactions of sound money, with rapid settlements, across any borders. Cryptocurrencies can be designed to follow any programed consensus rules, and once these rules are in place they produce an immutable blockchain record of transaction history that is almost impossible to change or defraud. Blockchain technology allows for so much more than just cryptocurrency. It allows any information to...

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If you are using nested transactions in your orchestration, you can add a Compensate shape in the compensation block or an exception block of a transaction scope. This enables your orchestration to explicitly perform compensation on a nested transaction. You specify which transaction you would like to be compensated in the Compensate shape, and any compensation code in the nested transaction will be run, provided the transaction committed successfully.

If you want to compensate more than one nested transaction, you add an additional Compensate shape for each transaction.

No Compensate shape is necessary if there is no other compensation code in an outer transaction; the compensation code of any nested transactions will be run automatically. The Compensate shape gives you control over the process by allowing you to decide whether or not you want a nested transaction to be compensated.

To configure a Compensate shape

In the Properties window, select...

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Today, the bitcoin network is secured by massive computing power, which is expended in the process of mining. The miners are rewarded by newly mined bitcoins, plus transactions fees.

The security of the network relies on the computing power being so expensive, that no one group can afford to gain 51% share.

Eventually, the amount of newly mined bitcoins will diminish, and the mining reward by itself would cause mining to become unprofitable.

Will the fees be able to pay the expenses for the huge expensive computing power?

I can see two extreme situations where it might work:

a) either the transaction fees will be astronomical b) or there will have to be huge amount of transactions

option a) is clearly not viable, which leaves option b).

What would this mean for the bitcoin economy?

Will bitcoin need to become "high-velocity" money? How could that be enforced? And how would we prevent the blockchain growing out of control?


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In theory, as deflation continues and mining blocks becomes more efficient, the transaction cost will approach .00000001BTC/ 1 Satoshi and will stop multiple times on its way down at the point slightly above where profitability reaches cost. It is also possible that the transaction fee will approach zero.

The reason this happens is competition will drive the price down to the point that only the most efficient miners will be in business. The price reduction is further amplified by the deflation in Bitcoin. We will find the exact stopping point from the most efficient miners who are willing to take the lowest profit margin.

This will also be a floating point because as transaction volume increases so will profitability allowing miners to further reduce their fee.

To further answer some of your questions:

1)Are there any estimates or more concrete calculations about that? A: None that I can find. My prediction is that transaction fees will have a...

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Bitcoin is the currency of the Internet: a distributed, worldwide, decentralized digital money. Unlike traditional currencies such as dollars, bitcoins are issued and managed without any central authority whatsoever: there is no government, company, or bank in charge of Bitcoin. As such, it is more resistant to wild inflation and corrupt banks. With Bitcoin, you can be your own bank.

If you are new to Bitcoin, check out We Use Coins and You can also explore the Bitcoin Wiki:

How to buy bitcoins
Buying Reddit Gold with bitcoin

Will I earn money by mining bitcoin?

Security guide for bitcoin

Community guidelines

Do not use URL shortening services: always submit the real link. Begging/asking for bitcoins is absolutely not allowed, no matter how badly you need the bitcoins. Only requests for donations to large, recognized charities are allowed, and only if there is good reason to believe that the person accepting bitcoins on...
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