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

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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?

Is my analysis correct?

Martin Vegter

Posted 2015-10-04T08:09:37.463

Reputation: 181

possible duplicate of Will Bitcoin suffer from a mining Tragedy of the Commons when mining fees drop to zero?, How much will transaction fees eventually be?, Are there any studies into the size of the blockchain scaling over time?

– Murch – 2015-11-07T11:41:53.353

Hey Martin, I changed the title, because it seemed to me that your question asks about whether "post mining" will actually occur, so I felt it was not the best description. I've also slightly edited a sentence, because it felt incomplete. Please feel free to further edit or revert any changes! :) – Murch – 2015-11-07T11:49:59.137

Answers

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Or a combination of both. It looks like things like the Lightning Network will be there for micro payments and smaller amounts so that only larger transactions will be directly on the blockchain. For larger (and aggregate) transactions a bit more fee shouldn't be a problem (a). Also at some point the block size will likely be raised allowing for more transactions per block as well (b).

Either way your title is wrong: there is no post-mining world.

Jannes

Posted 2015-10-04T08:09:37.463

Reputation: 5 823

I thought the process is called mining, only when new bitcoins are being generated. But you seem to be saying, that transaction processing alone is also mining. – Martin Vegter – 2015-10-04T21:19:30.657

As far as i know everyone calls it mining regardless, wouldn't know what else to call it, certainly not just "validating" as everyone does that, not just miners. Also technically you could say that the coins that come out of the fees are still "fresh coins" as there is no regular transaction that send them to a miners address. Technically the fees are simply lost in transactions (in - out > 0) and then the miner is allowed to create fresh coins up to the total amount (or less). Also he still has to wait 100 blocks before he can spend them. – Jannes – 2015-10-05T00:24:09.150

Asked: 2015-10-04T08:09:37.463

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Active: 2016-03-06T19:23:35.190