What is a fee market? Does it mean that blocks should be full, esp. after several halvenings?

1

As we all know, Bitcoin had experienced an unprecedented long-lasting congestion period in 2017. This seems quite horrible to some people generally, but it seems that such phenomenon was on the contrary considered as a positive sign by developers, for example:

Personally, I'm pulling out the champaign that market behaviour is indeed producing activity levels that can pay for security without inflation, and also producing fee paying backlogs needed to stabilize consensus progress as the subsidy declines.

I've heard that is about a strategy called "stable fee market"(might be inaccurate, sorry). So, I'm courious that does that mean the blocks should be kept full in order to keep Bitcoin safe? Is it merely a compensation of declining block subsidy? Is there any deeper reason behind?

Also, I wonder how could Replace-By-Fee take effects?

Chris Chen

Posted 2019-01-11T20:09:45.170

Reputation: 458

Answers

2

The fee-market refers to the tension between

  • 1) users who want to have their transactions confirmed as quickly as possible and ...
  • 2) miners, who can only mined blocks with a fixed confirmation capacity (1mb, 4mWeight).

Naturally, it is in the interest of a miner to construct a block to mine from the mempool which results in the maximum block reward for the miner.

So when blocks are full, this tension between demand for confirmation and limited supply of block space will be resolved at a certain price. At a given price, there may or not be a miner who is willing to include a given transaction in its next block. If not, one simply needs to observe the (clearing) price at which transactions are being confirmed.

The fee-market is therefore between confirmation-seekers (users) and confirmation-providers (miners).

If fees rise because blocks are full, certain transaction amounts with Bitcoin will become unfeasible, because the fees in relation to the transaction amount are too high. So the remaining transactions will naturally be of higher amounts which still justify the market fee price. As long as confirmation capacity is limited and fixed, this will remain true.

This also has nothing to do with halvenings. The inflation/subsidy schedule obviously contributes to a miner's reward, but it independent of any transaction demand, and represents an initial mechanism to distribute coins.

James C.

Posted 2019-01-11T20:09:45.170

Reputation: 2 183

A stable-fee market implies that demand for tx confirmation is stable, which is impossible to control or predict. – James C. – 2019-01-11T20:28:33.510

One other caveat. There is no single global clearing price for block confirmation, because the mempool state differs from node to node. However, as data propagation efficiency across the network increases, the mempool states converge, and thereby so do tx confirmation clearing prices. – James C. – 2019-01-11T20:41:55.080

If the fee market has nothing to do with declining block subsidy, then what's point to keep such a market? Keep costs of running full node affordable for ordinary people? – Chris Chen – 2019-01-11T21:24:51.397

Not sure what u mean. Market is resolves which tx get confirmed. Subsidy is per block and independent of tx confirmation demand. – James C. – 2019-01-11T21:27:48.693

Why did Greg Maxwell mention block subsidy? To my understanding, he supposed that the high fees caused by congestion would compensate the declining block subsidy, thus the miners would still be incentivised to keep Bitcoin safe. – Chris Chen – 2019-01-11T21:39:30.047

1If there is no subsidy AND no tx confirmation demand, the chain stalls. Congestion is unavoidable if there is more demand than capacity. But this congestion is resolved in a market fee price. – James C. – 2019-01-11T21:56:54.743

According to my understanding of Greg's idea, the block size must be limited purposefully to generate "congestion", because such "congestion" would fix the problem of miner incentives after block subsidy declined. Despite whether raising block size has technical difficulty or not, it's "necessary evil". – Chris Chen – 2019-01-14T14:48:35.137

Asked: 2019-01-11T20:09:45.170

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Active: 2019-01-11T21:44:47.843