What happens when bitcoin is secured by fees?

Hello everyone!

As you probably know as a reader of this blog or as somebody who has heard of woodcoin, I've been particularly concerned with this issue.  It's the issue that LOG tries to solve.  So lets take yet another look.

To be explicit: the rapid drop of the coinbase reward given to miners, chosen to be in a geometric series, means that BTC will change from paying those who secure it with coinbase rewards (new money) to paying those who secure it with transaction fees (old money paid by existing users).

This has come up a few times recently as other people besides me have considered the issue.

Today we have full blocks that contain something on the order of 2000 transactions per block.  The average fee is about half a millie so the fees per block come in at something like 1 BTC per block.  That's almost 10% of the coinbase reward already.  Another halving, and another factor of 10 jump in fees, and 2020 could see the new era upon us already.

In 2020 the coinbase reward drops to 6.25 BTC per block.  A factor of 10 increase in fees as people compete to get their transactions into limited block space would mean 10 BTC in fees.  This implies a per TX fess of 0.05 or 5 bitcents.  Today that is roughly worth a case of beer.  In other words - you aren't going to buy a case of beer with bitcoin anymore after 2020.

Part of the problem here is that BTC doesn't exists alone.  There are thousands of other bitcoins all vying for miner's time and consumer's transactions.

It's 2032 and you're 18 years old, what coin will you use?

Imagine for a minute that you now are starting to work, to spend, to save.  The year is 2032 and only 63/64 of the total bitcoin supply have already been given out.  The coinbase reweard is now 0.78125 BTC.  This looks an awful lot like a premined coin doesn't it.  To make matters worse the fees are higher than some other coins (cough) that still have substantial coinbase rewards to pay miners.  Are you going to jump into bitcoin as this person with the same enthusiasm that others jumped into bitcoin back in 2012?  I suggest that no, you wouldn't.

So what happens then?  As people move out to other coins, the price lowers, the fees lower in chorus with this so perhaps the effect is slowed somewhat, but also the network security against double-spends lowers also in chorus.  In short, this is something of a crisis for mainnet BTC.

How about LOG ? 

OK so if BTC doesn't look that great to our newly financially independent teen in 2032, lets take a look a LOG.  Instead of 63/64 of the supply being already released, well under half the supply is released.  This means that compared to BTC you are still an "early adopter" of logarithmic release coins, and yet without the spectre of no-cap inflation.  The fees are also lower for the same level of double-spend security.

So you tell  me, what coin are you going to use for spending your allowance on the latest virual-sex sim-stim, purchasing your hoverboard for delivery from the space station, or for saving up to buy that camel?


Leave a Reply

Your email address will not be published. Required fields are marked *