[martinko]

Bitcoin's security does not need to keep going up indefinitely. It will reach an equilibrium where tx fees will be paying for the entire security of the network. As the block size is capped, there will be a market for fees.

Hard-forking to remove the block size limit would have profound consequences for the decentralized nature of bitcoin - arguably its most important characteristic.

[gizmo686]

Assume a block size limit of 4MB.

The minimum transaction size is 166 bytes.

This gives us maximum 25266 transactions/block.

The current block reward is 6.25 https://blockchair.com/tools/halving-countdown

This is worth about $72,000 USD https://duckduckgo.com/?q=6.250+BTC+to+usd&t=canonical&ia=cu...

This means that, to match current security without block rewards, transaction fees would need to rise by at least $2.84/transaction.

[strgcmc]

Plucking a number randomly from a real-world point-in-time snapshot of https://bitcoinfees.earn.com/, I see a suggestion of ~150 satoshis/byte, so for your example, transaction fees for an ideal/max size block would be 600 million satoshis = 6 BTC, which roughly is about the same as the block reward.

Needing to roughly double the status quo transaction fees to make up for lack of the block reward in order to provide equivalent security, doesn't seem ridiculous to me at all. And this is the worst case scenario (i.e. the reward will go from 6.25 to 0 slowly, but it can't go negative).

[CryptoPunk]

Where does 4 MB come from?

The average block size right now is 1.2 MB (the 0.2 MB because of SegWit). Assuming SegWit adoption increases to 100%, we get 1.6 MB.

The average fee on a transaction would need to rise $7.47 to match the post-halving's new, lower, security budget.

The average value of a transaction would need to double to make an average transaction fee of $14 (the current average fee of $6.50 + an increase of $7.50 to cover the loss of the security subsidy) economical.

But the doubling of value flows would make the current $security budget less adequate, so even less suitable for reserve currency usage.

And if the price increases, as Bitcoin investors hope it will, value flows would increase further, requiring an even larger security budget and average transaction fee.

At some point's further utilization and appreciation will be arrested by the diseconomies of scale caused by rising fees.

[gizmo686]

4MB is the theoretical limit with SegWit, if you are constructing a block specifically as big as possible. In practice, you will probably never see a 4mb block (and if you did, it would not be composed of minimal transactions).

My calculation was looking at a lower bound for needed transaction cost.

[CryptoPunk]

My point is that with a limit of 300,000 or so transactions a day, Bitcoin's average transaction fee would need to be extremely high to match even the current security subsidy, much less one communsurate with a global reserve currency.

I don't see any reasonable case for the prediction that Bitcoin's average transaction fee will reach those extreme highs.

>Hard-forking to remove the block size limit would have profound consequences for the decentralized nature of bitcoin - arguably its most important characteristic.

I didn't say "remove". I said "raise".

[beaner]

> I don't see any reasonable case for the prediction that Bitcoin's average transaction fee will reach those extreme highs.

Why not? At scale with current block sizes Bitcoin would probably be settling payments of institutional-level transfers, state money management, and 2nd-layer networks like Lightning. Individual transaction fees would be high but they would represent aggregated fees for millions of off-blockchain transactions.

The fees wouldn't likely be paid by everyday users at that point.

[CryptoPunk]

Because there is no market demand for it? Why would people pay thousands of dollars to transfer value? Value transfer will get less expensive with the proliferation of e-money, not more. Why would institutional players choose something so expensive?

[beaner]

Because it won't be expensive.

Visa does something like $11 trillion in volume per year. Why does anybody use that if visa takes 1-2%?

1% of 11 trillion is 110 billion. With that amount of fee revenue you'd be able to secure the Bitcoin network 12,000 times over.

So Bitcoin's security is able to grow by 1,000x and still cut prices relative to current popular providers by 12x.

That's cheap, not expensive, and that will lead to demand over time.

[CryptoPunk]

Visa can charge those fees because are no alternatives to Visa. There are alternatives to Bitcoin. It doesn't have a network of hundreds of millions of accepting merchants spread all around the world, and never will, because it can't process a meaningful volume of transactions per second:

In contrast to Visa, which can process 3,000 transactions per second, Bitcoin can only process 3 per second.

Limited, even during peak demand, to 1/1000ths of Visa's average throughput, and 1/10,000ths of Visa's peak usage throughput, there is also no way Bitcoin can match Visa's $11 trillion volume.

[beaner]

Mastercard is a competitor to Visa.

2nd layers for Bitcoin can scale to many thousands of transactions per second.