[npoc]

At this stage bitcoin's main use case is storing large amounts of value for long periods of time.

Think of it as an alternative to investing in a house to let out to tenants, but without the inconvenience, risk and cost of buying/selling and owning it.

[danbruc]

That sounds potentially problematic in the long run. If Bitcoin is primarily used for long term storage, then you need some [at least] constant flux of people moving money in and out of long term storage, otherwise your stored Bitcoins will depreciate in value. Therefore this is a kind of bet that Bitcoin will remain popular as a long term store or that some other use case emerges and maintains the price.

Another factor is that with decreasing mining reward transaction fees are becoming more and more important for financing the entire system. But by its very nature using Bitcoin as a long term storage will lead to a small number of transaction and the relatively few transactions moving money into or out of long term storage will have to pay for the network resulting in high transaction fees or alternatively the hash rate will have to go down which could itself be problematic for the system.

One would have to run the numbers - how many people are storing how much money for how long - to see how problematic or unproblematic it would be to use Bitcoin primarily for long term storage. My gut feeling however is that without other usages like speculation or actually buying and selling stuff, it would be a rather expensive way to store money long term.

EDIT: Back-of-the-envelope estimate. Bitcoin market capitalization is currently 1000B $, electricity consumption is an estimated 138 TWh/y, 13.8B $/y at 0.10 $/kWh. So if it was all long term storage financed by transaction fees and with a stable price and hash rate, it would cost about 1.5 %/y to store your money in Bitcoin, assuming hardware, infrastructure, labor and so on adds another 10 % to the costs.

[npoc]

> you need some [at least] constant flux of people moving money in and out of long term storage

This isn't necessary to maintain value (think of a rare painting), but it is important to provide liquidity when you come to sell, so that you don't have to wait weeks for someone to buy your bitcoin. Bitcoin has plenty of liquidity - no shortage of buyer and sellers. Coinbase alone trades ~$1 billion of bitcoin per day.

You're correct that the hash-rate is related to block subsidy + fees, but it's only one of the variables. Cost of energy for miners is an equally import factor (continuously decreasing as miners tap into wasted energy around the earth, and without geographical constraints), along with efficiency of the mining HW.

Bitcoin averages around 2700 transactions per block which currently provides miners with total reward of 6.25 + 0.3 (tx fees) BTC = ~$334,050. If we suddenly went to fees-only today, that would be ~$123 per transaction. Considering that this fee is independent of transaction amount, it is actually very cheap for large values of money (e.g. >$1M) considering it covers the cost of moving the bearer asset around the world within ~30 minutes, and also covers the cost of protecting your value against debasement and theft for however long you had it stored for (often years).

I'm not sure how you came up with a % cost per year - the cost of storage is a one-off tx fee at purchase and sale (just like physical gold, but bitcoin transactions are generally cheaper and independent of the transaction size)

[danbruc]

So currently there are a quarter or half a million transactions per day for 100 $ each. If Bitcoin was primarily used for long term storage, that would probably no longer be true. The current market capitalization of 1T $ is a million people holding a million dollar, everyone would have to do one transaction every two, three days to maintain that transaction rate, something I would not call long term storage.

In the end the details don't really matter, currently running Bitcoin seems to cost about 1B $ per month and the users have to pay for that one way or another. Whether there are 1M users with 1M $ each paying 1k $ per month or 1B users with 1k $ and paying 1 $ in fees per month or no one paying any fees and the newly mined coins just diluting the value, that are all details.

[npoc]

Bitcoin fees are cheapest when used with large values (because the fee doesn't increase with transaction size) and for long periods (because there is no fee related to time held), but that doesn't mean it's only useful for that, and it's a wide spectrum on both scales.

It's extremely important to remember that when the fees make up the vast majority of the miner's income, there will be far more people using bitcoin. Ultimately, if bitcoin fulfils it's promise as the best store of value mankind has ever seen, everyone in the world will want some. In this situation, the demand for the 7 tn/sec will be enormous. As humans we're just not used to seeing hard limits on supply of a liquid asset, and it's easy to overlook it's effects. Just as the hard limit on the bitcoin supply issuance is fundamental to it holding its value against essentially anything else (even the gold supply doubles every 30-50 years) and will lead to enormous growth in demand against a falling supply, the fixed supply of transactions will lead to similar increases in the price of transactions due to fixed transaction supply and increasing overall demand.

Once hundred's of millions to billions of people are fighting over transaction space that can only service 150 million transactions a year, the supply/demand ratio will be plenty to support a high price. By that point people would _ideally_ be using it every day/week, and so the potential demand would be enormous, and the transaction price will increase until only their larger transactions are economical.

The real question is: how much hash-rate is really needed?

[danbruc]

That increasing demand drives the price up does not look like a feature to me, if something becomes popular, then I want the supply to increase, ideally even the price to go down due to economy of scale and investments in innovation. For people that got their share of the limited coin supply early, this might look like a feature as they can make money for nothing, for people considering to join later, that is a barrier to entry. Why would people willingly spend more instead of looking for alternatives?

The hash rate itself is irrelevant, what matters is the cost of achieving it. If that cost becomes too low so that someone can afford to control a substantial fraction of the hash rate, they could decide to mess with the system, for example perform a denial of service attack. As said before, it seems that running Bitcoin currently costs about a billion dollar per month. That makes the network probably quite safe but it certainly is still in reach of some actors. Lowering the costs substantially - say ten times or more - would increase the circle of entities capable of messing with the systems quite a bit.

The question is of course why someone would want to do this, but I can imagine some scenarios, not at last that it seems quite possible to make some money if Bitcoin experiences issues.

[npoc]

It doesn't matter that a store of value is engineered to go up in price forever if it's infinitely divisible.

For a store of value it doesn't matter how much you own in absolute terms, it matters how well the amount you bought holds it's value relative to things you might want to buy.

Think of Amazon shares. When looking to invest today, I don't care that some people bought shares at $0.25 (I'd argue they deserved to), I care about what the price is now relative to what it's likely to be when I sell - the actual number of shares I buy is irrelevant.

Bitcoin's price goes up for two reasons - because more and more value is being stored in it, and because it's engineered such that each unit retains it's value better than a unit of anything else. So assuming I'm right about the engineering, even when no new value is being stored in it, the price will still increase relative to any alternative. The units of everything else leak value, be it through supply increase, or instead through maintenance costs, poor liquidity, increased risk etc.

Regarding people buying "cheaper" alternatives instead - even ignoring network effect, any cheap bitcoin clone won't have the same potential because bitcoin already exists. There are thousands of cheap copies already - clone the bitcoin repo and have at it. To beat bitcoin, network effect means your copy will need to be substantially better and in a way that bitcoin can't adapt to (including via adding additional network layers such as Lightning, Paypal etc) - otherwise like the rest, including fiat, it's going to 0.