Subject: Re: [bitcoin-dev]Răspuns: Personal opinion on the fee market from a worried local trader

From: Oleg Andreev <[email-masked]>
Date: Fri, 31 Jul 2015 14:32:53 +0200

> On 31 Jul 2015, at 11:56, Thomas Zander via bitcoin-dev <[email-masked]> wrote:
> 
> On Friday 31. July 2015 03.21.07 Jorge Timón via bitcoin-dev wrote:
>> If I was a miner and you want me to include your transaction for free,
>> you're asking me to give you money
> 
> What?
> 
> Ask yourself; why do miners include transactions at all? What it the incentive 
> if there really is only less than 0.8% of income to be derived from fees?
> 
> Miners don't get payed by fees.  They won't need to get payed by fees for 
> decades to come. Maybe you want to re-do your math, it seems off.

Fees should be compared not with the total revenue, but with the profit margin. If a miner invested/spends 24 BTC per block and earns 0.25 in fees, then his total profit is 1.25 BTC per block and fees comprise a whopping 20% of the profit. 

Today I think profit margins are quite high, so fees do not matter much. But it's not hard to imagine that in just a couple of years BTC may appreciate a lot more, attract more investors and even bigger foundries to, say, print chips and mine right at the foundry, thus driving profit margins lower. Fees will begin to matter regardless of the total subsidy. 

Just some hypothetical calculation.

Lets say in 2015 one block costs 5 BTC and fees bring 0.25 BTC. Profit is thus 20.25 BTC and fees comprise 1.2% of that amount.

Lets say in late 2016 halving happens, BTC appreciates and resulting competition drives up the cost to 6 BTC (yes, BTC itself is more expensive, but so is the profit too, so increased competition must drive down the profit margin). Now the block brings 6.75 BTC in profit. Fees, if unchanged now make 4% of the total profit.

If all goes well, in mid 2020 another halving happens (6.25 BTC/block) and even if the BTC-denominated cost stays the same miner now will earn 0.25 BTC profit from subsidy and fees now can account for 100% of that amount. 

Of course it's a very rough estimate and most likely to be far from reality, but it shows how fees can begin to matter rather quickly under pressure of separate factors: halving and growing valuation and mining competition.