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As the reward is lower, less effort is spend in mining new bitcoins. How the transactions fees will evolve would be quite crucial the get the miners activity down (and their energy consumption). I would assume that the transactions fees would stay at very low levels, because every miner has always an incentive to add any transaction with a positive fee.

Additional question: For sure there are some cryptocurrencies which reached that state (of no mining new coins). How did the transaction fees evolve after mining the last coin?

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I would assume that the transactions fees would stay or converge to be very low levels, because every miner has always an incentive to add any transaction with a positive fee.

Block space is finite, so users are bidding for their position within the next block. Miners will always choose the transactions which have the highest feerate because it makes their income the highest. Today the fee rate often makes up a significant ($100k+ USD) portion of the total block reward.

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How the transactions fees will evolve would be quite crucial the get the miners activity down (and their energy consumption).

Mining activity would reduce naturally if there was less reward, but there's no opportunity for changing core principles of Bitcoin like this.

As a valuable currency Bitcoin needs to be predictable and justifiable, if the rules dramatically changed it would make a fairly lousy currency. You wouldn't be able to invest in mining hardware for example, if you couldn't model even the base income a couple of months into the future. Making even small changes to the economics of the system opens the floodgates for others. ultimately.

For sure there are some cryptocurrencies which reached that state (of no mining new coins). How did the transaction fees evolve after mining the last coin?

There's no useful comparisons to be made, nothing has the scale, maturity, and properties of Bitcoin.

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  • You are right, finite block size means that the not any positive fee would be enough for miners to put the transaction into the block, but that's already the case right now. Still the reduction of the reward would have a negative effect on miners activity. No price change in fees would be expected.
    – petres
    Commented Feb 24, 2021 at 21:38
  • Great reply, still I wont accept it as answer, you are right in pointing out the boundedness of transactions in a block and the price implications thereof. Still, reducing the reward would reduce the effort spend on the creation of new blocks, without harming transaction flows or the incentive system, which was the base question.
    – petres
    Commented Feb 24, 2021 at 23:20
  • I wasn't sure what the question was in the beginning, it's been updated.
    – Claris
    Commented Feb 25, 2021 at 2:40
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What this means is that going forward the cost of securing currency will keep increasing and it will be difficult to transact in smaller denominations, it will turn into asset that just can not be transacted at smaller sizes, will not really be a payment instrument. I think to keep security but allow for higher transactions by increasing block size to allow significantly large transactions, possibly 65K per block, should make it viable for longer term. Right now it is very difficult to confirm small transaction unless fee is more than transaction value.

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Ignoring the practical difficulty of making any such radical change to bitcoin, there would be profound negative consequences from such a change. Eliminating the block reward would almost certainly make mining less profitable.

After all, the block reward is a huge part of mining revenue. Eliminating the block reward would eliminate that portion of the revenue. There doesn't seem to be any obvious reason to expect it to be possible for transaction fees to be able to increase to compensate.

Bitcoin's security is dependent on how much it would cost to create a longer chain. If miners make less money in aggregate, they will do less hashing in aggregate. That means it would cost an attacker less money to outmine the miners. This means bitcoin would be more vulnerable to 51% attacks.

Now, consider two numbers:

X = The cost to attack bitcoin
Y = The amount of money you can make by attacking bitcoin

If Y ever exceeds X, bitcoin breaks. You are suggesting reducing X. That necessarily means that either somehow Y will have to be reduced as well, something else will have to be done to increase X, or both.

How can X be increased? Probably only by waiting for more confirmation and slowing down the blockchain. But that won't be enough by itself.

So how can Y go down? Effectively, it has to mean that the value of bitcoin and the value of the transactions that occur on the chain have to go down. If the whole bitcoin ecosystem is only churning $1 million a day, an attack will be much less lucrative than one that is churning $1 billion a day.

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