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I'm sure this a basic question, but I would like to check my understanding.

At the moment, a miner who grows the blockchain by confirming a block is rewarded with 12.5 bitcoins. This incentivises miners to validate transactions.

Today each bitcoin is worth $13032.00.

It is really correct that if Bob sends Alice some tiny fraction, say one ten-thousandth, of a bitcoin, today worth $1.30, then each confirmation is worth $162,900.00 to the miner?

If this is correct, then it is only economical to offer a transaction fee comparable in value to the miner's reward when the transaction is huge. So as a follow up, I would like to ask:

What are typical transaction fees at the moment, and how is this likely to change as the number of bitcoins approaches its theoretical maximum of 21 million?

4

The reward is for a block, and a typical block generally contains around 2,500 separate transactions in it.

Typical transaction fees seem to be around $8 (USD), so transaction fees in a block are typically around $20,000.

The miner who successfully submits a block receives:

   $162,500 (12.5 BTC * $13,000) : reward
 +  $20,000 (2,500 tx * $8 ea.)  : tx fees
--------------------------------
   $182,500 (approximately)
  • In this case, why should Alice accept Bob's bitcoin, when it will require many further transactions before it is confirmed? Is it simply because she can check that there is no other (unconfirmed) blockchain in which Bob has paid the same bitcoin to Charlie? – Mark Wildon Dec 7 '17 at 12:11
  • I believe you are confusing transactions and blocks. One transaction does NOT require more transactions to be confirmed. One block requires more blocks to be confirmed. One block contains a few thousand transactions. Alice will accept Bob's bitcoin because it is presumably part of a sale of goods or services. – abelenky Dec 7 '17 at 14:30
  • Furthermore, having a transaction successfully submitted in a block is generally pretty good for most purposes. There is a tiny chance it could be reversed by a fork, but it is unlikely. 2 or more confirmations means its quite solid. 6 confirmations is generally considered the point where not even a determined state-level actor could reverse a transaction. That is the level needed for multi-million dollar deals or absolutely critical transactions, and that still usually happens in less than an hour! – abelenky Dec 7 '17 at 14:44
  • @abelensky: I think I follow your answer, but I am still somewhat confused. Is the point that a single block validates many transactions, but these transactions typically involve different bitcoins, so when Alice sends Bob a bitcoin, Bob can sit on this bitcoin, not using it in any further transactions, and still expect Alice's transaction to be confirmed in a 6 block chain? (By the way, I have asked the question in my comment here: bitcoin.stackexchange.com/questions/64438/…) – Mark Wildon Dec 7 '17 at 14:57
  • I agree, I was confusing transactions and blocks, exactly as you said. Thank you for your help. I've deleted the question I linked to since it just reflects my misconceptions. – Mark Wildon Dec 7 '17 at 17:54
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Block reward and fees are not really related. A miner will get the basic reward of 12.5 bitcoin no matter what. But the miner also has some space available in the block that they can fill with transactions. This does not incur any cost on the miner. So as long as there is space in the block the miner can either mine the block without Bobs tx for a reward of 12.5 btc, or the miner can include Bobs tx, which propbaly pays very little fee, for a reward of 12.500001 btc. A rational miner will always choose 12.500001 over just 12.5 even if the difference is really small. Fees increase if there are more tx than can fit into a single block. In that case a rational miner will pick the tx with the highest fees and not include the tx with very low fee.

  • Hashing in bitcoin is 2-stage. First the transactions are hashed to produce the "merkle root hash". Then this is combined with other information and a nonce and hashed again. Only the second stage hash (which is computed over a fixed-size chunk of data) has to be repeated for each mining attempt. – Peter Green Dec 7 '17 at 1:57
  • "A miner will get the basic reward of 12.5 bitcoin no matter what." Not true. It takes 100 blocks for the reward to be given, and orphaned blocks generate no reward. – Jazimov May 22 '18 at 22:36
  • @Jazimov you are maybe thinking about a different blockchain. In bitcoin the reward is always given immediately. It is in effect not very different from any other transaction in the block. It has a very special input, but it looks and behaves like a regular transaction with an output equal to the reward plus the fees. Orphaned blocks would also generate the reward, but they are not part of the blockchain. – blues May 23 '18 at 4:45
  • 1
    @blues the 100-block freezing is a part of bitcoin. – FrownyFrog Sep 6 '18 at 4:50

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