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When block mining no longer rewards BTC, miners will have to lean on transaction fees to justify mining for profit. When this happens will the bitcoin protocol continue to vary the difficulty of mining such that a block is expected to be found every 10 minutes, or will difficulty drop to favor rapid block creation and rewarding of relatively smaller transaction fees?

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Block rewards will never end. That what transaction fees are for. Difficulty adjusts to the amount of resources that are processing transactions so that they average 1 every 10 minutes.

  • If the difficulty is such that I have to spend more money generating a block than I get back in transaction fees, there will be no incentive to mine. Since transaction fees are currently optional, there will be a significant tension between users who want low-fee transactions processed and the miners who are looking to make money from their efforts. – fbrereto Apr 10 '13 at 5:09
  • In other words, if block rewards aren't enough of a reward, the mining will stop. As such what does the bitcoin protocol have to say about this endgame? – fbrereto Apr 10 '13 at 5:10
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    The economics say that the amount of mining that occurs will adjust if needed to the approximate level that equals the block reward subsidy plus fees paid (i.e., until miners break even). If that drops that's fine as long as the level of protection is sufficient to protect against threat (51% attack). If by the point in time that block rewards drop to being relatively insignificant (more than a decade or two away) and more protection from a 51% attack is required, the economic majority may send a subsidy to miners voluntarily to support the payemnt network. – Stephen Gornick Apr 10 '13 at 9:04

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