Bitcoin transaction fees reached record highs. Since 2009, 204,808.3479 BTC have been distributed among miners, for transaction fees.
On October 30th, 2019, the Bitcoin blockchain reached a record high of USD 1 billion accumulated in transaction fees.
According to information from BlockChair, the number of fees accumulated annually for Bitcoin transactions has decreased in recent years, despite the increases that have occurred at specific times. This is due to the arrival of Bitcoin scalability solutions, including SegWit (Segregated Witness) and Lightning Network.
The cumulative amount of fees for Bitcoin transactions is roughly equivalent to USD billion. However, the amount is actually even greater, considering Bitcoin’s valuation in the market for October 30th. According to information from Coin Metrics, since 2009, 204,808.3479 BTC has been distributed among miners for transaction fees. Taking into account Bitcoin’s price for October 30th, this amount equals USD 1.86 billion.
The cumulative size of transaction fees in the Bitcoin network is established to grow more, as this is an alternative mechanism to reward miners as the subsidies for gradually mining blocks decrease.
Securing the Bitcoin Network
Taking a step back, transaction fees play a fundamental role in the Bitcoin blockchain, as these serve to ensure the integrity and resistance to network censorship.
First, annexing fees to Bitcoin transactions discourages those who contemplate the possibility of conducting denial of service (DoS) attacks, also called “spam” attacks, which aim to delay the overall operation of the network.
When a transaction is created, bandwidth can be used and data written to the hard drive of anyone running a node on the network, according to Loop. If there is no cost to do that, the bandwidth can be saturated and anyone’s hard drive filled.
Second, the fees prioritize which transactions are confirmed and recorded in blocks before others. In this regard, David Steinberg, Vice-president of cryptocurrency mining consultancy Navier, explained that by paying, users will have their transaction confirmed faster. This mechanism is thus a fair way to participate in a pool of pending transactions.
Finally, and perhaps most importantly, transaction fees also ensure Bitcoin’s objective in terms of security. Together with the Bitcoin block reward, which is currently at 12.5 BTC and decreases 50% every four years, transaction fees encourage miners not to intentionally stop or edit the blockchain.
Without this monetary incentive, miners might be easily bribed by malicious actors so that they unfairly prevent any or all transactions from being added to the blockchain.
Transaction fees and block subsidies together provide the probabilistic resolution of Bitcoin system transactions, as stated by Pierre Rochard, Founder of the Advisory consultancy. He added that the larger the resolution, the less time they will have to wait for those responsible for making the transaction before having the confidence that the transactions will not be censored or double-spent.
What Lies Ahead
There are another 10 or 13 years of decent subsidies [or rewards] available before it fades to a fairly insignificant amount, as commented by Billfodl’s Auld.
When this happens, miners have to start adjusting profitability measures around comparatively more volatile values of transaction fees, as opposed to blocking subsidies.
It is necessary to start thinking more about game theory, about the miners’ profitability and what could happen if the miners’ profitability becomes more volatile every hour and day, as said by Loop. It is already known that there are daily and weekly cycles of demand for block space.
By Willmen Blanco