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Will Bitcoin Transfer Fees Be Enough To Replace Block Subsidy In Future?

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The Bitcoin block rewards are becoming lesser and lesser with each halving. Will transaction fees eventually be able to fill up this void?

Bitcoin Transaction Fees Has Been Trending Up With Each Cycle

One of the most innovative features of the Bitcoin blockchain is that approximately every four years, the block subsidy (that miners receive for solving blocks on the network) is slashed in half. Such events are called the “halving.”

Halvings naturally mean that the miners’ revenues also take a heavy hit, primarily made up of the block rewards. Why does the concept of halving even exist? Well, consider the scenario if there was no halving.

The block rewards serve as the only way to mint new tokens so that they can be equated to the new production of the asset. Without halvings, miners would continue to produce the coin at the same rate, and the supply would grow constantly.

Due to supply-demand dynamics, this growth might decrease the asset’s value as more asset tokens are introduced into circulation.

To control this inflation, Satoshi worked the halving into the cryptocurrency’s code, thus ensuring that, while the supply would continue to grow (until the supply upper limit is hit, of course), its growth would become lesser and lesser with each halving, thus adding a factor of scarcity to the asset.

As mentioned earlier, however, the halvings mean that the miners’ revenues take a big hit with each one. In the future, when block rewards would have substantially shrunken down, miners would be making very little from these rewards.

What will happen to the miners then has been the topic of debate in the Bitcoin community for as long as it has existed. One solution often discussed is that the other component of the miners’ revenues, the transaction fees, could replace the block rewards.

The transfer fees, however, have historically been much lesser than the block rewards, so the miners often rely solely on the latter to pay off their running costs.

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Author: Hououin Kyouma

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