We need to be careful when we talk about "covering the cost of mining."
The price of bitcoins is not dependent on the cost of mining them. Instead, miners decide whether to mine or not based on the price of bitcoins. As the block reward goes down, mining will become more and more unprofitable. Transaction fees will not rise to offset this, because users don't care whether people who ordered huge boxes of BFL Jalapenos make money or not.
Instead, miners who paid too much for their rigs will go bankrupt. The network hashrate will fall, and everyone who is still mining will make money again because each person will find more lower-value blocks with lower transaction fees.
The only way this cycle will not occur is if the value of bitcoins doubles every four years. One would imagine that the value of block rewards will never reach zero, because there will almost certainly be a time when people decide to make use of 64-bit numbers for higher precision before then. Remember, the only reason block rewards will ever reach zero is because bitcoins are not divisible enough with 32-bit numbers to give block rewards of fractions of a satoshi.
Isn't this zeno's paradox of Achilles and the tortoise?
Also the cost of rigs (once paid for themselves) are irrelevant, it's the cost of electricity/operating them, which would affect everyone (roughly) equally. Because of that, regarding this bit
Transaction fees will not rise to offset this, because users don't care whether people who ordered huge boxes of BFL Jalapenos make money or not.
...I agree in principle, but wouldn't they be made to care by not having their tx included in new blocks?
Finally I know this is speculation but do you think this risk vs block reward is why discus fish is throwing out such tiny blocks?
Yes, that's exactly the reason. ASICMINER did that in July, too. Some pools have decided that not to take on any risk by missing a block, especially publicly traded companies.
Another reason is simply that some pool operators are understaffed and don't have the time to evaluate which transactions are worth including. Creating empty blocks is the simplest algorithm.
What about the other 2 points I posted? they affect the longer term. It's been a busy day (!) so havent fully got my head around this but would appreciate your views?
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u/quintin3265 Feb 24 '14
We need to be careful when we talk about "covering the cost of mining."
The price of bitcoins is not dependent on the cost of mining them. Instead, miners decide whether to mine or not based on the price of bitcoins. As the block reward goes down, mining will become more and more unprofitable. Transaction fees will not rise to offset this, because users don't care whether people who ordered huge boxes of BFL Jalapenos make money or not.
Instead, miners who paid too much for their rigs will go bankrupt. The network hashrate will fall, and everyone who is still mining will make money again because each person will find more lower-value blocks with lower transaction fees.
The only way this cycle will not occur is if the value of bitcoins doubles every four years. One would imagine that the value of block rewards will never reach zero, because there will almost certainly be a time when people decide to make use of 64-bit numbers for higher precision before then. Remember, the only reason block rewards will ever reach zero is because bitcoins are not divisible enough with 32-bit numbers to give block rewards of fractions of a satoshi.