On October 30, 2019, the bitcoin blockchain reached $ 1 billion in cumulative transaction fees.
"This milestone is really a really cool milestone, just because it shows how much people value block space," said Bryan Aulds, founder of Billfodl's bitcoin portfolio. "And it's a price that people do not hesitate to pay, which, in my opinion, is really important for the future."
According to data from Blockchain analysis block chain, BlockChair, the amount of bitcoin transaction fees collected annually has actually declined in recent years. This is due to the advent of resizing solutions on bitcoin, including "Segregated Witness" and Lightning Network.
And while the cumulative amount of Bitcoins transaction costs converted into USD is around $ 1 billion, the amount is actually much larger when you consider the market value of bitcoin today. According to Coin Metrics data, 204808.3479 BTC has been deducted transaction fees for minors since 2009. At the current price, this equates to $ 1.86 billion.
It's official. The Bitcoin network has exceeded $ 1 billion in revenue generated by taxes. pic.twitter.com/lKzstEX3eI
– Yassine Elmandjra (@yassineARK) October 30, 2019
The cumulative size of transaction fees on the bitcoin network is expected to increase only in the coming years – especially as alternative reward mechanisms for minors, such as global grants, are gradually declining.
"In the long run, the transaction fees will eventually have to replace the block (grant)," said Jameson Lopp, CTO of the Casa bitcoins management start-up. "That's one reason it's called the global grant in the code. This is because it subsidizes network security, "added:
"It's clear from the start that this subsidy via inflation will have to be replaced by people who pay to use the network via transaction fees."
Securing the Bitcoin network
Indented, transaction fees play three key roles in the bitcoin blockchain – all of which serve to secure network integrity and resistance to censorship.
First, charging fees for bitcoin transactions discourages denial of service attacks, also known as "spam attacks," from slowing down the network.
"When you create a transaction, you can use bandwidth and write data to the hard drive of anyone running a node on the network," said Lopp. "If it does not cost anything, you can saturate everyone's bandwidth and fill up your hard drive."
Secondly, fees are used to prioritize transactions that are confirmed and written on blocks faster than others.
Daniel Steinberg, vice-president of Navier Crypto-Mining Consulting, said:
"It's very simple: you pay more, your transaction is accepted faster. This mechanism is therefore a fair way to participate in a pool of pending transactions. "
Last but not least, the transaction fees also guarantee the purpose of the transaction. Coupled with the bitcoin block grant, which generates 12.5 billion BTCs per block and decreases by 50% every four years, the transaction fees encourage bitcoin miners to deliberately block or modify the blockchain.
Without this monetary incentive, malicious actors could easily corrupt minors to unfairly prevent all or some transactions from being passed on to the blockchain.
"Overall, transaction fees and the overall grant guarantee the probabilistic purpose of the bitcoin transaction system," said Pierre Rochard, founder of Bitcoin Advisory startup startup, adding:
"The more this purpose is, the less operators have to wait a long time to be certain that the operation will not be censored or spent in duplicate."
What is waiting for us
"We still have 10 to 13 years of decent subsidies before subsidies fall to negligible amounts," said Billfodl's Auld.
When this happens, mining companies will have to start adjusting their profitability measures based on the comparatively more volatile value of transaction costs, as opposed to global grants.
"You need to start thinking more about game theory regarding miners' profitability and what would happen if a miner's profitability became much more volatile from hour to hour, from day to day", said Lopp. "For example, we already know that there are daily and weekly cycles of block space request."
Bitcoin image via Shutterstock