Why is assumed that raising the block limit means lower fees?

January 12, 2016

Fees don't seem to have gone up to much despite the continued bumping against the limit, they are running about 3.5 to 6.5 cents. But overall fees have been trending up over its history.

In the long run aren't fees going to rise no matter what?

  1. Fees will increment up as needed to replace any losses in the block reward. IE if a miners collected a $100 a day $75 block reward and $25 in fees, and the block reward falls to $50, the miners collectively are going to increase fees to receive the difference maintain the same revenue, the reality is its blended in that Bitcoin price will appreciate but the knock effect is the same. The market will pay it because the overall cost of security is what matters, not what you pay per transaction.

  2. Bitcoin appreciation will raise the fiat value of fees. This feeds into point 1.

  3. Fees are based on KB anyways and have no relation to fiat value transferred. This feeds into points 1 and 2. As bitcoin appreciates small fiat value transfers may be consumed by the fees alone.

  4. Markets will eventually need to stop thinking in terms of fiat value transferred and think in terms of bitcoin value transferred, in which case fees will always remain low.

Which is whats happened over the history.

Keep in mind Bitcoin fees have been rising despite there never being any pressure from block limits until the last year.

So bitcoin is in this transition phase. Bitcoin is going to continue to appreciate, fees are going to continue to go up. I think that the economics of this are being overplayed on both side sides (tiny blockers vs mega blockers) because

In the short-term fees cannot rise in any meaningful way because there just isn't enough demand, and fees are so low anyways. Additionally the Segwit implementation is going to constrain any fee increases, along with other improvements.

Also wallets are going to get smarter about fee calculation; if you look through the data it looks like people overpay fees in many instances simply because fees are so low to begin with it really makes no difference if you spend 3 cents or 6 cents or even 15 cents. If you want your transaction confirmed on the next block.

But long run, it seems that if Bitcoin appreciates significantly fees are going to rise in fiat terms, $5000 bitcoins could conceivably require a $1.00 per transaction or higher.

It seems to me that both sides have it wrong. Additionally No block limit doesn't mean free transactions. Miners will collude to set a limit, its the same thing airlines do.

By the same token low block limit at this stage with reward so high, doesn't mean that bitcoin fees are going to be .75 cents a transfer.

This post kinda of shows that Bitcoin fees are pretty stable, and the market will find its way.

From SubReddit /r/Bitcoin