Study: Transaction Fee May Increase When Bitcoin Mining Reward Falls to Zero

Last Updated: July 6, 2018 at 6:47 PM EST

A recent research study has shown that  bitcoin users may have to pay a considerably higher service fee for transactions made on the bitcoin blockchain platform. According to the study, which was tagged ‘The Economic Limits of Bitcoin and Blockchain,’ the fee rise is expected to occur when either the miner reward has almost dropped to zero or whether it becomes economically unfeasible to mine new blocks or not. Miners usually earn bitcoin for confirming transaction blocks. However, the study indicates that bitcoin users will be made to pay a higher transaction fee once this reward has fallen to zero.

The Cost Effect of Halving Mining Reward

In the bitcoin whitepaper, Satoshi Nakamoto noted that:

 “Coins earned by mining are an incentive for nodes to support the network, and provide a way to initially distribute coins into circulation, since there is no central authority to issue them.”

After every 210,000 blocks, the mining reward for the virtual currency reduces by half. Presently, the Coinbase reward for miners is 12.5 BTC, and this reward value is expected to drop by half (6.25 BTC) after the next halving. The study suggests that the original model of decentralized trust which was proposed by Satoshi Nakamoto appears to be expensive. The discoveries the study also indicates that the bitcoin network will have to impose a higher service fee to incentivize miners as a consequence for upholding the integrity of the system.

Reflections from the Research Study

According to the study: “For the blockchain system to be robust against this double-spending attack it would require that the per transaction payment to miners for running the blockchain exceeds 30% of the highest-value transactions that are possible through the system.” This means that sending a smaller amount of payments would require even higher implicit tax. The flow cost of running the blockchain will have to be relatively more significant than the one-shot value of attacking it to maintain trust and integrity in the bitcoin network.

In the wake of the outcomes of the research, Chris Burniske, a co-founder of Placeholder Ventures, suggested that:

“If concerns around POW’s viability at 0 percent rates of inflation continue to be ignored then people will diversify into SoV alternatives that contemplate different consensus mechanisms.”

At the moment, many cryptocurrency users and investors keep expressing their dissatisfaction at paying huge amounts for transaction charge. However, if the mining reward falls to zero, the users of bitcoin will continue to be at the receiving end of the drop as they will have to pay a huge service charge for transactions on the blockchain platform.