Debate: Will halving Bitcoin lead to higher transaction fees?

Around mid-May 2020, Bitcoin mining rewards will be halved. This monetary policy, called "halving," is hard-coded into Bitcoin's agreement and occurs about every four years. This situation will continue until 2040, the year when the last batch of Bitcoin was mined.

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It can be seen from past experience that the halving of bitcoin is related to the rise in bitcoin prices-many believe that this will also happen in May. TopMonks' Bitcoin and Ethereum analyst Josef Tětek, Kraken's business development director Dan Held, and Bitcoin creator Satoshi Nakamoto believe that halving bitcoin may lead to higher network use costs.

"Decades later, when rewards are minimal, transaction fees will become the main reward for nodes. I believe that after 20 years, either the transaction volume will be very large or there will be no transaction volume."

This is what Satoshi Nakamoto said on the BitcoinTalk forum. In other words, if the network does not crash, fees will rise, replacing mining rewards.

The rough theory is that as mining rewards decrease, Bitcoin miners will have to charge more to continue to make a profit. They can't set the rate, but they may only process transactions with higher fees, resulting in transaction prices rising over time.

Tětek listed the following picture in an article. He predicts what will happen nine years later-in May 2028, what will happen when the daily mining reward drops to 225 Bitcoins. The table is very simple (he assumes a constant daily trading volume of 300,000 transactions). But he expects transaction fees as a percentage of mining revenues to rise.

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(Transaction fees as a percentage of mining revenue may increase)

Kraken's Dan Held agrees. "As inflation approaches zero, miners will increasingly only earn income from transaction fees," he wrote in an interim report in May. He added:

"As the price of Bitcoin rises, the value of block rewards will also increase, which will encourage miners to introduce more computing power for mining."

Other blockchain experts have refuted the above reasoning.

Castle Island Ventures partner Nic Carter said:

"Bitcoin miners have not yet combined the ability to set fees."

He said that it is more likely that the difficulty of mining will decrease:

"If Bitcoin miners refuse to process transactions with lower fees, it will be a market opportunity for new miners to enter and process these transactions because there are few barriers to entry in the mining industry."

Arcane Assets chief investment officer Eric Wall also expressed doubts about the idea.

"Miners cannot refuse transactions because the fees are too low, because this is a system that does not require permission. Miners must cover all transactions as much as possible."

At best, other miners are responsible for these transactions and then collect block rewards themselves.

Wall found that the speculation and remarks surrounding the Bitcoin halving incident missed the point-people have known this for more than a decade, and he doesn't expect any surprises. "From a long-term fundamental perspective, there is almost no reason to suddenly start pricing Bitcoin differently," he said.

He believes that attention to changes in the supply of Bitcoin is misleading.

"Ironically, in these discussions, the demand side is overlooked as a factor, and the demand side may change more than the supply side. We cannot predict exactly what the demand will look like."