Quote from: cianuro on July 19, 2015, 04:33:13 AM

What happens, specifically to the price of Bitcoin and transaction fees when the block reward drops to a negligible amount?
Current fiat reward for miners operating at close to break even: 25 btc* 300 usd =7500 usd
Transaction fees required for the same mining power to run the network: 7500 usd/4000 trx = 1.87 usd

When the block reward drops to a negligible amount, blocksize should be a lot higher then now. Miners are agreeing to 8M blocks. Bitcoin price will be higher than current prices. It will compensate of the drop in block reward. The cost of mining rigs will be a lot cheaper than now with higher hashrates. We also have the difficulty mechanism to balance everything.

In this future scenario, miners mine large blocks. They collect the a market rate fee. The market rate fee is around 1/10 of a dollar at the future exchange rate. If these fees per block can sustain a mining farm, farms will continue to exist in countries with cheap electricity. Future ASICs runs on low voltage low current, farms can be decentralised. If these fees cannot sustain a farm, less miners will operate. Hardware manufacturers will have to slash their prices, making mining cheaper for new entrants. When mining has become non-profitable, the drop in hashrate will be matched by a drop in difficulty, enabling older generations of miners becoming profitable.

If Bitcoin is still in demand, the mechanism will find it's way to reach equilibrium.