Quote from: Muis on June 16, 2014, 03:47:59 PM

Quote from: DannyHamilton on June 16, 2014, 02:54:28 PM

Yes, the block subsidy is just a subsidy for transaction costs. By way of inflationary effects, the entire network is splitting the current costs of mining.

So if blockrewards are a subsidy for transaction costs, isn't it true that that same subsidy is whats causing the transaction/mining costs to be so high in the first place? That seems like a vicious circle to me? Even if the subsidy was doubled, the hashrate would double too, so the profitability would stay the same for miners, and all it does is increasing the tax (average transaction cost) for end-users even more. So that subsidy seems to be completely counter-productive, except for making sure the hashrate stays above an artifical baseline, whose level seems like overkill these days.

Is there any proof or logic that predicts the baseline that would be achieved by rewarding miners only with fees, would be too low for a secure network? Im just trying to wrap my around it.

It seems intuitive and obvious that when bitcoin was just starting out and the demand for acquiring them was really low, bitcoins themselves had practically no value and there were extremely few transactions to fund mining with transaction fees.

Clearly, there needed to be some sort of subsidy to get the system up and running, and to keep it going as it grows.

As it gains popularity, the subsidy slowly becomes less important, as the transaction fees begin to provide some revenue to miners.

Since there was no way of knowing exactly how fast bitcoin would gain popularity, there was no reliable way to predict what rate the subsidy should decrease. The original designer (or designers) of the system decided that cutting the subsidy in half every 4 years would be a reasonable attempt at adjusting for the growing popularity.

If that estimate isn't aggressive enough, then it is possible that the subsidy is encouraging more security than necessary. On the other hand I'm not sure there is such as thing as "too much security" as long as people are feeling like the inflation rate is eating into their stored value too quickly.