If there are fewer miners those that are there get a bigger share of the fees. So this self-balances. As long as there is some value in BTC and some transactions occurring there will be a reward for validating transactions.

Still whatever volume * fee the market bears becomes the cost to attack the network.

But if there's less cost to attack the market (because it's a smaller, less valuable market cap) there's less reward.

>> bitcoin transactions will have to be valuable enough that we’re willing to pay extra (vs credit or debit card transactions) to maintain that network, right?

Does handing transactions require similar amounts of power to mining?

Edit: also, if transactions are ultimately handled by just one or two entities, there will be no point to bitcoin any more.

Mining is the way transactions are handled.

You didn't answer the question.

The real answer hinges on the leverage of mining one hash to certify multiple transactions.

> You didn't answer the question.

It DID answer the question.

> The real answer hinges on the leverage of mining one hash to certify multiple transactions.

That's exactly how mining works.

A block is mined when all the data for a block (which includes all the transactions of the current block) plus a nonce gets hashed and the resulting hash has a value that satisfies the current mining difficulty level. If hash doesn't satisfy it, you try a new nonce. Mining hardware just tries millions/billions of nonces per second.

It's possible (though extremely unlikely) that you could solve a block in only a single hash.

I think what a lot of people don't understand is that the difficulty scales with the amount of hashing power on the network. If blocks are being solved too quickly, the difficulty rises. If they're too slow, it goes down. Difficulty really just changes the odds that your hash meets the requirement. It doesn't change the actual difficulty of computation, just the odds of success.

I’m not sure what the real question is or what the real answer is.

I’m under the impression that “handling transactions” in bitcoin and mining are the same thing. (Although I don’t work in cryptocurrency so maybe the misunderstanding is on my part…)

Handling a Bitcoin transaction is two things:

- Broadcasting the transaction throughout the network so that all nodes (including miners) are aware of it

- Miners confirming transactions by solving a block

When a miner solves a block, they earn both the block reward (Which will eventually become zero) and the fees paid by the sender.

Theoretically, as time goes on an the value of Bitcoin goes up, the value of the fees will be high enough that it will make up for the lack of the block reward.

So the original question of "Does handing transactions require similar amounts of power to mining?"

The answer is basically yes. Mining is what confirms transactions. A new block is added to the chain, with each block containing several transactions.

Doesn't bitcoin then completely fall over when the block reward is 0? What incentive do former miners have to process transactions?

I've seen discussion that as the block reward falls, transaction fees will go up but this doesn't seem like enough. Hash rate will fall and people will sell up and get out of it. If the hash rate falls enough doesn't that open the network up to fraudulent transactions if a big player (in terms of hash rate) decides to go rogue? The whole 51% takeover thing. Seems like the entire market cap of bitcoin will pop at some point in the future.

First off, it's not like the block reward goes to zero overnight. It steps down over time.

The reward is currently 3.125 btc. It gets cut in half every 210,000 blocks, which is ~4 years. It'll drop to 1.5625 in 2028, 0.78125 in 2032, and so on. It won't hit 0 btc until the year 2140.

Secondly, even with 51% of the hashing power, a rogue mining org can't create fraudulent transactions. A block with invalid transactions will be rejected by the rest of the network.

Instead, it does allow a rogue miner to pick and choose which transactions it confirms in a block. Still bad, but it's not like they can steal bitcoin from people. And if they just sat and mined empty blocks, they wouldn't earn the transaction fees. The only way they could profit is to short the hell out of bitcoin, start mining empty blocks which effectively is a DoS on bitcoin, then cover the short after it plummets in value.

To do such an attack wouldn't just require immense money to buy the mining equipment, but also a ton of money to put up as collateral for the short.

Currently true. You wouldn’t buy a pizza with bitcoin. But send several thousand dollars internationally - sure.

As someone who witnessed bitcoin usage in 2012, I assure you mistakes were made, and pizzas were in fact involved.

It’s worth mentioning that BTC was not guaranteed to grow by the orders of magnitude that it did and that some people actually had to use it for real world transactions for it to gain some traction. At least one pizza had to be sacrificed for BTC to become what it is today.

Yes, I chose the example deliberately :)

I've got a friend who threw out $20M in bitcoin (at today's prices) by mistake. I wonder how often he thinks of that.

I didn't say I didn't make mistakes either :( had ~70 coins when they were $4 each. Made a killing selling off most of them at $12!! (ugh my heart hurts)

To be fair, you locked in a 300% gain, that's pretty good.

I've managed to lose 60% of my networth over the last 5 years. Mistakes were made.