I've heard people say the more in fees, the more in profit = more in
competition, and hash rate.

On Mon, Oct 27, 2014 at 4:36 PM, Amir Taaki <genjix@???> wrote:

> I saw this thread:
>
>
> http://www.reddit.com/r/Bitcoin/comments/2kerxd/so_ive_heard_both_peter_todd_and_amir_taaki_say/
>
> check out "The economics of digital currencies" by the Bank of England,
> page 5 titled "The sustainability of digital currencies’ low transaction
> fees"
>
>
> http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q3digitalcurrenciesbitcoin2.pdf
>
> Pasted here below:
>
> Why transaction fees are currently low
> ======================================
>
> Importantly, fees are low for digital currency payments despite
> the fact that, as currently designed, the marginal cost of
> verifying transactions by miners is generally higher than that
> for centralised payment systems. These higher marginal costs
> are due to increasing returns to scale in the operation of
> computer servers: it would generally be more cost efficient
> to process all transactions centrally. Moreover, while the
> marginal costs for traditional payment systems may be
> expected to remain broadly constant over time, those incurred
> by digital currency miners may be expected to rise as their
> usage increases and — in addition to that — to increase over
> time because of an incentive for overinvestment in new
> equipment. These drivers of marginal costs are explained in
> more detail in the box on page 7.
>
> Low transaction fees for digital currency payments are largely
> driven by a subsidy that is paid to transaction verifiers (miners)
> in the form of new currency. The size of this subsidy depends
> not only on the current price of the digital currency, but also
> on miners’ beliefs about the future price of the digital
> currency. Together with the greater competition between
> miners than exists within centralised payment systems, this
> extra revenue allows miners to accept transaction fees that
> are considerably below the expected marginal cost of
> successfully verifying a block of transactions. (1)
> The sustainability of low transaction fees
> In the near term, the subsidies in the form of new currency
> that miners receive create an incentive for miners to promote
> the wider adoption of the digital currency they support, since
> anticipated increases in demand should help to drive up the
> expected value of their future revenue from new currency.
> A willingness to accept extremely low transaction fees today
> can then persist so long as miners’ optimism about future
> increases in system usage remains.
>
> The eventual supply of digital currencies is typically fixed,
> however, so that in the long run it will not be possible to
> sustain a subsidy to miners. Digital currencies with an
> ultimately fixed supply will then be forced to compete with
> other payment systems on the basis of costs. With their
> higher marginal costs, digital currencies will struggle to
> compete with centralised systems unless the number of
> miners falls, allowing the remaining miners to realise
> economies of scale. A significant risk to digital currencies’
> sustained use as payment systems is therefore that they
> will not be able to compete on cost without degenerating —
> in the limiting case — to a monopoly miner, thereby
> defeating their original design goals and exposing them to
> risk of system-wide fraud.
>
>
>
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