Permanent $50 Bitcoin Fees Will Be The New Norm
The present state of Bitcoin deviates from what Satoshi intended and what the early community worked towards.
The whitepaper does not describe BTC anymore.
The Lightning Network fails as on-chain fees increase, pushing users into custodian, censorable wallets.
Few realize that Bitcoin (BTC) fees will drastically and permanently increase in 2024.
You will never see BTC fees lower than $50 again after the 2024 halving.
Permanent high Bitcoin (BTC) fees will be the new norm.
Not because the devs can’t fix it but because high fees were always what the devs intended.
We will not analyze the blocksize debate. If you plan to peek into this rabbit hole, this article by Daniel Morgan is the best resource you need:
After the (one-sided with vast censorship) blocksize debate, the side of Core prevailed.
BTC changed, as now Core is the decider.
After the end of that debate, BTC was simply a store of value, having lost its progressive properties of money.
Over the years, the narrative kept shifting. By 2021 Lightning seemed finally ready to alter Bitcoin’s direction again, but the Lightning we discovered was far different from what small blockers were evangelizing.
The outcome was a sidechain with custodians and centralized wallets, with BTC supporters denouncing permissionless Peer-to-Peer transactions and supporting a PayPal alternative instead with custodians and centralized hubs.
The same BTC supporters who fiercely promoted maximum decentralization to run nodes while denouncing big blocks, the same maximalists were now proclaiming how they don’t mind paying with custodians and prefer not having control of their Bitcoin but trusting third parties instead.
Lightning is insignificant in terms of usage, even with custodian wallets dominating.
In 2022, we also learned that LN services can not function when BTC is experiencing high fees and congestion.
Thus, we reach the paradox where even LN services warn against using LN when the blockchain fees are high!
There is no doubt that Lightning or any other sidechain promoted as a scaling solution cannot function unless the community decides to scale the main chain.
Andreas Antonopoulos in 2015 gave this speech:
Blockstream’s support for a low blocksize limit prevented Bitcoin from achieving mass adoption and decelerated the exponential adoption levels it was enjoying until 2017.
The extreme fees ($50 and higher) and network congestion (with transactions taking weeks to validate) backtracked adoption.
Microsoft and Steam stopped accepting Bitcoin in 2017. Thousands of merchants, shops, and small businesses abandoned Bitcoin en mass as it became unreliable for payments.
The first chart contains raw values, and the second one is the exponential average (90 days).
This is the trend of Bitcoin fees as a percentage of the total block rewards.
Transaction fees will contribute 20% of the block reward starting in 2024, a few months after the halving.
Don’t be surprised when this happens, as this is how BTC is planned to work to sustain the exponentially rising hashrate and price speculation.
With the the fourth halving miner rewards in new Bitcoins mined will be halved.
Bottlenecks like sustaining a low 1MB limit (until the one-time Segwit trick which allows blocks up to 4MB), and RBF (which created the BTC fees market), are in direct conflict with Satoshi’s intentions.
With Core’s approach after its victory in the blocksize debate, it became clear that a higher network effect was no longer a target. Global adoption, or any meaningful mass adoption was not the target of the Core-led Bitcoin community.
“Personally, I’m pulling out the champaign that market behaviour is indeed producing activity levels that can pay for security without inflation, and also producing fee paying backlogs needed to stabilize consensus progress as the subsidy declines.”
— Gregory Maxwell (Core developer)
Three times in Bitcoin’s history fees increased to extreme levels, with the last one in 2023 with Ordinals.
The BTC fees, as expected (with Segwit or not), reached $50 on several occasions throughout the years, and apparently, this was the plan of Core (and Blockstream) all along.
The current Bitcoin community encourages high fees and plans to make them permanent.
Bitcoin (BTC) will not survive if difficulty increases and block rewards don’t generate profits.
The price increase is not going to justify the new rally in hashrate as the mining difficulty escalates.
The miners will have to secure profit to continue their operations, but their Bitcoin (BTC) rewards are getting halved.
With the 2024 halving, miners will obtain 3.125 BTC for each block instead of the 6.25 they receive today.
There’s no game theory here to explain what is about to happen.
There are only numbers. If the number is positive, then even for small profit miners will keep expanding their operations for as long as they generate marginal profit.
If Bitcoin’s price fails to reach a new level but retraces after rallying for a short period to levels between $20,000 and $30,000, then miners will not be profitable with just the rewards from the coinbase transactions (new BTC).
We will be getting more of this news in 2024. The previous fee spikes were just a test.
From the side of the cost of producing new blocks, miners don’t just have to locate regions to subside with low-cost energy but also have to deal with regulatory obscurity and other external concerns regarding their base of operations.
It is easy to claim miners can always rebase to Kazakhstan, but Chinese miners already meet a rather hostile and diverse environment from what they were used to in mainland China.
They will require increased security, negotiation with local authorities, and politics to survive.
The threats are diverse in places with low cost of energy.
Can miners rebase to Nigeria, Congo, Iran, Venezuela, or Russia?
Perhaps Russia is a temporary solution, but the regulatory framework doesn’t seem ideal, with politicians condemning cryptocurrency and often asking for a blanket ban.
Most of the mining is done today in the US, yet the industry also faces criticism from environmentalist groups about the energy consumption requirements. Moreover, the cost of electricity in the US is not ideal.
There’s no haven for the mining industry. Low cost of energy will always contain myriad dangers.
Still, the current price of Bitcoin and the 6,25 BTC block rewards (besides the fees) allow miners to profit.
However, the landscape changes as more businesses want to join what seems a profitable business.
As competition intensifies, the hashrate explodes (and the profit margin thins).
Bitcoin’s total hashrate has recently surpassed the astronomical number of 400 Exahash!
The price decline of Bitcoin (BTC) didn’t seem to stop miners from expanding their operations.
However, with the fourth halving, conditions will be dire for miners. The halving of BTC rewards (from 6.25 to 3.125) will generate centralization conditions in mining, and create issues for miners if the price of Bitcoin (BTC) does not follow the exponential rise of the hashrate.
Still, the price does not follow the hashrate, but this goes the other way around.
In this scenario, where Bitcoin (BTC) probably only reaches $100,000 and does not achieve a parabolic increase as in the previous bull runs (with the hashrate not cooling down), miners may find it difficult to profit and keep their operations running unless high fees become permanent.
There are two ways miners will keep being profitable without reducing their efforts:
The price of BTC explodes, or
High Transactions fees become permanent
Otherwise, miners stop their hardware from operating or redirect hashrate to other SHA256 cryptocurrencies (Bitcoin Cash).
RBF (Replace-By-Fee) was established to secure a fees market. A bottleneck that, together with 1MB blocks, permanently destroyed Bitcoin’s chances of mass adoption.
Core developers and Adam Back formed the private company Blockstream having in mind from early on the stagnation of scalability for Bitcoin and the development of second-layer network services.
Here’s how Peter Wuille (Core dev) explained what Core was planning just months after Satoshi’s departure, ironically in the same legendary post where Satoshi explained how Bitcoin was scaling to achieve global adoption:
Private companies were always the plan of Core developers, while they kept successfully sabotaging early developers attempts to support scalability.
Sidechains were the proposal of Blockstream as a scalability solution.
One of them is Liquid, a product developed by Blockstream, the for-profit private company Adam Back created, together with Bitcoin Core developers.
Another supposed solution was Lightning Network, with a part of the Bitcoin community having predicted how it was going to end since inception:
Lightning did not need any more theoretical proof it wasn’t going to work.
The founders of the Lightning Network had explained right from the beginning it wasn’t possible for Lightning to work with 1MB blocks, and in the Lightning whitepaper, we locate the requirement for 133MB blocks.
Why nobody was talking about it? Well, people were getting censored en mass when they tried to.
This deleted Tweet by Brian Armstrong (Coinbase CEO) indicates the vast censorship and retaliation taking effect during the heated debate.
Read more regarding Theymos censorship during the blocksize debate:
Silencing opposing voices and censoring their ability to reach the rest of the community was one of the strategies employed by Blockstream.
A second tactic was the launch of propaganda, distorting facts, blatantly lying about intentions, and stalling for time with deceptive arguments.
Blockstream envisioned a crippled main chain with high fees with one ultimate goal, profit from sidechains, and promised high fees so miners would tolerate this scaling stagnation.
2017 was the year Bitcoin reached the mainstream once and for all, as the public (retail investors), unaware of this dark design orchestrated by Core, flocked to buy what they thought was the future of money.
Some were buying BTC as a store of wealth, others thought of it as a speculative asset and gambled their money buying high and selling low, while a large part of the newcomers discovered it simply wasn’t working.
Clearly, BTC wasn’t what we signed up for, not what the whitepaper describes.
Bitcoin (BTC) will have to rely on high fees to survive, as the only solution (raising the block size) is one that Core devs can’t handle today even if they wanted to.
The rising hashrate combined with a weak halving that will shrink the revenue of miners and generate losses can also contribute to the Bitcoin Death Spiral thought experiment:
BTC can’t raise the blocksize to scale as that will instantly validate Bitcoin Cash as the prevailing scalability upgrade.
Evidently, there is no other solution regarding scaling, as even Lightning developers admitted that LN requires higher blocksize.
Bitcoin will remain confined and indecisive, and Ordinals will probably get a second push, as miners profit the most out of it with the higher fees.
BTC fees will increase again, although this time not temporarily.
$50 will not be the top BTC fees this time, but the floor.
Starting with 2024 and the 4th BTC halving, expect higher Bitcoin (BTC) fees, forever.
Cover Picture on Pixabay
Donations (BCH): tipb.ch/Pantera
Subscribe on my YouTube channel: @panteraCrypto
Don’t forget to Subscribe and Like if you enjoyed this article!