Mining Economics (Subsidy vs Fees)
TL;DR
As new coin issuance (subsidy) decreases, Bitcoin’s security model transitions to a fee-based market where users compete for block space.
What Is It?
Miners are currently paid in two ways:
- Block Subsidy: Newly minted bitcoin (the primary reward today).
- Transaction Fees: Optional fees paid by users to have their transactions included in a block.
Why Does It Matter?
Due to the halving schedule, the block subsidy eventually drops to zero (approx. year 2140). For the network to remain secure, transaction fees must grow enough to incentivize miners to keep providing hashrate. This represents Bitcoin’s transition from an “infant” network subsidized by inflation to a “mature” network supported by its own’s utility.
Analogy: The Gold Dust
Giacomo uses the analogy of Gold Dust: Bitcoins are created as a “subsidy” (mining gold), but as time goes on, the true value of the mine is not the discovery of new gold, but the “service fee” users pay (dusting off the gold) to have their transactions expressly written into the immutable Timechain.