Satoshi created block rewards as a temporary way to bootstrap Bitcoin. He intended to have transaction fees replace block rewards as Bitcoin became adopted.

Satoshi never intended Bitcoin to be used as a settlement layer.

If Bitcoin is used as a settlement layer, transaction fees will practically vanish, and miners will have no longterm incentive to keep mining. Without miners, Bitcoin will lose its security and become worthless.

Block rewards won’t last much longer.

People underestimate how quickly block rewards will go down.

10 years from now, miners will only get 1/8th of what they are getting today.

Yes, you read that right. 1/8th. For miners to receive the same monetary block reward as today, Bitcoin’s price would need to be worth over $5,000 USD within 10 years. In just 20 years, it would need to be worth $20,000. And in 30 years, one Bitcoin would need to be worth a whopping $160,000 USD.

I’m bullish on the Bitcoin price, but I’m also realistic. The chances of Bitcoin being worth $160,000 USD are very slim. Which means that unless miners will get substantial transaction fee income, Bitcoin will have no future.

How much fee income exactly?

If we purely want to compensate for dropping block size rewards, we would need about 268 transactions per second (tps) 30 years from now (based on an average transaction fee of $0.05). Knowing that Paypal does about 120 tps, and VISA does between 1000–2500 tps, this is a very realistic goal.

The more pressing scenario would be a case where the current Bitcoin price of $650 would remain the same when the next halving happens 4 years from now. In that case, we would need to reach 135 tps within 4 years to compensate.

However, its fair to assume that Bitcoin’s price will reach $1300 in 4 years and hopefully $2600 in 7 years, to buy us more time to get our transaction volume up.

In any case, it is in the best interest of miners to get Bitcoin’s on-chain transaction volume as high as possible. Right now its ~2% of their income, but it could rise quickly over the years, substantially adding to their net profit.

At 1000 tps, transaction fee rewards would be $30,000 per block. At 10000 tps, it would be $300,000 per block. And if we ever reach worldwide adoption, fees could get into the millions. However, miners will lose that money if off-chain solutions such as Lightning Network are allowed to take over.

You can find transaction fee calculations here: https://docs.google.com/spreadsheets/d/1ggu_6dbMMSRaIuRoeAEWo9zv59gFYO0toU1z1YdVbuI/edit#gid=0

An additional graph showing the two versions: