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How necessary are transaction fees? Why isn’t the block reward enough to maintain a community of miners?

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Two main reasons:

  1. The block reward is going to decrease over time, and even in Monero where there is a tail emission (i.e. the emission rate bottoms out at a nonzero value) the block reward isn't guaranteed to be greater than electricity costs.

  2. Transaction fees allow miners to prioritize more important transactions if the network is congested, because people will generally be willing to pay more for more important transactions. Transaction fees also will reduce demand for block space during such periods of congestion, because the transaction fees will increase in response as users have to out-bid each other to get included in a block.

EDIT: It's also important to note that if posting a transaction has no cost, the demand for transactions has no hard limit. Eventually, people will find more uses for the blockchain (or spam the network with transactions that don't do anything), until the system reaches its limits. When that happens, transaction fees will be necessary to keep demand under control.

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    “Transaction fees allow miners to prioritize important transactions” - this is not true. They prioritize higher fee paying transactions not more important ones. Importance of a transaction is unknown to a miner and hence transactions should be processed in a first come first serve order. “The block reward isn’t guaranteed to be greater than electricity costs” - and neither is the block reward + fees. “Transaction fees also reduce demand for block space during periods of congestion...” - users of payment apps etc won’t really bid on fees in a scaled scenario so this stops practical usage – Zigglzworth Jan 28 '18 at 21:34
  • Right. "More important" in this case means "the parties are willing to pay more for it". – Ian MathWiz Jan 28 '18 at 22:42
  • Also, even a scalable cryptocurrency will likely have its limits. Presumably, if the system is sufficiently scalable those limits will be far above usage; however, as I mentioned the prioritization is relevant in the case where those limits have been reached and the system is congested. – Ian MathWiz Jan 28 '18 at 22:45
  • If the cost of posting a transaction is zero, demand is unlimited, and the system will eventually reach its limit no matter how scalable it is. – Ian MathWiz Jan 28 '18 at 22:51
  • Demand for transactions is not unlimited with zero fees because the demand for transactions on the blockchain can only reflect the demand for transactions within its foundational economy. People don’t transfer monero for no reason. On the subject of congestion, I reiterate that fees are not only not the solution, they are currently an extention of the problem since they undermine a first come first serve model – Zigglzworth Jan 29 '18 at 10:03

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