The state of bitcoin transaction fees

(Part 1) How are miners handling the bear market and how is miner revenue from transaction fees comparing to expectations derived from past cycles?

Author’s Note:

This article discusses the current state of Bitcoin’s security spend and the progress that has been made in the transition from a subsidized revenue model to a self-sustaining system paid for via transaction fees. The goal of part one is to ensure that the reader has data available to them, not to argue whether the current state of (or trend in) transaction fees sets bitcoin up to be over or under secured.

Part two of the discussion asks questions about the long-term dynamic and the endgame of bitcoin’s proof-of-work design.

tldr;

Industrial bitcoin mining margins have heavily compressed; collapsing their equity valuations (~90% decline) and causing public miners to liquidate portions of their treasury holdings to ride out the bear market.

Revenue from transaction fees now accounts for a smaller percent of total mining rewards than the previous halving cycle (despite the subsidy being cut in half). The ratio of transaction fees to network value has defied expectations and currently is at its lowest point since early 2011.

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The Current State of the Mining Market

The large profits enjoyed by bitcoin miners are gone. The Chinese mining ban in May 2021 set the stage for a period of mining excess and of hash rate expansion that, with the recent market downturn, has left the mining market oversaturated.