Written by Jaran Mellerud

This article is the second in our series about Bitcoin transaction fees, focusing on the historical evolution of these fees and their impact on miner revenue.

Transaction fees are crucial for miners as they directly influence mining revenue. To understand this impact, let's begin by examining the historical revenue of the bitcoin mining industry and how transaction fees have shaped it.

The chart below shows how bitcoin mining has rapidly evolved from a hobbyist activity into a multi-billion dollar industry, with total mining revenue surging from just $220k in 2010 to a projected $13.9 billion in 2024.

The driving force behind the industry's growth has not been a rise in transaction fees, but rather the meteoric rise in bitcoin’s price. While the dollar-denominated revenue has surged, the bitcoin-denominated revenue has consistently declined due to periodic block subsidy halvings and stagnant transaction fees. In 2024, miners are projected to earn $13.3 billion from subsidies and only $670 million from fees.

The chart below shows the historical development of bitcoin-denominated industry revenue, clearly illustrating the massive decline in the amount of mined bitcoin over time. At the peak in 2010, miners mined 3.4 million bitcoin, while the projected number for 2024 is only 240,000 bitcoin, of which only approximately 10,000 bitcoin, or 4%, comes from fees.

So far, bitcoin miners have made most of their revenue from the block subsidy, which is the newly minted bitcoin issued to miners for each mined block. The block subsidy began at 50 bitcoin in 2009 and halves every 210,000 blocks, or roughly every four years. Currently at 3.125 bitcoin after the April 2024 halving, it will drop to 1.5625 bitcoin in April 2028.

By 2036, 99% of all bitcoin will have been mined, and the block subsidy will drop further to 0.39 bitcoin, which is lower than the average transaction fee per block in 2024.

We are currently in an interesting transition period as miners will soon be forced to spread their wings and become independent of block subsidies. Further in this article series, we will analyze if this is possible.

Let's examine the historical development of fees and their impact on miner revenue. From 2010 to 2016, fees were extremely low while the block subsidy was very high, so miners relied almost exclusively on the block subsidy. This began to change in 2017, when a retail frenzy during the bull market led to surging fees and a sizable mempool for the first time.

From 2017 onwards, we have seen occasional periods with sizable fees, interspersed with prolonged periods of limited activity and low fees. In 2020 and 2021, another bull market led to a sustained period of significant fees, followed by an extremely dull period during the subsequent bear market in 2022.

Then, something changed in 2023 and 2024. People began experimenting with new methods like ordinals, BRC-20 tokens, and Runes to store non-monetary data on the Bitcoin blockchain. This newfound demand for transactions led to periodically skyrocketing transaction fees, exemplified by the halving block, which saw a record-breaking 37.7 bitcoin in fees—86 times higher than the average transaction fee per block in 2024 of 0.44 bitcoin. Since then, transaction fees have returned to normal levels.

We see that historically, bitcoin has only seen significant fees during short bursts of surging demand, either for monetary transactions during bull markets or non-monetary data storage transactions during experimentation stages of new innovations. Normally, the transaction fees have been around 0.45 bitcoin per block.

Historically, miners have primarily relied on block subsidies, but as these subsidies decrease, transaction fees will play an increasingly crucial role. The recent innovations and periods of high demand have shown that transaction fees can surge dramatically, yet they remain relatively stable during other times.

Understanding these trends is vital for anticipating the future of Bitcoin mining. In our next installment, we will explore predictions and insights on what might happen to transaction fees in the coming years.

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