The mining activity produces two rewards for miners: a 25 bitcoin bonus for being the first one to find a hash for a block, and a small percentage of each transaction included in the block. The bonus will be ramped down over time and eventually go to zero, but the percentage will always be there.
IIRC, Bitcoin transaction fees aren't a fixed percentage or amount, they are something included as part of the transaction that is essentially a bounty for the miner to verify the transaction, and miners can preferentially decide which transactions to verify first based on the offered fees.
Presumably, as creating new coins stops being a source of reward for mining, the cost you need to offer with a transaction to get it verified will (assuming bitcoin remains in active use) go up.
choult said that, as he/she understands it, mining will stop because there won't be any new bitcoins rewarded with new blocks. That's not an incomplete understanding, it's wrong.
Granted, it's wrong because of an incomplete understanding of bitcoin mining, which is that there are two parts to the reward. However, an incorrect conclusion based on incomplete information is still an incorrect conclusion.
Your statement, today, is probably correct. The percentage payout per block is probably worth a lot less than the value of the 25 bitcoins currently being rewarded. As others have stated, that'll probably change as the reward drops.
Besides only including transactions that pay a higher percentage in a block, I imagine that the higher hashrates will allow more transactions to be included in each block, so there are two ways miners can increase their return. Miners aren't just competing on speed to get the next block; they also have to get the largest block that includes the most transactions. When a transaction gets included in more than one block, the larger block 'wins'.
I suspect we're going to see a parallel to the transition from faster CPUs to multi-core CPUs that occurred when CPUs stopped getting faster. Until this year, we were seeing faster and faster software and hardware used to calculate hashes for bitcoin mining, but ASICs are almost certainly the end of that advancement. So now, I think, we're going to see miners expanding their capability horizontally by hashing in parallel... Maybe by splitting twice as many transactions as typically used today into two different blocks and trying to hash both at the same time.
Indeed, all the BTC surrounding Silk Road (belonging to users and Dread Pirate Roberts) are presumed to be lost forever. 5% of all BTC in circulation are lost in one fell swoop.
I find it ironic that proponents of bitcoins tend to argue that:
1. Bitcoins will take off because it has tiny fees for wealth transfer.
2. Future mining to keep the blockchains up will be supported by transaction fees.
If all this mining power has to be kept up as the 25 bitcoin bonus runs out then the transaction fees could well end up just as high as the current 2.9% + 0.3 seen everywhere.
Bitcoin starts with 1 (mining rewards) and then moves onto 2 (transaction fees) for long-term stability. I think this is dumb if your goal is widespread adoption because it taxes the activity that causes network effects to grow (transactions).
PPC sticks with 1 for the lifetime of the system (through a slow-growing monetary base), strengthening my belief that PPC is a strictly better design than bitcoin.
The free market will decide on that, and it will be fair. Even if we end up with ~3% fees, it would be totally worth it knowing that your account can't be randomly frozen, or your funds stolen by whoever is in charge of the fake wars (eg: war on drugs).
"it would be totally worth it knowing that your account can't be randomly frozen, or your funds stolen by whoever is in charge of the fake wars (eg: war on drugs)."
Assuming that your Bitcoin money can be used at all. The government does not need to freeze your Bitcoin wallet, they only need to stop you from selling your Bitcoins for whatever fiat currency is used in your country. Until the government starts accepting Bitcoin payments for things like taxes, court settlements and fees, etc., businesses will need fiat currency, and they will demand fiat currency from their customers. Anyone operating a money-changing business will be targeted by the government; fail to do all that the law requires, and you go to prison.
There's always a way around it. Considering that BTC is basically borderless, I can get it transferred into any other currency in any other country I choose.
You are trying to claim that you can evade laws governing currency exchange by skipping around international borders. That is not how laws, borders, or currency exchange work. If you were to try exchanging Bitcoin for some currency in a country with loose regulations, you would still need to eventually get your country's own currency and would need to deal with your country's regulations on importing or exchanging currencies.
The point is not about murder or any other crime. The point is about trying to evade laws by crossing borders. At best, your strategy would shift the problem from regulations on currency exchange within your country to regulations on importing currency to your country; you still do not get a situation where your government has no power to freeze or seize your money.
You don't need to cross borders either. Guess what, I happen to live in a country where everything is banned (USD, Euro, gold, silver, etc.). That didn't stop me from saving in USD, Euro, or Bitcoin. I couldn't buy gold because nobody has that, because it's so inconvenient since you can't normally divide it, transport it, or keep it safe. But Bitcoin doesn't have any of those problems, so here we are saving in Bitcoin and not being punished through inflation, seizures, etc.
It is not about saving it is about spending. You need to buy certain things in life, like food. You need to pay taxes if you do not want to be thrown in prison. You need to do business with people who need to buy things; barter will only get you so far.
So sure, you can have your offshore savings in whatever currency you want, but at some point you need to spend that money locally. Bitcoin does not avoid this in any way; it actually adds an additional step to transactions, since you need to convert Bitcoin into your local currency (even businesses that "accept Bitcoin" usually accept payments through services that exchange Bitcoin for some fiat currency for a small fee). You might dream of a world where Bitcoin never needs to be exchanged, but that is not going to happen until governments start accepting Bitcoin payments for tax purposes (and why would any government do that?).
Hence there will be an end to mining.