Bitcoin Forum

alot of people are arguing that due to the reward halving, fee's need to increase above 0.0001btc.
this is not true, and now i will explain
https://i.imgur.com/QphWvlJ.jpg

this is the amount of bitcoin reward for solving blocks

this is the amount of tx fee with the assumption that starting from 4000tx(1mb) staying at 0.0001 and the blocklimit doubling every 2 years starting mid 2016 with 8000tx(2mb) leading to a 0.8btc total fee potential, then doubling block limit mid 2018 to 16000tx(4mb) with a 1.6btc total fee potential.. basically the fee per tx stays at 0.0001 forever, no matter what

now this is more complicated to explain, but basically speculating that when a reward halves, the fiat valuation doubles which means the tx fee halves, which is what happens already. miners try to retarget fee's to only be a few cents at most. but the chart also includes the increase of transactions allowed due to larger blocks allowing more tx's can fit in.. basically the tx fee drops when fiat value rises, thanks to deflation

so,, hopefully you can understand and see that in the image..
now
(1) this shows that while the block reward is 25 the constant transaction fee's are 0.4btc, the deflationary transaction fee is 0.4btc.

(2) now if we went with constant 0.0001 fee fee's will exceed block rewards in the year2022

(3) now if we went with deflationary fee's which decrease as fiat valuation increases. the fee's will exceed the block reward in the year 2029.

just to note. constant 0.0001 fee, means that when 1 bitcoin costs (speculating) $10,000 the transaction fee is $1 (which is not good and no one will want to transact.
where as
deflationary fee allows the fee's to stay as only a few cents or less.. while also earning miners over $20,000 in the year 2029, and upto $90,000 in 2034

which is fair for the users and also fair for the miners. as currently they average $10,000-$12000(depending on fiat valuation the last 4 years) so they are not really going to lose out either

in short:
with all that said transaction fee's should not need to go above 0.0001 again, as the fiat valuations and blocklimit increases will take care of things to allow miners to get an nice income for just 10 minutes work. as show in the deflationary fee chart
.

it would only be miner greed to choose to keep it at constant fee, which would make it too expensive for user usage, and would ruin bitcoin.

so lets just stick with the deflationary fee model which has worked well for the last 7 years, and should continue to work for both miners and users to both benefit, and simply end the tx fee debate as nothing needs to alter.. miners just got to continue reducing fee's to keep it inline with a few cents at most.. like they have so far

I agree with you that we need to keep the transaction fees low. Nobody will be using bitcoin on a regular basis if a transaction costs 1 usd, when local alternatives are free for costumers.

If bitcoin is going big on remittance market though, 1 usd transaction fees would be acceptable, but this would mean micro transactions are not going to be the scope of bitcoin anymore.

the whole remittance debate is another debate which is misunderstood..

if bitcoin got into the remittance market.. the cost would be far more than $1 for a $100+ remittance
this is because people wanting to go from
eg
USD to INR(indian rupee) will have 6% spread from buying bitcoin from dollars and selling bitcoins to rupee's
and 9% for AUD(australian dollar) to INR(indian rupee).
i done these calculations using the best rates i could find on localbitcoins.

even if there was a formal company handling both sides, that done the whole process of dollars to rupees via bitcoin..rather than individual independent brokers, then what is the point of that formal company swapping into bitcoin for 0.01seconds if they are just going to be cashing out to rupee.. which then makes them simply a fiat exchange that has no need for using bitcoin...
... and thats why i used independant brokers (localbitcoins) as the most feasible way that makes bitcoin useful for swapping fiats.

so unless the independant brokers reduce their spread/profit on their buys and sells. bitcoin will always still cost users a few percent to swap fiats. even if there was no 'bitcoin fee'

Wouldn't the spread be reduced tremendously if the volume of these transaction went up?

I do see your point though, hadn't looked at it that way.

well buyers instead of asking 3-4% will atleast want 0.5-1% .. same for sellers.. =1-2% for both side combined =$1-$2 to transfer $100 or $10-$20 to transfer $1000.
still not the "virtually free /low fee and instant transactions" that many people in bitcoin spout out it as being

My guess is that you are referring to me (and you still haven't linked to where I said "instant transactions").

You are forgetting the use case of just wanting to move "your own money" from A to B (perhaps not the most common case but certainly a percentage of the remittance transactions).

I have done this to move AUD to CNY and actually "profited" out of the exchanges (simply because the price of BTC rose way more than the fees during the turnaround time).

To move AUD funds via TT (which is the cheapest non-Bitcoin way to do it) costs at a minimum 30 AUD. It of course depends upon what rates and fees you will incur from the Bitcoin exchanges you decide to use but from personal experience I would recommend the usage of Bitcoin for remittance (it never cost me as much as 30 AUD).

Also your argument about INR and AUD is rather pointless (although seemingly of some pride to yourself for apparently having "beaten me"). :D

I have never said that Bitcoin is actually succeeding in remittance (even though it should) so the fact that you can find a pair of currencies that will cost you more to trade when using BTC in between is hardly surprising (or even interesting).

and you continually spout about the
well yea,, lucky once.. when BTC rose.. but thats not an every day event. bitcoin can drop and be stagnant for months too.. which is why your one proud transaction holds little weight in comparison to daily use by millions of people.. in short you were lucky, and should not use that luck as a case to advertise that people should expect profits every time..

my points in many threads are to bring people back to reality in actual real life AVERAGE experiences.. rather than just one off's or speculations.
id rather tell people the facts that bitcoin is not free or instant. and tell them that remittance will cost them a few percent and take upto an hour.. atleast they wont be let down by fake promises

as a saide note.
in the past i have had (and still do have) respect for you as a coder. not every comment is meant as a personal poke to you as a person.. but used as an example of bad stuff bitcoiners in general say and think..

Okay - I do agree that I was "lucky" at that stage (it wasn't just the one tx but that isn't important). One should not be relying upon luck when moving money around, however, even today if I was wanting to move say 5K AUD to China Bitcoin would most likely be cheaper than a TT (and for huge amounts the savings would be greater).

My point is that I have actually used Bitcoin to do remittance and found it cheaper and faster than the banking methods.

Why you hate on this I don't really get (I am not trying to sell anything to anyone).

Well, if the transaction fees rise, it would totally destroy the purpose of bitcoin -> low transaction fees, so they will have to get adjusted.

Your post uses some big assumptions: that transaction rate will match block size limits and bitcoin value will double at every halving.

I don't believe either of these are reasonable assumptions.

Exponentially increasing blocksize limit every 2 years eventually to 8GB like BIP101 proposes is a terrible idea. It's built on the assumption of exponential bitcoin transaction growth, which is not reasonable to assume.

dont take this personally.. im just showing it as an example
https://i.imgur.com/ZMZf7Fo.jpg

sending $5000 from australia to china:
= 23263.52 via western union the recipient will get
= 21115.08 via localbitcoins, the recipient will get

and thats using the best prices i can find for buys and sells.

so im not having a go at you, im just showing the community that although the dream of remittances is low fee fast movements.. the reality is different.
yes people can give their KYC data to an australian exchange, yes the recipient can give their KYC to a chinese exchange instead of using localbitcoins.. but that takes time to verify information..

so until there is a process that is as quick as 10 minutes in WU, and offers better than 23000 cny without headache or hassle.. bitcoin is not YET ready for remittances for average joe.

secretly im hoping you reply with a better method to get australian fiat in, chinese Yuan out for atleast 23200cny in 10 minutes, to counter my localbitcoin example

your quite right. those assumptions are those of many debaters in many topics.. which i tried to atleast combine into the most basic chart i could to display their idea's.
yes i know that even if we up the blocklimit to 2mb this year.. it doesnt mean a constant 8000tx per block (0.8btc).. it was there to show 'potential income' rather than actual income.
but out of all the speculations.. staying with the deflationary fee still proves that eventually fee total (potential) will exceed reward, meaning miners will never be left with nothing.. and is atleast the most fair to miners and users, without miners getting greedy needing millions of dollars total potential while demanding $1 a tx.

I have never used localbitcoins so I'm not really sure exactly what you are trying to prove.

If I send AUD to China from Australia via BTC I would have bought the BTC using an Australian exchange and I would sell the BTC using a Chinese exchange.

The localbitcoins would not be involved at all (you can check every post I've ever made and you'll find no reference to localbitcoins as I've never used it once).

an interesting analysis, thanks franky1.

I think there's already transaction fees on Bitcoin as per response to your report. I do not know if they will grow for the simple fact that if everything on Bitcoin is regulated and taxed and such it'll be really hard to find more adopters. I think the main reason why people want to join Bitcoin is because of the fact that nobody is taxing anything or taking profit in one's earnings.

"2) now if we went with constant 0.0001 fee fee's will exceed block rewards in the year2022"

Glad to see that. It means the transaction cost can support the network in later years.

greedily yes

but 3) the deflationary fee
EG
0.0001 while bitcoin is sub $1000
0.00001 while bitcoin is sub $10,000
0.000001 while bitcoin is sub $100,000

still allows miners to earn profit once bitcoin reward starting teetering off, in 2028+
so it show that even if miners are greedy, they dont ever have to increase fee's above 0.0001 and if wanting to run a useable system they can even deflate prices and still get a nice amount of income

The transaction is around $0.08 at the moment. It is lower than most credit and debit card transactions. It might rise in the future.

The transaction fee of Bitcoins should not rise now because people are getting attracted too much in Bitcoins because of its Price, benefits, speed of transaction, own bank in pocket and the most its transaction fees.

There are many transactions now in the block chain. It is getting full. So people have to raise the fee to get transaction fee confirmed.

If bitcoin fees reached $1 to get the transaction confirmed, this will prevent people from using it for micro transactions and they will start looking for an alternative coin with less fees like Dogecoin for instance. maybe after block reward reaches 0 miners will increase the fees until UW become cheaper than BTC to transfer money

I agree with you this will be the time that people will look for a better alternatives,there are many coins in the market now and all of then have a very small transaction fee,the transaction is what appeal to both users and merchants

Great post OP
But this is not a 'if you build it they will come' situation. If you build out capacity with no way to reverse the changes and they don't come then we get even lower fees and possibly a collapse of our mining community leading to network security vulnerabilities.  

 I agree deflationary fee's are the way to go but we would need a collaborative protocol for adjusting fees based on bitcoins market cap but how would that work?


Part of the question about max block size is how do we decide on whats a fair fee for transactions based on the needs of the network at any given time to insure security. I don't have the answer to this. :(


Ultimately your speculating on two things we can not control, our user base and Bitcoins market cap. This is hubris, it's risky without the ability to automatically reduce the max block size on demand to maintain a minimal level of fees to ensure (what still needs to be determined) a minimum level of security based on Bitcoins market cap. The deeper question is 'How thick do the walls of a safe need to be to protect its contents when the value of its contents is always changing?'

I believe we should go for a much bumpier and longer path but ultimately more safe. We should wait until the very last minute to up the block size and each time increase it in miniscule amounts (5% max) only when fees become so high that they start to impede adoption would you see the real consensus we need.
Yes in the short term we lose the ability to handle micro transactions but this would only be temporary, a few years at most if we continue to grow at the same rate and yes some people may jump ship to alt coins with lower fees but they would be doing so at the cost of security, stability and network effect (acceptance.)  

There is competition in the market. If the fee of bitcoin is too high, I will not use it. I will use other coins such as litcoin or Ethereum.