Bitcoin Forum

Title: Near Zero Bitcoin Transaction Fees Cannot Last Forever

http://sdiwc.net/digital-library/near-zero-bitcoin-transaction-fees-cannot-last-forever.html


Abstract:

Under Bitcoin protocol and payment scheme, anyone can send any amount of bitcoins that he owns to anywhere in the world via internet, near instantly for near zero fees. While the popular crypto-currency enjoys low transaction fees, a feature that is highly promoted and is working fine for the current state of the Bitcoin ecosystem, we argue that in an unforeseeable future, zero or infinitesimal transaction fees will not be sustainable. We apply a financial reasoning via depicting the interrelation of fees with mining, securing the network against 51% attacks, scarcity of supplies and the price of bitcoin, which in addition are the essential parameters involved in the problem of setting the right transaction fee in the future that we briefly discuss.

Ok, so what? Everything I read is already known. Fees were designed to replace the reward system. Do you have a comment about it or is this new information for you?

The TX fees will likely decrease in terms of BTC overtime as the price of BTC increases. Over time as more people start to use bitcoin the TX fees per block will increase, making the block subsidies less important to miners.

and PDF is the most hackable format virus intégrated system ... in the world.
don't open a "free" and non-identified file !

use HTML5 instead of PDF.

The fees will be worth more as value rises so I don't expect any major changes any time soon. People seem to love to manufacture things to worry about with bitcoin.

this article is printed atleast a decade too soon... i think luke JR/ghash probably sponsored the article writer :D

for the next 10 years (2017 halving 2021 halving and 2025 halving) we should not worry or even concentrate on fee's but instead make miner not be soo ambishious to instantly sell coins at a cost loss, thus make them not need the extra fee as a subsidy.
after all, selling at a loss is not making them a bitcoin investor.. but an electricity supply investor.

by adding hashpower in a failed attempt to get a larger slice of th reward pie. is shooting themselves in the left foot
by selling the rewarded bitcoin as soon as they receive it at a potential loss. is shooting themselves in the right foot

we should not be subsidising their self mutilation suicide attempts, but instead getting them to see the beauty of holding on to life, and their bitcoins to then have a better future

Thank you for posting this, exactly the information I was looking for, has saved me some work.

In other words, a miner, who already received bitcoins virtually for free from his mining efforts, needs a fee to coax him into parting with some of those bitcoins, right?

I understand that mining isn't free - equipment purchases, electricity, upkeep, a place to keep and run the equipment. But if the bitcoins that are mined don't pay for it, the whole thing isn't worth doing.

If enough miners quit mining, the difficulty will drop, and then it will be profitable again. And while the mining is down, sort of, some mining pool that is out to take over will rule the Bitcoin world, and Bitcoin will flop. So, are we going to attempt to prop Bitcoin up with fees? Bitcoin is supposed to be serving us, not we serve Bitcoin. Supply and demand.

Now, here I go, picking on supply and demand by commenting thusly. After all, all the fees, and all the discussion are part of the supply and demand. The need for Bitcoin is all about supply and demand. If Bitcoin flops, something will take its place, and it will be about supply and demand. Wars are fought over supply and demand. Dictators and kings attempt to control the markets, and their controls are part of supply and demand.

Thanks for listening.

:)

This has been known from the beginning. People need to read the white paper.

your right its about supply and demand.. by selling at a loss because they have been subsidized, means there is less demand because the coins are being pushed out (over supply). thus bitcoin buyers wont raise their prices as they have no need to. but if miners hoarded their coins, buyers would pay more as there is less supply on the exchange.

in short by selling at a loss they cause a price drop, thus again shooting themselves in the right foot a second time. knowing the next reward would be at a lower price shooting their right foot a third time. then the next block would be cheaper, you get it.. more shooting

Near zero fees don't exist now. They are some of the most expensive transaction fees you'll find, but they are hidden in subsidies that are paid for via inflation.

The block subsidies are designed to give miners an incentive to mine until the time comes that bitcoin is widely enough used so that there will be sufficient volume of BTC transactions with TX fees to make it worth their while.

hi all,

Thanks for all the comments. I am actually the author of the paper. Since I did my research on bitcointalk forum, I knew most of the info therein is already known by you, tech-savvy bitcoiners. My nevertheless intention in writing the manuscript was to inform the issue to the unfamiliar readers (or noobs in your terminology), raise some questions, help alerting more academicians about working on Bitcoin and related scalability issues, and propose what might be called as a minor contribution perhaps.

In more detail, depending on core developers' approach to trade-off of supporting small or large transactions in the future, whichever in priority, they should not only set a strict transaction fee (rather than a donation) such as [a percentage of the transacted amount] or [a fixed minimal fee + a percentage of the transacted amount], but also do this in a manner such that it fills the gap created by the future slow down of price increase together with the block rewards decrease. That is, to fix the total rewards, I propose the developers that they increase the transaction fees gradually over time, to keep up with a fixed hypothetical sum expressing total block earnings (sum of block rewards + tx fees) per block as follows,
https://i.imgur.com/MCWO0tH.png
note: The block rewards decrease once in every 4 years at once, as we all know it. Hence we should see cuts in the above graph but assuming it is approximated, we can ignore the cuts for the sake of simplicity.

However, as stated in paper, we all know that it is early for this kind of a modification. So I basically propose this kind of a "transaction fee such as a dynamic (gradually increasing) percentage", not now but in the future, when the time comes. I think it is ok to replace "when the time comes" with "when price of a bitcoin or lets say volatility reaches to the stability level of gold or a well-known fiat currency". Well, that's all about it. Although being arguably straightforward, to the best of my knowledge, I have not seen such a proposal before. As a future research, I believe it is crucial to determine/approximate, what a fixed transaction fee/percentage can/might/should be in a userwise/marketwise pacified/stabilized setting, in order to be able to compare tx savings with competitors such as visa/paypal etc.

Am reading the paper now. But I noticed this:

"the more transactions a miner include, the more his reward increases but also his probability to earn any reward decreases because the time needed for his block to reach consensus depends on its size due to network propagation"

I don't follow. Miners only work on a hash of the block. So the size of a block cannot not affect the probability of earning the block reward.

When you say "the time needed for his block to reach consensus", do you mean the time taken to propagate a valid (solved) block? I can see this might be fractionally more for a 1Mb block than say a 100k block so that with the bigger block the change of being orphaned is slightly higher, but the diference must be miniscule.

Otherwise rational miners would always work on empty blocks and no transactions would ever get confirmed !

Isn't the problem with relying on fees to support the network, that miners have an incentive to include any fee-paying transaction irrespective of the level of fee. So there is no incentive on the part of users to pay more than a miniscule fee. But if everybody pays a miniscule fee then fees won't support a sufficiently robust network.

My guess is that the solution will come about in the form of the majority of larger miners/pools agreeing to and publishing a set of rules for fees - basically a fee cartel (Actually I recall reading somewhere that GHash has proposed a meeting of "top" miners at which fees will be one of the subjects under debate.)

This approach has the huge advantage that it doesn't require any protocol changes and would also be flexible, because it would basically just be a set of terms of service used by the major pools and could easily be changed by agreement.

(It  might raise some nice anti-trust issues though ....)

hi, well, I am not an expert on propagation delay and this issue is referred to as only one sentence that you already quoted. However, we should maybe check the IEEE paper Information Propagation in the Bitcoin Network (http://www.tik.ee.ethz.ch/file/49318d3f56c1d525aabf7fda78b23fc0/P2P2013_041.pdf) sec III, part C, named "size matters". Quoting from there:

"There is a strong correlation between the size of a message and the propagation delay in the network." and in the abstract of the same paper: "propagation delay in the network is the primary cause for blockchain forks". So it seems to be one of the issues.

It is interesting, I don't really know how the cartel solution would work out though. I can only say that I believe that a comparison of the cartel solution you mention vs. a centralized solution of setting a tx fee by core developers should be further investigated.

Agreed. But the effect is marginal. A second or two as compared to the average block interval of 600 seconds. I don't know whether the big pools even take this into account. They seem fairly indifferent to the size of the blocks they solve.

Low transaction fees is one of the strengths of bitcoin. If adoption increases, near zero fees can sum up to a good amount in every mined block. There is no real concern.

Conventional cartels are  unstable because members always have an incentive to secretly cheat. But that would not be an issue with a pool/mining fee cartel because of the public nature of the blockchain. Ultimately I could see a situation where fee cartel rules are incorporated into wallet software so that the wallet will give the option to automatically calculate the applicable fee (and will auto-update as the fee rules change).

It might be said that this would only work if mining is dominated by a small number of pools/industrial miners and that this is something we want to avoid.

But perhaps it might work even with a distributed mining network. Suppose an industry body were to produce a set of recommended fee rules which miners are free to adopt or not as they choose. Game theory might suggest that nobody would adopt them because it is not in the interests of any miner to restrict the number of fee-paying transactions he incorporates, irrespective of the level of fee.

But game theory is poor at incorporating social conventions. For example, drivers almost invariably thank other drivers for acts of courtesy even though they will never see that other driver again. People are odd creatures. Perhaps a set of mining fee rules would be adopted as a social convention, even if they are not strictly rational on an individual basis.

Just thinking aloud ....

It depends how near to zero near to zero is.

This is exactly the theory behind how bitcoin was setup to have the block subsidy reduced over time.

The current miners are to big and to power hungry. But I think we will see small chips for mobile phones in the next 10 years that can support the network on a basic level. Every hardware POS or wallet needs to be a highly efficient miner. If you have billions of mini-miners then you won't need data centers doing the main part of the work. As long as mining bitcoins is profitable enough we don't need to discuss the next step. We are already on the way to a 1 Watt/THs. Two or four years from now you have chips that can be on every mainboard or as a tiny PC card. The proof of a transaction as difficult as the mining so every device that is somehow connected to the internet can consists this chip and a 2 cent 100gb flash drive for the blockchain (yes future price ;) ). ... and so you have billions of chips supporting the network ^^

Supply and demand. For example. Decades and centuries ago, transferring different forms of money to different places around the world, included actually going there with your money. Now it is easily done with the Internet, cheaply, using regular money transfer channels, like wire transfers. The point? Banking fees are being replaced by the cheaper Bitcoin fees. And when it is the Bitcoin fees that are excessive, Bitcoin will be replaced by something else.

Right now you can send bitcoins without fees. It simply takes much longer for confirmations.

:)

Bitcoin high frequency trading:   

47,000 tps (around the peak rate of VISA) = 28,200,000 transactions per ~10 minute block

Fee of 0.000000017 = 5 bitcoins per block transactions reward for miners. Easily sustaining the network at a high price. If Bitcoin is going to be a global cash system we'd probably have hundreds of thousands of transactions per second. But having more transactions per second than VISA is a good initial.


In short: Fee is sustainable.

Setting aside the issue that this kind of centralized policymaking goes directly against the fundamental ideas Bitcoin is based on, and the difficulty of mandating a fixed fee in an open software system - how would you decide what level to fix the fee at? Essentially you need to decide what the value of 'sum' in your graph should be. Currently that is left to a market-based price discovery mechanism to suss out. You seem to propose a central controller model with 'the devs' (of Bitcoin Core?) tasked with figuring out the optimal price for a bitcoin transaction. Frankly, this seems like a very bad idea to me, even if you could find a way to make it happen.

Look, if I have some bitcoins, and I send them somewhere, why should I or the receiver pay to send or receive them? The whole Internet runs off whatever money people pay their ISPs, etc.  Why should I have to pay more to use this Bitcoin thing, when I spent money to get the bitcoins I have in the first place? Bitcoin fees are stupid. They are not supply and demand oriented.

Where do bitcoins come from? Miners mine them. Miners spend time and money for computers, ASICs, electricity, wiring, etc., so that they can mine bitcoins. If they have bitcojns that they mined, they have them. If the miners won't sell until the price is right, we have a rise in the Bitcoin price. All the stupid fees do is to keep the price down.

Forget the fees altogether. When miners need to make more just to pay their bills, all they have to do is hoard bitcoins until the price is right. That's what the free market is all about. If the fees disappeared altogether, the price of bitcoins would rise. Fees are like a form of centralization. Get rid of the stupid fees.

HOWEVER, this being a free market, if you want to donate fees to some unnamed cause, go ahead. It's a free market!

:)

How would you get rid of fees? Miners aren't likely to support a fork without the ability for miners to set a fee requirement to process blocks. Actually, I'm not sure how feasible such a fork would be without entirely removing even voluntary fees. Do that, and you run a serious risk of undermining Bitcoin's security model in the long term.

Without fees, you're left with trusting the preset reward rate to be optimal to guarantee sufficient interest by honest miners to ward off hashpower attacks. Fees provide important room to increase the network hashrate from what the reward rate alone could support.

Fees are voluntary, aren't they? So, allow them, since people love to donate money to places where they don't see where it is going. Consider taxes. The IRS says they are voluntary. Yet you don't know where yours go. So, make the only change necessary. Advertise in big bold letters, right inside the next version of the client, that they can be erased if they are found to exist automatically whenever you send.

:)

Proof of Stake

I assume that you are not being serious (or at least are not being serious about this being a good idea). While PoS would allow for more/all 0 TX fee TXs, it would open up the network to a large number of potential attacks and the network would overall be defenseless against such attacks

I was just answering the question of how to get rid of fees. No one was really stupid enough to think you could permanently send money for free, right? It costs money to send money whether you're using Western Union or Bitcoin and the cost of sending money will always go up. Nothing in life is ever free. You can't even fart for free. You had to buy the food that made you fart. Sure, someone else might be paying for it but it's not free. Miners spend a lot of money and are rewarded with the subsidy. Including transactions in a block costs tons of money around the world. (Christ, I want to open a power company near a mining farm. Power companies are the ones really raking in the cash.) Even the subsidy costs money to produce and if it were infinite at 50 coins it's still costing money to find a block. The only debate is who should pay for the fee to send the money.

You can't discuss future transaction fees without addressing the future of the maximum block size. The maximum block size influences transaction fee revenue in two ways: the number of transaction in a block -- more transactions means more revenue, and the result of bidding for limited space in the block. It may be possible to balance these two factors such a way that mining revenue is high while individual transaction fees are low. My hope is that somebody comes up with a self-regulating process for determining the maximum block size that maximizes mining revenue while minimizing individual transaction fees.

That's not going to happen because it requires too much real work from the devs. There are dozens of coders working on Bitcoin and only a small handful are getting paid for it. No, it's more likely they will generically increase the block size by a fixed amount at a predetermined rate based on a simple trigger until it's huge.

I don't think such a feature would be all that difficult to develop. It could easily be setup in a way that is similar to how the difficulty changes - so that, for example, the max block size for the next 2016 blocks would be 250% of the average block size from the previous 2016 blocks.

Low price of BTC cannot last forever.

it is a big mistake to depend on the "devs" for everything.


That might not work because it will drive the transaction fee down to 1 satoshi, and that may be too low.

I disagree, especially as the block subsidy halves one or two more times. I don't think miners will confirm no/low TX fees in mass once the block subsidy is low as TX fees will make up more of the miners income

If they don't confirm transactions with low fees, then they are throwing away free money. The only way to get fees up is to make people compete for space in the block chain.

Fees are low. But if somebody does a lot of transferring, he's going to figure out a Bitcoin wallet transfer mechanism, based on the blockchain.

Consider, I have a paper wallet in my pocket that is worth 5 bitcoins. You have a "Watzit Gadget" that you want to sell to me for 5 bitcoins. I hand you the paper wallet. You hand me the Watzit Gadget. You change the password on the wallet in your client. No fee!

When the fee gets too steep, we'll have the next order of Bitcoin. Somebody will put together a method, not for trading bitcoins, but for trading wallets, with no fee involved.

:)

It requires an additional amount of work and an additional risk that a block will orphan for each additional TX that is included in a block. If the TX fee is too low then it will not be worth it to the miners to receive this additional small amount of money