Bitcoin - The First Five Questions

[Come-from-Beyond]

1. Zero fee to transfer money
2. Transfers are instant.

Why the hell ppl continue to spread disinformation? Does Bitcoin need dirty tricks to get world-wide adoption? Everyone who states that Bitcoin has zero fee and instant deserves a scammer tag.

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[Boussac]

Well that's almost correct. Fees are near to zero. While transaction speed... well you don't really send anything at all with bitcoin.

It's also not correct. Zero != not zero. And fees are only really low because of the mining subsidy. But evoorhees bending the truth whenever it suits him is nothing new or surprising. And sure whatever you say bro on the last sentence.

Erik is correct (kudos to Erik for his excellent post once again): bitcoin enables zero transaction fees because any fee applied by a bitcoin service provider must be backed by a real service not by regulatory capture.
For instance, we can propose zero fee transactions to merchants using bitcoin as a metacurrency while we can make a profit on exchange (buying low selling slightly higher, thanks to a growing bitcoin economy). By doing so we isolate the merchant from exchange rate volatility in a win-win deal.

Transactions are instantaneous for all practical purposes because a transaction message takes only a couple of seconds to reach its destination. Confirmations have nothing to do with transaction speed but relates to reversibility. A bitcoin transaction becomes pratically irreversible after an hour while a credit card transaction can be reversed  months after the facts.

[jgarzik]

Erik is correct (kudos to Erik for his excellent post once again): bitcoin enables zero transaction fees because any fee applied by a bitcoin service provider must be backed by a real service not by regulatory capture.

No, it is simply factually incorrect.

To send bitcoins on the bitcoin network in small amounts, a fee is required.  Requires non-zero fee is precisely the opposite of "zero fees."

Do not set up new bitcoin users to be disappointed, by selling them "zero fees!!" then letting them discover on their own that reality does not match hype.

[Boussac]

Erik is correct (kudos to Erik for his excellent post once again): bitcoin enables zero transaction fees because any fee applied by a bitcoin service provider must be backed by a real service not by regulatory capture.

No, it is simply factually incorrect.

To send bitcoins on the bitcoin network in small amounts, a fee is required.  Requires non-zero fee is precisely the opposite of "zero fees."

Do not set up new bitcoin users to be disappointed, by selling them "zero fees!!" then letting them discover on their own that reality does not match hype.

Well, very factually, I can send a zero fee transaction on the bitcoin network because I don't care if it's processed in three days. if I want priority service, I will add a small fee. Hence, the statement "bitcoin enables zero fee transactions" is factually correct albeit somewhat atypical.

More importantly, service providers whose business model is based on exchange (processing transactions denominated in fiat via the bitcoin network and offering conversion rate hedging for risk averse merchants) will propose not only zero fee transactions to those merchants but even possibly negative commission rate i.e direct incentives for the merchants to get paid via the bitcoin network.

[jgarzik]

Well, very factually, I can send a zero fee transaction on the bitcoin network because I don't care if it's processed in three days. if I want priority service, I will add a small fee. Hence, the statement "bitcoin enables zero fee transactions" is factually correct albeit somewhat atypical.

No, it doesn't simply wait a long time, it simply does not get relayed.

Further, you cannot add anything once the transaction has been sent.

More importantly, service providers whose business model is based on exchange (processing transactions denominated in fiat via the bitcoin network and offering conversion rate hedging for risk averse merchants) will propose not only zero fee transactions to those merchants but even possibly negative commission rate i.e direct incentives for the merchants to get paid via the bitcoin network.

Negative rate?  You are describing a hypothetical service layer on top of the bitcoin network that does not exist.

[Etlase2]

Well, very factually, I can send a zero fee transaction on the bitcoin network because I don't care if it's processed in three days. if I want priority service, I will add a small fee. Hence, the statement "bitcoin enables zero fee transactions" is factually correct albeit somewhat atypical.

What is with the disconnect? How do you see "1. Zero fee to transfer money" and read "bitcoin enables zero fee transactions"? And the underlying system of bitcoin most certainly does not rely on zero fee transactions. Remember when "paypal will always be free"? Cognitive dissonance much?

[justusranvier]

No, it doesn't simply wait a long time, it simply does not get relayed.

Isn't that's more of a current implementation detail than a fundemental limitation?

Is there anything in the protocol that would stop someone from starting a mining pool that only processed zero-fee transactions and allowed users who wished to perform them to directly connect to the pool instead of broadcasting on the network?

[jgarzik]

No, it doesn't simply wait a long time, it simply does not get relayed.

Isn't that's more of a current implementation detail than a fundemental limitation?

Is there anything in the protocol that would stop someone from starting a mining pool that only processed zero-fee transactions and allowed users who wished to perform them to directly connect to the pool instead of broadcasting on the network?

Any miner may choose to include any valid transaction within a block.  Zero-fee and non-standard transactions are valid transactions.

What is relevant, though, is what this Five Questions blog post is telling users does not match with common user experience.  Expectations must be set properly.

"0.001% of the fee of any modern USD payment processor" would get the point across without misleading.

[dooglus]

Posted this on our blog so that others can refer people to it - it's another "overview" of what Bitcoin is, but formatted as "The First Five Questions" everyone is bound to have. This is particularly useful for any journalists who are starting to research Bitcoin.

This bit confused me, and will probably confuse a newcomer too:

Several million dollars worth are transferred per day, but it is impossible to know for what purpose. In the last 24 hours, about 30,000 transactions occurred, or over one thousand transactions per hour. Since Bitcoins are exchanged back and forth with standard government currencies, the volume of this trading is about $100,000-$500,000 worth per day.

You seem to be giving two contradictory values for the same thing.  Is it several million or half a million per day?

Maybe you're saying the half million number is the amount traded on exchanges, whereas the bigger numbers is on the blockchain.  If so, the "Since ..." bit could stand clarification.  Maybe give the two numbers as "bitcoins transferred" and "bitcoins exchanged for government currencies" per day.

[dooglus]

Finished reading it now.  Thanks for posting it - it's a great introduction.

One final comment: you seem to be inconsistent with your capitalisation of 'bitcoin'.  There's a post here:
  http://meta.bitcoin.stackexchange.com/a/22/659
which proposes one consistent way of capitalising.

Use Bitcoin (with a capital "B") when talking about the concept/technology.
Use bitcoins (no capitalization) when talking about the unit of currency (4 dollars - 4 bitcoins).

Here's an example of the problem from the post - there are lots more:

What is bitcoin?
[...]
How extensively is Bitcoin used?

[herzmeister]

how about

• negligible transaction fees
• near-instant transactions

?

[dooglus]

how about

• negligible transaction fees
• near-instant transactions

?

Those were points 1 and 2:

Advantages include:

1. Zero fee to transfer money

2. Transfers are instant. No holiday or weekend delays.

Oh, but you mean they're not actually zero or instant...  Well, you can chose to pay zero fees if you like.  It just might take a very long time for your transaction to get into a block.