Priority txs and fee calculation

[pawel7777]

What's the effect of BTCC (and possibly others?) offering priority transactions (even zero fees) to its customers?

Are such transactions somehow excluded/adjusted for in calculating currently optimal tx fee, by bitcoinfees.21.co or wallets?

If not, would that mean the recommended fees could be understated, more or less, depending on the volume of priority txs?

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[DannyHamilton]

What's the effect of BTCC (and possibly others?) offering priority transactions (even zero fees) to its customers?

Are such transactions somehow excluded/adjusted for in calculating currently optimal tx fee, by bitcoinfees.21.co or wallets?

If not, would that mean the recommended fees could be understated, more or less, depending on the volume of priority txs?

I always assumed that out-of-band transaction fees paid directly to the largest mining pools would eventually be commonplace.  I assume that it has been quietly occurring in a small way for a while now. I'd only expect the concept to grow over time, especially after the halving.

As a mining pool operator, if you can guarantee that your pool will get transaction fees that won't be available to your competitors, you'll be more profitable and drive them out of business. One significant use-case is larger merchants (such as coinbase, bitpay, etc) that want to accept low fee (or zero-fee) transactions.  By contracting with large mining pools (and paying the fee for the transaction directly), they can increase likelihood that the transaction is confirmed and that any attempt to send a competing transaction fails.

[pawel7777]

I always assumed that out-of-band transaction fees paid directly to the largest mining pools would eventually be commonplace.  I assume that it has been quietly occurring in a small way for a while now. I'd only expect the concept to grow over time, especially after the halving.

As a mining pool operator, if you can guarantee that your pool will get transaction fees that won't be available to your competitors, you'll be more profitable and drive them out of business. One significant use-case is larger merchants (such as coinbase, bitpay, etc) that want to accept low fee (or zero-fee) transactions.  By contracting with large mining pools (and paying the fee for the transaction directly), they can increase likelihood that the transaction is confirmed and that any attempt to send a competing transaction fails.

Personally I don't have a problem with priority fees as long as there's still room in the blocks. But when blocks are full it could lead to weird situation when high fee txs are stuck en masse while low/zero fees txs are going through.

And going back to my original question. In the event of blocks being notoriously maxed-out (aka fee market), if the "priority txs" form noticeable % of total txs volume, would it be at all possible to accurately estimate fee needed to get confirmation within next few blocks, or will it be totally guessing game?

In other words, if services like bitcoinfees.21.co (or wallet providers) predict optimal fees based on txs confirmed in the last X hours - and if they can't distinct between normal and prioritised fees, that could make their predictions pretty useless.

Am I missing something or is it yet another flaw in the 'fee market' model?

[DannyHamilton]

Personally I don't have a problem with priority fees as long as there's still room in the blocks. But when blocks are full it could lead to weird situation when high fee txs are stuck en masse while low/zero fees txs are going through.

Weird situation?  Sounds like a normal situation to me.  It's exactly what I expect to eventually happen.  Lots of very small fee (or zero fee) transactions will be confirmed in blocks because the miner was paid to confirm them in a separate transaction.

And going back to my original question. In the event of blocks being notoriously maxed-out (aka fee market), if the "priority txs" form noticeable % of total txs volume, would it be at all possible to accurately estimate fee needed to get confirmation within next few blocks, or will it be totally guessing game?

There is no way to know how much the miner got paid for their effort.  Therefore, if you don't have a contract with the mining pool, and you aren't sending your payment to someone that has a contract with the mining pool, then it wouldn't be possible to "accurately estimate fees needed to get confirmation within next few blocks".  You could pay a fee higher than the highest fee in the block, and still not get confirmed if the pool completely filled the block with contracted transactions.

In other words, if services like bitcoinfees.21.co (or wallet providers) predict optimal fees based on txs confirmed in the last X hours - and if they can't distinct between normal and prioritised fees, that could make their predictions pretty useless.

Yep.  They would need to receive information directly from the pools as to what fee they would require to get into a block, and then they'd have to trust that the pool wasn't lying to them. I suppose they could create a large number of their own transactions, and then watch to see which of their transactions confirm, but that could get a bit expensive.

Am I missing something or is it yet another flaw in the 'fee market' model?

Flaw?  Feature?

Toe-May-Toe? Tah-Mah-Toe?

Capitalism and free-market at work.  Is it a good thing or not?

[Quickseller]

And going back to my original question. In the event of blocks being notoriously maxed-out (aka fee market), if the "priority txs" form noticeable % of total txs volume, would it be at all possible to accurately estimate fee needed to get confirmation within next few blocks, or will it be totally guessing game?

I am going to go out on a limb here and say that this is another reason why the fee market is bad.

As blocks get closer to capacity over long periods of time, large merchants (and others who process large numbers of transactions) will have incentives to contract with large mining entities (be it farms, pools, or otherwise) to have their transactions prioritized to ensure good customer experience, security, ect. These transactions will get confirmed relatively quickly while there will be a smaller amount of block space for other transactions.

I don't think the fee market would be accurately described as capitalism and free-market at work. The supply of the product (block space) is artificially restricted. I would consider an environment in which the miners can charge as much as they want to include a x kb transaction in their block, in which they can include as many x kb transactions that they wish, and when miners need to compete with other miners for transactions (if a miner does not include a tx because the fee is too low then a more competitive miner may include the transaction in the next block)

[pawel7777]

Personally I don't have a problem with priority fees as long as there's still room in the blocks. But when blocks are full it could lead to weird situation when high fee txs are stuck en masse while low/zero fees txs are going through.

Weird situation?  Sounds like a normal situation to me.  It's exactly what I expect to eventually happen.  Lots of very small fee (or zero fee) transactions will be confirmed in blocks because the miner was paid to confirm them in a separate transaction.

Yup, definitely weird situation from the point of view of sender who's trying to figure out what is the currently sufficient fee.

As for block-space trading (while blocks are full), it's not really something I'm looking forward to. Taking it to the extreme (still quite realistic scenario) what if things go a bit further and all major miners decide to sell entire available block space to broker(s) (meaning they'll only include txs pre-agreed with the broker and reject all the rest even if there's plenty of room in the blocks). Still a normal situation? If not, where's the line?

There is no way to know how much the miner got paid for their effort.  Therefore, if you don't have a contract with the mining pool, and you aren't sending your payment to someone that has a contract with the mining pool, then it wouldn't be possible to "accurately estimate fees needed to get confirmation within next few blocks".  You could pay a fee higher than the highest fee in the block, and still not get confirmed if the pool completely filled the block with contracted transactions.
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Yep.  They would need to receive information directly from the pools as to what fee they would require to get into a block, and then they'd have to trust that the pool wasn't lying to them. I suppose they could create a large number of their own transactions, and then watch to see which of their transactions confirm, but that could get a bit expensive.

That's what I thought. But then it could be quite easily exploited. If wallets were to calculate fee automatically for their users based on the info directly from miners, then even one major miner could drive the fees up simply by lying i.e. that he won't accept any tx with fee smaller than say 0.001 or more (while in practice he could be accepting anything), then average goes up and users pay much more than they could/should.

Am I missing something or is it yet another flaw in the 'fee market' model?

Flaw?  Feature?

Toe-May-Toe? Tah-Mah-Toe?

Capitalism and free-market at work.  Is it a good thing or not?

I gotta side with Quickseller on this one. Keeping artificial limits (even for the noble reasons) with the intention to enforce customers to compete for service (and keep fees on currently desired not-too-high-but-not-too-low level) rather than the other way around, looks way more like central planning to me.

[AliceGored]

Flaw?  Feature?

Toe-May-Toe? Tah-Mah-Toe?

Capitalism and free-market at work.  Is it a good thing or not?

A production quota that is centrally determined by an infallible priesthood of experts is the exact opposite of free market capitalism.

Bitcoin is designed in such a way that it should route around attempts by non-miners to steer and control it... Sadly, they've chosen to not rock the boat for short term stability vs acting in their own, and the network's, long term interests.

It is becoming abundantly clear to many that artificial scarcity won't work as there are competing networks that will be happy to take the transactions and market cap that won't fit in a Bitcoin that has purposefully given itself a competitive disadvantage. The market will solve things one way or another. Unfortunately it may solve it by removing BTC as the dominant crypto token. 

[pawel7777]

It is becoming abundantly clear to many that artificial scarcity won't work as there are competing networks that will be happy to take the transactions and market cap that won't fit in a Bitcoin that has purposefully given itself a competitive disadvantage.
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To be fair, the idea* is to push most of transactions off-chain (Lightning Network(s) and/or Sidechains). I see many issues with that concept, but don't want to further derail my own topic.


*it's not exactly clear what is the Core devs officially agreed concept of scaling to the Visa level and above. The 'roadmap' doesn't really clarify on that.

...The market will solve things one way or another. Unfortunately it may solve it by removing BTC as the dominant crypto token. 

And that's exactly how free market works. You're not satisfied with particular product/service, you'll start looking for something better.

It would be a shame if Bitcoin squandered its first mover advantage, once it's lost, there'll be no 2nd chance, it's not something you can win back.