Bitcoin cannot survive on transaction fees alone so why do we even bother?

[ir.hn]

I did the calculation a while back and when bitcoin was only a few thousand dollars, if there were no coins bieng mined there would have to be the equivalent of $60 fee per transaction for the miners to make as much as they were making for the coins they mined.  Now with bitcoin at the price it currently is, it would cost hundreds of dollars per transaction.  Do we really believe that bitcoin could survive on just fees alone?

Since the original design didn't really have a blocksize limit, it's likely that the plan was to just have more users transacting on-chain and the fees spread more evenly between them.  That way, fees would be healthy and fair for both miners and users.  But with mining becoming so specialised in the ridiculously short space of time it did, that effectively negated any practical chance of normal, everyday people running what the whitepaper (arguably mistakenly) assumed would be a "node".  However, It's important to raise the distinction that every time the whitepaper uses the phrase "nodes" it actually means what we now refer to as "miners".  

Instead, we ended up with this awkward middle class, who unfortunately get none of the advantage of block rewards and all of the burden of maintaining a full copy of the ledger.  Those are what we now think of as full nodes that form the backbone of the network and miners are something else.  The original concept only had miners and SPV users.  There were no full nodes that didn't mine.  So in a way, it could be seen as slightly perverse that those who run full nodes claim to have the most power and influence over the network when they weren't even a part of the design, but it sadly couldn't be avoided after mining became more centralised that it ought to be.  So, for better or worse, we do now need full non-mining nodes for the sake of decentralisation and we can't ignore the importance of that.  

If it weren't for that hiccup, there would be less of an issue and on-chain scaling wouldn't be so contentious.  More throughput would mean a greater quantity of fees being paid, so the individual fees wouldn't need to be so high.  But we can't increase throughput significantly without decimating the full node middle class who we rely on to preserve decentralisation.  Basically, it all went a bit off-script due to unforeseen technological advancements (namely ASICs) and now we're making the best of a less-than-ideal situation.  Perhaps it does raise questions over Bitcoin's longevity, but it's likely we'll find a solution later down the line.

I would argue non-mining full nodes do nothing for the network.  The only vote you get is the vote of winning the next block; this vote only comes with hashpower.  So non-mining full nodes do not vote; to vote you have to choose which block before you was valid and confirm it into the blockchain by winning the next block.

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[DooMAD]

I would argue non-mining full nodes do nothing for the network.  The only vote you get is the vote of winning the next block; this vote only comes with hashpower.  So non-mining full nodes do not vote; to vote you have to choose which block before you was valid and confirm it into the blockchain by winning the next block.

There are certainly those who agree with that argument, but the majority of them find it more comfortable on one of the altcoin forks where there's far less emphasis on node decentralisation.  You're not "wrong", as such.  You'll just struggle to find people who agree with that mindset here.  It seems everyone places emphasis in different areas, but those with similar priorities will naturally find themselves on the same chain.  But on this chain, nothing is above keeping the network decentralised and that means non-mining nodes serve a vital role.  

If you would rather prioritise low fees and/or fast transactions at the expense of all else, there are plenty of altcoins out there fulfilling that role.  It's a diverse space out there, so you should explore what does and doesn't work for your ideals.  But I'd be remiss if I didn't point out that a decentralised network which is resistant to change is primarily what allows Bitcoin to make credible promises about its money supply, as no one can easily change it.  It's also what allows Bitcoin to be highly resistant to regulatory shutdown.  So the more centralised a currency is, the more potential points of failure it will have.  If any coin ever has a controlling authority who can make sweeping changes at will, you have lost trustlessness and you have to hope that central authority won't screw you over.

Personally, I'd like to see some further compromise with regard to on-chain scaling, but not too much.  Perhaps that then means I'd be more comfortable on another chain too, since many are resistant to even the slightest further increase.  An elitist plaything for the wealthy with high entry barriers isn't how I saw this playing out, but it's drifting in that direction.  There really is no easy answer to this one.  

[DannyHamilton]

If you "remove fees", and I contact a mining pool and offer to send them a payment to confirm my transaction in their next block, how are you going to prevent me from doing that?

I like that method better.  Basically you would have to be lucky enough to pay the right pool.  It is a lottery whether the person you paid actually wins the block or not.  This would effectively set fees to zero for normal transactions and if someone really needs something expedited then they can try their luck on guessing who the next person to win the block will be.

And if I start a business that contracts with MANY of the largest mining pools?  Then my business can charge users to "accelerate" their transactions. My business can just pay whichever mining pool (or solo miner) includes the transactions from my business (after they broadcast their block).  I can let each user set their own price that they want to pay for their transaction, and then I can sort them for the pools and miners based on which transactions pay the highest fees per byte.

Anyone that fails to use my business (or any other similar business) will never see their "free" (or low fee) transactions get confirmed.  Instead they will just see a bunch of transactions that appear to be free (but waiting less time than them) getting confirmed instead of them.

In this scenario, I now have a LOT of influence over the system.  People can't get their transactions confirmed if I don't want them to, and they don't know how much of a fee they need.

This is just a MUCH worse fee system than the current system.  No thanks.  I prefer the transparent fee model where everyone can see what all the other transactions are doing.

[ir.hn]

If you "remove fees", and I contact a mining pool and offer to send them a payment to confirm my transaction in their next block, how are you going to prevent me from doing that?

I like that method better.  Basically you would have to be lucky enough to pay the right pool.  It is a lottery whether the person you paid actually wins the block or not.  This would effectively set fees to zero for normal transactions and if someone really needs something expedited then they can try their luck on guessing who the next person to win the block will be.

And if I start a business that contracts with MANY of the largest mining pools?  Then my business can charge users to "accelerate" their transactions. My business can just pay whichever mining pool (or solo miner) includes the transactions from my business (after they broadcast their block).  I can let each user set their own price that they want to pay for their transaction, and then I can sort them for the pools and miners based on which transactions pay the highest fees per byte.

Anyone that fails to use my business (or any other similar business) will never see their "free" (or low fee) transactions get confirmed.  Instead they will just see a bunch of transactions that appear to be free (but waiting less time than them) getting confirmed instead of them.

In this scenario, I now have a LOT of influence over the system.  People can't get their transactions confirmed if I don't want them to, and they don't know how much of a fee they need.

This is just a MUCH worse fee system than the current system.  No thanks.  I prefer the transparent fee model where everyone can see what all the other transactions are doing.

I agree with your analysis.  But those businesses you propose will need to run on capital, and that capital would come from those using their services.  So they would have to charge on top of the fee they are paying to the miners.  I'd say that most people would simply refuse to use those services for the most part and would vote for no transaction fees by just paying directly through the blockchain.  I'd say those businesses would only have a niche role in bitcoin.  One of the big problems with the fees currently is most times you cannot control how much fee you offer, as the online wallets control this for you.  I don't think would be happening as much if fees weren't on the blockchain.

Great analysis though, this is how we move forward is thinking through the possibilities.

[nullius]

Sorry for a lazy post

Please disclose, are you being paid for it?  If so, by whom?

Alternative solution would be to increase blocksize to gigabytes, so fees will be cheaper but their sum would still buy enough PoW, but that would mean that there will be just a few full nodes in the world that can be very easily attacked by governments or can use their power to enforce whatever rules they like.

You could also remove 21mil cap to keep subsidizing PoW with mining rewards forever, but this would remove a lot of value from Bitcoin, which in the end might net less PoW than any of previous solutions.

In other words, alternative solutions would be to destroy Bitcoin.  Of course, that’s the agenda.

(To be clear, you are an intelligent poster; and I realize you were highlighting how stupid this whole discussion is.  But I think you were a bit too subtle for some of the types suddenly flooding in.)

+1 - Until the high fee and network congestion issues are solved, this is no different than a traditional bank. The whole point of a virtual currency is dissolved by these hurdles. If the core team doesn't act quick, its not far before LTC/XRP take over the market with their super fast network.

Say what?  The decentralized, permissionless Bitcoin network, which vests users with all power over themselves and all responsibility for themselves, is “no different than a traditional bank”.  Its “whole point... is dissolved”.

Please sell all your bitcoins.  Dump BTC, right now!  Go back to the banks.  You won’t be missed.

Transaction fees are set by users, and not by miners. If you don't want to pay high fees, then don't submit transactions offering to pay high fees.

And there, you have described the purpose of the fee market as a filter which stops people from filling a shared global commons with transactions not personally important to them.  If a transaction is not sufficiently important to you that you’re willing to either pay or wait, then it doesn’t belong on the blockchain.  Nodes don’t need an eternal archive of purchases of cups of coffee.  Lightning will handle those; better still, it will enable real micropayments.

[...]

I think you haven't taken the time to think this through.

I think he did think it through—or rather, somebody thought it through for him.  Never assume stupidity, when malice will suffice.

Please have a look at this paper

https://www.bitcoinunlimited.info/resources/feemarket.pdf

It gets comical when the idiotic forkers are referencing the arguments of forks dead and buried.

Quitting on the first ever cryptocurrency which has grown over 1500% this year alone over the fees problem would be plain stupidity with what is to come in the near future.

It bears emphasizing in all these conversations:  People who complain about fees to the point of derogating Bitcoin, are in essence complaining that their coins are too valuable, the network is too popular (= in high demand).

“My coins increased 1500% in real-world purchase power since I got them.  THIS IS HORRIBLE!  BITCOIN IS DEAD!  THE SKY IS FALLING!”

Well, either they’re that stupid—or they’re being paid to shill against Bitcoin.

... Basically, it all went a bit off-script due to unforeseen technological advancements (namely ASICs) and now we're making the best of a less-than-ideal situation.  Perhaps it does raise questions over Bitcoin's longevity, but it's likely we'll find a solution later down the line.

Are ASICs really an unforeseen technological advancement? ASICs have been used in other industries for years and obviously
make sense in situations where efficiency on a single task is more important than being
good at many different tasks.

There are two schools of thought here:  “ASICs are bad”, thus certain altcoins embracing memory-hard POW such as Equihash; and “ASICs are good”, and they should be commoditized.  The latter holds that ASIC-friendly algorithms benefit the security of the network by making ASICs (relatively) cheaper and easier to produce.

ASIC-resistance seems a fool’s errand; but also the ASIC-friendly argument falls down, kicked down by the huge footprint of Jihan.  I don’t think anybody yet has a good solution.  If Blockstream had the godlike powers ascribed to them by idiots, they should decree by fiat that $5 SHA-256 ASICs rain from the heavens.

I would argue non-mining full nodes do nothing for the network.  The only vote you get is the vote of winning the next block; this vote only comes with hashpower.  So non-mining full nodes do not vote; to vote you have to choose which block before you was valid and confirm it into the blockchain by winning the next block.

Ah-hah, the anti-nodes agenda drops its mask!  The “full nodes do nothing for the network”, eh?

[...] I think a much higher rate of benefit can be reached by educating the people that run full nodes and explaining how they are not in actual fact helping the network. The simple fact is that if they didn’t run those nodes, this whole discussion would not exist.

ir.hn, at this point I am reasonably certain that you are deliberately, maliciously lying.  You’ve been spamming your nonsense over multiple threads in a forum designated for well-informed technical discussion.  To all explanations, you counterargue with bare assertions.  But if you want to play stupid, go read my other recent reply, q.v.:

[...]

General point:  There is a common misconception about the role of miners.  Miners have one, only one, and exactly one job:  To provide the ordering of transactions in a Byzantine fault-tolerant manner (which in turn prevents double-spends).  That’s what miners do.  That is all miners do.  Granted, it is an important and resource-intensive job; that’s why miners get paid for it.  But that is the one and only security function of miners.

[...]

Full nodes do not blindly “follow the longest chain”.  They follow the chain independently validated by them which has the highest total POW.  A miner who produced invalid blocks would be wasting his hashrate, and likely risking widespread blacklisting of his IP address.  It doesn’t matter if the invalid blocks steal money from Segwit transactions, steal money from old-style transactions, create 21 billion new coins, or are filled with gibberish from /dev/random.  An invalid block is an invalid block, and shall be promptly discarded by all full nodes—period.

ir.hn is creating nonsensical non-arguments by exploiting the aforesaid misconception about the role of miners.  After all the attempts others have made to explain on this and other points, I cannot but conclude that ir.hn is maliciously spreading misinformation.  I write this post for the benefit of others.  I am uninterested in arguing with somebody who is a deliberate liar and/or so manifestly ineducable as to appear braindead.

What is so difficult to understand here?  Invalid blocks are not “in the blockchain”.  The only way to add a block to the blockchain, is to mine a valid block.  Those who produce invalid blocks “never actually have any say as to what makes it into the blockchain.”

[ir.hn]

Nullius please provide some counterarguments that are not ad hominem such as "I'm being paid" and "aha you are an anti-noder!" and saying I am Tom Zander.  Are good counter arguments really that hard to find that you resort to personal attacks?

What this post is about is whether or not bitcoin could really survive on only fees.  If fees were really a good idea at all.  And if there are any ideas to alternatives that would accomplish the goals of keeping a deflationary currency while still rewarding miners.  My point is that I don't think that fees will accomplish the goal it was supposed to, and in the process they weigh heavily on the coin and the people trying to adopt it.

[nullius]

Nullius please provide some counterarguments that are not ad hominem such as "I'm being paid" and "aha you are an anti-noder!" and saying I am Tom Zander.  Are good counter arguments really that hard to find that you resort to personal attacks?

Across multiple simultaneous threads, many smart people have shown excruciating patience in attempting to educate you on these technical issues.  Whereas you have shown yourself fully immune to all reason, ad hominem (L. “at the man”) examination of you personally is a perfectly valid means to prevent others from being misled by your disinformation campaign—or wasting their time with you.  For the benefit of others, per my above self-quote, I have also offered some concise technical explanations of where you are wrong.

Aside:  You are not entitled to an opinion, nor to a “counterargument”.  When you make an assertion of fact as to technical issues, then objectively, you are either right or wrong.  Persistently, incorrigibly, you have been wrong; and you still are.  By analogy, I would not deign to offer “counterarguments” to someone who claims that the Earth be flat.

You have severe reading comprehension problems if you think I suggested that you are Tom Zander.  No, I don’t think you are.  But it is evident that you are pushing an anti-nodes agenda.

So, you did not answer:  Are you being paid for these posts?  It’s a simple yes-or-no question.  There do exist people being paid to post on the Internet more or less exactly what you are saying.  On the other hand, their greatest friends are people who have nothing better to do than to unthinkingly repeat what they hear.

[ir.hn]

I think it is a fair question to ask if I am being paid, especially if I am pushing one commercial interest over another.  However I think it would be hard for you to find a cohesive angle that benefits some commercial interest in my posts, so there is your answer.  It shouldn't be hard to figure out.

I started here excited.  New to crypto and 100% devoted.  Came in with lots of new ideas and frankly really big solutions to problems no one has yet solved.  Then I fell into the darkside of bitcoin and realized that 1. ASIC's and GPU's will make it so coins over time will get 51%'d so I started following CPU only coins and found a new one and started mining it.  2. Bitcoin is probably already 51%'d. 3. China is pumping the price 4. a virus has been inserted into the code which can be activated to destroy bitcoin from within 5. People have been lulled into believing they have power to secure the network without mining when in reality they do not.

And what I  am now doing is trying to wake people up, because you have to be able to see the problem to fix it.  Looking through my history you will be able to verify what I just said.   I own bitcoin (along with others I have encouraged to buy it), it is the only coin I own in reasonable amounts, and I want to be able to ride this pump without seeing the floor fall out from under me from vulnerabilities.

[jnano]

I don't see why tx fees alone couldn't suffice. The total hash power would adjust, potentially lower, to match the total value provided by tx fees, whatever they may be.

Transaction fees are set by users, and not by miners. If you don't want to pay high fees, then don't submit transactions offering to pay high fees.

I'm starting to wonder if actually tx fees are controlled more by exchanges and web wallet companies, rather than simple users.

[ir.hn]

I don't see why tx fees alone couldn't suffice. The total hash power would adjust, potentially lower, to match the total value provided by tx fees, whatever they may be.

Transaction fees are set by users, and not by miners. If you don't want to pay high fees, then don't submit transactions offering to pay high fees.

I'm starting to wonder if actually tx fees are controlled more by exchanges and web wallet companies, rather than simple users.

Correct but the problem is the way I see it a 51% mining majority is the death of a coin.  When the hashrate lowers, it will become orders of magnitude more centralized than it is even now.  ASIC's made all miners unprofitable except china, and in that case of fees only, only one or two pools would be able to be profitable thus further centralizing it.

Txn fees controlled by exchanges and web wallets?  Exactly my point.  We don't really have a say unless you spend a year downloading the blockchain on your own node.  This would be diverted if the blockchain didn't support txn fees.

[jnano]

I'm not sure if a lack of block reward would make a 51% attack more likely. The whole ecosystem would adjust, including the cost and production of ASIC hardware.  But see, right now the fees are about 8 BTC per block. Even half of that is substantial at current exchange rates. SegWit can already double the number of transactions, and I assume the future will bring more capacity increases.

If the hashrate barrier to entry is lower, why would it increase centralization rather than decrease it?

You don't need to download the whole blockchain to decide on your fees. There are SPV clients like Electrum, among other options.

The exchanges/web wallets fees problem could be improved if users demanded fee control. But I suspect many of the new users in the recent influx just don't know how fees work, so they can't demand it.

[nullius]

I think it is a fair question to ask if I am being paid, especially if I am pushing one commercial interest over another.  However I think it would be hard for you to find a cohesive angle that benefits some commercial interest in my posts, so there is your answer.  It shouldn't be hard to figure out.

It has been investigated and confirmed that on popular social media such as Reddit, paid professional manipulators are using multiple accounts to push an agenda which is:  (0) Anti-Segwit; (1) anti-Core; (2) pro-BCH, and/or pro-other-forks.  Some of their usual claims, all factually false:  “Segwit removes signatures from transactions.”  “Segwit permits miners to steal the money from Segwit transactions.”  They also seize every opportunity to wring their hands about fees.  Sound familiar?

Now when you show up in the forum for Bitcoin Development & Technical Discussion and start prolifically posting on about multiple different threads with rhetoric such as “Segwit is a 51% attack on Bitcoin”, you should understand why I wax a wee bit suspicious.

I didn’t accuse you of being paid:  I flat-out asked if you were.  It’s a reasonable question.  N.b. that if you are not deliberately spreading disinformation, that implies you must be a victim of disinformation who continues to spread it as one infected by plague.

I started here excited.  New to crypto and 100% devoted.  Came in with lots of new ideas and frankly really big solutions to problems no one has yet solved.

There is a common fallacy of falsely presuming oneself to have original ideas about problems which very smart people have pondered for years.  It seems that lately, half the new threads in this forum are by people who ignorantly claim to have “invented” some new idea or “discovered” some sort of unknown problem.  Almost without exception, the “new” ideas are rehashes of old ideas which were rejected long ago, because they are bad ideas; and the “unknown” problems are either very well known, or total non-problems.

It is easy to overestimate one’s own knowledge and frankly, one’s own competence.  The wise ones quietly learn until they know enough to know the limits of their own knowledge.  The fools open their mouths and start blabbering.

If you’re “new to crypto and 100% devoted”, I strongly urge you to study.  Read documentation, FAQs, source code.  Then after you have a sound basis for the beginning level of knowledge, ask intelligent questions—first in Beginners & Help for abstract conceptual questions, or Technical Support for questions about concrete usage of Bitcoin Core or the Bitcoin network.  This forum, “Development & Technical Discussion”, is for exactly that.  I don’t think it’s appropriate to even post here until after one has spent “100% devoted” time and effort acquiring genuine expertise.  All of us were once beginners, but this is not a forum for beginners.

4. a virus has been inserted into the code which can be activated to destroy bitcoin from within

I infer you mean Segwit.  As has been explained, that’s false.  But I will pretend here that you were referring to actual tampering with Bitcoin’s codebase.  That is a valid concern; and to be proactive in protecting the security of the code, Core was a pioneer in the application of deterministic builds.  If you have the skills (or can pay a security professional), you can download the Bitcoin source code, verify all pertinent PGP signatures on both code and binaries, audit the code, and then verify that the code you audited builds into binaries identical to the ones Core distributes.  This last is important to advanced security.  Core has made great effort to enable this type of auditing.

[ir.hn]

Like I have said elsewhere I am a small blocker (45kb x 3.5 min) so I don't think you can claim I am furthering BCH.  I don't own BCH and I do own BTC.

I am for fairness and decentralization and the free flow of information and what comes from that is more knowledge and more ideas.

Please read my whitepaper on a new PoW method, I think you should find that yes I did solve the biggest problem in crypto previously unsolved.  The problem is that implementing it will be quite difficult.

A lot of people are talking down to me but none seem to be able to assuage my suspicion that splitting signatures from the UTXO merkle tree hashing will cause big problems since an obvious attack is to just stop verifying the signatures altogether.  If just one person finds this profitable to do then it will spread.  This could be helped by rich rivals in the cryptospace actually writing modified code that allows the miners to do just that, skip verifying signatures which may offer short term gains and long term suffering.  People do this everyday, just ask mcdonalds.

[ir.hn]

I'm not sure if a lack of block reward would make a 51% attack more likely. The whole ecosystem would adjust, including the cost and production of ASIC hardware.  But see, right now the fees are about 8 BTC per block. Even half of that is substantial at current exchange rates. SegWit can already double the number of transactions, and I assume the future will bring more capacity increases.

If the hashrate barrier to entry is lower, why would it increase centralization rather than decrease it?

You don't need to download the whole blockchain to decide on your fees. There are SPV clients like Electrum, among other options.

The exchanges/web wallets fees problem could be improved if users demanded fee control. But I suspect many of the new users in the recent influx just don't know how fees work, so they can't demand it.

It will though.  Less payback for mining will mean it is even less profitable then now, and even fewer players would be able to do it.  Chinese miners using free electricity provided by the government (which is absolutely happening) will for sure be the only ones who can mine at a profit.

People don't just all drop out at once then are able to come back in when the difficulty adjusts.  The less profitable ones fall out for good and only the most profitable survive.  This is exactly what happened when ASIC's came around.  People fell out yes, but only the slowest.  Any time you make it less profitable to mine the slowest and those running on the tightest margins will fall out for good.  The game doesn't reset, it becomes more entrenched.

SPV wallet didn't work for me, nodes kept disconnecting me.  Also it isn't mainstream and most everyone buys from exchanges anyway so in effect we can't decide our fees.

[nullius]

Like I have said elsewhere I am a small blocker (45kb x 3.5 min) so I don't think you can claim I am furthering BCH.  I don't own BCH and I do own BTC.

I am for fairness and decentralization and the free flow of information and what comes from that is more knowledge and more ideas.

Glad to hear it!

A lot of people are talking down to me but none seem to be able to assuage my suspicion that splitting signatures from the UTXO merkle tree hashing will cause big problems since an obvious attack is to just stop verifying the signatures altogether.  If just one person finds this profitable to do then it will spread.  This could be helped by rich rivals in the cryptospace actually writing modified code that allows the miners to do just that, skip verifying signatures which may offer short term gains and long term suffering.  People do this everyday, just ask mcdonalds.

A question you should ponder:  Why don’t miners skip verifying all signatures, altogether?  That could be really profitable.  That way, they could seize and spend Satoshi’s coins!

Oh, wait:  They couldn’t do that, because the resulting blocks would be rejected by nodes as invalid.

But according to you, nothing whatsoever could stop them.  A miner could simply seize Satoshi’s coins with a consensus-invalid transaction, and other miners could build on that chain, and full nodes would be forced to follow along because they have no hashpower—right?

Segwit makes absolutely no difference whatsoever, in this regard.  The signatures are still there; they just got moved around a little bit.  Verification of the signatures is still required by consensus rules.  No substantive change has been made as to the security properties of Bitcoin’s signature verification.

[DannyHamilton]

splitting signatures from the UTXO merkle tree hashing will cause big problems

You should take a moment and go look at how SegWit actually works.

It sounds like the thing driving your fear of it is based on a false assumption about how it works.

If the signatures ARE committed to the merkle tree hashing of the block (and therefore committed to the merkle root), does that put your mind at ease and make you feel comfortable that SegWit does NOT create a situation where miners could just ignore signatures?