Bitcoin and Micropayments

[Melbustus]

One of the potential benefits of bitcoin is in enabling cost-effective micropayments. At least, in theory. In practice, will transaction fees have to evolve to the point where they make micropayments just as infeasible as they are today? That is, when there's little new-coin reward for mining a block and transaction volume is high (causing fees to be non-trivial), will transaction fees be to high to send micropayments without losing a huge percentage of the payment?

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[julz]

I'm concerned that the high fees for microtransactions will impede the distribution of bitcoin and limit it's application.

Why can't some portion of the fees for microtransactions be paid in a cryptographic 'proof of recent work'?
(prove your client has done x seconds of calculations, after some recent block)

At the moment the fees aren't as a percent of transaction value. By shifting to requiring part of the fee to be paid in computational work, and the rest as a percentage fee rather than an absolute - it makes spamming the network impractical, and fees fair for low values.

[BookofNick]

Yes, the current fees are a problem. I can't send 0.001 Bitcoins to you at the moment. It's impossible. I'm not worried, though. When BTC price gets that high, it's a problem I'd like to have. And one I think will be solved.

[a63ntsm1th]

I also have questions regarding micro-payment and transaction fees.  I havent really been able to find a good source of information as to how transaction fees are calculated.

As an entrepreneur I am doing feasibility studies for several bitcoin business ideas. In doing these studies I have tried to anticipate the future value of bitcoins and several models I have used end up with bitcoins being worth easily close to 1 million current US dollars each.

If bitcoins gained enough traction to become this valuable, the term micro transaction might have different meaning all together as you would need to transfer just 1 millionth of a coin to buy a coffee.

Im sure this is adressed somewhere, does anyone have any links?

[BookofNick]

I also have questions regarding micro-payment and transaction fees.  I havent really been able to find a good source of information as to how transaction fees are calculated.

As an entrepreneur I am doing feasibility studies for several bitcoin business ideas. In doing these studies I have tried to anticipate the future value of bitcoins and several models I have used end up with bitcoins being worth easily close to 1 million current US dollars each.

If bitcoins gained enough traction to become this valuable, the term micro transaction might have different meaning all together as you would need to transfer just 1 millionth of a coin to buy a coffee.

Im sure this is adressed somewhere, does anyone have any links?

I'm not sure Bitcoin at 1 million USD is good planning. If that was your business model, then just buy 1 Bitcoin, sit back and relax and become a millionaire.

Value increases take time and infastructure. I think a more realistic target, if Bitcoin catches on, is $100 or so in the next couple years.

[evoorhees]

I also have questions regarding micro-payment and transaction fees.  I havent really been able to find a good source of information as to how transaction fees are calculated.

Transaction fees aren't "calculated." They are determined by the sender of a payment. When you send a bitcoin (or fraction of one) you may opt to pay a transaction fee and you set the fee.

Caveats:
- Some client versions set a mandatory minimum fee per kb of the transaction size. The most recent client version sets this minimum at .0005 btc per kilobyte I believe, and most transfers are 1kb. The older client sets the minimum at .01 btc... and this obviously causes problems for people who haven't upgraded.

- If you use some online wallets (like instawallet or mybitcoin) it appears that you can send btc without any transaction fee. I have done this many times.

All you really need to understand, is that fees tend to be voluntary, but it is smart to include a fee in order to have your transaction processed in a reasonable amount of time. As the market matures, the fee required for a quick transfer will continually fall due to competition. Short term, due to some client issues, some people are paying fees higher than they need/want to.

Hope that clears it up! =)

[ctoon6]

need a client patch that allows coins to be send for free.

[Melbustus]

I also have questions regarding micro-payment and transaction fees.  I havent really been able to find a good source of information as to how transaction fees are calculated.

Transaction fees aren't "calculated." They are determined by the sender of a payment. When you send a bitcoin (or fraction of one) you may opt to pay a transaction fee and you set the fee.

Caveats:
- Some client versions set a mandatory minimum fee per kb of the transaction size. The most recent client version sets this minimum at .0005 btc per kilobyte I believe, and most transfers are 1kb. The older client sets the minimum at .01 btc... and this obviously causes problems for people who haven't upgraded.

- If you use some online wallets (like instawallet or mybitcoin) it appears that you can send btc without any transaction fee. I have done this many times.

All you really need to understand, is that fees tend to be voluntary, but it is smart to include a fee in order to have your transaction processed in a reasonable amount of time. As the market matures, the fee required for a quick transfer will continually fall due to competition. Short term, due to some client issues, some people are paying fees higher than they need/want to.

Hope that clears it up! =)

That probably clears up some of the other questions in this thread, by not my original one. Don't we still have an issue longer-term with feasibility of micro-transactions under bitcoin due to the fact that fees will likely have to a fairly high percentage of tiny transactions in order to get them processed in a reasonable amount of time?

[Littleshop]

Everyone has their own idea of what a micropayment is.  Paypal it is under $12.  To some it is pennies.

I deal with micropayments when selling LEDs and stickers.  A sticker and shipping can be as low as $1.48

Bitcoin beats out Paypal or anything else that I know of currently.  I group transactions and when they get to $100 or so I change them into real money through an exchange and Dwolla.  My fees on $100 total transactions?  75 cents or less.  .75%
25 cents for Dwolla, 50 cents for Tradehill or less using others. 

It I had 20 orders with paypal averaging $5 each, paypal would charge $9 on that same amount or 9%.

If I spend the money in the community my fees are nearly zero.  Nothing else that works can do that. 

If your idea of a micropayment is 5 cents, nothing out there is gonna work better then bitcoin, even though the fees will be quite high as a percentage. 

[ctoon6]

once you get into sub $2 amounts, make the give at least $2 and give them store credits to buy stuff at a later date.

[error]

I also have questions regarding micro-payment and transaction fees.  I havent really been able to find a good source of information as to how transaction fees are calculated.

As an entrepreneur I am doing feasibility studies for several bitcoin business ideas. In doing these studies I have tried to anticipate the future value of bitcoins and several models I have used end up with bitcoins being worth easily close to 1 million current US dollars each.

If bitcoins gained enough traction to become this valuable, the term micro transaction might have different meaning all together as you would need to transfer just 1 millionth of a coin to buy a coffee.

Im sure this is adressed somewhere, does anyone have any links?

I'm not sure Bitcoin at 1 million USD is good planning. If that was your business model, then just buy 1 Bitcoin, sit back and relax and become a millionaire.

Value increases take time and infastructure. I think a more realistic target, if Bitcoin catches on, is $100 or so in the next couple years.

The thing is, I came up with very similar numbers. If Bitcoin catches on, $1 million IS a realistic target. Almost certainly not in two years. Ten to twenty years, it becomes a possibility.

At certain BTC/USD thresholds it makes sense to start talking and trading in mBTC and (later) µBTC. There are a few threads about this already.

[Melbustus]

...
If your idea of a micropayment is 5 cents, nothing out there is gonna work better then bitcoin, even though the fees will be quite high as a percentage. 

Yes, I was specifically thinking in the 5-10 cent range. If transactions of that size were feasible without high fees (on a percentage basis), the way content is sold online could radically change (eg; click here to pay 5 cents to finish reading this article/blog-post/whatever). Subscription services could go away - this has obviously been on people's wish list for quite some time. Bitcoin looks, at least on the surface, like it might be able to enable such things, but upon closer inspection, perhaps not.

[Stephen Gornick]

Bitcoin looks, at least on the surface, like it might be able to enable such things, but upon closer inspection, perhaps not.

Since we do not know how much the miners will require as payment in the future, it will be risky to base a business around bitcoin transactions costing less than a few cents.

It was just weeks ago that the bitcoin client was still sitting at 0.01 BTC fee requirement and that meant the transaction fee was $0.20 USD worth for each transaction.  Of course, that was a special situation and probably won't happen again, but a rise to three or five cents each transactions seems plausible.

[a63ntsm1th]

@evorhees thanks for clearing it up.  As long as transaction fees are dictated by the market im sure there will be very little problems, and micro-transactions will be as affordable as the cost to process the data allows them to be (assuming the market remains free from regulation or coercion)

Btw is there a thread for working out these bitcoin growth models? With such little data available on bitcoins it can be difficult to make accurate assessments.

I'm not sure Bitcoin at 1 million USD is good planning. If that was your business model, then just buy 1 Bitcoin, sit back and relax and become a millionaire.

But how about starting a business and earthing thousands of bitcoins?  Also I think in order for bitcoins to become a truly mainstream currency we must develop business models not based solely on speculation in the bitcoin exchange rates.

If everyone just speculates, then bitcoins will crash in price and everyone loses.  If some people build businesses and solutions to facilitate the spread of bitcoin as a currency to use in day to day transactions, then they and the speculators win!

[natman3400]

Yes, the current fees are a problem. I can't send 0.001 Bitcoins to you at the moment. It's impossible. I'm not worried, though. When BTC price gets that high, it's a problem I'd like to have. And one I think will be solved.

Unless your using an old client, yes you can. The fee in the current version is 0.0005 BTC, and even if it were higher, you would still be able too. Infact, I think the bitcoin faucet gives out 0.001 Bitcoins.

[error]

Yes, the current fees are a problem. I can't send 0.001 Bitcoins to you at the moment. It's impossible. I'm not worried, though. When BTC price gets that high, it's a problem I'd like to have. And one I think will be solved.

Unless your using an old client, yes you can. The fee in the current version is 0.0005 BTC, and even if it were higher, you would still be able too. Infact, I think the bitcoin faucet gives out 0.001 Bitcoins.

This doesn't look like "can't" or "impossible."

[natman3400]

Yes, the current fees are a problem. I can't send 0.001 Bitcoins to you at the moment. It's impossible. I'm not worried, though. When BTC price gets that high, it's a problem I'd like to have. And one I think will be solved.

Unless your using an old client, yes you can. The fee in the current version is 0.0005 BTC, and even if it were higher, you would still be able too. Infact, I think the bitcoin faucet gives out 0.001 Bitcoins.

This doesn't look like "can't" or "impossible."

Yes, the current fees are a problem. I can't send 0.001 Bitcoins to you at the moment. It's impossible. I'm not worried, though. When BTC price gets that high, it's a problem I'd like to have. And one I think will be solved.

Unless your using an old client, yes you can. The fee in the current version is 0.0005 BTC, and even if it were higher, you would still be able too. Infact, I think the bitcoin faucet gives out 0.001 Bitcoins.

This doesn't look like "can't" or "impossible."

Just to put another nail in the coffin, lets calculate what that fee is at current rates. Round it off to $13.70 send multiply by 0.0005 and you get roughly 7 tenths of a cent. So yes, you can send 1 cents worth of bitcoins, but it will cost you 7 tenths of a cent.

[Melbustus]

Just to put another nail in the coffin, lets calculate what that fee is at current rates. Round it off to $13.70 send multiply by 0.0005 and you get roughly 7 tenths of a cent. So yes, you can send 1 cents worth of bitcoins, but it will cost you 7 tenths of a cent.

That's ok-ish for now. A 10 cent transaction would have a 7% fee, a 5 cent transaction would be 14%. Those are high, but probably workable (after all, Apple has proven that 30% fees don't kill an ecosystem (yikes)). Problem is, fees are going to get higher as mining bounty drops off, and as there's more and more competition for speedy transactions.

[spruce]

I'm still using version 0.3.22 (can't upgrade for some reason). If I try and send .01 or .02 BTC, I get an "over size limit" note. I always figured this meant the amount was too small, as I didn't get the note if I sent 1 BTC or more. I pay the fee and it works for a small amount like .01 BTC and it sends OK. But the BTC comes from one or maybe two addresses, not dozens. So how come it is "over the size limit"? I used to think this was some developer's bad English and it should have said "under the size limit" (i.e., the amount is too small, like .01 BTC), but apparently not. But it acts like that *is* what it means.

[error]

I'm still using version 0.3.22 (can't upgrade for some reason). If I try and send .01 or .02 BTC, I get an "over size limit" note. I always figured this meant the amount was too small, as I didn't get the note if I sent 1 BTC or more. I pay the fee and it works for a small amount like .01 BTC and it sends OK. But the BTC comes from one or maybe two addresses, not dozens. So how come it is "over the size limit"? I used to think this was some developer's bad English and it should have said "under the size limit" (i.e., too small), but apparently not. But it acts like that *is* what it means.

You need to upgrade NOW.

And yes, it's poorly worded and should be fixed.