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Author Topic: Transaction fees transfer wealth from poor to wealthy  (Read 4114 times)
godislove
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December 09, 2013, 07:13:26 PM
 #1

Transaction fees need to be large enough to prevent a 51% attack.**  But they shift wealth away from the poor and middle class who spend a higher percentage of their wealth than the wealthy.  Even the things the wealthy buy will have a higher value per transaction, but the same transaction fee.  So bitcoin will cause the poor to pay to protect and increase the wealth of the wealthy. It polarizes wealth to the wealthy.  So transaction fees must be as small as possible, to delay how long it takes to polarize wealth again.   Larger and larger investors are buying up bitcoins. They will hold.  They will also promote systems to make it easier for the poor and middle class to use so that their wealth can be secure and increasing, over and beyond the benefit of the services they invest in.  Bicoiners getting wealthy without working makes common people think it is not trustworthy and will not succeed, but enough wealthy are getting the picture.  When bitcoin reaches 10% of the world's money supply, $100,000 per coin, services will be there for the poor and middle class to finally use it.  Bitcoin can bring down the banks and provide protection when the financial system fails.  But it is not necessarily 100% good for the poor.

So maybe transaction fees should be based at least in part on size of transaction, and even based on how long the coins have been in storage.  Imagine large players sending money back and forth because the system is secure.  Well a 51% is encouraged based on the large transactions, not the small one.  But the security is based on many small transactions. Sure, the node's cost is based on number of transactions.  But nodes peacefully agreeing with each other is lowered by the large transactions.  So system wide costs is not simply "per transaction".

** note: The sum of transaction fees must be larger than the profit that can be expected from acquiring enough computer resources to be 51% of the node transactions.  So a more "efficient" coin does not matter as long as the volume of transactions can easily be handled.  If good nodes can more efficiently confirm transactions, then a 51% attack can do it equally more efficiently.  An environmentally friendly coin is dubious because the amount of environmentally-costly hardware to secure the network from a 51% attack will increase if the electricity costs decrease.   The network's profit must simply be higher than an attacker can profit.  Technology is not relevant, as long as a sufficient number of transactions can be handled at a low enough cost relative to the average value of the transactions.
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zimmah
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December 09, 2013, 10:44:23 PM
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seriously? bitcoin tranfer fees are already infinitely low compared to credit cards and banks, how small do you want to make them?
godislove
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December 09, 2013, 11:05:07 PM
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They are saying there has to be larger transaction fees once the mining profits decrease.  "Less than a penny."  Let's say things don't turn out very good and it's a penny.  The third would might have an average transaction of $1, like buying a kilogram of vegetables in the market with smart phones (I know people with less than $2000 a year income that have a smart phone....it's crucial to their life) and they could end up doing that 5 times a day.  OK, that's 365*0.05 = $18 a year, 1% their net worth going to protect the wealth of rich people. After 10 years, 10% of the 3rd world's wealth gone to benefit the rich.  If it stays less than 1/10 a penny transaction then I guess it will be OK.  But it could still mean high frequency micro-transactions in widespread use (I don't know what the plans are) will deplete wealth from the middle class for the benefit of wealthy hoarders.
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December 10, 2013, 12:50:35 AM
 #4

no, they are saying transaction fees will become a more important incentive for miners to continue mining.

this doesn't necessarily mean that transaction fees need to be higher.

Right now, a miner gets 25 bitcoin in reward and somewhere around 0.05BTC in fees. But a block only holds about 200 or maybe 300 transactions right now, that's not a lot. And some blocks have even less. So the average fee is probably about 0.0002BTC or 200µBTC

However, when bitcoin is several years older and bitcoin rewards are only about say 3BTC, there will likely be many more transactions in a block. Let's say bitcoin is as big as VISA by then, and they make 2,000 transcations per second on average, so per block (10 minutes) they make about 1,200,000 transactions. Since the value of bitcoin is much higher at this point, the transaction fee will be lowered to  2µBTC. Now, 1.2 million times 2µBTC is 2.4BTC so the total reward will be 5BTC per block. Which is lower in bitcoin but might be higher in dollars (since bitcoins are worth more) and on top of that, the transaction fees are lower.

so transaction fees will likely never be nearly as high as credit card fees or wire transfer fees.


also, if you pay 1% of your wealth every year, after 10 years it's still just 1% of your wealth, it doesn't suddenly become 10%

besides, not a single payment system, (wire transfer, debit cards, credit cards, cash deposits/withdrawals at banks, checks, etc.) come even remotely close to the cheap transactions of bitcoin.
godislove
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December 10, 2013, 02:07:57 AM
 #5

If bitcoins are worth $50,000 at that time then 2 uBTC is $0.10.  That's not going to work in the 3rd world for 90% of what people need it for.  You are saying the developers are already planning on excluding the poorest 30% of the world's population.   There's an issue here that "per transaction" fees do not solve.   Maybe it should aim for $0.01 per transaction plus 0.01% of the value.
zimmah
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December 10, 2013, 11:42:56 AM
 #6

It was just an example, who knows what the fees and price will be in 10 years?

Anyway 10 cent is still better than 30 dollars. Which is what most banks ask for international wire transfer.

Credit cards get about 5% of every transaction.

Debit cards I don't know but it's likely a high flat amount plus a percentage (like 2 dollars plus 2% or so)

Whatever the fees will be, they will be nearly nothing compared to current payment methods.
godislove
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December 10, 2013, 12:18:09 PM
 #7

Yes, it's a lot better than banks.  But we do not know if the core programmers are allowing the 3rd world equal access to bitcoin.  I'm sure they are not aware of the dangers of a transaction fee when it is a limited-supply currency.  This is why gold caused huge problems for farmers in the late 1800's and we tried to switch to silver:  by charging interest (or transaction fees), the fixed-supply currency bleeds out of the lower class and into the upper class until there is a lot of deflation in the currency. You might think "great, that means prices go down".  No, because it also means the wealthiest get more control of society without working for it because in a fixed-supply currency the percent of the currency you own is the percent of the marketplace you control.  They can use this control to take away farm land, and did, thereby reverting society to a feudal-like system via sharecropping.  Production then goes down, so prices stay the same and people's purchasing power decreases due to less of the currency. In the case of bitcoin, the 3rd world will its purchasing power in terms of world commodities.   After 10 years of 1% of your currency bleeding out like this, you have 10% of your currency gone, giving more control over to the 1st world.  In bitcoin's case, the 1% is going to nodes which is not necessarily "the wealthy" except through the shareholders of the companies that own the computer manufacturing equipment and the energy supply, and some of that goes back into the middle class.  However, 3rd world countries do not get any of that currency back unless they are on the electronic assembly line and you can imagine the percent they get back is small.  So bitcoin is a lot better, but fixed transaction fees are a tax on the poor for the benefit of the large bitcoin holders.  You can imagine the top-level people in bitcoin don't want to think about this because they own a lot of bitcoin and don't want to pay a percentage when transacting.   The core developers are then governmental tools of the wealthy at the expense of the taxpayer.  Yes, it's a lot better, but they can do better.

Your reasoning is "we do not know what the transaction fee will be, therefore it will be a good thing".   I would like to see a number.  If bitcoin reaches 10% of the world's M2 money supply, 10 Satoshis will be 1 cent, and that's not good for the 3rd world.    1 Satoshi transaction fee will be tolerable.
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December 10, 2013, 12:30:16 PM
 #8

I don't know why everyone is assuming transaction fees are low right now. The average transaction fee at the moment is 18 cents.

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December 10, 2013, 12:41:55 PM
 #9

Why would you want a percentage fee?  The concept is that you pay for the resources you use and this isn't some authoritarian wealth redistribution scheme masquerading as part of the system.

Whether you transfer 1 bitcoin or 50 the network resources used are essentially the same.  It isn't 50 times higher in resource usage so any percentage based system is really an attempt at social engineering in disguise.
zimmah
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December 10, 2013, 01:33:29 PM
 #10

but who's stopping the poor from mining? yes they can't affort Terrahash asics, but they can still get some cheap block eruptors cant they? maybe even secondhand.

also, 1% over 10 years is still not 10% in your case.

Let's say i have $100 and i lose 1% every year

year 1 i'll have $99
year 2 i'll have $98,01
year 3 i'll have $97,03
year 4 $96,06
year 5 $95.10
year 6 $94.15
year 7 $93.21
year 8 $92.27
year 9 $91.35
year 10 $90.44

also, the current main reasons the rich keep getting richer is by leverage, loans and printing.

The feds and banks generate massive amounts of interest on loans, they get interest from lending out money they don't even have. With bitcoins, they can't do it, because you can not loan bitcoins that don't exsist, and you can't ask interest on bitcoins because there is a limited supply.

leverage is also next to impossible because of the limited supply, it's very dangerous to leverage bitcoins.

In fact, bitcoins will more likely bleed money from the rich to the poor, because the poor are often the ones who are getting paid much less than they earn, their natural resources get stolen and they get paid almost nothing in return.

with bitcoin, they'll more likely get a fair amount of bitcoins for their resources, and noone will be able to print infinite amounts of coins. so, if you want iron ore from africa, you gotta pay some bitcoins to africa, and if you process the iron ore into steel and than sell the steel back to africa because they want to build skyscrapers, they are going to return some of the bitcoins for the steel.

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December 10, 2013, 01:34:35 PM
 #11

Welcome to the tautology club.

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December 10, 2013, 01:37:01 PM
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Even the things the wealthy buy will have a higher value per transaction, but the same transaction fee.
Have you ever actually met a wealthy person? If you have, you would know that the basic necessities of life don't change depending on how wealthy you are. Rich people buy the same toilet paper that poor people buy. They buy the same underpants. They buy the same breakfast cereal. They may pay more for luxuries but the basic necessities are exactly the same.

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zimmah
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December 10, 2013, 01:45:39 PM
 #13

I don't know why everyone is assuming transaction fees are low right now. The average transaction fee at the moment is 18 cents.

18 cents is low compared to the alternatives.
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December 10, 2013, 02:10:22 PM
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Bitcoin transfer wealth from the inexperienced and of little faith to those with experience and unwavering faith. Believe, and you too shall enter the garden of satoshi.

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godislove
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December 10, 2013, 06:09:44 PM
 #15

zimmah, most of the money sent to nodes (possibly not much "mining" at that point) goes to pay for the hardware and electricity which are largely profits being sent to the 1st world, even if the systems are housed locally.   Yes, bitcoin is a lot better for the reasons you mention.

Foxup, I was talking in terms of percentage of wealth housed in the bitcoin system.  The wealthiest bitcoiners are getting a free ride for their storage of wealth relative to how much they depend on the system to maintain that wealth.  The poor are subsizing the storage of wealth.  It's a governing tax on the poor for a subsidy to be given to the rich.  

cr1776, as I explained, paying for the resources you use is different from paying for how much benefit you derive from the system's existence.  "Fair" gets kind of fuzzy. That's why I'm referring to the net effect of wealth transfer as the "tie-breaker" in judgment. Actually, this is the basis of "fairness" in wealth transfer from progressive taxation.  The wealthy ride a wave of history and technology that they did not create in order to extract wealth from others by small tweaks to the system in their favor.   
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December 10, 2013, 06:17:57 PM
 #16

I don't know why everyone is assuming transaction fees are low right now. The average transaction fee at the moment is 18 cents.

Um the average tx size is ~430 bytes so the average paying tx is about $0.09.  Of course nearly 27% of tx are free making the average tx fee about $0.06.  On a 1% basis (guestimate looking at probable payment output and excluding the change) that is 0.001%. 

Still things can be improved currently the client rounds tx up to the next KB and charges the min fee in full KB increments (i.e. 0.1 mBTC, 0.2 mBTC, 0.3 mBTC).  However miners look at the fee based on actual tx size.  So a 400 byte tx paying 0.1 mBTC is paying 0.25 mBTC per KB which is likely more than needed for timely inclusion.

v0.9 will change fees to be based on actual tx size.  So for most txs the min fee is going to fall by 30% to 60%.  As an example the min fee of 0.1 mBTC per KB on a 400 byte tx would be 0.04 mBTC or ~$0.04.  That probably will put the average paying tx fee closer to $0.05 and the average tx fee (including free txs) closer to $0.03.
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December 10, 2013, 10:10:22 PM
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godislove:  You should focus on INTEREST, that is the real transfer of wealth in the monetary system.  The average worker pays nearly half their wages to interest, most of it embedded in their normal consumer goods.  The top 10% are the net recipients of most interest payments. 

BTC can not eliminate interest, in fact without inflation it would raise interest rates, so BTC is no good but not because of it's transaction fees.  Freicoin is exploring a solution to lower interest rates using a demurrage mechanism on coins first proposed by economist Silvio Gesell.

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December 10, 2013, 10:23:58 PM
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Welcome to the tautology club.

What's the first rule of tautology club?   Welcome to the tautology club.

No matter where you go, there you are.
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December 10, 2013, 10:55:26 PM
 #19

Well right now it's a coin of the wealthy, because only people relatively wealthy have access to miners and have enough computer savy to actually buy them and watch them appreciate.  Ultimately I get the idea you're saying that inflation won't erode the value of a BTC.

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godislove
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December 10, 2013, 11:44:04 PM
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godislove:  You should focus on INTEREST, that is the real transfer of wealth in the monetary system.  The average worker pays nearly half their wages to interest, most of it embedded in their normal consumer goods.  The top 10% are the net recipients of most interest payments.  

BTC can not eliminate interest, in fact without inflation it would raise interest rates, so BTC is no good but not because of it's transaction fees.  Freicoin is exploring a solution to lower interest rates using a demurrage mechanism on coins first proposed by economist Silvio Gesell.
Impaler, it's not only interest, but rent, insurance, and fees that eventually shift society's wealth to a single small class.  These are all incomes that were not as a result of contributing something productive to society.  They are called the "FIRE Sector" because they burn societies down. They should be outlawed because they are the new forms of indentured servitude and debtor's prison, or they should be issued only by the government and the government derive it's only income from these sources.  Taxing the land value of real estate is an example of doing this, but it is called a "tax" instead of "rent" or "interest", even though it is all the same.  Loans enable city dwellers to bid up the price of houses way beyond construction costs when really it is the city's existence that makes the land valuable and therefore the city should tax ("rent") out any potential extra value in the land that banks want to get by interest. So "rent", "taxes", and "interest" are all the same thing: a duty being paid to a feudal lord who does no work for society.  Loans to finance useful industry (rather than to simply bid up asset prices) is completely different, but even then it should be a partnership between the loaner and the loanee (no collateral), who are mutually interested in succeeding and mutually failing if the enterprise fails. This type of loan has another name: equity investment as a shareholder.  No bank bailouts would have been allowed if we had viewed the banks as at-risk partners in the loans. The banks would not have allowed us to bid up the prices beyond sustainable value in the first place.  But excessively large houses do not add productive value to society so should not be capable of securing a loan anyway.  And city houses do not derive their increased value from the efforts of the previous home owner, but from the success of the city as a whole and the profits thereof belong to the people of the city, homeowners or not.  The free market does not care about these things, which is why the free market naturally causes society to polarize to favor the few who are faster at planning ahead than others. But planning ahead to defeat others is not adding productive value, except for eventually decreasing the number of less competitive children if the government stayed out of the way and let the economic slaughter of the middle class proceed.  This is why democracy wins: it steals wealth and legal rights from the powerful via a 1 vote per person populous, thereby increasing the number of people and commodities to engage in war to defeat other systems of governing.  The primacy of the individual in capitalistic thinking is just as factually wrong as thinking the gene is the seat of evolution.  Evolution is occurring at all levels at all times from gene to genus.  The "Selfish Gene" theory has been proven completely wrong. Likewise, a strong society is made by working together at all levels, even worldwide, not by pure ideological selfishness at the individual or family level with the hope that the invisible hand of a free market magically solves all ills by some sort of emergent intelligence arising out of chaos.

I do not agree with Gesell because savers are then penalized for the interest crime of non-production loans.  It seems like simply giving the 5% annual fee to miners is...excessive...and would produce too many miners like too many banks.   The demurrage has the same net effect as inflation and loans the government will never pay back, differing only in how the money is redistributed. Certainly "to the masses" with demurrage is better than "to the banks".  Again, you can call it a demurrage, fee, tax, interest, or rent, but it's the same thing: someone is getting something from society without adding value to society. Again, it seems to much of a gift to the miners.  

Wouldn't it just encourage potential loaners to buy assets and then loan out the asset, at "interest", then reinvest the proceeds for more assets?  That's called being a landlord and collecting rent.  Same thing as interest, just a little bit more work.  Eventually 1 person owns all the property.  Renting is rare these days because interest at least allowed us to eventually own the house, and also because tax deductions and low interest rates encouraged the wasteful bloated loans.  See Michael Hudson's blog and this page in particular for the things I am discussing etc: http://michael-hudson.com/2001/04/the-mathematical-economics-of-compound-rates-of-interest-a-four-thousand-year-overview-part-ii/

I am going to write a post with more specifics on how to enslave your bitcoins (or other coins that have Script capabilities) to stick to a basket of commodities.   I prefer to leave it up to government to outlaw loans that require collateral (which is an indentured servitude or debtor's prison for your valuable asset), and the other things I mentioned.   This is an old Anglo-Dutch style loan that I believe the German system fights against and it has been said to be the historic source of German economic success.
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