Why a fixed transaction fee?

[Massimo80]

When making a Bitcoin payment, you can include a transaction fee to speed up processing of your transaction by rewarding miners for processing it. Ok.

But more often than not the software (at least the reference client) requires you to send a fee, which can range from 0.0001 to 0.0002 BTC, or even more.

The problem is, this becomes more and more expensive as the BTC price increases; when it reached $1000, a transaction could cost $1-2, making it effectively impossibile to send a $1 payment, and highly unpractical to send a $10 one. If the price should ever go up to $10K, or even more (which it technically could, if Bitcoin was ever to become really widespread, since it's a deflactionary currency), transaction fees could become so high to make you actually wish you were still using a credit card, and low-value payments would become unfeasible at all.

Thus my question: why a fixed transaction fee? Shouldn't it at least scale up with the actual sum you're sending? Asking for a 0.0001 fee when sending 0.00005 BTC is completely crazy...

[dserrano5]

You know, three years ago the transaction fee was 0.1 BTC IIRC. Developers have reduced it several times in the meanwhile as the BTC price increased. In the future fees are planned to be decided by the market.

[Massimo80]

You know, three years ago the transaction fee was 0.1 BTC IIRC. Developers have reduced it several times in the meanwhile as the BTC price increased. In the future fees are planned to be decided by the market.

Ok for adjusting it to market value, but the whole fixed fee idea is just plain wrong. It's effectively impossible to make a 0.0001 payment without the transaction fee doubling up its cost. What's the use of being able to divide a Bitcoin up to the 8th decimal digit if you can't actually send amounts lower than the third digit?

[DannyHamilton]

- snip -
to send a fee, which can range from 0.0001 to 0.0002 BTC, or even more.

The problem is, this becomes more and more expensive as the BTC price increases; when it reached $1000, a transaction could cost $1-2,

You seem to be having some difficulty with math:

$1000 X 0.0001 = $0.10
$0.10 not equal to $1

$1000 X 0.0002 = $0.20
$0.20 not equal to $2

If the price should ever go up to $10K, or even more (which it technically could, if Bitcoin was ever to become really widespread, since it's a deflactionary currency), transaction fees could become so high to make you actually wish you were still using a credit card, and low-value payments would become unfeasible at all.

The recommended fee has been adjusted several times in the past.  When I first discovered bitcoin, the fee was 0.001 BTC.  Very shortly later, it was adjusted to 0.0005 BTC.  More recently, it was adjusted again to 0.0001 BTC.  As the exchange rate increases, the rate can be adjusted downwards further.

Since this is a free market system, it is entirely possible that bitcoin will become popular enough that it will only be usable for higher value transactions.  That will depend a lot on just how popular it becomes, and how much the maximum blocksize is increased in the future (if at all)

Thus my question: why a fixed transaction fee? Shouldn't it at least scale up with the actual sum you're sending? Asking for a 0.0001 fee when sending 0.00005 BTC is completely crazy...

The fee is not fixed.  It is a fee per kilobyte.  The space in the blockchain is the valuable thing that is being bid for by offering the fee.

If it is crazy to send 0.00005 BTC with a 0.0001 BTC fee, then perhaps, bitcoin is not useful for sending such small payments.  I suggest using your local currency (or a credit card, or bank transfer) when you want to send amounts equivalent to 0.00005 BTC (At today's exchange rate, that's $0.028).

[Brangdon]

Thus my question: why a fixed transaction fee? Shouldn't it at least scale up with the actual sum you're sending?

No. I'm sorry to be the one to break it to you, but Bitcoin is not designed for micro-transactions. The minimum fee is deliberate policy to stop people using Bitcoin to send trifling amounts. They are seen as spam at best, and a denial of service attack at worst. If it were possible to sent 0.00000001 BTC with a 0.00000001 fee, then some villain could broadcast millions of them for almost no dollar cost, and then they'd clog the block-chain forever.

(There are ways to use Bitcoin for micro-transactions, but they are built on top of the raw protocol. They are supposed to use block-chain space efficiently.)

As it happens, the fee does scale, but in accord with the size (in bytes) rather than the value. See the Bitcoin Wiki for details.

[jbrnt]

You can send larger sums for free, it evens out. Stop crying over $0.1.

[cp1]

Each kb in a block costs the same to mine, so the fee is the same.

[cr1776]

...deflactionary currency...

Others have answered the fee questions and math issues, but some would argue as to whether bitcoin is deflationary (assuming you did mean deflationary) - it is certainly not deflationary now and will keep inflating for quite a while.

:-)

[DeathAndTaxes]

The critical resources being "purchased" is space in the blockchain.  Charging based on anything other than the size of the transaction would be as misalignment of cost and price.  It would be like a gas station which offered to sell you gas per mile.  It might be attractive with those driving Hummers but ultimately the gas station would go out of business.

[Bitram]

I expect fee transactions will reduced so it won't be that expensive.

[ScripterRon]

The 0.9.0 release reduced the minimum transaction relay fee/kB to 1000 satoshis (0.00001 BTC) and the dust limit is now 546 satoshis.  That is 1/10 of the 0.8.6 amount.

Of course, until the various wallets update their algorithms, you won't be able to use the new minimums.  And the delay is wise because the majority of the network is still running 0.8.x clients which would reject the lower fee.  Just looking at the current connections to my server, I see 0.8.1, 0.8.3, 0.8.5, 0.8.6 and 0.9.0 with 0.9.0 still being in the minority (although it is improving)

[Velkro]

bitcoin transtaction fee should be based on current price
just like that, always small, not need to wait for updates then of clients

[grue]

bitcoin transtaction fee should be based on current price
just like that, always small, not need to wait for updates then of clients

if only there was an unbiased way to get bitcoin prices.

[MarcoTC]

In my opinion, the fees being based on KB is makes multi-signature transactions more expensive while I think multisig should be encouraged somehow.
It would be even better if multisig transactions were actually cheaper. Just to push it's use.

Maybe a better solution would be a % of the transaction amount. It's also easier marketing if Bitcoin only charges 0.000x% per transaction while banks, VISA etc. charge x%.

If you want to avoid spam, a better solution would be hardcoding the minimum transaction amount instead of hardcoding the minimum fees.

[cr1776]

In my opinion, the fees being based on KB is makes multi-signature transactions more expensive while I think multisig should be encouraged somehow.
It would be even better if multisig transactions were actually cheaper. Just to push it's use.

Maybe a better solution would be a % of the transaction amount. It's also easier marketing if Bitcoin only charges 0.000x% per transaction while banks, VISA etc. charge x%.

If you want to avoid spam, a better solution would be hardcoding the minimum transaction amount instead of hardcoding the minimum fees.

So if you start with 50 btc, spend 0.1 and 49.9 go to a change address, you'll pay a % of 50 btw in order to spend 0.1 since the miners can't tell what the "transaction amount" is?

You can always (so far) send a no-fee transaction.

[Chemistry1988]

But more often than not the software (at least the reference client) requires you to send a fee, which can range from 0.0001 to 0.0002 BTC, or even more.

You can send bitcoin without any fee with raw transaction, but don't do it unless you really understand how it works and you don't mind waiting for a while for your transaction to confirm.

Asking for a 0.0001 fee when sending 0.00005 BTC is completely crazy...

If you really want to send 0.00005 btc (=$0.02), you shouldn't use bitcoin, or at least you should do it off-chain.

[Chemistry1988]

The fee is not fixed.  It is a fee per kilobyte.  The space in the blockchain is the valuable thing that is being bid for by offering the fee.

Exactly.
But I have been wondering why the fee is per KB (round up) instead of per byte.

[softron]

It not fixed. It the recommended fee and it has been changed before and wiil be changed again if price sky rockets.

[roslinpl]

When making a Bitcoin payment, you can include a transaction fee to speed up processing of your transaction by rewarding miners for processing it. Ok.

But more often than not the software (at least the reference client) requires you to send a fee, which can range from 0.0001 to 0.0002 BTC, or even more.

The problem is, this becomes more and more expensive as the BTC price increases; when it reached $1000, a transaction could cost $1-2, making it effectively impossibile to send a $1 payment, and highly unpractical to send a $10 one. If the price should ever go up to $10K, or even more (which it technically could, if Bitcoin was ever to become really widespread, since it's a deflactionary currency), transaction fees could become so high to make you actually wish you were still using a credit card, and low-value payments would become unfeasible at all.

Thus my question: why a fixed transaction fee? Shouldn't it at least scale up with the actual sum you're sending? Asking for a 0.0001 fee when sending 0.00005 BTC is completely crazy...

IMO "sending 0.00005 BTC is completely crazy..."

And by using bitcoin-qt you can do not add any fee if you really want to wait forever for confirmations x)

[cp1]

I mailed my friend a nickel and it cost 49 cents in postage!! The postal service should change their fee based on if you have a nickel inside or not.