Title: Near Zero Bitcoin Transaction Fees Cannot Last Forever

[davidgdg]

Low transaction fees is one of the strengths of bitcoin. If adoption increases, near zero fees can sum up to a good amount in every mined block. There is no real concern.

It depends how near to zero near to zero is.

[DannyElfman]

Low transaction fees is one of the strengths of bitcoin. If adoption increases, near zero fees can sum up to a good amount in every mined block. There is no real concern.

This is exactly the theory behind how bitcoin was setup to have the block subsidy reduced over time.

[ortreum]

The current miners are to big and to power hungry. But I think we will see small chips for mobile phones in the next 10 years that can support the network on a basic level. Every hardware POS or wallet needs to be a highly efficient miner. If you have billions of mini-miners then you won't need data centers doing the main part of the work. As long as mining bitcoins is profitable enough we don't need to discuss the next step. We are already on the way to a 1 Watt/THs. Two or four years from now you have chips that can be on every mainboard or as a tiny PC card. The proof of a transaction as difficult as the mining so every device that is somehow connected to the internet can consists this chip and a 2 cent 100gb flash drive for the blockchain (yes future price ). ... and so you have billions of chips supporting the network ^^

[BADecker]

Supply and demand. For example. Decades and centuries ago, transferring different forms of money to different places around the world, included actually going there with your money. Now it is easily done with the Internet, cheaply, using regular money transfer channels, like wire transfers. The point? Banking fees are being replaced by the cheaper Bitcoin fees. And when it is the Bitcoin fees that are excessive, Bitcoin will be replaced by something else.

Right now you can send bitcoins without fees. It simply takes much longer for confirmations.

[LeMiner]

Bitcoin high frequency trading:   

47,000 tps (around the peak rate of VISA) = 28,200,000 transactions per ~10 minute block

Fee of 0.000000017 = 5 bitcoins per block transactions reward for miners. Easily sustaining the network at a high price. If Bitcoin is going to be a global cash system we'd probably have hundreds of thousands of transactions per second. But having more transactions per second than VISA is a good initial.


In short: Fee is sustainable.

[rebuilder]

In more detail, depending on core developers' approach to trade-off of supporting small or large transactions in the future, whichever in priority, they should not only set a strict transaction fee (rather than a donation) such as [a percentage of the transacted amount] or [a fixed minimal fee + a percentage of the transacted amount], but also do this in a manner such that it fills the gap created by the future slow down of price increase together with the block rewards decrease. That is, to fix the total rewards, I propose the developers that they increase the transaction fees gradually over time, to keep up with a fixed hypothetical sum expressing total block earnings (sum of block rewards + tx fees) per block as follows,

note: The block rewards decrease once in every 4 years at once, as we all know it. Hence we should see cuts in the above graph but assuming it is approximated, we can ignore the cuts for the sake of simplicity.

However, as stated in paper, we all know that it is early for this kind of a modification. So I basically propose this kind of a "transaction fee such as a dynamic (gradually increasing) percentage", not now but in the future, when the time comes. I think it is ok to replace "when the time comes" with "when price of a bitcoin or lets say volatility reaches to the stability level of gold or a well-known fiat currency". Well, that's all about it. Although being arguably straightforward, to the best of my knowledge, I have not seen such a proposal before. As a future research, I believe it is crucial to determine/approximate, what a fixed transaction fee/percentage can/might/should be in a userwise/marketwise pacified/stabilized setting, in order to be able to compare tx savings with competitors such as visa/paypal etc.

Setting aside the issue that this kind of centralized policymaking goes directly against the fundamental ideas Bitcoin is based on, and the difficulty of mandating a fixed fee in an open software system - how would you decide what level to fix the fee at? Essentially you need to decide what the value of 'sum' in your graph should be. Currently that is left to a market-based price discovery mechanism to suss out. You seem to propose a central controller model with 'the devs' (of Bitcoin Core?) tasked with figuring out the optimal price for a bitcoin transaction. Frankly, this seems like a very bad idea to me, even if you could find a way to make it happen.

[BADecker]

Look, if I have some bitcoins, and I send them somewhere, why should I or the receiver pay to send or receive them? The whole Internet runs off whatever money people pay their ISPs, etc.  Why should I have to pay more to use this Bitcoin thing, when I spent money to get the bitcoins I have in the first place? Bitcoin fees are stupid. They are not supply and demand oriented.

Where do bitcoins come from? Miners mine them. Miners spend time and money for computers, ASICs, electricity, wiring, etc., so that they can mine bitcoins. If they have bitcojns that they mined, they have them. If the miners won't sell until the price is right, we have a rise in the Bitcoin price. All the stupid fees do is to keep the price down.

Forget the fees altogether. When miners need to make more just to pay their bills, all they have to do is hoard bitcoins until the price is right. That's what the free market is all about. If the fees disappeared altogether, the price of bitcoins would rise. Fees are like a form of centralization. Get rid of the stupid fees.

HOWEVER, this being a free market, if you want to donate fees to some unnamed cause, go ahead. It's a free market!

[rebuilder]

How would you get rid of fees? Miners aren't likely to support a fork without the ability for miners to set a fee requirement to process blocks. Actually, I'm not sure how feasible such a fork would be without entirely removing even voluntary fees. Do that, and you run a serious risk of undermining Bitcoin's security model in the long term.

Without fees, you're left with trusting the preset reward rate to be optimal to guarantee sufficient interest by honest miners to ward off hashpower attacks. Fees provide important room to increase the network hashrate from what the reward rate alone could support.

[BADecker]

How would you get rid of fees? Miners aren't likely to support a fork without the ability for miners to set a fee requirement to process blocks. Actually, I'm not sure how feasible such a fork would be without entirely removing even voluntary fees. Do that, and you run a serious risk of undermining Bitcoin's security model in the long term.

Without fees, you're left with trusting the preset reward rate to be optimal to guarantee sufficient interest by honest miners to ward off hashpower attacks. Fees provide important room to increase the network hashrate from what the reward rate alone could support.

Fees are voluntary, aren't they? So, allow them, since people love to donate money to places where they don't see where it is going. Consider taxes. The IRS says they are voluntary. Yet you don't know where yours go. So, make the only change necessary. Advertise in big bold letters, right inside the next version of the client, that they can be erased if they are found to exist automatically whenever you send.

[QuestionAuthority]

How would you get rid of fees? Miners aren't likely to support a fork without the ability for miners to set a fee requirement to process blocks. Actually, I'm not sure how feasible such a fork would be without entirely removing even voluntary fees. Do that, and you run a serious risk of undermining Bitcoin's security model in the long term.

Without fees, you're left with trusting the preset reward rate to be optimal to guarantee sufficient interest by honest miners to ward off hashpower attacks. Fees provide important room to increase the network hashrate from what the reward rate alone could support.

Proof of Stake

[opossum]

How would you get rid of fees? Miners aren't likely to support a fork without the ability for miners to set a fee requirement to process blocks. Actually, I'm not sure how feasible such a fork would be without entirely removing even voluntary fees. Do that, and you run a serious risk of undermining Bitcoin's security model in the long term.

Without fees, you're left with trusting the preset reward rate to be optimal to guarantee sufficient interest by honest miners to ward off hashpower attacks. Fees provide important room to increase the network hashrate from what the reward rate alone could support.

Proof of Stake

I assume that you are not being serious (or at least are not being serious about this being a good idea). While PoS would allow for more/all 0 TX fee TXs, it would open up the network to a large number of potential attacks and the network would overall be defenseless against such attacks

[QuestionAuthority]

How would you get rid of fees? Miners aren't likely to support a fork without the ability for miners to set a fee requirement to process blocks. Actually, I'm not sure how feasible such a fork would be without entirely removing even voluntary fees. Do that, and you run a serious risk of undermining Bitcoin's security model in the long term.

Without fees, you're left with trusting the preset reward rate to be optimal to guarantee sufficient interest by honest miners to ward off hashpower attacks. Fees provide important room to increase the network hashrate from what the reward rate alone could support.

Proof of Stake

I assume that you are not being serious (or at least are not being serious about this being a good idea). While PoS would allow for more/all 0 TX fee TXs, it would open up the network to a large number of potential attacks and the network would overall be defenseless against such attacks

I was just answering the question of how to get rid of fees. No one was really stupid enough to think you could permanently send money for free, right? It costs money to send money whether you're using Western Union or Bitcoin and the cost of sending money will always go up. Nothing in life is ever free. You can't even fart for free. You had to buy the food that made you fart. Sure, someone else might be paying for it but it's not free. Miners spend a lot of money and are rewarded with the subsidy. Including transactions in a block costs tons of money around the world. (Christ, I want to open a power company near a mining farm. Power companies are the ones really raking in the cash.) Even the subsidy costs money to produce and if it were infinite at 50 coins it's still costing money to find a block. The only debate is who should pay for the fee to send the money.

[odolvlobo]

hi all,

Thanks for all the comments. I am actually the author of the paper. Since I did my research on bitcointalk forum, I knew most of the info therein is already known by you, tech-savvy bitcoiners. My nevertheless intention in writing the manuscript was to inform the issue to the unfamiliar readers (or noobs in your terminology), raise some questions, help alerting more academicians about working on Bitcoin and related scalability issues, and propose what might be called as a minor contribution perhaps.
...

You can't discuss future transaction fees without addressing the future of the maximum block size. The maximum block size influences transaction fee revenue in two ways: the number of transaction in a block -- more transactions means more revenue, and the result of bidding for limited space in the block. It may be possible to balance these two factors such a way that mining revenue is high while individual transaction fees are low. My hope is that somebody comes up with a self-regulating process for determining the maximum block size that maximizes mining revenue while minimizing individual transaction fees.

[QuestionAuthority]

hi all,

Thanks for all the comments. I am actually the author of the paper. Since I did my research on bitcointalk forum, I knew most of the info therein is already known by you, tech-savvy bitcoiners. My nevertheless intention in writing the manuscript was to inform the issue to the unfamiliar readers (or noobs in your terminology), raise some questions, help alerting more academicians about working on Bitcoin and related scalability issues, and propose what might be called as a minor contribution perhaps.
...

You can't discuss future transaction fees without addressing the future of the maximum block size. The maximum block size influences transaction fee revenue in two ways: the number of transaction in a block -- more transactions means more revenue, and the result of bidding for limited space in the block. It may be possible to balance these two factors such a way that mining revenue is high while individual transaction fees are low. My hope is that somebody comes up with a self-regulating process for determining the maximum block size that maximizes mining revenue while minimizing individual transaction fees.

That's not going to happen because it requires too much real work from the devs. There are dozens of coders working on Bitcoin and only a small handful are getting paid for it. No, it's more likely they will generically increase the block size by a fixed amount at a predetermined rate based on a simple trigger until it's huge.

[funtotry]

hi all,

Thanks for all the comments. I am actually the author of the paper. Since I did my research on bitcointalk forum, I knew most of the info therein is already known by you, tech-savvy bitcoiners. My nevertheless intention in writing the manuscript was to inform the issue to the unfamiliar readers (or noobs in your terminology), raise some questions, help alerting more academicians about working on Bitcoin and related scalability issues, and propose what might be called as a minor contribution perhaps.
...

You can't discuss future transaction fees without addressing the future of the maximum block size. The maximum block size influences transaction fee revenue in two ways: the number of transaction in a block -- more transactions means more revenue, and the result of bidding for limited space in the block. It may be possible to balance these two factors such a way that mining revenue is high while individual transaction fees are low. My hope is that somebody comes up with a self-regulating process for determining the maximum block size that maximizes mining revenue while minimizing individual transaction fees.

That's not going to happen because it requires too much real work from the devs. There are dozens of coders working on Bitcoin and only a small handful are getting paid for it. No, it's more likely they will generically increase the block size by a fixed amount at a predetermined rate based on a simple trigger until it's huge.

I don't think such a feature would be all that difficult to develop. It could easily be setup in a way that is similar to how the difficulty changes - so that, for example, the max block size for the next 2016 blocks would be 250% of the average block size from the previous 2016 blocks.

[tzortz]

Low price of BTC cannot last forever.

[odolvlobo]

That's not going to happen because it requires too much real work from the devs.

it is a big mistake to depend on the "devs" for everything.

I don't think such a feature would be all that difficult to develop. It could easily be setup in a way that is similar to how the difficulty changes - so that, for example, the max block size for the next 2016 blocks would be 250% of the average block size from the previous 2016 blocks.

That might not work because it will drive the transaction fee down to 1 satoshi, and that may be too low.

[Eisenhower34]

I don't think such a feature would be all that difficult to develop. It could easily be setup in a way that is similar to how the difficulty changes - so that, for example, the max block size for the next 2016 blocks would be 250% of the average block size from the previous 2016 blocks.

That might not work because it will drive the transaction fee down to 1 satoshi, and that may be too low.

I disagree, especially as the block subsidy halves one or two more times. I don't think miners will confirm no/low TX fees in mass once the block subsidy is low as TX fees will make up more of the miners income

[odolvlobo]

I don't think such a feature would be all that difficult to develop. It could easily be setup in a way that is similar to how the difficulty changes - so that, for example, the max block size for the next 2016 blocks would be 250% of the average block size from the previous 2016 blocks.

That might not work because it will drive the transaction fee down to 1 satoshi, and that may be too low.

I disagree, especially as the block subsidy halves one or two more times. I don't think miners will confirm no/low TX fees in mass once the block subsidy is low as TX fees will make up more of the miners income

If they don't confirm transactions with low fees, then they are throwing away free money. The only way to get fees up is to make people compete for space in the block chain.

[BADecker]

Fees are low. But if somebody does a lot of transferring, he's going to figure out a Bitcoin wallet transfer mechanism, based on the blockchain.

Consider, I have a paper wallet in my pocket that is worth 5 bitcoins. You have a "Watzit Gadget" that you want to sell to me for 5 bitcoins. I hand you the paper wallet. You hand me the Watzit Gadget. You change the password on the wallet in your client. No fee!

When the fee gets too steep, we'll have the next order of Bitcoin. Somebody will put together a method, not for trading bitcoins, but for trading wallets, with no fee involved.