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Author Topic: Bitcoin: low transaction fees, I don't think so  (Read 6656 times)
fergalish
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June 15, 2012, 07:31:05 PM
 #1

[rant warning]

Well, everywhere you see bitcoin promoted or advertised, they'll give you the selling points - rapid transactions (hours instead of days), pseudonymous, secure, inflation-proof, and, not least, near-zero transaction fees.

This last, the near-zero fees, might be true of the protocol, but it is absolutely not true for all the services that have sprung up.  There are, to my knowledge, very few services that offer less than 0.5% fee, most would be around 2-3% - roughly a credit card transaction fee.

What got me started on this was TorWallet's announcement of a mixing service https://bitcointalk.org/index.php?topic=87387.0.  Now, that seems like a wonderful service, but it charges 3% for mixing your coins, while a similar competing service, BitcoinFog, charges 2%.  Let's think about that.  BitcoinFog says he gets "thousands of bitcoins per day" moving through his service (see above thread, msg 17).  2% of thousands is, let's say, 50 bitcoins per day or about $300 per day, or $9000 per month.  Now that is way more than anything you might need to run the server.  A low-cost server might be $10 per month, a high-end might be, what, $50 per month?  So, assuming a high-end server (BTC 0.2 per day) handling 3000 bitcoins per day and an admin costing BTC 4 per day on average, a reasonable fee might be 0.2/3000 ~ 0.005% for server costs, 4/3000 ~ 0.1% for admin.

Now you might well say, STFU, go do your own.  Well, I would.  But let me tell you another story.  Where I live, the govt built a nice new bridge over the river.  It cost a lot of money, so there was a toll to go over it.  Now, 30 years or so later, the bridge has gathered enough tolls to be fully paid off many many times over, but the toll keeps getting more and more expensive.  I realise that there are maintenance costs, but they'd be far less than the tolls.

Same with bitcoin services - the devs have to be paid for the initial investment.  But if that were all, then you'd expect the fee for a service to reduce over time, and to reduce as more people use the service.  That hasn't happened with any bitcoin service that I'm aware of yet, leading me to think that service ops just want to milk the pundits as much as possible.

So - is it possible to use bitcoins with "near-zero" fees?  I don't think so.

[/rant]
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June 15, 2012, 07:35:33 PM
 #2

Coin-mixing services and Fiat conversion services are not "Bitcoin transaction fees." They are fees for other services.

Fees for making transactions in Bitcoin are extremely low.


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June 15, 2012, 07:43:57 PM
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First as others have rightly pointed out those are the cost of services which USE Bitcoin not the cost of Bitcoin itself.

Still if you feel fees are too high on service "x" start a competing service obviously there is lots of profit to just scoop up with very little work right?  It is called the free market.  Either there is less profit than you think and one or more entities leave the market or the competition drives prices down to a more realistic margin.  Personally I seriously doubt BitcoinFog gets thousands of Bitcoins a day through the service.  Not sure why you are breaking down the cost of a service.  Price is the intersection of supply & demand.  The cost of production is immaterial (other than on how it affects public perception of the supply curve).
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June 15, 2012, 07:45:23 PM
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Yeah, when promoting it, people need to be very careful about how they approach fees. The network itself charges a fee that is on the order of one fourth of a US cent or thereabouts, but service providers that have to deal with fiat are going to charge more. The inbred banking system doesn't know how to do it any other way, and exchangers suffer for that. Additionally, the network itself doesn't need a corporation or people to run it as such, so there are no salaries or wages to pay, and no investors to spend money on. This isn't true of a service provider that interfaces with the outside world.

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June 15, 2012, 07:46:15 PM
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If it really does make as much as you say it does, it will be inundated by competition and the prices will have to be reduced.


As for your toll bridge. Had it been privatized, those tolls would have decreased.

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June 15, 2012, 07:47:50 PM
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Fees for making transactions in Bitcoin are extremely low.

That's true, but the fees to get into and out of bitcoin aren't insignificant and, I think, sort of work against the claim that bitcoin's transaction fees are low.  I think when people laud bitcoin's transaction fees they sometimes make use of the ambiguity between the transaction fees of a bitcoin to bitcoin transaction versus traditional currency to bitcoin and bitcoin to traditional currency.  For example, I see people write, or say in interviews, something like this:

"Bitcoin is the cheapest way to send somebody money"

Whether that's true depends on what 'money' is understood to mean.  If 'money' just refers to bitcoins, then, yeah, that's probably true.  But if what's meant is that it's the cheapest way to send somebody, say, USD, then no, it's very unlikely to be true considering the fees to transfer money to an exchange, then buy the bitcoins on the exchange for a fee, then send the bitcoins, then have the other person convert back to traditional currency.  I haven't done the math, but I'm willing to bet that for most transactions, that whole process is a lot more expensive, and probably not that much quicker, than sending somebody money through a bank.
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June 15, 2012, 07:50:17 PM
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Sheesh. I don't buy 99.9999% of things on offer in the world because I think the price isn't worth it.

The services you mention are pretty dumb. So you get different coins with a 'bad' history, big deal. There are tons of sites that let you hold balance and get your money back for free and it's not likely to be the same coins and you can check.

But if you feel like being outraged some more I offer to do it for 10%.

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mccorvic
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June 15, 2012, 07:51:44 PM
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People keep telling me that there are no fees to use US Dollars. But then I need to PAY for my Comcast bill for internet. Then the corner stores wants me to PAY for a bag of M&Ms. The audacity!

As for your toll bridge. Had it been privatized, those tolls would have increased two fold yearly

FTFY!

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FreeMoney
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June 15, 2012, 07:52:13 PM
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Also it's silly to think that the right way to price is at (or even in some fixed relation to) cost. The main determinant of good pricing strategy is what substitutes are selling for. There usually isn't a good alternative to a specific bridge, ergo higher enough price for you to bitch about.

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June 15, 2012, 07:52:58 PM
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People keep telling me that there are no fees to use US Dollars. But then I need to PAY for my Comcast bill for internet. Then the corner stores wants me to PAY for a bag of M&Ms. The audacity!

As for your toll bridge. Had it been privatized, those tolls would have increased two fold yearly

FTFY!

Yeah no fees for using cash my ass, everything I buy costs money!

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istar
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June 15, 2012, 08:06:32 PM
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If it really does make as much as you say it does, it will be inundated by competition and the prices will have to be reduced.


As for your toll bridge. Had it been privatized, those tolls would have decreased.

Maybe not if they had monoploy, ie the only bridge across that river and if the market for two bridges would be too small.
You would get a situation where the owners would pump up the fees as high as possible.

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fergalish
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June 15, 2012, 08:11:24 PM
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As for your toll bridge. Had it been privatized, those tolls would have decreased.
It was.

... but service providers that have to deal with fiat are going to charge more.
I disagree.  An exchange which holds peoples' (e.g.) USD and BTC balances does not pay any external service (e.g. a bank) when two people trade with one another.  They just move numbers around within their own database.  Of course, this has to be done in a clever way so as not do annoy your users and that requires paying good devs and admins.

First as others have rightly pointed out those are the cost of services which USE Bitcoin not the cost of Bitcoin itself.
I realise that.

Still if you feel fees are too high on service "x" start a competing service...
Not a dev. :-(

Price is the intersection of supply & demand.  The cost of production is immaterial (other than on how it affects public perception of the supply curve).
Indeed.  When the price of mixing services comes down (alot), then, I suppose, yes, I will start mixing my coins.  Right now, like I say, this "free market" seems to consist of greedy suppliers and, in any case, is too expensive for me.

People keep telling me that there are no fees to use US Dollars. But then I need to PAY for my Comcast bill for internet. Then the corner stores wants me to PAY for a bag of M&Ms. The audacity!
Yeah no fees for using cash my ass, everything I buy costs money!
How about this: I'll open a bank and I'll lend out depositors' monies at interest. I'll charge depositors a fee to keep their money safe.  I'll charge depositors every time they conduct an operation in the bank - I'll charge fees for them to put their money IN the bank, and I'll charge them fees to take their money out.  With ATM bank machines, I can reduce my costs-per-operation to almost zero, but WTF, I'll charge depositors the same amount anyway 'cos, really, all the banks do that anyway and I wanna be part of the BigBankersClub. Now THAT would be fees for using cash.

Really, guys, what's the point of a revolutionary new currency if nothing really changes? We'll just get a different cartel of geek bankers? I was hoping for better.
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June 15, 2012, 08:15:00 PM
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How about this: I'll open a bank and I'll lend out depositors' monies at interest. I'll charge depositors a fee to keep their money safe.  I'll charge depositors every time they conduct an operation in the bank - I'll charge fees for them to put their money IN the bank, and I'll charge them fees to take their money out.  With ATM bank machines, I can reduce my costs-per-operation to almost zero, but WTF, I'll charge depositors the same amount anyway 'cos, really, all the banks do that anyway and I wanna be part of the BigBankersClub. Now THAT would be fees for using cash.

Really, guys, what's the point of a revolutionary new currency if nothing really changes? We'll just get a different cartel of bankers? I was hoping for better.


For having 200 posts on this forum, you sure don't know much about da bitcoins.  I thought about going posting more about why bitcoin is different, but it's been spelled out very clearly by those more eloquent than myself on these very forums.

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June 15, 2012, 08:16:23 PM
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... but service providers that have to deal with fiat are going to charge more.
I disagree.  An exchange which holds peoples' (e.g.) USD and BTC balances does not pay any external service (e.g. a bank) when two people trade with one another.  They just move numbers around within their own database.  Of course, this has to be done in a clever way so as not do annoy your users and that requires paying good devs and admins.
They do have to pay en external service in the form of fees for deposit and withdrawal. Take for instance a wire transfer - often the sender and the receiver pay a fee. And paying devs and admins is why internal trade fees are levied. Not to mention the cost of a set of high performance servers if you have any kind of trade volume to worry about. What are you expecting, a non-for-profit charity exchange? Have you considered the cost of licensing fees and lawyers too?

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June 15, 2012, 08:22:00 PM
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It's a free market. If you want something cheaper, do it yourself and take their business.

If you want 0% transaction fees, mine them into your own blocks.
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June 15, 2012, 08:23:20 PM
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It's a free market. If you want something cheaper, do it yourself and take their business.

If you want 0% transaction fees, mine them into your own blocks.
+1

Free market doesn't mean access to it is free, or that you don't get charged to use it. It means that you are free to implement your own service in it however you want to.

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June 15, 2012, 08:24:37 PM
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2% of thousands is, let's say, 50 bitcoins per day or about $300 per day, or $9000 per month.  Now that is way more than anything you might need to run the server.  A low-cost server might be $10 per month, a high-end might be, what, $50 per month?  So, assuming a high-end server (BTC 0.2 per day) handling 3000 bitcoins per day and an admin costing BTC 4 per day on average, a reasonable fee might be 0.2/3000 ~ 0.005% for server costs, 4/3000 ~ 0.1% for admin.

A lot of people aren't going to set up a Bitcoin service in the first place unless it's going to provide them with a decent income stream, especially given that providing such services comes with some legal risk.

How much do you think it would cost you to anonymise physical currency - a service which was available long before the digital age made tracking transactions easier than ever before?

All I can say is that this is Bitcoin. I don't believe it until I see six confirmations.
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June 15, 2012, 08:30:23 PM
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The fee that we charge is not a transaction fee, it is a service fee. You are welcome to use us like any other wallet, deposit coins and never click the mix button. The only transaction fee that is charged is the standard 0.0005 BTC which we have to include because of the number of competing transactions produced by satoshidice. If you leave your coins on TORwallet for a while, there is a good chance that the coins will be mixed for free, but you can't know for sure. Clicking the button and paying a small fee  guarantees that your coins will be immediately mixed.

TORwallet - anonymous mixing bitcoin wallet
http://nci2szjrwjqw2zbi.onion/ or http://torwallet.net/
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June 15, 2012, 08:31:15 PM
 #19

It's a free market. If you want something cheaper, do it yourself and take their business.

If you want 0% transaction fees, mine them into your own blocks.
+1

Free market doesn't mean access to it is free, or that you don't get charged to use it. It means that you are free to implement your own service in it however you want to.

+1
it could be that in the future they can offer 0% fees for a coin mixing service, thanks to advertisement

The fee that we charge is not a transaction fee, it is a service fee. You are welcome to use us like any other wallet, deposit coins and never click the mix button. The only transaction fee that is charged is the standard 0.0005 BTC which we have to include because of the number of competing transactions produced by satoshidice. If you leave your coins on TORwallet for a while, there is a good chance that the coins will be mixed for free, but you can't know for sure. Clicking the button and paying a small fee   guarantees that your coins will be immediately mixed.

you see its already started

TangibleCryptography
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June 15, 2012, 08:33:37 PM
 #20

The only transaction fee that is charged is the standard 0.0005 BTC which we have to include because of the number of competing transactions produced by satoshidice.

Rather that make yourself the same as SD spam I would include a fee of 0.00050001 BTC to gain higher priority. Smiley
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