Topic: Transaction fee? WTF? (Read 3947 times)

Fees are an inevitable part of the Bitcoin network (especially in the far future when block reward is significantly lower), but it's important to recognize who is getting these fees:  anyone who wants to.  This is an extremely important distinction!

In most other systems, it's usually the central authority that is charging the fees (Mastercard, Paypal, Blizzard charging 15% fee for DiabloIII item auctions!?).  Because there is usually a lack of competition or a very steep cost-of-entry, they essentially have a monopoly and can charge whatever they want.  That's why consumers are losers  in all those services.

However, in bitcoin there is no way to have a monopoly on fees.  In fact, there is infinite room for competition in the bitcoin mining market.  I can go buy $10k worth of FPGAs tomorrow and hook it up to the network and start collecting fees right away.  I can do it completely anonymously and without getting anyone's permission to do it.  There is inherently no restriction on who can be part of the bitcoin equation.  Every single person in the world can be part of it.   That's a really powerful feature!

The "infinite room for competition" part is the critical piece of this puzzle:  there is no way for any party to try to lock out competition from the market.  The only way to influence the network fees is to offer lower fees than everyone else.  Anyone who wants to try to charge higher fees, will just be missing out on profitable, lower-fee transactions that are processed by all the other miners that are willing to include them.

Because of this dynamic, it is overwhelmingly likely that fees will never be higher than they need to be.  They will always be low as they can reasonably be, at least until/if super-computers + T1 lines are needed to do mining -- but even then, there's still plenty of investors who can participate.  Therefore, if there are fees, it's because the network has a non-zero cost to keep in operation.  But you can be assured that you're not getting overcharged.

Basically, you create a transaction with no fees, and instead of broadcasting it on the network, you give it to the recipient directly (email, or whatever).  The recipient then creates a second transaction from it, exactly like they'd do if it came in over the network like what happens now, but the second transaction has a fee in it.  They then submit the pair of transactions to the network, and miners understand that the fee in the second transaction is intended to pay for the first transaction too.  (Also, they can't include the transaction with the fee in their block unless they also include the prior transaction.)

The mechanisms for this don't exist yet, but it seems like a pretty clever way to push the costs of a transaction to the recipient, so it should just be a matter of time.

This is the most interesting thing I read in this thread. Is there a mechanism now for combining a trx into a second spend without re-signing the original trx? I'm curious how this works as I'd like to see some protocol for it developed such that clients could start supporting it. Call it BiTrx or whatever and treat it like email where we can send funds direct to each other bypassing the blockchain until a merchant wants to settle some period (eg. one hour) of trx into a master transfer to their backend account.

If a MIME type was created for it then BiTrxs could be attached to emails and processed automatically by email software like electronic checks peer-peer. In that case a Bitcoin client add-on could be made for Thunderbird to allow pmts processed by email directly by users without a third party (other than the blockchain as settlement mechanism). Users wouldn't even have to deal with bitcoin addresses at all.

Merchant sends email invoice with address embedded. Customer signs transaction and replies with BiTrx pmt. If both users install certificates in their email client then it's encrypted and both ends identity is authenticated.

yea, i had a little jaw drop on the "100+ IQ" comment... if you're struggling with below average IQ, you got bigger problems then penny fees. then again, since you're likely unemployed (or on minimum wage) maybe it IS a big problem for you...

course i'm somewhat of an elitist ass when it comes to necessary intelligence. get smart or get out. heh.

Cash is not as easy as you say. You can't just have $50 cash and pay for something that costs $50. You have to pay sales tax, too. So, if you want buy something with $50, it has to cost $46.19 so that you can add the $3.81 in sales tax to make it an even $50 (CA sales tax is very high). Or, you can buy something for $50 if have another $4.13 with you.

You think that is simpler than a 0.01 BTC transaction fee?

BTW, your "Bitcoin requires to have 100+ IQ" comment is funny because a 100 IQ is average. Only half the people in the world have a 100+ IQ, but the comment still made made me chuckle.

Really there isn't a market for transaction fees yet.  Most of the "fees" paid now are really anti-spam measures that just happen to use the fee mechanism.  But the system is inching closer and closer to supporting price discovery via market forces.  Soon^TM...

The fee you pay on fiat cash is the taxes combined with banking fees.

Everything has a production and processing fee in it. It's just hidden in different ways.


BTW: Aren't tx fees actually a bit too low (I don't mine, so it doesn't really bother me, but wouldn't a µBTC or so be a little more sensible especially with the generation revenues being halved soon)?

http://www.bitbills.com/

My bank charges me a small but aggravating fee every month for me to store my cash with them so that I can withdraw it at an ATM every so often.  Apparently they charge this for all their customers who don't have large balance, rather than based on having a 100+ IQ.  But we all seem to accept it and keep paying.

Bitcoin may not be perfect, but it most definitely beats the snot out of paypal as a virtual wallet.

Bitcoin is 3 years old. Clients will surely become simpler to use in the next few years.

I don't mind to pay fee. But I mind to do it a way that makes my brain to explode. Real cash is very handy. Bitcoin requires to have 100+ IQ.

Every payment method has costs.  With bitcoin, you as the customer are paying the costs directly.  With cash and credit cards, the merchant is increasing the price you pay for your purchase so that the costs of handling that cash or card payment is included in that price.

How does that cash you pay to a retailer end up being used by the retailer to pay the bills?   Perhaps an amoured car courier (e.g., Brinks truck) comes to pick up the merchant's cash deposit.   Who pays for that?   The consumer does, because the merchant adds the cost of the Brinks truck fee to the selling prices.

Taking this into account, the options at the counter might be:

Your purchase total: $50 USD
Pay with credit card: $50  [merchant pays 2.75% fee to Square])
Pay with cash: $49  [merchant passes on some of the savings from not having to pay Square]
Pay with bitcoin: $48.50 [merchant passes on some of the savings from not having to pay either the Brinks truck or Square]

Do you still see a problem that you are asked to pay a transaction fee that is valued about one penny?

It is technically not correct that the cash in your pocket carries no "fee." The production of that cash (especially issuing new cash due to wear and tear) carries a real cost. Currently that cost is socialized by the government so you don't see it, but it is there.

There is always a cost for moving information or materials around. However, Bitcoin provides a manner far cheaper than anything else for moving money.

Well... If Bitcoin is not supposed to replace cash, then there is no a problem.

Does anyone know if Open Transactions is flexible enough to support multi-signature transactions?

Anyways, even if OT itself doesn't, it shouldn't be impossible to develop some sort of "certificate protocol" that does support it. So yeah, you're right davout, multi-sig is not incompatible with shared wallets. Intrabank transfers could be done outside of the blockchain - with the security of multi-signature. The blockchain would probably be used only for bank compensations.

Absolutely, I don't really see why the blockchain should be the one-size-fits-all answer for all money transfer use cases. Now if your opinion is different 'Right' isn't really going to cut it

Picture it this way, fast-forward ten years, blockchain is overcrowded, Bitcoin transactions will be much more expensive and slower. What will be exchanged will be Bitcoin certificates, not actual Bitcoins. History repeats itself. But this time you'll have a the choice, this time you will be able to safely store your digital gold yourself, you'll keep some money in an e-wallet and your savings in your brainwallet.

Lock-in: learn about what it means. In bitcoin world, it is very difficult to enforce lock-in to your customers, even with hosted wallets, payment processors etc. Switching is always pretty easy.

I would not compare a hosted bitcoin wallet and paypal.
Paypal is NOT interoperable with other wallets. That's why all "paypal-like" wallets, based on proprietary solutions, are doomed.
Only paypal has had enough market traction through ebay to pull it off.
Today, an internet payment solution must be interoperable and open source.
Bitcoin e-wallets are going to be the optimal solutions for non-tech savy users.

I once thought the same.

But then multi-sig came by, with all its advantages. Costumers having a part of the key while the "bank" has the other is a much more safe architecture than "bank controls all".

It's safe for the costumers, because they don't lose their money even if their keys are stolen - as long as the thief doesn't manage to authenticate himself as the costumer, a strong authentication mechanism is still essential.
It's safer for the bank, as a hack of its wallet is not enough to spend the money. It's also safer to the banker (his meatspace self), since thugs will have no incentive to force him to give them "all the money", as the banker himself cannot do it.

Multi-sig is better in many ways. But with such architecture, I don't see how can you share addresses with other costumers of the same bank.