Topic: Why does everyone keep calling them fees? They're not fees, they're BIDS! (Read 3018 times)

When one pays a so-called "fee" for a transaction, it's not really a fee at all. It's a bid! It's simply bidding for space in the next available block.

So-called miners are the entities auctioning block-space to the highest bidders.

I've been wondering why there has been so much confusion surrounding the whole "increasing the block-space" thing, and I think it at least partly boils down to a highly misleading nickname. They're not fees, they're bids!

The way I understand it, every time a new block is discovered, an auction occurs and individual kilobytes of that block are auctioned off to the highest bidders. However, at the moment there's a problem because it seems like such a crappy opaque process with very little market transparency. This needs to be improved. Before requesting any transaction, I want to know the "going rate" and the estimated delivery time depending on how much i BID.

Agree? Disagree? Please discuss.

What I would like is for the receiver to be able to "bid".

e.g. Acme Corp is willing to pay 1 mBTC for every transaction regardless of what the sender buyer pays.

But I imagine that would require some changes to the protocol. Maybe if the payment address starts with a 1 there is no fee taken from the receiver, if the payment address starts with a, say, z - then then the minor is automatically allowed to take 0.5% of the transaction. Hell - just put z1 at the beginninging instead of 1. Or something.

Businesses that want higher odds of fast confirmation can use it as the payment address, potentially saving money in customer service queries.

When one pays a so-called "fee" for a transaction, it's not really a fee at all. It's a bid! It's simply bidding for space in the next available block.

So-called miners are the entities auctioning block-space to the highest bidders.

I've been wondering why there has been so much confusion surrounding the whole "increasing the block-space" thing, and I think it at least partly boils down to a highly misleading nickname. They're not fees, they're bids!

The way I understand it, every time a new block is discovered, an auction occurs and individual kilobytes of that block are auctioned off to the highest bidders. However, at the moment there's a problem because it seems like such a crappy opaque process with very little market transparency. This needs to be improved. Before requesting any transaction, I want to know the "going rate" and the estimated delivery time depending on how much i BID.

Agree? Disagree? Please discuss.

1)
Block space is extremely abundant and there's always enough for everyone. Why pay? Even if 100 miners keep rejecting transaction requests to encourage users to cough-up higher bids, the 101st miner might sign all the 'free-loaders' regardless. Since the network difficulty must match the "resource reward" (made up of new coins and winning bids), low rewards would tend to force the difficulty down.

Never underestimate how much semantics affect people's ability to think clearly.

Your suggestion is extremely valuable, in my opinion, and there are quite a few other misnomers in the Bitcoin world and especially surrounding the blocksize issue. Using accurate terminology is crucial for arriving at sound judgments.

Not at all, because each mining pool has different rules by which they include or disclude transactions.  And if higher-priority transactions are created at any time while the transaction is waiting, they take precedence.  There isn't any sort of queue, only priority.  Any sort of estimate wouldn't be at all reliable.

Not at all, because each mining pool has different rules by which they include or disclude transactions.  And if higher-priority transactions are created at any time while the transaction is waiting, they take precedence.  There isn't any sort of queue, only priority.  Any sort of estimate wouldn't be at all reliable.

Perhaps changing the bid after the fact is not the correct approach.

Is there enough information under control of the Satoshi reference client -- what do we call this, just bitcoind, SRC, or what --- to predict how many blocks later the transaction will be processed, based on work already in the queue?

And rightly so.  If clients relayed double-spend transactions, it would make 0-conf transactions (which are used in things like digital download services) utterly useless.

However, I'd like to think that a particular set of rules could be created to allow relay of transactions with the same inputs and outputs, but it wouldn't be easy.  The possibility of additional inputs in light of a higher fee has to be considered, as well as a differing change address or a differing amount going to the change address.

Currently most clients in the network will block/not relay this second transaction though.

Okay, fine then, they are "tips" or "gratuities"

-MarkM-

After reading all the replays, I understand the following (and please do correct if I am wrong):
I was under the impression that there is no central authority on Bitcoin (like banks on dollars).
Now, it appears, there is: the miners. They can decide the amount of the fees We all pay.

I like to think of block space as a precious item that the miners want to sell for as much money for as they can get. E.g.: prime water-front real estate. Thus, high bids get high priority, and vice versa. And expensive requests (transactions with multiple I/O) also cost more. However, it's also a race against time because some other miner might also discover a block. Therefore only the bids that have already queued up are considered. If there's any unsold space at the end of the auction, some of the remaining space might be given away for free -- depending on the miner's politics. E.g.: one reason to reject free transactions could be to encourage users to "bid higher next time".

Let's look at 2 alternate scenarios:
1)
Block space is extremely abundant and there's always enough for everyone. Why pay? Even if 100 miners keep rejecting transaction requests to encourage users to cough-up higher bids, the 101st miner might sign all the 'free-loaders' regardless. Since the network difficulty must match the "resource reward" (made up of new coins and winning bids), low rewards would tend to force the difficulty down.

2)
If block space is too scarce, basically the opposite happens. Miners get rewarded with higher and higher bids... until Visa and Mastercard et al. start looking competitive again. Bitcoin doesn't operate in a vacuum so it should take its environment into account.

So how does one find the right level of scarcity to maintain a multi-dimensional balance of:
D1: high network security
D2: 'optimum'(?) exchange rate
D3: competitive transaction costs
??

By a fixed algorithm? E.g.: the Bitcoin protocol automatically adjusts block size as well as difficulty.
Or by a human-influenced market? E.g.: miners competitively pull block-size up or down.

I think both options are likely to have flaws, and it seems like an extremely difficult problem to model. Since Bitcoin will likely always have external influences (competing currencies and payment systems), and those externalities may behave irrationally, I'm leaning towards allowing a human-controlled evolutionary algorithm for finding that balance.

In an efficient system, the price of transactions should converge towards the cost of processing those transactions.