a guest Dec 27th, 2017 146 Never
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  1. Let me explain why fees are important
  3. The network involves an intrinsically scarce resource which is block space. This resource is intrinsically scarce in the same way that a boat has a load capacity. Go beyond that load capacity and the boat sinks. Likewise, go beyond a certain amount of data in the blockchain and the network sinks by losing its decentralization which is what gives it its security. Consequently, the amount of data that can be processed must remain limited and therefore users must compete over who gets to actually input data into the blockchain.
  5. Users compete by essentially paying the miners a bribe, which we call a "fee." It is worth noting that in the very early days when bitcoin was unpopular, transactions were free. And transactions would still be free if there weren't so many people trying to get through the door at once. Miners are like bouncers who have to decide who to let in first. Naturally, the best way to get the bouncer to let you in first is to pay him, and that's what we are doing when we pay transaction fees. If fees were based on a fixed percentage, low value transactions with correspondingly low fees would never get confirmed because miners would always favor the higher value transactions with their juicier fees.
  7. The blockchain is not designed for cheap low value transactions, it intrinsically favors high value transactions. This is because for high value transactions, the percentage the fee represents is small, whereas for low value transactions the fee quickly becomes a large percentage of the value of the transaction. That is, for high value transactions, fees are cheap, percentage wise. For low value transactions, on the other hand, they are expensive.
  9. So it is important to understand that the blockchain is a value transfer layer, and as a value transfer layer it is by its nature designed to favor high value transfers over low value transfers.
  11. The more payment networks come to be relied upon for small value transactions -- and the more people use them as opposed to trying to get every transaction into the blockchain directly -- the less people are fighting over the scarce resource known as block space, consequently the cheaper block space becomes. That is, payment networks not only offer a cheap way to transact for low value payments, but they also reduce the costs of high value transactions on the blockchain itself.
  13. Roger Ver's confusion -- along with many who agree with him -- is that he thinks of the blockchain as an efficient payment network. It's not. Just look at the electricity expenses that are going into making transactions on the blockchain possible. Right now the network is consuming as much energy as the country Ireland? All that energy is not being spent on making transactions cheap or fast -- additional mining power has a negligible affect on the speed of bitcoin as the protocol always seeks to maintain 10 minute confirmation times, and additional mining power has a negligible affect on the price of fees as that is determined most principally by the fact that there is a limited supply of block space.
  15. No. That energy is being spent entirely on securing the network. The blockchain is about security first, not cheap payments. Cheap payments will come with Lightning and other such payment networks, but the purpose of the blockchain is first and foremost about securing a global public ledger.
  17. What you want is the security layer to be secure, and the payment layer to be fast and cheap. The two combined (along with so much more) is what will eventually be considered Bitcoin (much like people ceased to differentiate the internet from the web). What you don't want is to try to use the security layer as the payment network so that it isn't secure. And since the blockchain, the security layer as it were, isn't particularly fast or cheap, any network that attempts to use the blockchain as a payment network to compete with networks specifically designed to be payment networks, like Lightning, will in the long run fail.
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