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> One of the hugely compelling benefits of cryptocurrencies is they entirely eliminate the necessity for such middlemen taking a cut and driving up costs for th

> One of the hugely compelling benefits of cryptocurrencies is they entirely eliminate the necessity for such middlemen taking a cut and driving up costs for the parties actually partaking in the transaction. Don't all bitcoin transactions require a transaction fee in order to get processed these days?

davnicwil 9y ago
Yes. There is no such thing as a free transaction, because payment methods and networks take work to administrate. I mean, take cash. It's expensive to make, to process, to transport, to safely store. These costs are, obviously, passed on to the users of cash in the aggregate. Cryptocurrency transaction fees are just very direct, but it's the same deal. The difference is that clearly inefficient transaction costs, like centralised middlemen with limited competition skimming a cut from all transactions, can be eliminated. Remember that bitcoin transaction fees are a completely open market.
- resf 9y ago
  Centralized payment networks will always be cheaper to administer than blockchains. The only reason that Visa and Mastercard have such high fees is because it's a duopoly.
  - QML 9y ago
    Harder to get access to a centralized payment network though, right?
  - vkou 9y ago
    The only other reason they have such high fees is because those fees pay for dealing with fraud. Bitcoin makes the user deal with fraud, with predictable results.
- horsawlarway 9y ago
  But the price you pay for removing those middle men is forcing the network to perform a truly astounding amount of computational work to verify the same transactions. There's an efficiency trade-off here, and I think for at least many of the older crypto currencies, the amount of work to process transactions is literally unsustainable without some additional tech or service layer. Which often leads us right back to clearly inefficient transaction costs.
lucaspiller 9y ago
I paid ~$0.60 to transfer ~$900 of Bitcoin the other day. For that amount it's not too bad, but you'd pay basically the same if you are paying for a $3 coffee. The transaction fee is based on the byte size of the transaction, not the monetary amount, so in it's current form it doesn't make sense to use Bitcoin for low-value transactions.
- sqeaky 9y ago
  > fee is based on the byte size of the transaction Aren'y all bitcoin transaction really close to the same size? The amount being transferred doesn't change the size an integer contain 1 and another container 1,000,000,000 take the same amount of space (32 or 64 bits) because the spec says so. I thought transaction fees encouraged miners to include your block in a transaction.
  - droidist2 9y ago
    I think you're both saying the same thing
  - annabellish 9y ago
    Yes, but also no. The trick here is that if you're paying for your £1,000,000 space rocket by transfering the bitcoins from one address, it's a small transaction. If you're paying for your £3 coffee by transfering small amounts from many addresses, it's a big transaction. Address fragmentation happens when your coins are distributed across many addresses, and can be caused by things like spending coins, because all transactions actually spend everything at an address and just route the "change" elsewhere. Buy two cups of coffee too close to each other and your next transaction is going to cost twice as much in fees, whoops!
  - simias 9y ago
    The size of the transactions is mostly a factor of how many addresses are included. So moving 1BTC split across hundreds of addresses ("dust" in the jargon) is a lot more expensive than moving 1000BTC from a single address for instance. Unfortunately it's generally advised to use a new receiving address for every bitcoin transaction to make it harder to trace how much money you have and how you earn and spend it (most wallet craft a new address for every receive transaction) so it's very common to end up with your assets split up across dozens or even hundred of addresses.
vertex-four 9y ago
One of the big things in the next couple of years is the development of Lightning Network, which requires the upcoming SegWit patches. The basic protocol allows you to move bitcoins between two entities without putting every single transaction on the chain - only 2 blockchain transactions are needed for unlimited Lightning Network transactions. Then, on top of this, there's a framework for moving money through the network - I send money to someone I have a Lightning Network payment channel with, they send it to someone they have a channel with, etc, until it gets to you. The great thing about this is that I can prove everyone isn't cheating, and if they are, I can immediately reverse my transaction - I haven't lost any money. So the result of this is the creation of a network of payment channels which have very very low costs to process payments, aren't embedded in an industry that's difficult to get into (you or I could process payments just by joining the network), and have no ability to try and take a larger cut under the guise of a "points" or "cashback" system as you can easily switch to a different channel which takes a smaller cut.
- basch 9y ago
  is that the exact opposite of a ledger of every transaction? off ledger transactions? it seems like its giving up some of the idealistic poetic beauty, even if it is practical.
  - vertex-four 9y ago
    The ledger of every transaction has only ever been a means to an end, that end being a cryptocurrency... and it's still necessary in Lightning Network as a way to resolve fraud and as a monetary backing, it's just not used in every single transaction. In practice, a ledger of every transaction that is copied to the hard drives of a sufficient amount of bitcoin users is a terrible idea. It doesn't scale, at all. We need better solutions. Lightning Network is one that's potentially viable in the short term - and we're seeing more people play with radically different cryptocurrency designs (e.g. Iota) in the long term.

davnicwil 9y ago

Yes. There is no such thing as a free transaction, because payment methods and networks take work to administrate. I mean, take cash. It's expensive to make, to process, to transport, to safely store. These costs are, obviously, passed on to the users of cash in the aggregate. Cryptocurrency transaction fees are just very direct, but it's the same deal. The difference is that clearly inefficient transaction costs, like centralised middlemen with limited competition skimming a cut from all transactions, can be eliminated. Remember that bitcoin transaction fees are a completely open market.

resf 9y ago
Centralized payment networks will always be cheaper to administer than blockchains. The only reason that Visa and Mastercard have such high fees is because it's a duopoly.
- QML 9y ago
  Harder to get access to a centralized payment network though, right?
- vkou 9y ago
  The only other reason they have such high fees is because those fees pay for dealing with fraud. Bitcoin makes the user deal with fraud, with predictable results.
horsawlarway 9y ago
But the price you pay for removing those middle men is forcing the network to perform a truly astounding amount of computational work to verify the same transactions. There's an efficiency trade-off here, and I think for at least many of the older crypto currencies, the amount of work to process transactions is literally unsustainable without some additional tech or service layer. Which often leads us right back to clearly inefficient transaction costs.

lucaspiller 9y ago

I paid ~$0.60 to transfer ~$900 of Bitcoin the other day. For that amount it's not too bad, but you'd pay basically the same if you are paying for a $3 coffee. The transaction fee is based on the byte size of the transaction, not the monetary amount, so in it's current form it doesn't make sense to use Bitcoin for low-value transactions.

sqeaky 9y ago
> fee is based on the byte size of the transaction Aren'y all bitcoin transaction really close to the same size? The amount being transferred doesn't change the size an integer contain 1 and another container 1,000,000,000 take the same amount of space (32 or 64 bits) because the spec says so. I thought transaction fees encouraged miners to include your block in a transaction.
- droidist2 9y ago
  I think you're both saying the same thing
- annabellish 9y ago
  Yes, but also no. The trick here is that if you're paying for your £1,000,000 space rocket by transfering the bitcoins from one address, it's a small transaction. If you're paying for your £3 coffee by transfering small amounts from many addresses, it's a big transaction. Address fragmentation happens when your coins are distributed across many addresses, and can be caused by things like spending coins, because all transactions actually spend everything at an address and just route the "change" elsewhere. Buy two cups of coffee too close to each other and your next transaction is going to cost twice as much in fees, whoops!
- simias 9y ago
  The size of the transactions is mostly a factor of how many addresses are included. So moving 1BTC split across hundreds of addresses ("dust" in the jargon) is a lot more expensive than moving 1000BTC from a single address for instance. Unfortunately it's generally advised to use a new receiving address for every bitcoin transaction to make it harder to trace how much money you have and how you earn and spend it (most wallet craft a new address for every receive transaction) so it's very common to end up with your assets split up across dozens or even hundred of addresses.

vertex-four 9y ago

One of the big things in the next couple of years is the development of Lightning Network, which requires the upcoming SegWit patches. The basic protocol allows you to move bitcoins between two entities without putting every single transaction on the chain - only 2 blockchain transactions are needed for unlimited Lightning Network transactions. Then, on top of this, there's a framework for moving money through the network - I send money to someone I have a Lightning Network payment channel with, they send it to someone they have a channel with, etc, until it gets to you. The great thing about this is that I can prove everyone isn't cheating, and if they are, I can immediately reverse my transaction - I haven't lost any money. So the result of this is the creation of a network of payment channels which have very very low costs to process payments, aren't embedded in an industry that's difficult to get into (you or I could process payments just by joining the network), and have no ability to try and take a larger cut under the guise of a "points" or "cashback" system as you can easily switch to a different channel which takes a smaller cut.

basch 9y ago
is that the exact opposite of a ledger of every transaction? off ledger transactions? it seems like its giving up some of the idealistic poetic beauty, even if it is practical.
- vertex-four 9y ago
  The ledger of every transaction has only ever been a means to an end, that end being a cryptocurrency... and it's still necessary in Lightning Network as a way to resolve fraud and as a monetary backing, it's just not used in every single transaction. In practice, a ledger of every transaction that is copied to the hard drives of a sufficient amount of bitcoin users is a terrible idea. It doesn't scale, at all. We need better solutions. Lightning Network is one that's potentially viable in the short term - and we're seeing more people play with radically different cryptocurrency designs (e.g. Iota) in the long term.