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Can someone explain to me the technical reason as to why it costs $10, when it used to cost pennies (I think)? Has the proportion of transactions gone up compa

Can someone explain to me the technical reason as to why it costs $10, when it used to cost pennies (I think)? Has the proportion of transactions gone up compared to the miners?

tradri 6y ago
It's kinda hard to create a world-class transactions system when the philosophy is that the bottleneck should be a below-average computer and internet connection.
cactus2093 6y ago
AFAIU, it's just basic supply and demand. A block is mined every 10 minutes and has a fixed size, so you're paying for a slot to put your transaction in the block. And there actually is no fee listed anywhere that you pay and it guarantees you a spot, it's a bit like a stock order book where you can offer any fee that you want on your transaction and the miners will pick the highest fee transactions available to match with. $10 is about the average minimum fee size being accepted in blocks atm. Ultimately as demand to send transactions goes up, fees go up.
uncletammy 6y ago
cactu2093 is exactly right. It's basic supply and demand. What their explanation doesn't touch on are the things that have affected supply and demand. Here are a few of them: 1. Massive media hype surrounding the price in 2014 caused everyone and their mom to try and buy bitcoin. The original developer (Satoshi) had added short term limit on the number of transactions that could be processed in a given time (transactions per block) as a short term fix for a few bad actors spamming the network. So the network was left unable to process the massive increase in demand caused by the price hype. This "fix" was stated to be temporary but was left in for the reason below. 2. A handful of new BTC devs ran off the old guard who believed the network should scale up with demand. This resulted in them intentionally refusing to change the software to accommodate yet another round of increased demand due to media attention (2016). 3. Increased regulatory scrutiny made it difficult to buy/sell crypto outside of large, regulated exchanges, effectively reducing liquidity for those that aren't institutional traders and those unwilling to give Coinbase a DNA sample just so they can buy crypto. The new regulatory and institutional friction killed many of the original use cases for bitcoin leaving mostly institutional traders left. These traders are unphased by high transaction fees, especially since most of their trading takes place off-chain on an exchange website.
samtheprogram 6y ago
If you're sending from an exchange, you're actually splitting that fee with multiple people (one transaction with multiple recipients including yourself). If you're on your own transaction (e.g. sending from a hardware wallet), you're going to pay considerably more (closer to the tune of $10).
aaron_m04 6y ago
FWIW, you can pay a much lower fee and the transaction will probably be confirmed... eventually... For example, I donated to a torrenting site with a very low fee and it took ~3 days to confirm.
- dennis_jeeves 6y ago
  Thanks, almost exactly what I was looking for. So the tradeoff appears to be that the the quicker I want to settle a transaction, the more expensive it is.
  - uncletammy 6y ago
    There's a limit to that though. You can also pay too low of a fee and your transaction NEVER gets processed. When you submit a transaction for the first time, it enters the client software's mempool. Miners pull transactions from the mempool if they deem the fee high enough to include. If your fee is too low, it sits in the mempool long enough that the client software purges it forever. It has to be resubmitted or it never gets mined

Can someone explain to me the technical reason as to why it costs $10, when it used to cost pennies (I think)? Has the proportion of transactions gone up compared to the miners?

tradri 6y ago

It's kinda hard to create a world-class transactions system when the philosophy is that the bottleneck should be a below-average computer and internet connection.

cactus2093 6y ago

AFAIU, it's just basic supply and demand. A block is mined every 10 minutes and has a fixed size, so you're paying for a slot to put your transaction in the block. And there actually is no fee listed anywhere that you pay and it guarantees you a spot, it's a bit like a stock order book where you can offer any fee that you want on your transaction and the miners will pick the highest fee transactions available to match with. $10 is about the average minimum fee size being accepted in blocks atm. Ultimately as demand to send transactions goes up, fees go up.

uncletammy 6y ago

cactu2093 is exactly right. It's basic supply and demand. What their explanation doesn't touch on are the things that have affected supply and demand. Here are a few of them: 1. Massive media hype surrounding the price in 2014 caused everyone and their mom to try and buy bitcoin. The original developer (Satoshi) had added short term limit on the number of transactions that could be processed in a given time (transactions per block) as a short term fix for a few bad actors spamming the network. So the network was left unable to process the massive increase in demand caused by the price hype. This "fix" was stated to be temporary but was left in for the reason below. 2. A handful of new BTC devs ran off the old guard who believed the network should scale up with demand. This resulted in them intentionally refusing to change the software to accommodate yet another round of increased demand due to media attention (2016). 3. Increased regulatory scrutiny made it difficult to buy/sell crypto outside of large, regulated exchanges, effectively reducing liquidity for those that aren't institutional traders and those unwilling to give Coinbase a DNA sample just so they can buy crypto. The new regulatory and institutional friction killed many of the original use cases for bitcoin leaving mostly institutional traders left. These traders are unphased by high transaction fees, especially since most of their trading takes place off-chain on an exchange website.

samtheprogram 6y ago

If you're sending from an exchange, you're actually splitting that fee with multiple people (one transaction with multiple recipients including yourself). If you're on your own transaction (e.g. sending from a hardware wallet), you're going to pay considerably more (closer to the tune of $10).

aaron_m04 6y ago

FWIW, you can pay a much lower fee and the transaction will probably be confirmed... eventually... For example, I donated to a torrenting site with a very low fee and it took ~3 days to confirm.

dennis_jeeves 6y ago
Thanks, almost exactly what I was looking for. So the tradeoff appears to be that the the quicker I want to settle a transaction, the more expensive it is.
- uncletammy 6y ago
  There's a limit to that though. You can also pay too low of a fee and your transaction NEVER gets processed. When you submit a transaction for the first time, it enters the client software's mempool. Miners pull transactions from the mempool if they deem the fee high enough to include. If your fee is too low, it sits in the mempool long enough that the client software purges it forever. It has to be resubmitted or it never gets mined