"High" transaction fees and the future feasibility of micro-transactions. Transaction costs represent inherent real-life constraints on scalability and resource availability in the network. It costs money to host fully validating nodes. There is no such thing as a free lunch. Bitcoin was able to achieve zero-fee transactions because the cost was subsidised by the mining reward and bitcoin's value increasing at a faster rate than resources were being consumed. It is not because of the block size limit; as you scale up, the amount of competition for space will also grow. We will see increases in the block size eventually, and add second-layer systems like Lightning Network.
Bitcoin is a dynamic and evolving system and the rate of innovation has exploded over the last few years. Appointing third parties to determine which transactions are "spam" opens up opportunities for censorship. Sufficient fee is a market-based mechanism. Even if your transaction doesn't have sufficient fee at the time, it could still be confirmed later when there is less demand for the network. Transaction malleability. Segregated Witness is the best scaling that exists right now.
For many miners, it represents a potential loss of profit but only if they're not willing to evolve their software and participate in payment channels. If we choose not to expand the scale of the network, that doesn't mean Bitcoin stops working; it means that Bitcoin will specialise in high-value, global, secure transactions. Nobody gets to decide what Bitcoin and we don't know what it will become. The recipe has been replicated in other cryptocurrencies, and that's how a market should work -- allowing the full forces of evolution and specialisation to operate.
Transcript
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See with the transaction cost uh went over by,000%. What would you see in the next few years with the micro uh doing microtransactions will not be feasible and how so the question was the transaction costs have increased dramatically um since the early days of Bitcoin. The reason for that is because the transaction costs represent real life constraints on the scalability and resources available to Bitcoin. If I run a fully validating node with 120 GB of blockchain and uh you know 10 or 20 Gbits of bandwidth a month and RAM, etc., etc.
That costs money. It costs me at least 20 or $30 to host it. If I run it at home, it's going to cost me more for hardware in the front end, less over the longer run, but it still has a palpable cost. So when you make a transaction, you're using the resources that I'm providing, and that has a cost.
You're also using the services of the miners and various other parties in the system. The system has inherent limitations. If the price is zero, what is the demand? Basic economics.
Come on people. What is the demand for things that cost zero? Zero. Infinite.
Right? There is no such thing as a free lunch. Bitcoin was able to achieve zero fee transactions because the transaction cost was subsidized by both the mining reward and the growth in the value of Bitcoin at a rate that was faster than the number of resources that were consumed. Those days are over.
And it's not because there's a block size limit. Because if you move the block size limit up, you're just opening the space for more applications. Those more applications will create demand. they'll start using resources and pretty soon there's competition for space on the blockchain again and if you make it free then it becomes infinite and you can't manage that we are going to see increases in the block size so what I wanted to know like every time uh we are uh making a transaction we cannot run nodes like like the miners do because it's it it would take lot of cost so we have to pay the miners for all of these transactions so don't you think like with the increasing amount of transactions.
So this cost will increase and it will someday become a I mean it will get more and more centralized as is already discussed. So overthrowing this technology of whole Bitcoin will it be that or can the Bitcoin be evolved from what it is? Bitcoin can be evolved and it is evolving constantly. Bitcoin isn't a static system.
It's a dynamic and evolving system. The rates of innovation has exploded over the last few years. You're not paying transactions to miners because they're running nodes. And if you ran your own nodes, you'd still have to pay transaction fees.
And those transaction fees are not paid to miners because miners are doing something evil or whatever. They're paid to miners because we need constraints on the system in order to be able to determine which transactions are worth propagating and which ones are not. That will cause there are two ways to achieve that goal. One way is to say we will have someone decide whether a transaction is worth propagating or spam.
That is a very dangerous power to give to anyone. If I believe my transaction is worthwhile and you think my transaction is spam and we appoint a third party and say you decide the miners, the developers, the software rules, any party that becomes a power of censorship. Exactly. That is extremely dangerous.
Bitcoin instead chooses to use a market-based mechanism that says your transaction is worthwhile if you believe it is worthwhile enough to assign a fee to it that is competitive visav all of the other transactions the people are trying to make. And if their transactions are not as worthwhile in their eyes as yours is, they won't pay sufficient fee. They will not get mined at this time. maybe later when there's less capac there's less demand for the network.
That is a market-based solution that ensures we do not put anyone in charge. It does not escalate by the number of transactions unless we stop evolving the system. There is a technology right now that is ready to deploy that will double the capacity of the system to almost 2.1 megabytes per block. uh that will allow us to fix some very important issues called transaction malleability and quadratic hashing and that opens the door to second layer payment channels.
That technology is called segregated witness. It has now been tested for more than a year and a half. It is the most mature well- tested technology that exists in the space. It is the best scaling solution that exists and we're waiting for it to be activated.
There is some political pressure and some negotiation going on because not everybody sees it as the most advantageous and profitable choice for them. Specifically for the miners, this represents a potential loss of profit unless they're willing to evolve their software and participate in things like payment channels. Why do that when they can just earn more fees on the base network right now? And so they're blockading this solution and proposing a different solution which gives them more power.
This is a political decision. It's not easy to resolve because no one's in charge. Uh but I have advocated that I think SegWit which is ready now and is a great solution should be done first and then we should probably do a block size increase afterwards within the next couple of years uh to further expand the capacity. Otherwise, and this is important to understand, otherwise it doesn't mean Bitcoin stops working.
It means Bitcoin becomes something very specific. It specializes. If we choose not to expand the scale of the network, then what we are saying is Bitcoin is the system for doing extremely high security transactions that as a result are expensive. What is the value of a global uncensorable transaction that is guaranteed settled within 10 minutes?
It's probably a lot more than a dollar, which is what it's priced for today. Unless we open capacity to do things like micro payments, Bitcoin will become a network that can only do that, but can do it very, very well. That's okay, too. Maybe that's what the market wants.
Nobody gets to decide what Bitcoin is. You put out ideas, the market takes those ideas and decides, "Yeah, no, I want to use it for something else." And if the economic system allows it, that's what it's going to become. We don't know what Bitcoin will become. Uh the good news is that the recipe has been replicated in more than a thousand cryptocurrencies.
And if Bitcoin isn't the right thing for you, maybe something else fulfills your needs better. And that's how a market should work. That allows the full forces of evolution and specialization to operate within market dynamics. Thank you for the last question.
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