Fixed Transaction Fee (0.01 PPC/kb) Debate Thread

General
1

It seems like the 0.01 PPC fixed transaction fee is becoming more of an issue as the PPC value rises. It was negligible in the early days of PPC but we’re at a point where the usability of this coin is dictated by the transaction fee. I understand that Sunny King explains over and over that this coin is to be a “backbone” currency. However, is that just an excuse to have security in the network? As far as I know, the fixed fee was intended to reduce the blockchain size and to prevent spamming but all of these are already solved in bitcoins. We don’t need to synchronize to the whole blockchain to start transacting as done with Bitcoin’s MultiBit wallet (takes a minute or so). In BTC, fees are imposed when there is high volume of transactions to be confirmed. In my opinion, we don’t have to be a backbone currency. PPC could become more usable if we just allow zero or low transaction fees when there is less transactions to confirm - a dynamic fee structure. If we keep the high 0.01 tx fee, we risk to end up in the following:

  1. The rich get richer. Some of you may argue that the 1% “interest” in Proof-of-Stake is available to all, rich or poor. However, the rich is always at an advantage. For example, if a poor guy had only 1 PPC and mints 1% of his coins in 1 year, he would get 0.01 PPC. That 0.01 PPC is almost useless because it will be destroyed as soon as he transacts. In a percentage perspective, if a rich guy (100 PPC) and poor guy (1 PPC) mints with 100% of their holdings in a year, the rich guy get to keep most of the 1% interest and the poor guy receives almost nothing. In essence, the rich get richer.

  2. A PPC bubble. Here is why bitcoin is not in a tulip mania while PPC run the risk of becoming one. Bitcoin definitely has many uses but it’s mainly used to transact. Its valuability comes from the convenience it brings as a medium of exchange. Nothing backs bitcoins but it is its property to last makes it a good store of value. This ability to last is also true for PPC but it will lack the convenience of exchange in the future. It will just be a means to store value but not usable. Why would people use it if there are other alternatives that cost less to transact? This sounds like gold right? Most PPC folks including Sunny explain that PPC imitates gold better than bitcoin. However, this is a bad thing. Bitcoin is currently a threat to gold because it costs less to transact but is still durable and divisible. PPC is like taking a step back. If Bitcoin is gold 2.0, PPC is gold 1.5. People would only buy PPC to speculate on it but not really use it to buy goods because it is impractical. Frankly, among the hundreds of cryptocurrencies, it is useless because you can’t buy anything with it. As the value of PPC rises, lesser merchants would want to accept it due to the fees rendering it more and more useless. Therefore, it is a bubble waiting to pop unless we do something about it.

I am a big fan of Proof-of-Stake but not the fixed transaction fee. My only request is to have a dynamic tx fee to give the market control over liquidity. We shouldn’t pay fees if we don’t have to. We give the poor a chance to spend their minted coins whenever there is less load on the network (zero or small tx fee). We also make the coin spendable just like bitcoin. The spendability of bitcoin is what makes it better than gold. With a dynamic tx fee, we suppress the volume of transactions when the confirmation time is long while encouraging transactions when there is less volume. This would allow for optimum growth and a healthy self-regulating economy. I would not be surprised if another spendable PoS cryptocurrency comes up. It would lead to PPC’s demise.

Please post your thoughts and try to change my mind about the tx fees. This thread is not meant to bash PPC but to debate on it for its improvement. I’m sure most people feel and predict the same as I do.

Edit 12/9/13 pic for visualization:

2

The fee is very important. It allows for increased energy efficiency, long-term.
You might not be able to forsee it now, but think how much energy will be wasted/spent everyday to try to secure the value of the Bitcoin network in 30+ years? It will be HUGE! At a certain point, it becomes cost prohibitive to mine Peercoin via PoW because of the fee, so Peercoin will be able to keep rising in value, while energy expended to secure the network will basically cap out. Peercoin is a much needed place for people to be able to park large sums of wealth, without it costing lot of money to secure. A lot of people don’t need to use Peercoin for transactions, except rarely. It is an ideal place for someone to save money.

The fee is more than made up for in energy efficiency.

The fee actually helps to prevent bubbles IMO. It forces people to be more prudent before making a decision to transact. This should provide more stability over time.

And while I’m at it, I’d just like to say that there is nothing evil or bad about being rich. Money isn’t evil, it is the morality of the people who wield the money that can use it for good or evil. Don’t just think about the bad, think about the good too. Good rich people do a lot to help the world, so a system that makes people richer isn’t necessarily in and of itself a bad thing. Money is a tool. If anything Peercoin provides financial system that will stimulate the economy as it will motivate people to work hard, be profitable and save money before spending it.

3

I don’t understand how the fee is connected to energy efficiency. I thought the energy efficiency comes from the fact that we don’t need to do random guesses to find blocks through specialized computers because we only need to have coindays to participate in minting.

4

What amuses me the most, is that the 0.01 transaction fee that Peercoin “dares” to have, gives it the most controversy.

It was done by design.

Every other coin I see tries to run away from the idea. This makes Peercoin unique. This might actually be the greatest idea yet. We don’t know.

No one can be 100% certain how this is going to play out in the future, because we’re all in the present. Remember, what we are dealing with is SOFTWARE. Which can be adjusted fairly easily. It can be tweaked and improved and released without major issue. The software of today doesn’t mean we’re stuck with the same thing for years to come.

As of 11:17pm Eastern Time, Dec 6, 2013:

“Mt.Gox to shows a swing of $1,118.98 for a Bitcoin to a low of $650. Now it’s at $871.37 all in the same day. Today is a nutty day.”

Cryptocurrency is still in its infant stage for all coins, right across the board. We need to be patient and watch these coins evolve.

Right now 0.4 of Peercoin is about to be released by Sunny. Once he’s done, I expect that he’ll participate in a lot of these discussions. Believe me, none of this is falling on deaf ears and everyone’s view point is taken into consideration.

I, myself, want to see more from Sunny in these respects, and I am hoping that we will see more participation from him in some of these discussions after 0.4 is released.

5

In this April, Peercoin PoW block rewards ~ 410 PPC, and now in Dec. PoW block reward ~ 140 coins. So you may predict when it rewards 41 or 14 coins, then you will see how the tx fee related to energy efficiency!

6

It’s too bad that a given transaction’s size isn’t known until you attempt to process said transaction. The variability of transaction sizes, which are independent of the value of the transaction, really makes any discussion about fees vastly more complex.

7

While I understand the 0.01/kB fee is beneficial from a long term energy efficiency standpoint, my fear is that the fee structure will not be sustainable if PPC becomes successful.

For example:
What would happen if PPC followed Bitcoins success and the value skyrocketed to $10,000? That would make the fee equivalent to $100 which is no big deal as long as you own at least 1PPC. However, the problem is that new users won’t be able to spend $10,000 for 1PPC… and it would be completely illogical for them to purchase less than 1PPC because they’d never be able to mint their way out of the transaction fee… they’d purchase 0.02 worth and 0.01 would be destroyed so they’d basically be throwing their money away. Am I misunderstanding this potential issue? Or would that simply mean that it would have a maximum value of ~$1000 per PPC or so?

Could the transaction fees simply have an inverse relationship to the coin age? Coins with less age would have a higher fee and coins with max maturity have zero? For example:

1 month -> 10% fee
2 months -> 5% fee
3 months -> 2% fee
6 months -> 1% fee
1 year -> 0% fee

It seems like doing it that way could have a similar effect of preventing block bloat and stabilizing against volatility while also encouraging users to hold long term. Transaction fees could then be randomly distributed via POS to the miner that processed the transaction as whifmoi so brilliantly mentioned here: http://www.peercointalk.org/index.php?topic=673.msg6146#msg6146
Wouldn’t that prevent deflation since the money supply remains unchanged? It would also be a fair and unbiased redistribution of wealth as long as the code is able to prevent manipulation because a person with only 1PPC could receive a large reward for mining a big transaction.

8

The transaction fee really is a downer.

In the interview posted today, Sunny King mentioned the recent growth in PPC has surpassed his expectations…

And I can see that. The price has exploded and I think the current fee structure is way too harsh on short term growth. I know PPC is all about the long term, but there’s no point in a long term if it never even makes it there. We’re going to have battle this every single day when the fee gets close to $1, and all competitors of Peercoin are going to have an absolute field day with it. I feel like we’re going to be stuck in rut of continuous criticism.

Can someone explain to me what the consequences of the fee being .001 would be for example? Inflation would be higher as less would be destroyed in a transaction, but it would be partially offset by people being more willing to make transactions. We’d be safe from the 1$ fee until PPC was $1,000 which would make it viable for micros transactions. As far as I can see it would still be energy efficient, it would just take longer to get there. I confess I don’t know much about this stuff so I could be totally off base, I just know for sure it’s gonna be a hard ass pill to swallow for so many people. I really wish we could avoid it.

Oh and I can see how it benefits the rich. A dude with 100 PPC basically gets dozens of transactions paid for by PoS a year while a person with 1 gets… one.

[quote=“yellowecho, post:7, topic:1068”]While I understand the 0.01/kB fee is beneficial from a long term energy efficiency standpoint, my fear is that the fee structure will not be sustainable if PPC becomes successful.

For example:
What would happen if PPC followed Bitcoins success and the value skyrocketed to $10,000? That would make the fee equivalent to $100 which is no big deal as long as you own at least 1PPC. However, the problem is that new users won’t be able to spend $10,000 for 1PPC… and it would be completely illogical for them to purchase less than 1PPC because they’d never be able to mint their way out of the transaction fee… they’d purchase 0.02 worth and 0.01 would be destroyed so they’d basically be throwing their money away. Am I misunderstanding this potential issue?

Could the transaction fees simply have an inverse relationship to the coin age? Coins with less age would have a higher fee and coins with max maturity have zero? For example:

1 month -> 10% fee
2 months -> 5% fee
3 months -> 2% fee
6 months -> 1% fee
1 year -> 0% fee

It seems like doing it that way could have a similar effect of preventing block bloat and stabilizing against volatility while also encouraging users to hold long term. Transaction fees could then be randomly distributed via POS to the miner that processed the transaction as whifmoi so brilliantly mentioned here: http://www.peercointalk.org/index.php?topic=673.msg6146#msg6146[/quote]

Something like this sounds pretty interesting…

9

I’m getting tired of this discussion (So confusing) but unfortunately it needs to happen. Hopefully once 0.4 is released, Sunny can join us here and give responses to people’s concerns in a much more detailed way than he has in the past.

10

I’m getting tired of defending against it, but not of the discussion. I feel like there hasn’t been enough discussion. The idea that it could change into something that most people agree on, and is seen as a positive is really exciting. Like the fee proportional to coin age example.

11

I know, it just goes a little too far over my head, so I can’t really follow along. It’s frustrating to me. I should have studied economics.

12

[quote=“Alertness, post:2, topic:1068”]The fee is very important. It allows for increased energy efficiency, long-term.
You might not be able to forsee it now, but think how much energy will be wasted/spent everyday to try to secure the value of the Bitcoin network in 30+ years? It will be HUGE! At a certain point, it becomes cost prohibitive to mine Peercoin via PoW because of the fee, so Peercoin will be able to keep rising in value, while energy expended to secure the network will basically cap out. Peercoin is a much needed place for people to be able to park large sums of wealth, without it costing lot of money to secure. A lot of people don’t need to use Peercoin for transactions, except rarely. It is an ideal place for someone to save money.

The fee is more than made up for in energy efficiency.

The fee actually helps to prevent bubbles IMO. It forces people to be more prudent before making a decision to transact. This should provide more stability over time.

And while I’m at it, I’d just like to say that there is nothing evil or bad about being rich. Money isn’t evil, it is the morality of the people who wield the money that can use it for good or evil. Don’t just think about the bad, think about the good too. Good rich people do a lot to help the world, so a system that makes people richer isn’t necessarily in and of itself a bad thing. Money is a tool. If anything Peercoin provides financial system that will stimulate the economy as it will motivate people to work hard, be profitable and save money before spending it.[/quote]

This is incorrect. Transactions don’t require any energy, or at least they don’t change the amount of hashing power used by the network. Destroying peercoins isn’t what makes the PPC network more efficient compared to bitcoin, it’s the POS blocks that do that.

The fixed 0.01 ppc/kb network fee is an arbitrary amount and should not remain there forever. Yes, some sort of fee is necessary to prevent spam and excessive blockchain bloat, but .01/kb is not a magic number and is quickly getting too expensive relative to other cryptocurrencies. The fee should be a factor of technology growth and peercoin price growth, decreasing as those two factors increase. For that reason I think designing the minimum network fee to dynamically adjust itself according to difficulty would be a good long term solution to ensure that peercoin remains a desirable means of exchange to its users and potential users.

I do agree that this shouldn’t be about egalitarianism and who’s rich and who’s poor. This should be about designing a cryptocurrency that’s the most efficient and effective at providing a secure and decentralized payment network.

13

[quote=“yellowecho, post:7, topic:1068”]While I understand the 0.01/kB fee is beneficial from a long term energy efficiency standpoint, my fear is that the fee structure will not be sustainable if PPC becomes successful.

For example:
What would happen if PPC followed Bitcoins success and the value skyrocketed to $10,000? That would make the fee equivalent to $100 which is no big deal as long as you own at least 1PPC. However, the problem is that new users won’t be able to spend $10,000 for 1PPC… and it would be completely illogical for them to purchase less than 1PPC because they’d never be able to mint their way out of the transaction fee… they’d purchase 0.02 worth and 0.01 would be destroyed so they’d basically be throwing their money away. Am I misunderstanding this potential issue? Or would that simply mean that it would have a maximum value of ~$1000 per PPC or so?

Could the transaction fees simply have an inverse relationship to the coin age? Coins with less age would have a higher fee and coins with max maturity have zero? For example:

1 month -> 10% fee
2 months -> 5% fee
3 months -> 2% fee
6 months -> 1% fee
1 year -> 0% fee

It seems like doing it that way could have a similar effect of preventing block bloat and stabilizing against volatility while also encouraging users to hold long term. Transaction fees could then be randomly distributed via POS to the miner that processed the transaction as whifmoi so brilliantly mentioned here: http://www.peercointalk.org/index.php?topic=673.msg6146#msg6146
Wouldn’t that prevent deflation since the money supply remains unchanged? It would also be a fair and unbiased redistribution of wealth as long as the code is able to prevent manipulation because a person with only 1PPC could receive a large reward for mining a big transaction.[/quote]

This is an intriguing idea. I think fees of 1-10% are too high, but I do like the idea of discounting the fees for older coins to some extent. This would discourage spam and blockchain bloat, while still keeping peercoin an affordable way to transfer value for the majority of its users. I don’t think you can eliminate fees entirely for old coins though, since an attacker could split a single peercoin into 100 million satoshi-sized outputs and spam the network with them without having to pay a cent.

14

I agree that the fee should decrease as technology grows. The way we could do this is to somehow increase the fees as the confirmation time increases but decrease when there is enough processing power. This is already present in the bitcoin network but bitcoin runs the risk of centralization of Proof-of-Work and 51% attacks.

[quote=“yellowecho, post:7, topic:1068”]Could the transaction fees simply have an inverse relationship to the coin age? Coins with less age would have a higher fee and coins with max maturity have zero? For example:

1 month → 10% fee
2 months → 5% fee
3 months → 2% fee
6 months → 1% fee
1 year → 0% fee[/quote]
Although this is an interesting and innovative idea, it still suppresses PPC’s growth. We don’t have to reduce transaction volume in the network if we have the capability of processing them.

One major advantage of cryptocurrencies over physical money is that as technology grows, transactions become easier and cheaper. Outrightly reducing transactions from happening by placing a fixed fee defeats this major advantage. We are imitating gold’s liquidity problem which is just wrong.

15
Although this is an interesting and innovative idea, it still suppresses PPC's growth. We don't have to reduce transaction volume in the network if we have the capability of processing them.

One major advantage of cryptocurrencies over physical money is that as technology grows, transactions become easier and cheaper. Outrightly reducing transactions from happening by placing a fixed fee defeats this major advantage. We are imitating gold’s liquidity problem which is just wrong.

I don’t think a reduction in transaction volume equates to a suppression in growth. PPCs goal is to be a “backbone currency” which means stability and longevity. In order to achieve stability, there could be some sort of proof-of-confidence system (as mentioned in a previous thread) since confidence is a big factor in stability. Creating an environment that incentivizes people to hold long term creates stability because it prevents flash crashes and dumps like we see now.

And I don’t think reducing transaction volume defeats the advantage of crptocurrencies. There are tons of coins out there that have the capacity to do high volume microtransactions for cheap so why mimic them? What the cryptocurrency market does not have and desperately needs is the equivalent of a 1yr bond… a safe, stable, secure, low-risk, low-yield coin that can be the equivalent of a digital savings account. I think PPC could be that coin.

16

Well if there’s one good thing to come out of this horrific crypto crash going on right now, it’s that we’ll have more time to organize and deal with this problem before the price skyrockets ;D

17

I think people are getting too optimistic. Peercoin’s price has just plummeted from above 8$ to less than 3$, and here we are talking about $1000, $10000 ppc …

I believe the road ahead for cryptocurrency will by no means be a smooth one. The political environment could become much worse. What if the governments of the main nations ban cryptocurrency? What if China and US try to do something to the internet to make it very difficult for the cryptocurrency network to operate? What if they block the exchanges? If we think about cryptocurrency as a whole, maybe the first thing to worry about is how to survive, not the $10000 price. It is true that bitcoin is now in the $1000 zone, but it is in fact extremely fragile. If any of the above hostile things happen, its price could easily to down to less than 100$ and never come back.

Sunny is one of the few people who truly care about the future of cryptocurrencies as a whole. That’s why he said we need at least one coin that will stay truly decentralized and be reliable. The birth of cryptocurrency is for the very reason that people don’t trust fiat and central governments. If cryptocurrency becomes big, the governments WILL try to kill it. If they allow it then paper money simply stand no chance against cryptocurrency. How do the governments get their ever larger spending then? No way. That’s why they WILL, at some point, try to kill cryptocurrency.

That’s why I appreciate the idea of making a coin as resistant to attacks as possible. Currently bitcoin already hits the bottleneck of scalability problem. Their developer team have to make the transition to a less decentralized approach due to the size of their blockchain. It is unclear whether this can be perfectly solved without dropping some security levels but I doubt it can only complicate things and allow more attacks. When we talk about money, convenience is one important aspect but security is of far more concerns to a user. I’d rather choose the secure one over the convenience one when I store my life savings.

To keep a coin truly decentralized, the block chain size can not increase too fast. Thus the number of transactions can not be too high. It seems the only way, at least right now, to achieve that is to keep a relatively high transaction fee. To make transaction less frequently, that is the whole point. The user will figure out some way to go around this ‘obstacle’ if they really want to do a lot of transactions. They may exchange their peercoin to dollar or bitcoin once a month to make frequent trades, for example.

Of course technically there might be a better choice, like maybe a different fee number, but I agree with Sunny that we (I mean the whole cryptocurrency community) need a backbone currency that can survive even in an extremely hostile environment. I think peercoin is that currency.

18

The fixed fee was intended to reduce transaction volume and deter microtransactions. It suppresses growth in the economy because you prevent people from buying things of small value. As the value of 0.01 PPC rises, there would be lesser and lesser participants in the market. Say 0.01 PPC was worth $10. A buyer looking for items for sale in the market would only be able to purchase items greater than $10. The next day, 0.01 PPC is now worth $12. The buyer’s choices for items are reduced because now, he can only choose from items worth $12 or greater. Eventually, you get a smaller and smaller number of merchants and buyers.

[quote=“yellowecho, post:15, topic:1068”]PPCs goal is to be a “backbone currency” which means stability and longevity. In order to achieve stability, there could be some sort of proof-of-confidence system (as mentioned in a previous thread) since confidence is a big factor in stability. Creating an environment that incentivizes people to hold long term creates stability because it prevents flash crashes and dumps like we see now.

And I don’t think reducing transaction volume defeats the advantage of crptocurrencies. There are tons of coins out there that have the capacity to do high volume microtransactions for cheap so why mimic them? What the cryptocurrency market does not have and desperately needs is the equivalent of a 1yr bond… a safe, stable, secure, low-risk, low-yield coin that can be the equivalent of a digital savings account. I think PPC could be that coin.[/quote]
From my first post, it has the potential to become a bubble than a stable currency. It won’t do anything useful other than speculation. The point when the bubble pops is simply when no buyers are to be found. In the future, the fees will be so expensive than one can hardly buy anything with PPC. That’s when the PPC bubble will pop. Bitcoin on the other hand, does not discourage participants in the market. I think it won’t be a stable currency because it will only be fueled by speculation.

Additionally, there is a risk for PPC to be outcompeted by another PoS coin which is more spendable. When that time comes, why would anybody want a coin that can’t be traded with actual goods? We may not see a dramatic crash but we will see a slow and painful death of PPC. A currency is not destroyed but only replaced by a better one.

I also don’t understand why the market needs to have a “backbone currency”. Isn’t currency only a medium of exchange and the real “backbone” are the goods and services you can purchase with it?

19

an idea for merchants could be, that they substract the tx fee from the product cost, so actually the merchant pays for the tx

20

I agree completely with lumierre.

There seems to be an idea that we need to choose to be either a transactional currency or a store of value currency. Far from these being mutually exclusive, there is very strong synergy between the two. Consider the US dollar: it has an extremely high transaction capacity and is also the primary store of value in the world today. This despite the fact that it does not maintain its value. If we don’t make PPC a good currency for transactions, it won’t be used as a store of value either because of lack of liquidity. This means we should encourage as many transactions as we have scale to handle. So the important questions are: How many transactions can the network handle now and how will this change over time?

Though network bandwidth and block space can be constraints, they are not the most pressing constraints on scaling at the present time. Disk space is the most pressing constraint at the moment, and it is not very pressing at all as I will demonstrate. With average hard drives in the 500 GB to 1 TB range, I think we could presently have a blockchain size of 10 GB without discouraging a large percentage of users from hosting a full node. Of course the blockchain is much smaller than that now. Looking forward, the size blockchain that people will tolerate will double in size every 18 months without increasing costs to hosts because hard drive space costs are halving about every 18 months. If we had ~317 transactions per block it would add 10 GB to the blockchain over the next 18 months. Blocks presently contain an average of about 10 transactions so we can scale up the quantity of transactions more than 30x at the present time without losing any significant degree of decentralization. We should plan to scale up the volume of transactions perpetually as hardware permits.

I propose we fix the problem of high tranaction fees in two steps. First, a quick and easy fix should be applied to the 0.4 release by lowering the hard-coded fee from 0.01 to 0.0001, a hundred fold decrease. Second, it is possible to construct a variable transaction fee based on Proof of Work difficulty for inclusion in a 0.5 release. Ideally, we want the transaction fee to track the price, but this is not technically feasible. However Proof of Work difficulty can be used as a reasonable proxy if it adjusted for Moore’s law and the declining Proof of Work block reward. It wouldn’t be perfect but it would be MUCH better than a hard coded limit. If there is interest in this I would be willing define this further with specific C++ code in the form of a Github pull request.