Fixed Transaction Fee (0.01 PPC/kb) Debate Thread

General
41

Fixed transaction fee is evil. It makes money less liquid. And money liquidity is extremely important. Technically, as I see it, fee is used to stop network flood. So, there is some limit which the network will be not able to handle, for example (I don’t know the real value), 1’000’000 TX/block. If so, and if 1’000’000 TX/block will mess up the network, the fee value must be calculated based on numbers of transactions, like PoW reward is calculated based on difficulty.

Also, we probably can allow users to set fee manually and at the same time fix the interval in which one block must be calculated on the miner’s side, for example 1 minute, and TX which has bigger fee will be processed first and TX which has less or zero fee will wait some time to be processed and if that’s won’t gonna happen, return to sender after 1 hour, for example.

42

[quote=“Ben, post:35, topic:1068”]The transaction size isn’t something that’s necessarily under control of the person who is sending the funds to another address though. Someone who deals in lots of small amounts of peercoin, legitimately, is going to be adversely penalized versus someone who deals in big, whole numbers.

I believe there has to be a better way of protecting the network from tiny, spammy, transactions.[/quote]

It’s largely under one’s control, it’s just a factor of how many inputs/outputs you use. If you use a single input, your transaction size will be small. If you use a dozen inputs, your transaction size will be large. Regardless, the limited resource is in this scenario is bandwidth and blockchain size, so the fee should be proportional to how much of those resources a transaction consumes.

The cost of bandwidth and hard drive space isn’t getting more expensive over time. In fact, it’s getting cheaper. So why should the fee we pay go up in real terms when the cost of each transaction is actually going down in real terms?

I, for one, would like peercoin to be something that people are actually incentivized to use and trade with. I don’t want artificially and arbitrarily imposed fees to jeopardize that.

43

I would like to quote this guy “JohnyLatte” from Reddit: http://www.reddit.com/r/peercoin/comments/1s3y70/analysis_peercoin_01ppc_destroyed_when_a/

If you cut the supply of a digital currency in half and the value of the currency doubles then that currency is exactly as efficient as if you left it alone because it cost exactly the same amount to secure the same amount of value in either case. If we where talking about a commodity currency then yes digging up an amount of gold then throwing away half of it would be inefficient but thats because you lose half of the “intrinsic value” of the commodity: half of the utility as a commodity. but digital currencies are not commodities except in a very abstract sense, what they really are is mathematical constructs. Creating more units or destroying them has absolutely no effect on the “efficiency” of a digital currency that tends towards a particular marketcap. Whats really going on when the fees are destroyed is an extreamly efficient way of making a payment to every single holder of the currency in the exact opposite way that the creation of new currency is a transfer of wealth from every single holder of the currency to the creator of the new money.

I have not missed the fact that PoW uses energy. Thats the point of PoW. But PoW does not create the new currency. Its the protocol that creates the currency or more accurately: the consensus of the network to accept a block as part of the blockchain that creates the currency not the proof of work. The proof of work is just a way of choosing who gets to have a block accepted in such a way as to make it always in their best interest to make a useful block rather than attempt a double spend or stall the network. The actual currency creation is pretty much free and proof of stake demonstrates this by substituting the economic cost of hashing a function with the economic cost of having to hold a currency and so lose the market value that would be lost if their is an attack on the network.

Think of it this way: a certain amount of work goes into making a company on the stock market. If you do a reverse split on the number of shares in the company (say 1 for 2) then that means you have half as many shares. You destroy half of the shares in the company! does that mean you have really destroyed anything of value? no you have just transferred value from every 2 shares and put that into 1 share. Destroying the transaction fee is the same. You are not destroying any of the utility of the currency by reducing the number of currency units you are just shifting the value around, in this case from the sender to all holders proportional to their holdings. Their is no destruction of a thing that was created from work because the currency is not created from the work even for bitcoin. In fact when I first read a headline about bitcoin it said “currency made from cpu cycles” and because of that nonsense I dismissed the article because currency that gets its value from work is pure labor theory of value nonsense: you can guess how regretful I wan’t more curious about that article back in 2009 but how was I to know the reporter didn’t know what they where talking about!

Here is how I judge the efficiency of Peercoin:

Market Value:
Bitcoin $11,959,473,135 USD
Peercoin $107,970,227 USD

Hash Rate:
Bitcoin: 6.341 Phash/s
Peercoin: 43.212 Thash/s

USD secured per GH/s
Bitcoin: $1886.05
Peercoin: $2498.62

Efficiency: (2498.62 -1886.05) / 1886.05 = 0.3247899 or 32% more efficient than bitcoin.

One of the reasons this efficiency is achieved is because transaction fees are burned. If they where not burned then their would be more of a financial incentive to do proof of work (to get the fees) but instead Peercoin has a diminishing return for PoW to discourage it. If it was just as valuable to do PoW then there would be no reason to cut back on doing it just because you have the option of PoS. You would do both.

To be fair to your criticism of Sunny this may have not been his intent but it is an effect that I see happening and one of the reasons I jumped on board. I think its fair that a person making a transaction is the one that pays a cost: be that a transaction fee or even proof of work like how bitmessage does it but PoW is a waste and I believe that paying the miner is doing it wrong because they are not the only ones that bare the cost of a bloated blockchain. Paying everyone in proportion to their holding might not be right either but I think its closer. Microsoft has a whitepaper that suggests paying the nodes that transmit the transactions as well but I’m not sure how that would be achaived other than that it would be nice to achieve it.

To be fair when I first looked at PPCoin as it was called at the time, the inflation model bothered me quite a lot because there was no grantee that the creation of new currency would have dropped the way it has. The currency having very low inflation of supply seemed very much dependent on it being successful but I’m used to looking at the success of a currency as being determined by how its inflation is managed. Looking at gold there seems to be a natural regulation where increased value of gold results in more supply as people now find it profitable to dig up more and decreased value of gold results in it being used or exported from an area. PPCoin seemed completely backwards with a low price bringing about more supply and in my mind a high probability of hyper inflation or if it goes the other way (which we have) a strong reinforcement of the value by a closing up of the money spigot. In my opinion this should result in an even stronger network effect for currencies that use this inflation model since they will be harder to boostrap from no value while keeping the same block reward model. In fact I’m not sure novacoin even kept that when they cloned PPC so I don’t think that novacoin will even have the energy savings of Peercoin: just more supply / inflation. But it will be harder to make the comparison since it uses script and so you cant do a strait GH per dollar secured comparison.

EDIT: seems like novacoin did keep the block reward model so the only real change was the use of script

I have to add that my efficiency calculation is not risk adjusted. If someone believes that peercoin is less secure due to proof of stake then 32% increase in efficiency is irrelevant. I personally think it is more secure and also that BTC/LTC/PPC are more secure then they need to be anyway but only time will tell. The cool thing about PoS is that the costs are asymmetrical: it will cost an attacker when they attack because they lose value in their currency but if there is no attack then their is no real cost other then the opportunity cost of holding (which most people want to do anyway).

44

The catch-22 is nobody uses cryptocoins to save money now. They are all extremely volatile. So while this is in principle logical in the long run, we are are the infancy of crypto. If PPC doesn’t grow now, when will it?

45

No, I think there should be a completely new altcoin, let’s call it “MicroPPC” (mPPC). The idea is the following:

  • Every PPC holder has the possibility to acquire mPPC at a fixed price in a client, only having to pay the regular PPC transaction fee.
  • Every time a PPC holder purchases mPPC, these mPPC will be created in the mPPC blockchain. The PPC are sent to a special address created for this purpose.
  • Every time a mPPC holder converts its holding back to PPC, he gets PPC from the special address. As every mPPC is backed by PPC this should be no problem. The mPPC are destroyed.

The problem is how to “mine” this alternative coin (how to secure the blockchain). It could be perhaps a system like “Nxt” where miner’s income are only from (low) transaction fees. If “Nxt” works, then it would be feasible, but zero-transaction fees would be difficult.

46

Good post Alertness. The destruction of the transaction fee is in fact a very efficient and very tiny transfer of wealth to all other holders of peercoin. This is reasonable because each transaction creates a very tiny burden on other peercoin users because now they must relay and store the transaction. It makes sense, therefore, that users should pay for this service.

However, the important key is the transaction fee should be proportional to the cost incurred by the network for accepting it. Relaying and storing a few hundred bytes of data is extremely cheap and will only get cheaper, it would be inefficient for the fee to be much greater than this cost. The protocol should try to adjust to find the equilibrium point where the transaction fee only just slightly exceeds the costs incurred by the network.

And I’d like to clarify one of the points you made. Giving the transaction fee to POW miners would in fact incentivize more hashing and therefore the energy consumed by the network (although this would also make the POW process marginally more secure) as opposed to destroying it. But simply reducing the size of the fee destroyed wouldn’t change the hashing power of the network. Similarly, giving a part of each fee to POS miners wouldn’t change the hashing power of the network since POS doesn’t rely on hashing in the first place.

There is a cost incurred by POW miners to include transactions in their blocks (increased orphan rates) so I think awarding them some portion of the fee would make sense. This is of secondary importance to me, however.

47

[quote=“Jordan Lee, post:29, topic:1068”]It’s true that spinning disks have only made modest pricing improvements as of late. I think that’s because these are on their way out with the increased dominance of SSD, the price of which has been plummeting very fast. I don’t see why this wouldn’t continue.

There is some tension between decentralization and high transaction processing capacity. The question is: What is the best balance of the two? The purpose of decentralization is to ensure that some malicious entity can’t control the network by threatening those who operate it. There are diminishing returns for additional degrees of decentralization and I would say the benefits beyond 10,000 nodes are quite minimal. I don’t think we should be too worried about accommodating cell phones.[/quote]

Technically if there is a distributed solution to store the blockchain information evenly but dynamically among all the users then the problem seems not so serious. I would assume it quite a challenge to design such a scheme. I don’t really know how bitcoin plans to deliver this but I hope peercoin come up with something different and better. On the other hand, before this kind of technology is matured enough, a cautious and conservative approach is still favored over a rushed one as ppc price is still low.

I actually think the mobile market is important so some sort of cellphone version client is in need .

A temporarily fast increased market is not necessarily a good thing. A lot of examples how such growing models can’t sustain themselves and eventually collapse. There is a chance bitcoin being such an case. If one puts his life savings into somewhere, he is looking for 30 years from now, not 3 years or 3 months. Even peercoin’s price is suppressed for now, when people realize bitcoin has fatal issues (oversized blockchain and clogged network, for instance), peercoin’s merits will be highlighted and its market will skyrocket. It is a long game, not a blitz.

48

Good arguments but I am still not convinced.

Here is a visualization of what I believe is the greatest risk to PPC.

1024×768

We really should do something about this. We can’t wait for this problem to arise and then just start thinking for a solution. Perhaps we won’t even get to the market cap where this becomes a problem because of the fact that this limitation in PPC exists and is recognized by the market. I hope Sunny doesn’t just shrug this off and keep his vision of a “backbone” currency.

49

[quote=“lumierre, post:48, topic:1068”]Good arguments but I am still not convinced.

Here is a visualization of what I believe is the greatest risk to PPC.

We really should do something about this. We can’t wait for this problem to arise and then just start thinking for a solution. Perhaps we won’t even get to the market cap where this becomes a problem because of the fact that this limitation in PPC exists and is recognized by the market. I hope Sunny doesn’t just shrug this off and keep his vision of a “backbone” currency.[/quote]

With you on this, we need to fix this otherwise someone else does it and Peercoin loses out. There are some interesting ideas in this thread and at least attempts for a problem definition although not everyone agrees. Not sure if the perfect answer to the problem will be there anytime soon, but I think doing nothing is making a bad choice anyway. The timing is important though.

50

this is actually a good point im new into this peercoin but it gave me really good insight :slight_smile:

51

Sunny King acknowledged the transaction fee discussion in the community in his new weekly update…

Weekly Update #68

[ul][li]Jordan has made some good progress with Peershare project.[/li]
[li]John and I have completed an interview with CNBC Asia.[/li]
[li]There have been some discussions regarding transaction fees in PPC/XPM. I have recently explained my philosophy on the issue of transaction fees. But I am happy to see many of our users are interested in debating such subject extensively on the forum. This is part of the open source culture, that anyone interested can offer opinions and insights. As a lead developer I think it is also healthy for me to listen to inputs from community.[/li]
[li]So I would like to give some summary of my thoughts on this matter. The goal of PPC/XPM projects are not to try dominate both store of value and medium of exchange in cryptocurrency. I have mentioned the concept of backbone currency. I feel the attempt to dominate every aspect of money is what drives the adjustment of bitcoin transaction fees, which has seen reduction from 0.01, to 0.0005, and now 0.0001. However in my opinion blockchain data structure has some inherent scalability limitations, so such a goal is probably not wise for a single cryptocurrency. Note currently PPC/XPM still has a lower fee than bitcoin in terms of the real fee value. So there is no need to rush this topic. In fact the minimum fee is enforced in protocol to require a hardfork when changing minimum fee, exactly to encourage long term thinking and careful decision making regarding transaction fees. We should have plenty of time to observe bitcoin’s struggle with block chain capacity (in terms of both total blockchain size and throughput/block size), the delicate balance between transaction fee, block chain capacity and user experience. In contrast to bitcoin dev I value decentralization and usability over a lower transaction fee.[/li]
[li]Transaction fee is also an important regulator on the transaction spamming attack, which could potentially significantly reduce network service quality (prolonging confirmation time). So this should also play an important role in the decision making of transaction fees.[/li]
[li]Meanwhile I have never said transaction fees are fixed at 0.01 forever. There are many factors at play, the general hardware performance including network bandwidth, the advances in blockchain data structure etc. These factors should also play important future roles in determine a good minimum fee value.[/li][/ul]

Have fun!

52

Great to have Sunny responding to this. I’m onboard with his direction for now. Let’s have bitcoin do the hard work for now solving the scalability issues, we still have some time to adjust.
Also like the statements about valuing decentralisation and usability over transaction fee and that transaction fee is still lower than bitcoin in real fee value.

Keep up the good work.

53

High transaction fees would not attract regular use for trade in the role of currency. As such it will lead to use it in favour of speculators.
Thanks.

54

[quote=“yellowecho, post:15, topic:1068”]

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.[/quote]

Yes, many have made references to backbones and saving accounts. But doesn’t this confuse the ‘currency’ for the ‘account’? I mean – would savings accounts be ‘backbones’ if they only existed in something other than the ubiquitous USD functional currency (USD is an example)? US bonds don’t also have an added layer of exchange rate risk or else they would be a different investment entirely. If they were denominated in something other than the ubiquitous functional currency that everyone holds they would no longer be a stable and conservative investment.

If my functional currency is BTC and my savings currency is PPC, I would expect PPC to be stable or even grow relative to the functional currency if most of my holdings are in savings. If most of everyone’s holdings are not in ‘savings’, then there is no longer a point in having a ‘savings’ currency.

How can PPC grow relative to the functional currency (BTC) if its value doesn’t rise as fast as other digital currencies (because the network effect gives cryptos value; smaller network of acceptance = lower value trend). This may not be an issue now as we are tracking BTC lock step but it certainly could be in the future if widespread acceptance never gels.

Would people have savings accounts in something that is difficult to spend due to lack of acceptance (because of high tx fees), would need to be converted into another currency for a fee that is not that competitive to other methods, and that did not at least provide the special benefits of hedging or having stability relative to the primary currency (due to disincentive to trade)?

This would be like keeping all of my savings in an exotic investment that is not very well known, not widely accepted, only used for large transactions, and provides questionable hedging capabilities and/or stability versus the rest of holdings. This is not reasonable in the real world; it sounds more like a one-off investment that I’d put a very small % of my portfolio towards and not the ‘backbone’ of my holdings or the basis of a crypto-financial system.

Before someone mentions gold – a savings account holding gold at least provides a hedge to the USD because they have different methods of valuation. Does PPC provide a hedge to BTC if they are both valued in the same manner (network effect)? Would it make sense to put ones savings in the one that had a larger and faster growing network?

I am a big proponent of PPC because I realize that this transaction issue will be sorted out – luckily we have time because we are infants…but long term there are certainly valid reasons to rethink fees. And I know you all (and Sunny) are bright enough to come up with the right solution. I see PPC as having the biggest growth potential of any crypto once this is sorted…

tl;dr For PPC to be an effective ‘savings account’, it will need to continue tracking Bitcoin’s value (if Bitcoin is the functional digital currency). Because BTC and PPC are both valued through the network effect (adoption and acceptance prospects drives speculation), PPC as a savings account only makes sense if the ratio of PPC to BTC is either stable or positive in PPC’s favor. How can PPC continue to track BTC longterm if there is a disincentive for adoption and use (high tx fee).

55

And also notice the confusion among media outlets…

http://www.equities.com/editors-desk/currencies-forex/attack-of-the-bitcoin-clones

See Peercoin writeup.

“Peercoin, as a currency, is designed to eventually attain one percent inflation – making it mimic not gold, but actual, functional paper currencies.This encourages proponents to create avenues to spend money and create liquid economies, not hoard and speculate.”

Media write-ups tend to highlight and get excited about Peercoin’s liquidity potential vis–à–vis energy efficiency and/or controlled inflationary properties.

Reddit, forums, crypto-believers, etc, tend to focus on transaction fee…

56

I am trying to form my own opinion on that topic.

While thinking about the problem of the block chain size, I wondered why there is a need to store the hole block chain. Why isn’t it sufficient to keep track of the transaction of , let’s say, the last 3 month and the amount of each peercoin address?

thx in advance…

57

[quote=“lumierre, post:48, topic:1068”]Good arguments but I am still not convinced.

Here is a visualization of what I believe is the greatest risk to PPC.

1024×768

We really should do something about this. We can’t wait for this problem to arise and then just start thinking for a solution. Perhaps we won’t even get to the market cap where this becomes a problem because of the fact that this limitation in PPC exists and is recognized by the market. I hope Sunny doesn’t just shrug this off and keep his vision of a “backbone” currency.[/quote]

It is very early to assume this point of equilibrium, but it is possible. At some point you have to limit the # of transactions. You can’t have infinite transactions, at least with current technology. Why not keep the fee, and just let the market decide the equilibrium point? It is a big assumption to assume that equilibrium will even be reached ever, even with the current .01 fee, PoS inflation may outperform the deflation from the .01 fee, and in that case equilibrium could happen at 50 million or more, or never. In which case we may need to actually raise the fee! We just don’t know for sure what the market will do. But anyway, I don’t see why this level of equilibrium would be a problem. Why would 30,000,000 transactions be bad? It seems like this would be very stable and liquid enough. And, what about the price per coin? The above analysis assumes 30,000,000 transactions /yr will be reached. If 1 PPC becomes worth 1,000 BTC ea, at this point, you would have a strong market cap and be able to move a lot of money. I think what you will find over the longer-term is people utilizing Peercoin with the intent to hold it for more than 1 year before trading it again, but we just don’t know if equilibrium will ever be reached. at this point there is a good chance that 50+ years from now PoS will still be creating new coins more than the tx fee can destroy them. If not, then deflation happens, and then Peercoins become more rare, so the value goes up. If the value goes up, less people will able to afford to trade with them, so # transactions will decline. When the # of transactions decline, inflation will increase again.

I hope this makes sense, I guess overall, in my view, I think equilibrium can be a good thing, not a problem. It may be something to be desired, and a goal to be reached rather than avoided.

58

I see no problem here you just mint to get your TX fee back! easy.

PeerCoin IS a better contender for a backbone currency, over LTC and BTC inmho.

It will be the one that can take over gold and several other classes and used to balance the nightly etc

59

I am also in favour of transactionfee adjustment according to the transaction volume.

We should quickly do adjustments to send merchants and developers the right signals. It’s a matter of perception. Waiting until the problem gets more problematic is not good enough.

For example, there are some people working on genius projects like peershare http://www.peercointalk.org/index.php?topic=527.0. And they need to know that peercoin will keep their fee low, when the value begins to rise. Otherwise they would look for a different currency.

60

To Da M00n! https://blockchain.info/charts/blocks-size?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=
Christmas 2014 best gift - collection of 6 blue-rays with BTC blockchain - join decentralized payment system right now! Signed by Ben B.
I think whole discussion is pointless, until fee is under $1 it isn’t worth even considering any changes. Then, maybe some adjustments but locked in not near future(blockchain year or more). If there will be changes in this part of protocol till 2015 - I’ll leave this coin.
You want stable currency… and changes in ‘contract’ asap, I don’t get it. Maybe lets concentrate on off-chain, open source, transparent payments processor with multisig warranties that can be used by local communities, lets show what p2p is :slight_smile:
I’ve jumped in @~$6/ppc and my sleep will be good till any hardforks on horizon.