Could miners create a cartel to raise transaction fees?


Resistance to unpopular changes to the protocol

Bitcoin is the first mainstream open source digital currency.

By having publicly verifiable source code and a decentralized protocol by design, it also offers some resistance to regulatory pressure. For example, if, in country C, a court of law forces Bitcoin core developers living in C to change the rules of the protocol and incorporate them in the next official release, it is likely that the worldwide community will fork the project and reject the tampered version. The same will probably happen if core developers willingly include a rogue change in the protocol, acting as a de facto governance body for the Bitcoin economy.

Then it will be a matter of adoption: will most of the people blindly update the official software or protest against the change and choose to switch? At the very least, Bitcoin gives users choice to carry on under their ruleset of choice.

Resistance to unpopular changes also applies...

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The recent Bitcoin Foundation DevCore Workshop at Draper University was the home of in-depth, technical discussion around Bitcoin development, and the most interesting part of the event for many attendees was a panel discussion that featured Mastering Bitcoin Author Andreas Antonopoulos, Blockstream Core Tech Engineer Matt Corallo, Bitcoin Core Developer Greg Maxwell, Bitcoin Foundation Chief Scientist Gavin Andresen, and C4 President Michael Perklin. Everything from block size to Bitcoin governance was covered during the panel discussion, and one key area of agreement for the participants had to do with the future of Bitcoin transaction fees.

Transaction Fees are Going to Rise

During the Q&A portion of the panel discussion, an audience member asked the technically proficient Bitcoin developers on stage for their thoughts on the future of transaction fees. Gavin Andresen responded to this question by stating:

“I would plan that transaction fees are...

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I studied a similar problem for my Master's thesis on the economics of software pricing. Sorry, no spreadsheet forthcoming. The problem has too many variables including the motivation of miners.

The reason the problem is similar is that the marginal cost of one additional unit sold is near zero. From a purely rational point of view, and according to the economics books, one should sell additional copies for anything over 0 as it will add to your profit - assuming 0 variable cost for selling/distribution. But setting the price at 0.0001 (for example) will not maximize your profit. Segmenting the market will, but there are reasons that will not work here -- see below. Absent segmenting the market, there is a profit maximization curve. Selling many at 0.0001 will not maximize profit. Selling 0 at 1000 will not maximize profit. In the middle is the price even if you have an infinite number of units to sell.

In short, if the miners collude, they could find that price. If the...

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Edited: Added more context on why we are changing the settings.

[I am not speaking on behalf of the Ethereum Foundation, Oaken Innovations, or any other organization. This is a message I am relaying from a group of core developers of Ethereum clients.]

Recommendations to miners to change gas limit and gas price settings

Over the last few months, usage of the Ethereum network has been increasing rapidly, to the point where on average blocks are now reaching ~2 million gas used, or nearly 50% of the current gas limit. Because of hourly volatility in usage, as well as sporadic events like token sales, this means that during some specific periods of time usage goes even higher - and today blocks have been roughly 90% full for a period of over three hours.

The Ethereum blockchain protocol has a built in mechanism where miners can vote on the gas limit, and so capacity can be increased without having to coordinate on a hard fork. Originally, this mechanism...

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When bitcoin was still young, that was two of three years ago, it was a popular method of sending money from one location to another. Now, the bitcoin transaction fees required are making the process a lot more expensive and may be hurting the virtual currency.

Why bitcoin transaction fees are getting higher

In order for a bitcoin transaction to be confirmed, it has to be hashed by a miner. That is the basic explanation, but it probably doesn’t explain everything, so let’s break it down. Let’s say I send one bitcoin from my wallet to another person’s wallet, that transaction needs to be recorded on the blockchain. The bitcoin blockchain is like a ledger of all bitcoin transactions ever.

However, for this to happen, the transaction needs to be ‘hashed’. A hash is the result of a mathematical formula, which turns the data into a random series of numbers and letters. With a hash, the data is encrypted, so it cannot be corrupted afterwards; and it enables...

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A few days ago, I wanted to sell some bitcoins for USD on my debit card. I decided to use Paxful, as I have a well trusted buyer there, whom I have been dealing with for quite a while. So, I transferred my bitcoins to my wallet on Paxful. Surprisingly enough, the transaction was confirmed exactly 30.25 hours after initiating it, which was extremely inconvenient to me and my trading partner. Interestingly, it happened that I sent a couple of transactions after initiating the Paxful transaction, and they were both confirmed much earlier than the Paxful transaction, so why are some transactions confirmed before the others? and why do some transactions take a long time to get confirmed?

Fees versus Confirmation Delays:

Obviously, when traffic across the bitcoin network increases, confirmation delays can be expected. This usually happens during times of bullish rallies. Bitcoin price had just crossed the $1,200 mark, when I had to wait for more than 30 hours for my...

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Please let me clarify.

the fees listed below are current as of the date of this post.

Fees for sending bitcoin

We don't charge a fee to send bitcoin out from your bitcoin wallet on any amount over 0.0001 BTC.
(Sending over 0.0001 bitcoin is free) The TX fee paid to the bitcoin miners is paid for you by Coinbase

If you send less than 0.0001 BTC, then there will be a mandatory TX fee added to pay the bitcoin miners. We won't pay the bitcoin TX fee when you send less than 0.0001 BTC.

Sending bitcoin from one Coinbase wallet to another Coinbase wallet is always free (no fee) no matter how little bitcoin you send.

There is no fee for receiving bitcoin.

Fees for sending and receiving fiat currency (USD, EUR, CAD, etc) to your Coinbase account.

Fee's for buying/selling bitcoin -- converting fiat currency to bitcoin

There maybe a minimum fee of up to...

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Miners provide an important service: network security. A large network hash rate keeps Bitcoin safe from attacks by bad actors.

Miners need an incentive to pay for electricity and hardware costs. ASIC mining hardware keeps Bitcoin secure through proof of work. Right now, miners are paid through a combination of Bitcoin’s block reward and transaction fees.

Bitcoin’s block reward is still large and provides the majority of miners’ earnings. The block reward started at 50 bitcoins per block. Currently, it is 25 bitcoins per block. In July 2016 it will drop to 12.5 bitcoins per block.

Transaction Fees

Once the majority of bitcoins have been mined, the block reward will become an insignificant percentage of miners’ overall earnings. Instead, mining fees–paid by users who transact on the network–will make up the majority of miners’ earnings.

Mining fees are paid each time a user sends a transaction on the network. In the example below, a user...

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There's been some concern about Bitcoin transaction fees, lately, and the outlook appears grim. A new study by Dr. Kaskaloglu claims that our low fees are unsustainable, and Gavin Andreson's proposed new system could raise them drastically. While changes will need to be made, eventually, most of this F.U.D. is unnecessary, and contrary to the ideals of Bitcoin.What's true is that Bitcoin miners are subsidized by the reward for producing a block, and that the supply of new bitcoins decreases every 4 years. This will make miners increasingly reliant on transaction fees. A century and a half from now, transaction fees will be their only income, so how do we insure that people will continue to be willing to mine for coins?The extra work required to process another transaction is actually quite negligible--the reason a miner might choose not to include yours in his or her block is that they can only fit so many. Unless your transaction is marked "high priority" (for which designated...

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As announced in #bitcoin-assets, BitBet was attacked earlier today through a transaction withholding mechanism. The attack unfolded as follows :

A BitBet bet (Jeb Bush will be Republicans' 2016 Presidential Nominee) was closed and resolved on 21 February. This created a list of winners with a reasonable expectation to be paid their winnings. A first transaction was broadcast, to satisfy the claims of the winners, spending some inputs, and offering a fee of 0. This transaction was, as you'd expect, neither mined nor included in the mempools of most Bitcoin nodes. A second transaction was broadcast, spending the same inputs as A1, including a fee of 0.0001, call it A2. For a ~1.5kb transaction, this fee is on the low side, so it perhaps could be argued that it not being mined would be expected. Nevertheless, transaction A2 was also not included in the mempools of most Bitcoin nodes. As neither transaction A1 or A2 were mined after 54 (48) hours, a further transaction was...
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There’s been some concern about Bitcoin transaction fees, lately, and the outlook appears grim. A new study by Dr. Kaskaloglu claims that our low fees are unsustainable, and Gavin Andreson’s proposed new system could raise them drastically. While changes will need to be made, eventually, most of this F.U.D. is unnecessary, and contrary to the ideals of Bitcoin.

What’s true is that Bitcoin miners are subsidized by the reward for producing a block, and that the supply of new bitcoins decreases every 4 years. This will make miners increasingly reliant on transaction fees. A century and a half from now, transaction fees will be their only income, so how do we insure that people will continue to be willing to mine for coins?

The extra work required to process another transaction is actually quite negligible–the reason a miner might choose not to include yours in his or her block is that they can only fit so many. Unless your transaction is marked “high priority”...

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Every Bitcoin transaction is subject to a fee paid by the sender. In contrast to bank fees charged at either a flat rate or as a percentage of transaction value, Bitcoin fees are based on the amount of data needed for encoding. Understanding this system is not difficult, but its nuances and non-intuitive nature confuse many Bitcoin users, new and experienced alike.

Understanding transaction fees can save you both money and time. This guide describes how the Bitcoin transaction fee system works and how to use it effectively.

An Expensive Payment

Fees usually account for a small share of a Bitcoin transaction. But sometimes a fee can approach or even exceed the amount being transferred. Let's consider a hypothetical case in which transaction fees seem to go haywire.

Alice runs a successful blog. At the end of each post, she displays a QR code to accept Bitcoin donations. Once every month, Alice sweeps the accumulated balance from the...

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Everyone assumes that Bitcoin transactions are instantaneous, and for most of Bitcoin’s history this was practically true – you could assume this without much risk. However, if we look a little deeper, we see that this cannot be the reality for long.

What is double spend?

The “double spend” is the big technical challenge that Bitcoin solved for decentralized systems. As with every digital file, it is practically impossible to give it value, which can be exchanged since computers can copy-paste so easily.

If we imagine Bitcoin transactions like a cheque, which specifies where the money is coming from and where it is going (along with a cryptographic signature), we can all easily verify this information – it is its inclusion in the Bitcoin blockchain that makes this cheque actually valid.

Since one can sign thousands of these cheques all using the same money, all the cheques will bounce except for the one that is included in the blockchain. This is the...

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Australian Computer scientist Dr. Craig Wright, who has claimed to be the creator of Bitcoin, founded nChain to accelerate blockchain adoption globally. Since founding the company, he has commented regularly on the bitcoin and blockchain industries.

The Chief Scientist for nChain, Dr. Wright blogged recently about why he believes SegWit poses a risk to the future of bitcoin. (He does support removing the bitcoin blockchain’s “artificial” 1MB block size limit in favor of increased scalability, just not the same way SegWit achieves this).

While 51 percent attacks are “unlikely” in the current bitcoin iteration due to the cost of mining bitcoin, Dr. Wright contends “SegWit opens the door to methods of collusion and mining cartels which could undermine the bitcoin network.”

Claims Dr. Wright in the blog post : “If implemented, SegWit would change this for the worse. It opens the door to an economic incentive model that would encourage mining cartels to form. As the...

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Transaction fees have come to the fore again after core developer Gavin Andresen indicated that the next bitcoin core update would feature a new way to determine fees.

The issue of setting transaction fees has occupied core developers for some time. Andresen, for example, wrote about the issue last February, raising the possibility of a higher, fixed, fee for transactions.

Rising bitcoin transaction fees are the focus of a new paper that was published as part of the International Conference on Digital Security and Forensics held in the Czech Republic in June.

The paper's author, Kerem Kaskaloglu is an instructor in cryptography at Ozyegin University in Istanbul. He warned that a new system for fee-setting was required because transaction fees are currently too low and are set to rise over the years.

"Right now, we have subsidies, so we don't really need any transaction fees," he said. "Because of subsidies, miners are willing to mine. But later on, as...

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The primary expense that must be paid by a blockchain is that of security. The blockchain must pay miners or validators to economically participate in its consensus protocol, whether proof of work or proof of stake, and this inevitably incurs some cost. There are two ways to pay for this cost: inflation and transaction fees. Currently, Bitcoin and Ethereum, the two leading proof-of-work blockchains, both use high levels of inflation to pay for security; the Bitcoin community presently intends to decrease the inflation over time and eventually switch to a transaction-fee-only model. NXT, one of the larger proof-of-stake blockchains, pays for security entirely with transaction fees, and in fact has negative net inflation because some on-chain features require destroying NXT; the current supply is 0.1% lower than the original 1 billion. The question is, how much “defense spending” is required for a blockchain to be secure, and given a particular amount of spending required, which is...

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