Bitcoin Fees Are Skyrocketing (arstechnica.com)

An anonymous reader quotes a report from Ars Technica: The cost to complete a Bitcoin transaction has skyrocketed in recent days. A week ago, it cost around $6 on average to get a transaction accepted by the Bitcoin network. The average fee soared to $26 on Friday and was still almost $20 on Sunday. The reason is simple: until recently, the Bitcoin network had a hard-coded 1 megabyte limit on the size of blocks on the blockchain, Bitcoin's shared transaction ledger. With a typical transaction size of around 500 bytes, the average block had fewer than 2,000 transactions. And with a block being generated once every 10 minutes, that works out to around 3.3 transactions per second. A September upgrade called segregated witness allowed the cryptographic signatures associated with each transaction to be stored separately from the rest of the transaction. Under this scheme, the signatures no longer counted against the 1 megabyte blocksize limit, which should have roughly doubled the network's capacity. But only a small minority of transactions have taken advantage of this option so far, so the network's average throughput has stayed below 2,500 transactions per block -- around four transactions per second.

Comments

As good an excuse ...

[CaptainDork]

... as any.

Re: As good an excuse ...

[jandrese]

It's only about self deception.

Everybody knows there is a bubble, but nobody wants to believe that it will ever pop.

Re: As good an excuse ...

[Ol Olsoc]

On the contrary. Everybody keeps shouting bubble, bubble, tulips, tulips. Ponzi, pyramid, ponzi, pyramid. Fraud, fraud, fraud!!! You've been doing it for years!

So it's pretty awesome that we have built the financial version of perpetual motion, where Bitcoin will just continue to rise, This train is bound for glory, and it ain't stopping - the brakeman has resigned! Onward to infinity, Bitcoin.....

Re:Unclear Story

[Jonathan C. Patschke]

It doesn't seem accurate, I mean, how can an exchage demand real currency when dealing with the fake currency they are promoting.

Bitcoin fees are expressed as an average amount in BTC per kilobyte. A given transaction takes a particular amount of space in the block (owing to how many previous transactions are needed to express the exact amount to send plus the address to send the "change" to), and that transaction has a fee attached. The fee is a "bid" to place the transaction on the network.

Likely the rate is really high because the exchanges are expecting a major crash in bitcoin but don't want to admit it and instead charging for bitcoin exchanges at a rate that reflects a much lower bitcoin for real money exchange.

A given node will take the transactions it knows about, and pack the ones with the highest fees into the current block until that block is full. Then the block is mined. If that node wins the mining operation, those transactions become part of the chain. If some other node wins, the transactions it knows about become part of the chain (which will likely have a lot of commonality with the transactions in the first node's block). A higher fee attached to the transaction increases the chances that it'll be processed quickly. Below the average amount, you've got queueing working against you, and your transaction will likely expire before it becomes part of the chain.

If a transaction is totally within one exchange, the fee may be nominal or zero because it's done entirely off the blockchain, but that's not the rising fees the article discusses. This is purely a congestion effect.

self collapse?

[kiviQr]

If I read it correctly, the longer we run bitcoin the larger the cost associated with transactions (network, computation). How is that sustainable? At that point MasterCard and Visa look great with their 2% processing fee.

Re: self collapse?

[reanjr]

That's not accurate. Mining power accelerates to meet price demand (the more demand, the higher price, the more miners are willing to spend mining). But price demand is affected by the mining reward (currently 6.25 or 12.5 BTC). As the mining reward is scheduled to disappear sometime in the 23rd century, the only reward will be transaction fees. So unless BTC spenders are willing to pay considerably more transaction fees than they already do, the miners will spend commensurately little on power.

Scaling to the real world?

[ColaMan]

I don't understand how Bitcoin and it's blockchain arrangement is ever going to be scaleable.

Currently we're running at a global rate of four transactions a second. Four. Just the everyday transactions at my local shopping centre would run above that rate.

How is this whole "ubiquitous Bitcoin economy" thing supposed to work again?

Re:Scaling to the real world?

[christophercole]

Agreed -- Bitcoin won't scale. It's already proving to be a very poor way to transfer small amounts of money. For example, last week, I sent $15 worth of BTC from one of my wallets to another. The default transaction fee was $7.50! Before sending, I overrode the suggested transaction fee and set it to the minimum amount, which was about about $1.50 -- that's effectively a 10% fee to move a small amount of money. I knew that opting for a lower transaction fee would result in a longer wait for my transfer to occur, but I was not in a hurry. I wanted to see what happened. Well, here I am 5 days later, and although the $15 is deducted from by source wallet, it has yet to show up in my destination wallet. And as long as there are thousands of other transactions around the globe paying higher fees, my money will forever be stuck in the ether. Bitcoin has proven to be: non-scalable, expensive, and unreliable.

Re:Scaling to the real world?

[Anonymous Coward]

you can double spend the coins with a higher transaction fee. the network will notice the double spend and remove the transaction not accepted into a block from the pool when the other is accepted into one

Re:Unclear Story

[GuB-42]

This isn't about exchange, it is only about bitcoin transactions, and the fees are in bitcoin. Converted into dollars with the current rate for "clarity".

The way transaction work is by telling the world "hey, I want to transfer 0.1 BTC to X, I give 0.001 BTC to the one (a miner) who makes if official (by committing it to the blockchain). You can chose how much you want to give, including zero, but those who give the most get priority. And because the system is overloaded, you need to give a lot just to be accepted.

What will the effects be?

[Bruce Perens]

What happens when Bitcoin crashes? What effects will it have on companies that accept, use, or hold it, market-makers on exchanges and futures, etc. ?

My theory is that it was created by a national actor with the intent of crashing national economies. Not sure it will actually do that, though. But real people will be hurt. Some of them will be people who took the risk themselves and deserve the consequences. But when stocks or currencies crash there are often lots of innocent victims who never made the choice to invest in them.

Re:What will the effects be?

[ShanghaiBill]

What happens when Bitcoin crashes?

If you look at the history of crashes, nearly all have one thing in common: Many people investing with borrowed money. This happened with tulips, the South Sea Bubble, the 1929 crash, and the sub-prime mortgage crash. I am unaware of any bubble that did not involve a lot of people borrowing or buying on margin.

So far that is not happening with bitcoin.

What effects will it have on companies that accept, use, or hold it, market-makers on exchanges and futures, etc. ?

I may be going way out on a limb here, but I think they will lose money.

My theory is that it was created by a national actor with the intent of crashing national economies.

All the bitcoins in the world total to $300B. For comparison, the recent financial crisis wiped out $20 trillion.

Also, the financial crisis hit people at the bottom the hardest, people that were struggling to pay their mortgages, and were then evicted from their homes when they lost their jobs.

Bitcoin is different. The people buying can mostly afford the loss, and much of the value is just paper profits. I bought my stash on a lark when the value crossed $1/BTC, mostly just out of curiosity of how the whole thing worked. They have turned out to be worth way more than I ever expected, but if the crash came tomorrow, it would not make one iota of difference to how I live my life.

But when stocks or currencies crash there are often lots of innocent victims who never made the choice to invest in them.

Stock crashes have way less effect on "normal" people than currency, bond, or real estate crashes, because no one expects equities to be stable. We shrugged off stock crashes in 1987, 1991, 2001. The financial crisis was far worse because no one expected housing prices to crash, and a huge part of our economy relied on their stability. Nobody is relying on bitcoin to be stable, or even as stable as equities.

Re:What will the effects be?

[LynnwoodRooster]

An awful lot of people are buying BTC with credit cards, and I would wager a large number of them are doing it with funds they don't have. Put $10,000 on your Visa, way 3 months, sell for 10X the amount and party! Right?

Re:What will the effects be?

[TheRealMindChild]

My theory is that it was created by a national actor with the intent of crashing national economies

That is simply ridiculous. It was an experiment. No one could have foreseen what it has become. Even with its original vector, the politics got in the way and totally changed the shape of the beast. To consider that it was created, KNOWING that it would hit this price point, that it would grow this large, that it would have these problems, that there would be this mania, is patently absurd.

Re:What will the effects be?

[dcollins]

LOL, one day later:

https://news.slashdot.org/story/17/12/12/1631246/sec-warns-extreme-caution-over-cryptocurrency-investments-as-many-people-take-out-mortgages-to-buy-bitcoin

Well, it's a matter of context.

[Tjp($)pjT]

In terms of Bitcoin, transaction fees aren't skyrocketing. Only in the fiat currency you can exchange for bitcoin.

Re:Well, it's a matter of context.

[omnichad]

Not at all true.

Bitcoin is undergoing massive deflation. Which means you're spending fewer Bitcoin because it has a larger buying power. Transaction fees are actually going up (not just in absolute BTC terms, but relative to BTC spending power), because it's computationally expensive to process those transactions.

UNPOSSIBLE!

[LynnwoodRooster]

Why in a recent thread I was promised - PROMISED! - that BTC fees were the cheapest way to send money, and were nearly instantaneous! Who would have figured it would be otherwise???

Re:Too complicated

[LynnwoodRooster]

So where was he wrong? Because just a few posts up, people are claiming you basically bid to get your transaction processed, and that the average cost is quite a bit more than the $12 claimed here. So what is wrong about it?

Re:Please be vegan

[LynnwoodRooster]

I am vegan! I just like my vegetables to first be processed into meat...

No, it can scale!

[bussdriver]

Gold can not scale. Limited amount, it has to be verified and processed; that takes time and money to do. Ever look into gold? You pay overhead costs in actually trading in gold plus you have to pay to securely store and transport any sizable amount of it.

How did gold become the foundation of everything until the banksters finally took over?

Abstract trading; not actual gold exchanges done on top of the real thing. Also, money was created ON TOP of gold and that is where all the action happened.

When you see other kinds of money float on top of bitcoin then you will see it scale. I see no reason why it can not become a kind of digital gold as long as the encryption holds up.

Gold is and hasn't been worth as much as we've made it for centuries. We based a system around it and that made it valuable. It has a silly jewelry value but that isn't what made it so expensive.

With futures trading and bigger banks involved... interesting times are coming. (not exactly a good thing; it's more of a curse but it is not dull)

Re:No, it can scale!

[Xylantiel]

Right, the banksters "took over" by figuring out that using a deflationary currency is a Really Bad Idea(TM). You have just successfully argued that Bitcoin is no better than any finite resource. We could just declare all first-run pokemon cards the new gold standard (haha, get it) and it would all be good right? As I say, we figured out a long time ago that using something like that for currency is unstable. If you want to store value long-term it should NOT be in currency because currency has NO INTRINSIC VALUE, as compared to, for example, part-ownership of an actual functioning business. Trying to "get off" fiat currency is chasing a madman's dream where the world owes you something for nothing. The blockchain is a great innovation for decentralized ownership tracking. But why not use that for ownership of worthwhile stuff rather than just "virtual coin" number x out of y.

Re:Unclear Story

[Jonathan C. Patschke]

That's it.

It doesn't have to be that way. If you're running a node, you could run software that packs transactions into a block by any criteria you choose. However, since the aggregate fees for the block are part of the reward for winning the mining operation, it's in the miners' best interests to pack the largest fees first. Also, since the likelihood of any particular node winning the block is very low, we can talk about the most common strategy as if it were universal.

One of the parts of what makes me really nervous is that fees and trading price feed-back into each other in a damaging sort of way. The way that transactions are expressed is that their components must be spent in totality. So, if you're trying to pay 0.01 BTC, and your smallest previous inbound transaction was 0.1 BTC, you have to refund 0.09 BTC (less fees) back to yourself. Over time, this means your wallet gets fragmented with a bunch of spare change which may make some later transaction expensive because of the number of previous-spends needed to be referenced to get up to that amount. The smaller the pieces of change, the less they can contribute because of the fee overhead in referencing them.

Looking even a little in to the future, this is going to ramp up pressure to rely on off-chain transactions, using the blockchain itself more like inter-bank settling than like personal accounts. That's the exact opposite of the initial sales pitch.

Re:Unclear Story

[Orgasmatron]

Go browse the block explorer for a while. Pretty much none of the pools actually looks very closely at the fees or does any hard math on them. In most blocks, you'll find one or two transactions with dozens of inputs for roughly the same cost as the many one or two input transactions.

If you prefer to avoid small change in your wallet, it is trivial to gather up a few small inputs to redeem instead of just taking the smallest one larger than the desired output.

Also, there was no sales pitch - all of the cheerleaders you were listening to were freelance, and if they were selling bitcoin as a micropayment option, they were just as stupid to say that as anyone else must have been to have believed them. It doesn't need to take over all transactions to be successful - just handling inter-bank settlements would be a nearly-incalculable positive change for the world.

Bitcoin is decentralized. There is no "official" bitcoin anything. Even the blockchain itself is just an agreement between independent parties. Don't take anything that people say about it too seriously; their opinions don't mean shit.

Re:Unclear Story

[gweihir]

And that is just one thing to make things worse when the crash comes. The few transactions available per second will not be enough and transactions fees will go through the roof. At the same time Bitcoin will bleed value like crazy, making the transaction fees in BC even higher. This could mean that smaller transactions have no chance at all anymore, because the fee will exceed the transaction value. Larger transactions need somebody that is actually willing to buy. Remember that asking for a certain price does not mean that anybody is willing to pay it.

My take is that at this time it requires only a very small trigger to bring the whole house of cards down.

Re:Unclear Story

[smallfries]

Why would banks using bitcoin for interbank transfers be a good thing?

They have a much faster, more efficient, centralized network. It does not use matic internet money - instead the transfers they make have the same value when they arrive. Bitcoin takes 1-6 hours to make a transfer andbit is not unusual for its values to change by 10-20% in a day.