Fee Market Effects

Fee Market Effects
From: Tim Witters @ 2015-06-19 12:03 UTC (permalink / raw)
  To: bitcoin-development

A lot of standpoints for keeping the current block size are focused on 
creating a healthy fee market. I have some open questions for this list 
in regards to the user incentives of using bitcoin, when such a strong 
fee market is in place.
In my scenario the average fee for a normal transactions will be around 
1$ to put in on the blockchain with a reasonable confirmation time.
    
1. How will we get user adoptions if the fees on bitcoin transactions 
our not competitive with other services like PayPal and the like. (from 
a payment solution viewpoint) It is one of the main ‘pitch lines’ to get 
people to adopt bitcoin. “Send value to the other side of the world for 
almost 0 fees”

    2. Many suggest the use of a level 2 layer will facilitate the 
scalability for bitcoin with technologies like the lightning network. 
But to my knowledge, all these solutions still need to publish to the 
actual blockchain when they need to settle. Meaning you will have to pay 
the fees at least once. In case of lightning this will be when the 
channel is closed. 

This means moves more to a monthly payed service, where you open a 
payment channel each month and pay the fee at the end. But a system like 
this keeps money locked for the duration of the channel. And one of the 
main ‘pitch’ point of the bitcoin economy was you get your money 
instantly, not at the end of the month when the payment channel is 
closed. 

    3. The idea of the fee market is people will start using the layer 2 
systems. When this happens, what are the incentives to keep running a 
node? The incentives today are already quite small, the only real one is 
to support the network or make payments through your own trusted node. 
If you are only using a layer 2 solution, are there any reasons left to 
run my own bitcoin node, resulting in less decentralization.

    4. Do we need a fee market right now? It seems to me the current 
block reward is still high enough for miners to be able to make money 
and secure the network. No real fee market is therefore needed to help 
these miners. 

Regardless of our opinion, why don’t we let the miners decide? The 
BIP100 proposal seems to do this. If the majority of miners decide they 
want bigger blocks they just vote for this. If they want a fee market 
because their return is enough, they can keep the limit and let the 
demand for more blockspace result in a higher fee market. 
Just some of my thoughts about the results of full blocks and the 
resulting fee market. It seems to me a strong fee market might hurt the 
young ecosystem more, then it might help it (miners are currently 
compensated enough). The same goes for decentralization, when people 
more their resources to the level 2 solution or stop using bitcoin due 
to the higher fees compared to comparable services.
Cheers,
Tim Witters 

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