Bitcoin Q&A: Spam transactions and the fee market

Bitcoin Q&A: Spam transactions and the fee market


“What are your thoughts on VeriBlock being responsible
for one quarter of bitcoin transactions in January…” “by using the OP_RETURN script for proof-of-proof?” This is a question from Jonathan. I am not familiar
with the case of VeriBlock, but nevertheless… Let’s assume that is an accurate representation and
VeriBlock is using a quarter of bitcoin transactions… in January. Jonathan asks, “Could this and other such uses of the
Bitcoin blockchain have an impact on the fee market?” “Would it affect the use of bitcoin as money?” This is a great question which comes up a lot.
What is a valid transaction versus a spam transaction? The answer is really simple. We have two
ways to determine whether a transaction… should be on the Bitcoin system. One possible way is to set rules in the protocol that
differentiate between what is spam and what is not, by allowing the developers of the Bitcoin Core protocol
to pick and choose which applications [are allowed]… based on a normative judgement
about valid use cases of Bitcoin. You might think that is an easy answer: money is
the [only use case], everything else is superfluous. Then again, which applications of money?
Is multi-signature just fancy scripting? What about the Lightning Network?
Should that be allowed? Maybe some Core developers are not so interested in it. What about time locks and other forms of smart
contract script? This is a very slippery slope. In Bitcoin today, we use a market-based mechanism.
The fee market enables pricing of transactions… based on supply and demand, that allows the sender to
signal to the network how important the transaction is, thereby pricing the cost of [block]
space across the entire market… [in comparison with] other applications
that might not be as important. Fees are not just pricing whether the
transaction [should be] confirmed or not, but how [quickly] the transaction is confirmed. In this particular case, the market is pricing VeriBlock
transactions, which are using the Bitcoin blockchain… for proof-of-proof. Apparently, that is the capacity the market has
priced to allocate for that particular application. Does it affect the use of bitcoin as money?
It certainly prices the scarce resource [of block space]. This fee market prevents denial-of-service
attacks and spam attacks on the network. It creates a cost to post transactions
that are not important to the sender. Spam is expensive on Bitcoin because of transaction
fees, which prevents that attack against the network. I have not had any difficulty [sending] my transactions
on the Bitcoin blockchain with SegWit [addresses]. I have not had any difficulty making them on
Lightning, when opening and closing channels. I always use the minimum fee possible,
which is one satoshi per byte. I [enable] replace-by-fee (RBF) in case I need to bump
the fee later if the transaction is not being confirmed. But I haven’t bumped a fee in six months or more.
I send transactions regularly, on a weekly basis. They are confirmed within the first or second block.
So is there a problem with the Bitcoin network? No. There is nothing wrong with using a quarter of all
bitcoin transactions, as long as you pay for them. We need to understand that, in the absence
of a fee market or market-based solution… for prioritisation and capacity management
within the Bitcoin blockchain, we [have two options]. We could assume that resources are near infinite
and [allow] everyone to send transactions for free. That will have economic impact and effectively
subsidize those who are sending transactions. We will need to subsidize miners
through other means, probably inflation, which will cause further centralization
of nodes and mining into fewer hands. There is still a cost. Instead of paying that cost in
fees to maintain decentralization, you pay the cost… by losing decentralization behind the scenes, in subtle
and long-term ways. That is a very dangerous path. We have seen other blockchains try that [path].
If you want to try it, choose another blockchain. The other option, as a substitute for market forces, is
centralized control and decision-making by committee. We would give developers the power
to choose what a valid transaction is. Both of those choices are inferior to market forces. I don’t think there is anything wrong with someone
using the blockchain’s capacity to do what they want, as long as they are willing to pay
the fee and compete in the market.

17 thoughts on “Bitcoin Q&A: Spam transactions and the fee market

  1. @3:45 – important point here and I completely agree. I have transacted in the same way for 99.9% of my transactions since Jan 2018, 15 months now. 1 sat/byte with RBF enabled just in case. Anybody that tells you that Bitcoin is too expensive has no idea what they're talking about. No need to have centralized network checkpoints and no need to wait for 10 confirmations to be sure like with bch.

  2. This answer is true today when blocks are not full. If prices rise, however, I believe that will cause an increase in transactions. Due to these sort of non-transaction side uses already partly filling the blocks, the blocks will fill up by the time the price has reached 10K this time (even though blocks are effectively a little bigger than they were in 2017). In my opinion, the current tiny blocks on BTC make going over about 20K unlikely. A slow steady rise could solve the issue I see, but, that's not usually how it works and other coins will not be limited to slow growth.

    Some may try to argue that rising prices or high prices will cause people to stop transacting since 'research shows people do not sell assets that are growing in value over 10% bla bla bla'. This false narrative (assumption – spread by the "troll army") is a joke when applied to crypto. It is easy to see TX volumes grow with price growth. They use that lie to get people to HODL while the whale manipulators sell at and near the peak they created.

  3. Everythings fine until its not

    This video ignores the practical capacity constraints of Bitcoin. Even with all segwit TXs it's limited to ~ 20.35 TX/s.

    The introduction of loops on Lightning Network only adds more on chain TXs, doesn't resolve liquidity issues & adds additional complexity, saying you can do 1sat/byte TXs ATM when no one is using BTC except for speculation is disingenuous

    Please do a video covering the issue of a fee market and realistic capacity ceilings we can expect again when we reach TX volume like we had in Dev 2017

  4. Hi! Would love if you can answer this question.. What do you think of projects starting to give out stable coins as block reward to miners instead of a native token?

  5. Limiting block size is limiting supply. So you can't say "market forces of supply and demand" will determine price in a full-block "fee market" because YOU'RE EXCLUDING THE MARKET—on both the supply side with small blocks and demand side as priced-out users go elsewhere. It's a production quota Andreas and frankly you should know better.

  6. This is starting to become a serious problem. VeriBlock is spamming the mempool, wrecking Bitcoins ability to function for smaller transactions due to the fees. Who wants to send a 5 dollar tip when 2 dollars is eaten up by fees? On the bright side it should increase the usage of the Lightning network. Hosted wallets are totally easy to use now and wallets you host yourself are getting better and better. So for my tipping or purchases I'll be able to make one main net transaction and pay one fee and then make many lightning transactions with the BTC that I moved to Lightning.

    Even so, it's an attack on the main net that doesn't benefit Bitcoin so something does need to be done about it. Depending on how soon things get really bad, I expect we'll see a fix. Perhaps a version of the full node software that allows full node operators such as myself to filter out spam transactions so they are no longer broadcast through the network, much like we had during the Bip148 rebellion where we threw off the chains that Veer and Jihad were attempting to place on the community.
    Repeated dust transactions from the same part of the network could be blocked. Not every full node has to do this, just enough to make a lot of the veriblock transactions fail to propagate through the network.
    And if we can start to have an impact, then Veriblock will start using other blockchians or perhaps a group of blockchains to provide the proof. That's only if the business is real rather than just a disguised way to attack Bitcoin. If it's just an attack then the money will continue to be thrown in to continue the attack.
    I'll mirror this comment on Dissenter just in case it gets deleted here.

  7. Try getting your 1 sat/byte transactions through the network right now, I paid 90 sat/byte today and it took several hours for a single confirmation. I think this is a problem and it's going to get worse as Bitcoin becomes more popular. Now Bitcoin becoming more popular is of course a good thing, but the high fees are going to push people to look for alternatives like Litecoin, Bitcoin Cash or something like Nano which has 0 transaction fees and uses PoW as a way to prevent spam on their network. Now I'm not really a Bitcoin maximalist, but as a long time holder of bitcoins and ex-miner who cares about decentralization and security a lot I would not like to see Bitcoin lose market share because of this. A more centralized coin with not as much focus on security that lures people with cheaper fees could take over and I am somewhat worried about this. The Lightning Network is great but not the complete solution, we also need to allow bigger blocks at some point. I hear some bitcoin developers talking about $100 onchain fees being fine, but that's going to ruin usability for most people even if you use lightning. I for one am not willing to open and close a channel paying $100 each, I then say never mind thank you I will be using Litecoin or Nano instead to transact (reluctantly, because Nano lacks privacy options and Litecoin, well, it's more centralized and has less developer support).

  8. First impose a centralised 1Mb limit
    Secondly refer to the consequences of that decision as pure market mechanics… and therefore preferable over centralised decision making

    #soundreasoning…

  9. Spam is not necessarily expensive, even with very large fees if you are a miner that controls a significant % of hashrate or part of a cartel of miners you can bid up the fee market , recoup most of the fees, and collect higher fees from others at a greater rate than they would lose from other miners including their "spam" transactions. Here is an example – https://bitcoinmagazine.com/articles/curious-case-bitcoins-moby-dick-spam-and-miners-confirmed-it/ , The solution to this concern is to insure Bitcoin mining is sufficiently decentralized

  10. Having a public immutable ledger where bitcoin holders can apply a utility value to their ownership of Bitcoins is immensely important. It's drives an intrinsic value property to Bitcoin. Having a purely monetary based transaction system is under utilizing the immutability that bitcoin and its pow scheme brings to the world. We should encourage use cases such as this.

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