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In Defense of Bitcoin Transaction Fees

Last Updated March 4, 2021 4:46 PM
Justin OConnell
Last Updated March 4, 2021 4:46 PM

Bitcoin does not need to scale. While Satoshi Nakamoto might have arbitrarily designed a 1MB  block size into the Bitcoin protocol with little explanation, many industry people forget that, just because that amount was arbitrary, does not mean the protocol must scale now or ever. The people who feel this way – in what essentially represents a conservative approach to the debate – have been shunned completely in the discussion known as the Bitcoin block size debate. Not scaling is not an option.

This is a great error as it obfuscates the real debate at hand. The reality is many Bitcoiners believe a conservative approach, even if that means no block size increase, is not preposterous. I am not saying it must be the answer. I am saying it is one possible answer for the multiple choice question regarding block size.

What happens if the block size is not increased? Fees increase. Perhaps Bitcoiners have a huge aversion to fees because many of the industry’s startups have not done well. Even some of the biggest in the space, as if trying to make stone bleed, are burning cash in their early years. Jokes aside, I have heard from more than one individual who transacts in Bitcoin daily that, for those transactions in which a fee is included, sometimes as tiny as twenty cents, confirmation is no waiting game.

Bitcoiners on the Internet complain about having to wait for a transaction for  which they paid too small a fee (or no fee at all). But, let’s look at the big picture.

Receiving and sending money on PayPal can cost up to 3% of the total transaction, as high as credit card fees. It takes three to five days to process.  A wire transfer domestically in the US costs between $15 and $50 (sometimes with both the sender and the receiver being charged some amount). International wire transfer fees cost even more. Major Bitcoin businesses are transacting high amounts of Bitcoin, while paying fees significantly less than the above-listed money transfer options, without having to wait.

So, what does this all mean?

There is no rush to come up with a solution for the Bitcoin block size debate. Many people have made this clear, both to me in private and on public forums, including Gavin Andresen, who wrote in response to Mike Hearn’s Medium post about leaving Bitcoin the following:

And Bitcoin will survive without a short-term solution, but adoption and growth might be set back a year or two.

Theymos, the much-aligned administrator of Reddit Bitcoin subforum and BitcoinTalk, came out years ago on his thoughts regarding the block size limit. He also described  his view of the debate in mid-2015:

Satoshi never used IRC, and he rarely explained his motivations for anything. In this case, he kept the change secret and told people who discovered it to keep it quiet until it was over with so that controversy or attackers wouldn’t cause havok with the ongoing rule change…

….I think that he was just trying to solve an obvious denial-of-service attack vector. He wasn’t thinking about the future of the network very much except to acknowledge that the limit could be raised if necessary. The network clearly couldn’t support larger blocks at that time, and nowadays we know that the software wasn’t even capable of handling 1 MB blocks properly. Satoshi once told me, “I think most P2P networks, and websites for that matter, are vulnerable to an endless number of DoS attacks. The best we can realistically do is limit the worst cases.” I think he viewed the 1 MB limit as just blocking yet another serious DoS attack….

…Satoshi is gone now, so it’ll be “the developers” who set the larger limit. But it has been determined by the majority of the Bitcoin Core developers (and the majority of Bitcoin experts in general) that the network cannot actually safely handle significantly larger blocks, so it won’t be done right now. And the economy has the final say, of course, not the developers.

It’s painful how much factionalization has resulted in the Bitcoin space. In fact, the factionalization of the Bitcoin community represents a major problem for the digital currency’s future, and has already made the likelihood of adoption by people of competitors to Bitcoin higher.

That’s why fees in the now are not such a bad thing. It’s better than the further splintering of the Bitcoin industry, which no doubt will turn investors, entrepreneurs and old fashioned Bitcoiners in the direction of alternative digital currency under the universal investing tip of diversification.

Disclaimer: The views expressed in the article are solely that of the author and do not represent those of, nor should the be attributed to CCN.com.

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