That's because you're looking at it in terms of USD, when you look at it in terms of satoshis per byte, it's actually much lower [1][3]. And if you want to avoid the fees because you expect to transact a lot, just use lightning network, exchanges are starting to integrate it[2].
edit: I should also add that, when you look at it in terms of USD, the average transaction fee is a drop in the bucket compared to the average transaction value [4], which to me says that it's becoming the settlement layer as expected.
I knew this would be posted. Such an absurdly stupid reasoning. You wanna pay for your coffee or buy car or whatever and the fee is slapped on top of the price. Who the heck would care about satishis per byte. Its % of the transacted value that matters. High fees means low value Tx are no longer "possible".
>which to me says that it's becoming the settlement layer as expected.
So it went from p2p cash to store of value to a settlement layer in just 10 years. What is it expected to be in the next 10 years?
The conundrum at the heart of BTC is that you have to introduce a second layer in order to work around the inherent limitations of the first. But at that point you may as well do away with that first layer, and then will have simply re-invented PayPay, which only goes to show how "blockchain technology" is almost entirely useless.
How has lightning network re-invented paypal? One is a custodial way to store and transfer money, another is a decentralized non-custodial way to store and transfer money. It couldn't be more different.
>But at that point you may as well do away with that first layer, and then will have simply re-invented PayPay, which only goes to show how "blockchain technology" is almost entirely useless.
the lightning network isn't going to freeze your funds for 180 days because they think your account is suspicious.
That shortsighted. Blockchain tech isn't only bitcoin.
There are solutions to the problems bitcoins has and they are working fine since years.
BTW the link includes the transaction fees on the XRPL you probably didn't see it because the line is almost flat and almost at zero.
Blockchains or rather DLTs are here to stay - bitcoin probably not.
The lightning network relies on looking up BTC which the user has to pay for. Its impossible to be dirt cheap because someone earns money on every Tx. Its the opposite or what p2p cash is supposed to do - it should remove the middlemen. It does not remove it, it just decentralizes it. Its still someone there sucking out value for something that should essentially cost the same as sending an email.
In one year from now there will probably be coins that can do >1,000 TPS on layer 1 with negligible fees with intuitive wallets and all exchanges will have integrated them.
These coins exists already since many years. See XRPL.org for the oldest "better bitcoin project". It has tested 1500 TPS and block time of a few seconds and on top of that a fully working second layer for high volume channels between 2 parties where the TPS is only limited by the speed of the hardware.
It on average has more transaction per day than bitcoin ever had and it does that since years.
It's worth nothing those coins also took some liberties when it comes to establishing consensus. I believe the consensus model for XRP is "ask some trusted nodes what the state is and believe the majority".
>I believe the consensus model for XRP is "ask some trusted nodes what the state is and believe the majority".
You are wrong on that. Every node locally applies all the rules to all transaction. There is no way a rule can be broken because your node listens to other who broke the rules.
If all your trusted nodes would break the rule your node would simply stop and ask you to connect to proper nodes.
The consensus majority is only needed if there are 2 or more way to make valid (not breaking any rules) forward progress (aka a double spend attempt)
Only in this case nodes side with the majority of their trusted nodes. There is no "wrong way" in this case its arbitrary which side the network goes the only thing that matter is that everyone goes the same way. Which is archives if everyone sided with their surrounding majority.
Its very important to understand that if someone would have the control over which side it goes in such a situation he could do absolutely nothing with this "power" as both ways must be valid in the first place.
The only person who "loses out" is the one who attempts a double spend because he has no way to know which Tx will success and which will fail. But no honest participants cares about that. If you attempt a double sends you voluntary let the network pick one.
>The consensus majority is only needed if there are 2 or more way to make valid (not breaking any rules) forward progress (aka a double spend attempt) Only in this case nodes side with the majority of their trusted nodes.
so basically "if there's a double spend just trust whatever the majority of the trusted nodes say"? It's better than trusting the entire state to the majority of nodes, but still quite centralized compared to other consensus mechanisms.
>"if there's a double spend just trust whatever the majority of the trusted nodes say"
Yes but also no. There is no trust needed because what the other nodes say does not define whats correct its arbitrary. Its only relevant if 2 or more equal good AND correct ways exist.
You aren't listing to others to find out the "right" way you solely listen to other so everyone choose the same.
>still quite centralized compared to other consensus mechanisms.
Not at all. If there is a double spend attempt your validator node picks one at "random" (the one it revived first) it then tells every node to include this one an discard the other. All other do that too completely on their own (decentral). Only if this does not lead to 80% agreement everyone is tasked to adjust and vote again. So your node looks what the nodes around them voted and switches if needed to the majority. There is no central anything that tells your node to switch. Your node does so solely because your node doesn't care which way to go but it wants to go the same way ass all others.
All this does it it breaks ties. If there would be a near 50/50 split or 33/33/33 for 3 conflicting transaction, this is guaranteed to shift to something near 100% after some re-voting. Because the existing "majority" grows faster with every re-vote if everyone adjust by these rules. And that's the sole goal. We want the network go agree.
Others however, just increased the block size to allow for more transactions per block and thereby lower fees. This is the intended purpose of the block size as set forth in the Bitcoin whitepaper.
Its not solving the problems its just makes it less severe for a while.
There is always an interest for miners to maximize Tx fees.
You could make the block size infinite and there would still be no reason for a miner to add all pending Tx. Why would they If they can force people to pay a fee. The solution is to get rid of the fee. That's the only way you can have a system that wants the maximum throughput for the minimum cost, because no one makes money from it.
Hence systems like the XRPL dont have real Tx fees they only have a tiny pseudo fee that isn't going to anyone its simply burned instead and only acts as a spam protection.
> The second-layer transactions could just float, like the dollar separated from the gold standard.
You can't mint more bitcoins on the lightning network. There's a 1:1 relation between what's on the lightning network and what's on the blockchain. This is as opposed to fiat (zero relation, currency units can be generated at will), or gold standard in practice (the central bank only having enough gold for a fraction of the notes issued to be redeemed).
> A triangle ABC of lightning nodes opens a channel with 1 bitcoin between nodes. 3 bitcoins total.
>Each node can have a state with a total of 2 bitcoins. That's 6 bitcoins.
Well, no. If you want a channel between A and B with 1 BTC capacity in either direction, you'll need to deposit 2 BTC to fund the channel. Therefore there's 6 BTC total that's locked up. As for the rest of your comment, it's not really clear how it's "separated" from the on-chain value.
uhh what? It's true that nobody knows what the state of the channel is, but the capacity is known. so they know it would conclude with either party A getting 0.1 BTC (for example), party B getting 0.1 BTC, or somewhere in between.
Sure you can. Just mint some "lightnings" and move on. Nothing stops a large centralized processor from creating its own coin.
L2 is also shit for actual distribution and censorship resistance. Imagine a future where BTC is 100x the current price and the people who got in early are rich as heck and nobody else can afford even a single transaction and must instead rely entirely on L2 services, never actually owning their own wealth.
> Sure you can. Just mint some "lightnings" and move on. Nothing stops a large centralized processor from creating its own coin.
But that's literally not how the lightning network works? If some intermediary in the chain wants to accept IOUs in place of real bitcoins that's on them, but on both ends you're putting in and getting real bitcoins. By "real bitcoins" I mean they can be redeemed at any point in time by closing the channel, and there's no risk of a bank run (at least to the sender and receiver). If some intermediary decides to accept IOUs instead of real bitcoins, that's on them if it comes crashing down.
It isn't how the lightning network works... until everybody without vast sums of wealth have literally no alternative except to transact through approved L2 providers. Then we are right back at numbers in centralized databases with no restriction whatsoever.
For sure, you can keep channels open indefinitely. It won't be like dollars separated from gold though, it's still the same exact Bitcoin and the fund gets allocated at the opening of the channel.
I'm a long-time bitcoin skeptic, and I don't really understand the lightning network. If the lightning network doesn't depend on PoW for every transaction then how is it different than a normal database-backed payment network? I read that it involves smart contracts, have those been sufficiently audited against bugs?
> That's because you're looking at it in terms of USD, when you look at it in terms of satoshis per byte, it's actually much lower [1][3].
This is meaningless to me. Why would I care about transaction costs in satoshis per byte? I thought bitcoin is supposed to be a currency that replaces USD. At the current transaction fees bitcoin is not usable as a currency unless you're buying very expensive items.
>I'm a long-time bitcoin skeptic, and I don't really understand the lightning network. If the lightning network doesn't depend on PoW for every transaction then how is it different than a normal database-backed payment network? I read that it involves smart contracts, have those been sufficiently audited against bugs?
tl;dr: you and the counterparty negotiate a series of transactions that represent the final closing balance. As funds are sent/received the transaction is updated. There's various mechanisms in there to prevent a misbehaving peer from broadcasting an older transaction, running away with the funds, or having your funds frozen if they ghost you.
A transaction is essentially just a signed cryptographic message broadcast to the network, just imagine that instead of broadcasting it, you keep iterating on it, you pass funds around, keep signing these messages, etc. There are measures to make sure you don't broadcast an old/outdated transaction to the network.
It's not meant for buying coffee, for those you would use layer 2 or centralized entities like Paypal, etc. The blockchain contains every single transaction ever made forever, people in 100 years from now don't need to be aware of every coffee transaction, that just wouldn't be efficient.
Thanks for taking the time to explain. I guess I remain skeptical as it seems like a lot of complexity that is slowly replicating the traditional banking system - just with transactions enumerated in a volatile equity instead of $currency. Perhaps I'm just getting old.
The key difference is this infrastructure is 100% trustless. Bitcoin transactions are backed by proof-of-work, and Lightning transactions are backed by HTLC (hashed timelock contracts) which are in turn backed by the proof-of-work. Think of the blockchain more like a settlement layer and the Lighting network an everyday transaction layer.
That's the current goal of the developers of these systems, anyway.
Bitcoin in the Lightning Network are backed by the bitcoin blockchain. Bitcoin get committed to the Lightning Network (using an on-chain transaction) and can then move between users of the network. There is no central database of all Lighting users or transactions. Transactions are done directly between users, or by routing payments through other users.
It's kept trustless, because people trying to cheat can get their bitcoin stolen. This is done using fancy bitcoin multi-signature scripts. Closing a Lighting Channel using an old state (ie: being dishonest) reveals keys that can be used by the other (honest) party to take your funds.
The lightning network has been promised for 7 years now. Exactly what people predicted has happened. It doesn't work, no one wants it, it tries to solve a problem that is already solved by not using a crippled crypto currency with the transaction bandwidth of a dial up modem.
Ethereum is multiple times btc in transaction throughput. Bitcoin cash has had higher transaction throughput for a while now too.
The people that made bitcoin originally were geniuses. The dunces that made the lightning network are nonsense charlatans. Go to /r/bitcoin and start asking questions, then see how long it takes to banned.
Anything other than btc and ethereum works for avoiding high transaction fees. Why would someone use a hacky second layer and defeat the purpose of crypto currencies when even a joke clone like dogecoin works better? Crypto currency works so well it has to be purposely broken like bitcoin to stop working well.
Right now the commonly accepted cryptocurrencies with reasonable transaction fees are litecoin and bitcoin cash with dogecoin being around $1 USD. That isn't impossible to work with but it isn't necessary.
Not really, it just means big centralized companies are settling their end-users funds on the blockchain while providing them access to it practically free. Regular people right now use it through Paypal, Cash app, Venmo, Coinbase, etc.
And soon enough channel factories should make it possible to create multiple lightning channels at once, so an end-user will never pay the whole channel opening fee by themselves.
As long as Bitcoin's layer 1 stays secure/open/decentralized, the average non-whale user will be able to use it through these other layers just as easily.
> Regular people right now use it through Paypal, Cash app, Venmo, Coinbase, etc.
So people are using Bitcoin through trusted (in the security sense[1]) intermediaries. These intermediaries are basically banks, no? Aren't they subject to all the same bad incentives as a "traditional" bank? Except their deposit are (probably?) not insured against loss.
> 'Trusted' means that a system needs to be trusted to act in your interests, but it has the option (either at will or involuntarily) to act against your interests.
It's the short term option, yes. Well, they have to hold on to the coins, because once they lose it, they can't turn to Fed for a bailout. Lots of custodians have insurance in place [1].
In the long term, lightning is here and works, as exchanges keep integrating it, that's where most of the end-user funds for small amounts would live.
All this means is that moving Bitcoin in the main blockchain is not practical for most people. Bitcoin is an asset for an elite. Those who are interested in frequent cryptocurrency transactions should not be even paying attention to Bitcoin.
It's worse. How do people think this will work? You will keep your money in institutions. Transfers will be settled in databases. There will be management fees, insurance requirements, dispute costs, censorship, and surveillance. Read the 1st page of whitepaper folks. High fees bring about the same trusted third-parties that Bitcoin was built to avoid.
This is the consequence of the sudden loss of mining power. The increased usage of Bitcoin transactions while the blockchain is now processing fewer transactions means the fees increase, because users are willing to pay that much to transact faster.
Ideally market powers would offset this by people with spare CPU time beginning to mine to pick up the slack, since profitability is up. However due to the development of specialized mining hardware, mining isn't elastic anymore and so it doesn't happen.
Because of that the fees will not decrease until the next difficulty adjustment which is every two weeks, or until the miners come back online.
Looks like next difficulty adjustment is estimated to be in ~11 days, also in the last 24h there's been an average of a block every 10 minutes, so it's possible more mining power has already come back online.
Here's a gap in my understanding: why does bitcoin mining explode so much when the price goes up? With all the new miners, doesn't the difficulty adjustment kick in after two weeks and largely negate the price increase? Or does the difficulty scaling not quite work like that?
The difficulty adjustment ensures that, on average, there will always be 6 bitcoins minted every 10 minutes. If the price of the bitcoin increases, miners will be willing to spend more energy to chase those 6 bitcoins. The end result is the network becomes less efficient, as more energy is burned to confirm the same number of transactions.
If difficulty adjustment didn't exist then mining would still be as easy as it was in the satoshi days. The current ASICs would have already finished mining all 21M bitcoins several times over.
> ...on average, there will always be 6 bitcoins minted every 10 minutes
Just to clarify a bit further, this is true right now but the amount minted with each block isn't constant and decreases over time. More info on block rewards: https://www.bitcoinblockhalf.com/
With the current price large miner make huge profits anyway. Mining a bitcoin on average coasts way way less then its worth so obviously if the price increases the profit does too and the difficultly adjustment doesn't take that all away.
The difficulty adjustment only goes up by a certain amount, and you'd only expect mining and difficulty to normalize when it's a margin driven business. If there is some limiting factor (e.g. not enough hardware, not enough power etc) or if price is increasing faster than bitcoin mines can come online then the difficulty adjustment can't keep up.
Other coins have solved this, in fact bitcoin cash had to solve it as soon as the fork happened because it would have taken too long to hit an adjustment period.
The difficulty is what adjusts the distributed time function of the network to stay on target, so that the inflation is controlled, measured in Bitcoins. The Bitcoin network only knows about Bitcoins, not how much USD it trades for.
When the blocks being mined approximately every 10 minutes is valued higher in USD, naturally more people want more of those blocks. So the miners expand simply to compete, since what they compete for is worth more.
I wonder what would happen with bigger blocks besides making the blockchain use more disk space. We have BCH and BSV to compare, but not in BTC's scale, I believe.
We won't be back at square one even if the fees end up the same, since the transaction thoroughput would be higher.
Bigger blocks means more transactions per block and at a constant rate of 6 blocks/hr that means the network can handle more TPS before fees rise. As long as the mempool remains relatively empty, fees will be low.
Imagine if they increased the block size and developed Lightning in parallel. On-chain fees would be low until Lightning becomes mainstream then Lightning fees would be even lower.
That's great to hear. I was following BCH back when their transactions were just a trickle. I was afraid the Craig Wright nonsense was going to completely end the chain. Refreshing to know that they are not just surviving, but thriving.
transaction volume went up. the date roughly corresponds to the last peak of ~20k. high prices/volatility means more people rushing to transfer their coins in/out of exchanges.
edit: I should also add that, when you look at it in terms of USD, the average transaction fee is a drop in the bucket compared to the average transaction value [4], which to me says that it's becoming the settlement layer as expected.
1: https://statoshi.info/d/000000017/fee-estimates?orgId=1&from...
2: https://www.coindesk.com/okex-exchange-to-integrate-bitcoins...
3: https://www.bitcoinfees.info/
4: https://bitinfocharts.com/comparison/transactionvalue-btc-xr...