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Bitcoin costs $30-$50 per transaction?

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CrimsonRoze

if I set out to hold a party every tuesday afternoon and have a budget of $100 per party, and a budget for marketing of $900 and use those $900 to build the social infrastructure then the cost of the party did not raise. The cost of awareness and infrastructure did.

You keep raising the point that a bitcoin transaction costs a ridicilous amounts of dollars to achieve and it's just plain wrong. The block rewards are a marketing tool to ensure that people build the infrastructure - not to ensure that people confirm the transactions. A single pi server can most likely server the entire network today if it weren't for the fact that the system is designed to promote building a system of a scale much larger than we actaully need in the first hundred years or so.

If an employee of a bank gets sick and the bank incurs higher management costs it doesn't mean that the banks automated service network suddenly got more expensive - it means that the banks employee management costs did. Bitcoins block reward is in a different budget, allocated for a different purpose and you mash them up and make it look like transactions in the bitcoin network are expensive. They're not.

Building the underlying global attack-proof infrastructure needed to get the other 99.9% of the population onboard is expensive. That's why there is a block reward.

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  • Cryptonaut

    I see this number thrown around a lot and its actually not only totally inaccurate but also annoying haha.

    It comes from this page: https://blockchain.info/stats

    The calculation is literally this (try it out for yourself even):

    Estimated 24h miner revenue (blocks+fees mined * average price) / number of daily transactions

    not sure how that even makes sense? Wouldnt it be more accurate if you obtained the actual daily electricity & hardware cost and bandwidth used by each mining operation (or at least a decent sample size) and then divide that by daily transaction count? Instead of just "bitcoins mined times average price", as if every new bitcoin mined is turned into $ as soon as possible.. The combined numbers from using the actual costs of running the network might be quite a bit higher than $30... but like you mention its not even really a "cost per transaction". Its the cost for the entire infrastructure. Securing the network, storing and sharing the blockchain, processing transactions, the whole entire thing...

    not to mention that with the current network (or even if it was much smaller), we could process about 10 times more transactions (7 transactions per second.. which is also an artificial limit) per day without changing a thing. With their silly calculation, that puts it at $3 per transaction. If the price of bitcoin drops to $100, then that puts it at around $0.70 at current max network capacity and only $6 / transaction with current transaction rates. wtf, how does that make any sense at all?

    They should honestly just get rid of that stat. It doesnt seem very well thought out. If anything it should be renamed to "estimated miner income per transaction"

    Ok, im calling @tim-swanson out on this :)

    actually, if you wanted to know the per transaction cost from the user/consumer point of view instead of the miners.. you could just do (total transaction fees collected / num daily transactions). Which brings you to a whopping $0.078 cost paid per transaction.

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  • Tim Swanson

    Hi guys, good questions. So not sure if you have time, but I actually explain it all in detail in Chapter 3 (https://s3-us-west-2.amazonaws.com/chainbook/The+Anatomy+of+a+Money-like+Informational+Commodity.pdf)

    The long and the short of it is, without the block reward subsidy, miners will leave. We will see this occur in about 2 years with the block reward halving.

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  • CrimsonRoze

    @tim-swanson The long and the short of it is, without the block reward subsidy, miners will leave. We will see this occur in about 2 years with the block reward halving.

    Yes, without incentives to construct the infrastructure the infrastructure won't get constructed. This does not mean that the cost of transactions on the infrastructure is $30+ per transaction.

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  • Cryptonaut

    I brought this up on /r/bitcoin and got it on the front page actually :) http://www.reddit.com/r/Bitcoin/comments/2e9dna/blockchaininfo_should_changerename_the_stat_cost/

    One commenter makes a good analogy. Its like making a stat for drivers called "registration fees per mile". Driver registration fees are more or less fixed, so the only way to optimize this "cost" is by driving more nad more miles. Doesnt really tell you anything meaningful at all

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  • Hesham_3del

    Thread moved to "Bitcoin and Beyond"

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  • CrimsonRoze

    @cryptonaut I brought this up on /r/bitcoin and got it on the front page actually :) http://www.reddit.com/r/Bitcoin/comments/2e9dna/blockchaininfo_should_changerename_the_stat_cost/

    One commenter makes a good analogy. Its like making a stat for drivers called "registration fees per mile". Driver registration fees are more or less fixed, so the only way to optimize this "cost" is by driving more nad more miles. Doesnt really tell you anything meaningful at all

    I much more like this comment:

    It's a cost (inflation) that is not incurred per transaction and therefore it is misleading to report it as a per transaction cost.

    If we have 1 transaction in a block, or the maximum possible in a block with current block sizes, makes for quite some volatility in that broken measurement.

    Also, referencing the network cost per block in a fiat is rather odd. All fees and rewards are in BTC, and the price volatility of BTC makes it highly uninteresting to look at the current formula to get an idea of how cheap the system is.


    In fact, the most common fallacy here is assuming that the bitcoin network costs X per transaction, so as if we get one more transaction it suddenly costs 2X. And with people screaming that X = ~$40 we're being done a great disservice - as if we do two transactions the cost really REALLY isn't ~$80.

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  • CrimsonRoze

    To be clear: to the average joe, a "cost per transaction" metric is scalable with the number of transactions - therefor the current metric which does not just have to be renamed. It's just ridiculous.

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  • CrimsonRoze

    I got intrigued by the idea that this metric had no value, and decided to calculate the corresponding metric for USD. Taking some rough estimates for amount of dollars created under 2013 and the amount of transactions going on per day in the top 5 payment networks I came to a rather unexpected figure: $3 / TX.

    Sources: http://www.coinometrics.com/bitcoin/tix http://news.yahoo.com/blogs/zelkadis-elvi/money-many-dollars-printed-destroyed-220246800.html

    $358 billion dollars printed in 2013, a bit shy of $1b per day.

    70 000 TX in bitcoin 320 702 000 in the world

    $1 000 000 000 / 70 000 TX = ~$14 285 / TX $1 000 000 000 / 320 702 000 TX = ~$3 / TX

    So if the worlds top 5 payment networks would have built with the same efficiency ratio, but only handled the size of transactions on par with the current bitcoin transactional volume, then they'd be grossly ineffecient "costing" a bit over $14000 per transaction.

    Anyone want to do some fact checking, and do the reverse math for how efficient bitcoin would be if we would handle the transactional volume of the top five payment networks at our current efficiency?

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  • CrimsonRoze

    I just noticed I only take the US inflation and split it across the global transaction networks. A more appropiate view would be if you took every country on earth that uses visa and mastercard (most of them) and add their inflation costs as well, bringing the real numbers up quite a bit.

    Please someone, do a more rigid comparison of this and find out if inflation / transactional volume globally is as grossly inefficient as I think it is..

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