Bitcoin, the world’s first decentralized digital currency, has been the darling of the cryptocurrency community since its creation in 2009. It has gone from being worth pennies to now trading at over $60,000 per coin. However, the high fees associated with Bitcoin transactions have been a source of frustration for many users. Some blame this on the Bitcoin network’s inability to scale, while others see it as a flaw in the system. But according to one crypto VC, these high fees are not a bug but a feature of the Bitcoin network.
Bitcoin’s high fees are a topic of hot debate. In December 2017, the average transaction fee reached an all-time high of $55, making it prohibitively expensive for many users. This was due to the network reaching its maximum capacity at the time, causing a backlog of unconfirmed transactions and driving up the fees. Since then, the fees have fluctuated but have remained relatively high compared to other cryptocurrencies.
Many critics of Bitcoin argue that these high fees are a fundamental flaw in the system. They argue that if Bitcoin is to succeed as a mainstream payment system, it needs to be able to handle large volumes of transactions at a lower cost. However, according to Alex Gladstein, chief strategy officer at the Human Rights Foundation and a Bitcoin investor, these high fees are actually a feature, not a bug.
Gladstein argues that the high fees are a reflection of Bitcoin’s security model. Bitcoin’s security model relies on miners who validate transactions and secure the network by solving complex mathematical equations in exchange for new Bitcoin coins. These miners are incentivized to validate transactions by the fees paid by users. The higher the fee, the more incentive there is for miners to validate the transaction quickly. In this way, high fees are a way of ensuring that the network is secure.
Gladstein also argues that high fees make it harder for malicious actors to flood the network with spam transactions. Spammers can send a large number of fake transactions in an attempt to clog up the network and create a backlog of transactions, which can drive up fees. However, if the fees are high enough, this becomes prohibitively expensive, making it harder for spammers to carry out their attacks.
Furthermore, Gladstein believes that high fees protect Bitcoin’s users by discouraging them from using the network for small transactions. If the fees were too low, people might use the network for small transactions, which could potentially overload the network and compromise its security. High fees encourage users to use the network for larger transactions, which are more valuable and provide a greater incentive for miners to validate them.
Critics of Gladstein’s argument argue that high fees make Bitcoin less accessible to the average user, which could ultimately harm its adoption. In addition, high fees make it less attractive as a payment system for merchants, who may prefer to use other cryptocurrencies or even traditional payment systems like credit cards.
However, Gladstein notes that there are other cryptocurrencies that offer lower fees and faster transaction times, such as Litecoin and Bitcoin Cash. He argues that users who prioritize low fees and fast transactions should use these alternative cryptocurrencies, while those who prioritize security and decentralization should stick with Bitcoin.
In conclusion, Bitcoin’s high fees have been a source of frustration for many users, but according to one crypto VC, they are not a bug but a feature of the network. High fees are a way of ensuring the network’s security, protecting users, and discouraging spam attacks. While high fees may make Bitcoin less accessible to the average user and less attractive to merchants, Gladstein argues that there are other cryptocurrencies that offer lower fees and faster transaction times for those who prioritize these factors. Ultimately, it’s up to each user to decide which cryptocurrency best suits their needs.
Bitcoin fees have been a hot topic of discussion recently, with some users complaining about their high cost to complete a transaction. However, one expert believes that these high fees are necessary and an integral part of Bitcoin’s design. Nic Carter, partner at Castle Island Ventures, wrote an op-ed for CoinDesk defending the existence of high fees and challenging the notion that Bitcoin should aim for perpetually low fees.
Carter draws upon the historical divide between the Bitcoin community members, colloquially known as “small-blockers” and “big-blockers”. Small-blockers support higher fees as a trade-off for decentralization, while big-blockers advocate for lower fees and larger block sizes. Carter observes a recent reversal of this trend, with some Bitcoin supporters now calling for reduced fees.
The rallying cry for low fees, according to Carter, has been reignited by Bitcoin’s Taproot upgrade, which inadvertently created a new space for users to add arbitrary content to the blockchain. This development led to a surge in demand for Bitcoin blockspace, notably for the creation of BRC-20 tokens and image NFTs, or “Ordinals”, which have led to a spike in transaction fees.
While critics have bemoaned this development, citing it as a potential denial-of-service attack, Carter has a different perspective. He argues that high fees are an integral part of the Bitcoin design and are essential for miners’ compensation as block rewards continue to decrease.
Carter dismisses the idea that Bitcoin is obliged to provide persistently low fees. He argues that the decision to cap block space, thus leading to increased fees during periods of congestion, was a deliberate move made by the Bitcoin community to ensure cheap validation and maximal decentralization.
The venture capitalist makes a case for the need to tolerate larger fee spikes when the blockchain gets busy, an approach he argues is in line with traditional payment systems which defer settlement. He champions the “small blocker” philosophy, stating that he believes these more creative uses of block space could be the path to Bitcoin’s sustainability.
While he acknowledges the valid concern of high fees pricing out individuals, especially those in developing regions like El Salvador and Africa, he maintains that this is an unavoidable consequence of the Bitcoin design, which was explicitly designed to prioritize inclusivity and decentralization over low fees.
In conclusion, while many Bitcoin users may find the current high fees frustrating, Nic Carter argues that they are an essential part of the cryptocurrency’s design and philosophy. By embracing these high fees and refusing to compromise on decentralization, the Bitcoin community may be able to find a path to sustainability and continued growth. However, it is essential to acknowledge the impact that high fees can have on individuals in developing regions and work to find solutions that balance inclusivity with the need for miner compensation.
