The Fifth Protocol (2014)
startupboy.com
startupboy.com
I believe it currently costs ~$1.50 in fees for a single Bitcoin transaction, assuming you want it confirmed reasonably quickly. Not what I would call nearly free!
Just removing that limit wouldn't let Bitcoin grow much further anyway, but there are all sorts of technologies in development that could take cryptocurrencies to massive scale, including the Lightning network, Ethereum's sharded proof-of-stake, DFinity's threshold signatures, Mimblewimble, and others.
According to this thread [0] the recommended fee is 0.0001 BTC that'd be $0.20. Of course if you have a non standard transaction the recommended fee will vary.
[0]: https://bitcointalk.org/index.php?topic=245552.msg2618635#ms...
> assuming you want it confirmed reasonably quickly
Generally it takes 10 minutes to mine a block so even with a very high fee you won't have it accepted in seconds (except for a pure luck situation where you send a transaction, miner takes it and immediately finds a block).
Personally I wouldn't think fees are a big deal now that miners rely mainly on coinbase transactions (getting BTC just for mining a block). Fees will play a big role when miners stop creating BTC out of thin air and will have to survive on fees only.
As you and b1daly point out the majority of the cost of running Bitcoin is currently paid for by mining rewards, but even so the fees are still crazy!
I don't know what will happen when the mining reward disappears. There will surely be far fewer miners, which will decrease the real-world cost of mining a block (and also decrease the security of the system!)
If proof-of-stake or something like it is ever adopted then presumably the cost of running the system will plummet but I'm not familiar enough with that stuff to say much more.
Maybe it'll end up with bigger amount of smaller miners. Now the cost of entering mining is high but when the incentives will be smaller Bitcoin mining may end up where it begun - on small hardware. If fees sky rocket nobody would be using it. One way or another that'll be interesting times...
Assume there are a fixed number of transactions per block (N), but a greater number of potential transactions that people would like to do. Also assume that there is a maximum percentage (of transaction amount) that people will be willing to pay as a fee (F).
Then I think the transaction fee should tend to F * average amount of Nth largest potential transaction in a block window.
The cost of mining a block ought to tend to just less than the average block payout (reward + fees). When the reward disappears, this will happen as miners shut down due to not being able to make a profit and the mining difficulty decreases.
Only the most efficient miners will survive. I think this means a few big miners, rather than many small miners, as big miners are almost certainly more efficient.
If this continues as it is now, once mining blocks no longer creates new bitcoins, we'll surely be looking at fees of $100+ for confirmation within 24 hours.
But, if I'm missing something, it would be interesting to know!
The original article argues that cryptocurrencies are a layer of protocol, wrapping those above it. Looking at NameCoin, it isn't an argument that should be dismissed out of hand.
Bonus points for the Snow Crash quote though - one of my favorite authors!
I think I prefer the '5th layer' concept - an extension of the TCP/IP stack between 'Transport' and 'Application'.
That's raised in the first comment, by Fred Wilson. Naval's response was:
You are correct in that it’s technically another set of application layer protocols – I was just being provocative with the title Although in theory it could be a resource allocation layer on top of SMTP, HTTP, etc. Semantics…
Given the big problems with these limits currently happening with bitcoin, this seems impossible to use in a high bandwidth system. Already bitcoin transactions are shockingly expensive, with the bulk of the cost hidden from the user by the payout of coins to the miners.