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Revision as of 19:30, 26 January 2019 by Slackjore (talk | contribs) (Obyte treats all valid transactions the same: added sentence)
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Transaction fees

Obyte has predictable transaction fees. You pay 1 Byte in fees to add 1 Byte of storage to the distributed ledger. Bytes are a native currency of the Obyte platform. You can buy 1 Megabyte of Bytes today, and you have a guarantee that you can publish 1 Megabyte of data on the chain at anytime.

Pricing transaction fees like this may sound obvious, but we are not aware of any other major cryptocurrency project that does this.

The average transaction costs around 500 Bytes, which currently [January 2019] in USD is around $0.000025. Expressed another way, 1 Megabyte can fund around 2,000 average transactions.

Exchange rates: Bytes vs Bitcoin vs real world assets

It's easier to understand the value proposition of Obyte transaction fees and where it comes from by comparing it with the price of Bitcoin and real world assets.

Like virtually all other cryptocurrencies, the Bitcoin/USD exchange rate is not bound to anything obvious. Stocks and commodity prices are volatile, but there are fundamentals behind them. For example, the price of company stock is based on data like earnings, revenue, debt-to-capital ratio, etc.

Similarly, commodity prices are heavily influenced by cost of production. If the cost of oil production by some suppliers is higher than the cost of oil over a sustained period of time, it is likely the suppliers will eventually shut down, leading to a decrease in production and an increase in price. This is a feedback loop.

Bitcoin feedback loop

Bitcoin does not have such a clear feedback loop. A Bitcoin price of $5,000 is no more justified than a price of $50,000 or $5. The Bitcoin price moves daily, but these movements are not based on real-world economics like stocks and commodities, just the supply and demand sides of Bitcoin.

There is the idea that the Bitcoin price will not fall much below the mining cost, but this does not hold up well when looking at how the real world functions. The retail price of products often falls far below the cost of production. Computers, phones, cars etc can sometimes be bought for far less than the production cost. Demand and supply influence pricing far more than production cost.

Obyte feedback loop

We have used real-world economics to create predictable transaction fees. Adding data to a database has a cost. Databases run on servers, which have manufacturing and running costs. Eventually these servers will need to be replaced, and the loop starts again. There always will be a cost.

The main native currency of the Obyte system is Bytes, and you pay 1 Byte in fees to add 1 Byte to the database. It’s a measure of utility of the storage in the database. The market will decide what is a reasonable price to pay for adding data to the Obyte database.

One significant advantage Obyte has over other distributed ledgers like Bitcoin is that the price of adding data to the database is known. A merchant can take payments in Bytes and can very accurately estimate the transaction fee as the amount is fixed and known.

Predictability of fees

No fees

Having no fees means less security and less spam protection. This may be good for marketing to newcomers, but is not sustainable or secure for long-term growth and mass real-world adoption. There is no such thing as a free lunch, so “no fees” means that the cost of running the network is paid in some other way. Spam protection may be handled by doing CPU work on the machine that posts the transaction.

Uncertain fees

The Proof-of-Work model pits the conflicting interests of miners against users. Miners exist to make money, but most users want to pay as little money as possible. There is an inescapable conflict of interest, and this model brings fee uncertainty.

Predictable fees

A reasonable fee is proportional to the amount of resources consumed. That is simple. Users get low fees, while the fees protect against spam and cover the cost of running the network.

Obyte treats all valid transactions the same

Cryptocurrencies that are blockchain-based have scaling issues, so their throughput depends on block time and block size. When blocks start to become full, miners can decide which transactions to add to the block first, so they first add transactions with higher fees. This makes the fees go up even more and transactions with low fees (intentionally or by mistake) can remain pending for a long time. Long confirmation times were very noticeable during ICOs on Ethereum and were a big problem for a long time on Bitcoin, before Segwit and the Lightning Network.

Obyte has no miners, no blocks and no fixed block time. The amount of time it takes to finalize transactions depends on how many new transactions there are. A high number of transactions incentivizes witnesses to post more frequently, but not too frequently (maybe 30 seconds, but more likely 5-15 minutes). There is also no need to wait for additional confirmations because the first confirmation is a final (absolute) confirmation. It is not possible to pay higher fees for the amount of data the transaction takes, as all transactions are treated the same as long as they are not double-spends.