Bitcoin Transaction Fees Suck and Here’s The Solution… Or… The Benefits of Economic Sovereignty

My article about Granular Economic Sovereignty describes why dedicated deconomic systems are beneficial to cryptocurrency overall. The points made in that article will continue to be proven over time but we are already witnessing the effects of external economic factors having an undesired effect on the applications of a digital money system.

Bitcoin itself has been rising steadily in price over the past several months. Looking historically at the price of Bitcoin it has risen even more significantly over the past few years. When pricing services based on transactions using the Bitcoin network it becomes obvious quickly that the cost for providing these services has risen significantly. Bitcoin has been promoted as an inexpensive alternative for transferring value yet as the value of Bitcoin has risen so too has the cost of these transactions.

When Bitcoin was traded at $10 levels, the cost of a satoshi (0.00000001 BTC) was insignificant and so too was the cost of sending and receiving. As Bitcoin rose to $100 or greater value the cost of transactions similarly went up by a factor of ten. At $1000 the cost of transactions has increased by a factor of one hundred since those times and has risen more as a result of transaction fees based on restrictions or limitations of the network.

If Bitcoin raises in price to $10000 there will be many speculators holding Bitcoin who will be very happy but the cost of transactions on the network will then also rise to 10 times their previous cost. This can be problematic for the economics of solutions based on Bitcoin network transactions.

Divisibility is not the answer…

The go-to response to the value of Bitcoin is in its divisibility to 8 decimal places. 0.00000001 Bitcoin (a.k.a. a “satoshi”) is supposed to provide the tiny transaction amounts that will change how the World transacts.

But consider this…

At $1000 per BTC it costs 10 cents to buy 10,000 satoshis.

$10,000 per BTC means one satoshi is worth $0.0001, so the same 10,000 satoshis would cost $1.

I recently made a Bitcoin payment of 0.008 BTC and the network asked for almost 18000 satoshis to send the payment so I actually had to send 0.00818 BTC. There are other places where fees costing thousands of satoshis are charged. With Bitcoin at $10,000 my 0.008 becomes 0.0008 but with the fee totals 0.0098, resulting in a very expensive transaction.

This is a practical example of why there can not be only one digital currency. There must be many.

GES to the rescue…

Granular Economic Sovereignty is the ability for a digital money system to separate itself economically from external systems that can impact the value of the system for its users.

Bitcoin is being economically affected by external factors such as trade volume based on regional considerations (e.g. Chinese miners and market conditions), technology development paths (e.g. the block size debate) and broad regulation (e.g. government initiatives).

The value achieved in using a dedicated digital money system is affected by the community surrounding the system, the technology built for the system and the liquidity of the value represented by the system. When a system is economically separated it becomes resistant to external factors and can maintain a more predictable and manageable valuation.

In some upcoming articles I will examine how this is applicable to different digital money systems.

Related Information:

Changing the Essence of Economics Pt. 2 — Granular Economic Sovereignty

https://medium.com/@coineer/changing-the-essence-of-economics-pt-2-granular-economic-sovereignty-6444c5e7615b#.xcxvec2va

Deconomics — The ‘D’ is for ‘Digital’

https://medium.com/@coineer/deconomics-the-d-is-for-digital-60050c975f73

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