Constellation

Why "zero transaction fees" is important for the community


#1

In most platforms such as Bitcoin and Ethereum, for each transaction submitted by a node, a small fee goes to the node(s) that verify the transaction. It incentivizes nodes to compete for verifying transactions, and stay on the network. It keeps the network alive.

Some upcoming platforms have been proposing zero transaction fees. This opens up two points: (i) how do we incentivize nodes to stay in the network? (ii) how do we incentivize nodes to verify a transaction?

Some platforms (e.g. IOTA) allow a transaction to be submitted/verified only after the node that submitted it verifies some previous transactions. There are few other approaches to this, each with their merit and demerit, but that is for another discussion.

A more primitive question to ponder: why “zero transaction fees” is important, and how it can benefit the community. One immediate effect is low barrier to submit a transaction. But in cases like Ethereum, one can argue that the transaction fees can be quite small as per discretion of the node submitting the transaction.

Decentralization platforms serve two key purposes: (i) payment method with tokens acting as cryptocurrencies, and (ii) a platform for decentralized applications being built on. In platforms that solely serves as a payment method, “zero transaction fees” is a a great way to incentivize more transactions - although more than often the transaction fees are hidden in some form or the other (usually in terms of computation).

However, if a platform is solely focused on catering to decentralized applications, “zero transaction fees” provides an interesting economic angle - it eliminates long-term speculation on the platform. Speculation creates transactions without adding real value to the network, but transaction fees keep the network alive, fueling more speculation. If a platform is built solely for applications, “zero transaction fees” eliminates such speculative transactions. If no real applications—that creates value—are built on the network, no nodes will verify transactions because there are no fees to be earned. The network ceases to exist if the purpose of the network is not fulfilled, which creates a perfect economic balance.

“Zero transaction fees” is hard to achieve for any platform, but if achieved, would definitely be a good thing.


#2

Do you have any propositions on how to achieve zero transaction fees? I think LOOM is an interesting idea in and of itself. To host your application on a LOOM sidechain, you must stake a certain amount of LOOM tokens. The amount is based on the throughput that you want to achieve. This creates a demand for the tokens while also allowing for a zero transaction cost model.