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Beginner's Guide to Exchanges - Part 2
Beginner’s Guide to Exchanges – Part 2
A little late, but as promised here is Part 2 of the Beginner’s Guide to Exchanges. I would like to sincerely thank everyone for their support and feedback in making these. Link to Part 1 This time I also made a Google Docs survey in the hopes of sharing the results with the community. I thought we could share what we use as a whole and why redditors choose the exchanges they do. For skeptics (as you all should be), I assure you that I am not collecting personal information. This is for recreation and if you are still wary, then by all means abstain! Link to Survey In Part 3 I will be wrapping up this series by covering decentralized, semi-decentralized, and derivative exchanges. Here it goes!
00 – Concepts and Definitions (Continued)
What is FinCEN? This is an agency within the US Dept. of Treasury that collects and analyzes information about financial transactions. It is meant to prevent financial crimes and money laundering both by businesses and individuals. In 2011, FinCEN defined digital currencies as fiat and started cracking down on those in the crypto world. Since then, every exchange serving US citizens has been trying comply with regulations otherwise they face severe penalties. Thank them when exchanges as for your Address and an ID.
What is the ICO (UK Regulatory Body)? This stands for the Information Commissioner’s Office and it is the UK counterpart to FinCEN - a regulatory office that reports directly to Parliament. ICO oversees compliance of the Data Protection and Freedom of Information Acts. It is meant to help companies and individuals keep their private information private, and can enforce this with penalties up to £500,000 when personal information is recklessly stored or leaked.
What is APR? Stands for Annual Percentage Rate.
What is Arbitrage? Arbitrage trading means to take advantage of price differences between markets. For example, say Poloniex lists ETH at $400, while Kraken lists it at $500. Buy low at Poloniex and then sell high on Kraken and you just made yourself a hundred bucks. Simple!
What is a Coinswap/Crypto-converter? Basically, a coinswap is a broker. If liken an exchange to a marketplace where buyers and sellers meet to agree on a price, then a Coinswap is a person who goes to the market on your behalf. Give them what you want to sell, and they will come back with what you want to buy. They take a small commission, give you a fair market rate (or close to it), and sometimes don’t even ask for your identity. Coinswaps are popular because they are convenient and offer coin pairs that exchanges sometimes cannot.
Overview: Founded in late 2013 by Gerald Cotton in Vancouver, Quadriga should be a source of national pride. While 4 major Canadian exchanges suddenly closed between 2015 and 2016, Quadriga survived. Then In 2015, Quadriga became the first exchange to attempt being listed publicly by enrolling for enlistment on the Canadian Stock Exchange (CSE). However, it ultimately failed to do so after being confronted with restrictions and regulations.
Withdrawal/Deposit Fees: Low deposit and withdrawal fees in comparison to other exchanges. A little unorganized on their official site
Linked Bank Transfer
Deposit 1%/ Withdraw Free
Free (Withdraw Only)
1% (Withdraw Only)
Free (Withdraw Only)
Security: Quadriga was quite notably lost of 67,000 ETH earlier this month, after an expensive mistake involving the Geth 1.5.9 upgrade. Apparently, outgoing addresses were incorrectly entered without 0x at the beginning of addresses and the sent ETH became trapped. Yet Quadriga has taken full responsibility and reassured customers that it will not affect their accounts.
Google Authenticator or Email 2FA Available
Undisclosed amount of funds in cold storage
3rd Party Security provided by CloudFlare
Expired $50 bounties
Verification: Quadriga CX enables alternative instant verification with an Equifax Credit Score Report.
Digital only, Limits Vary
Customer Service: Negative reviews are hard to come by, but perhaps that is due to the smaller size of this exchange. The FAQ is a little disorganized with a lack of tabs or categories on the site. However, support offers a direct phone line and email support. Also u/QuadrigaCX seems very active and responsive in the Bitcoin CA subreddit.
Bottom Line: The handling of the ETH loss was handled professionally and quickly. And as a Canadian, lower deposit and withdraw fees are probably impossible to find somewhere else. Trading fees are a little high, but that is the trade off. It seems they have weathered some ugly storms other Canadian exchanges could not and are a trustworthy exchange going into the future.
05 – Fiat Exchanges – Europe
Overview: CEX.io is started in London in 2013 both as an exchange and a cloud mining provider with its acquisition of Ghash.io. In 2014, Ghash was the largest Bitcoin mining pool contributing to over 42% of the mining power and mining over $200 million in BTC. In October of 2014 Ghash closed yet CEX.io lived on as an exchange.
Verification: With a lot of backlash from the Bitcoin community, CEX has registered with FinCEN and ICO in the UK, while also implementing Anti-Money Laundering (AML) and Know-your-Customer (KYC) policies. Once these policies came into effect and ID verification was requested, many original Ghash users abandoned the exchange. Exchange allows for linking of Facebook and Google+ accounts. Not a good option IMO.
ID + Photo
$10,000 Daily/$100,000 Monthly
Customer Service: Customer complain are abound here, and for justified reasons with hidden deposit and withdrawal fees. However it seems the company is quick about inquiries and verification, stating that most inquiries are filled in 24 hours. The FAQ is comprehensive which you should come to expect from established exchanges. Despite some unhappy customers, tt is good to see that they care about their reputation and their product.
Bottom Line: If you are already invested in crypto, CEX.io has some of the lowest trading fees in the game. However, they are clearly taking advantage of inexperienced users and those looking to exchange fiat for the first time. When purchasing with their FOK buying service (using instant credit card transactions), not only is the buy rate not at market price, but a 7% fee is added. This is price-gouging, this is FOK-ing unreasonable. I understand that this service offers something not found elsewhere, but additionally 1% crypto and $50 USD withdrawal fees makes these actions questionable if not just plain greedy.
BTC-E / XBTC-E
Overview: BTC-e is has been operating out of Russia since 2011 and provides language support in English, Chinese, and Russian. Perhaps due to this flexibility, it has high volumes of BTC, LTC, and ETH. It has an unclear connection to xBTCe, but both link to each other in the FAQ of the respective sites. A feature that is provided by BTC-e not seen elsewhere is software for trading called MetaTrader 4. This software seems a little clunky, but includes some TA features.
Security: BTC-e was hacked way back in 2013/2014 and reportedly $35,000 of BTC was stolen. Since then it has had a relatively clean record. This Digiconomist review is a thorough and detailed read, but unsure.
Google Authenticator Available
Must be changed every 6 months
3rd Party Security Services provided by CloudFlare
Verification: Since late May, there have been a shit storm of reports claiming BTC-e is locking funds for previously unverified users. In the FAQ users are asked to register at XBTC-e and within 10 days the account will be unblocked. It is unclear how the websites are connected or related to each other and 10 days is eons in crypto time.
No Stated Limits
Customer Service: Live Chat is supported during operating hours and the FAQ is listed in Russian and English. Resources are a little unorganized, but complete none-the-less. Bad reviews and complaints are plentiful with the long history of the exchange and the recent troubles with account verification for some long time users.
Bottom Line: I’ve got to be honest that I personally despise the interface at these 2 sites. Both give Yahoo! GeoCities and the original SpaceJam website a run for their money in terms of web design. Perhaps it makes up for it with some free TA software and a large daily volume. But it comes to say that the longevity of this exchange is its biggest strength.
Overview: Liqui is based out of Kiev, Ukraine. As a digital exchange, it does not support fiat currencies and is competing with the likes of Bittrex and Poloniex as it lists dozens of altcoins. The feature that differentiates Liqui is its ‘Interest’ feature which was introduced to increase traffic and volume to the newer exchange. It works similarly to depositing money into a savings account - deposit ETH into an account and earn 24% APR (or .066% daily interest) which is deposited every 24 hours. There is some fine print about deposit limits and interest calculations, but how it is presented is clear and straightforward. Unfortunately the limit of 1000 ETH needed by Liqui is currently full, so you will need to wait until others withdraw ETH or the limit is increased to participate.
Verification: There are no deposit/withdrawal limits and no verification levels. In order to start trading, all that is needed is an email address.
Customer Service: Searching for user reviews shows mixed results about Liqui’s customer service. The fact that it supported on several platforms, is reassuring. Contact Support@liqui.freshdesk.comBy Twitter@Liqui_ExchangeBy Telegram@Liqui
Bottom Line: The design and simplicity of Liqui stands out in my opinion. It is like what Poloniex could be if they just cleaned the UI/UX a bit. I like that it immediately gets into the trading charts without having to click around and if you miss the trollbox then this is your site. Like other smaller exchanges there are doubts over the reputation and reliability due to the opaque nature of the operations and development team. If you are looking for an alternative to Bittrex or Poloniex, this exchange may be worth investigating.
06 – Fiat Exchanges – South Korea
안녕하세요 여러분! 혹시 우리 한국인 친구 이 보고서를 한국어로 읽고 싶어한다면 알려주세요. 관심이 많이 있다면 간단한 한국어 보고서도 만들 수 있습니다. This year, ETH has taken off like a rocket in the Land of the Morning Calm. With a population of just 50 million, South Koreans account for almost 30% of daily ETH trade volume. Even more surprising is that currently the daily volume of ETH is about 5 times higher than that of Bitcoin on Korean exchanges. Since demand is high, ETH is trading at a premium on Korean exchanges. Some users have been talking about capitalizing off this imbalance by trading on arbitrage between exchanges. For those who have no connection to Korea and hope to do so, I have bad news – all Korean exchanges require a National ID number and access to a Korean bank account. This makes Korean exchanges virtually closed to Korean nationals and those with long-term visas. Sorry everyone.
Overview: Bithumb has all the features of horrid Korean web design - pop-up ads, flashing side-banners, disorganized pull downs, links to cafes/blogs, and generic stock images with embedded text. You can’t even see the exchange before making an account with your email or mobile number. It does support 4 languages, but reveals only poor translation done by Google Translate. In the face of this, this exchange has been trading a daily volume only second to Poloniex. On the bright side, they have the unique options to buy gift certificates/vouchers and remit money overseas.
Overview: Coinone is the second largest Korean exchange, and its design is a breath of fresh air compared to its rival. It offers service in English and Korean and allows for the trading of Bitcoin, ETH, ETC, and Ripple. It has a very comprehensive chart that is highly customizable, but sadly is only gear towards BTC currently. This makes it perfect for margin trading, and in the future I hope they add ETH. They also offer overseas remittance through their service Cross. Coinone support seems above average in their customer service with a PDF guide and an unprecedented landline number for direct support.
Overview: As the smallest of the 3 Korean exchanges, Korbit benefits from its simplicity. It by far has the best design and English support with clear links to services - including remittance, global payment, and their company bio. Like CoinOne they offer a direct phone line for customer inquiries and an extensive FAQ in 2 languages. Similar to the other exchanges, it has insanely low fees for deposits and withdrawals. This is largely thanks to the Korean banking system where wire transfers and mobile banking are commonly used. I recommend anyone interested in Korean exchanges to start here as they also have a reddit presence on u/korbitBTC
With a great deal of anticipation, major Chinese exchanges started trading ETH this summer. Since these exchanges deal huge volumes of Bitcoin already, naturally it was expected that they invest heavily into ETH as well. So far this hasn’t quite lived up to the hype with many exchanges still favoring Bitcoin, Litecoin, Altcoins, and even Ethereum Classic (Gulp). Three of these exchanges underwent inspections by the Peoples Bank of China earlier this year and will be working closely with the government to ease fears of money laundering and market manipulation. There are a lot of Chinese sites, and since my Chinese is non-existent this list is basically just for name recognition. In many ways these sites are very similar in regards to security, verification, and fees compared to their western counterparts; just marketed at a different audience and currency. If users are seriously interested in these exchanges and making reviews, please contribute or ask!
Overview: Number one in Chinese ETH trading, currently overtaking the volume of exchanges like GDAX and Kraken. CoinOne is very accessible with a mobile app, PC trading software, live chat customer support, and wallet services. OK Coin has English for the basic interface, but no detailed information in the FAQ.
Overview: Second in Chinese ETH volume, Huobi mirrors its rival OKCoin in many ways. It has a solid interface, a mobile access, and even the same rumors of faking trading data! Huobi also started with the ambitious motive of having zero trading fees, only to introduce them in January of this year.
Overview: ShapeShift is the leading Coin-converter site and has been since 2014 when it was founded. With great effort put into to eliminating verification requirements and allowing for the exchange of dozens of altcoins, ShapeShift provides a relatively seamless and simple service. The big buttons and bright color scheme immediately differentiates it from other exchanges.
Trading Fees: From the website ShapeShift does not charge a specific fee. Instead, we offer an exchange rate for each coin which changes every 30 seconds with market conditions. We try to earn revenue by offering a profitable exchange rate, and typically we earn in the range of 0.5% (50 basis points). You receive exactly what the exchange rate shows, there is no additional fee (except the tiny miner fee). There are complaints about the fees not being calculated fairly, but no one is forcing any of these users to exchange at the unbalanced rate. Or you could just read what CEO u/evoorhees has to say about it over at the Ethereum subreddit.
Security: After losing $230,000 from a possible internal hack in 2016, ShapeShift contracted the Canadian Security firm LedgerLabs. Afterwards they permanently hired Michael Perklin as Chief Security Information Officer. ShapeShift claims the only information stored during exchanges is the logs of wallets and the transfers between them. This is protected by storing the data across servers in multiple countries with none based in the US.
Customer Service: Customer service is necessary for the inevitable ‘entered the wrong wallet address’ problem from new users. Along with complaints about slow transfers, a simpler platform does not exempt ShapeShift from dealing with tons of angry customers and their problems. I take many of the complaints about unfair exchange rates with a grain of salt, because the problem could have been avoided by the customer. It does seem however that ShapeShift is very responsive, with a presence on almost every social platform imaginable. Even right here on reddit at shapeshiftio
Bottom Line: Especially after the release PRISM, it is obvious that no one is better at simplifying than the ShapeShift team. In order for crypto trading to become mainstream, it need to be easy enough that your grandma could do it. Erik Voorhees understands better than anyone. Instead of being confronted by esoteric graphs, unfamiliar ticker symbols, and a list of registration requirements, ShapeShift differentiates itself from other exchanges in both its interface and ease of use.
Overview: Changelly is a prototype project that was created by developers associated with MinerGate 2013. It has a slightly less sleek interface than ShapeShift, but is still quite intuitive in terms of its pull down exchange bars and other information. Changelly offers Credit Card services like CEX.io, but the fees are currently so expensive that it is hardly worth it. Another downside is the recently introduced email requirement.
Trading Fees: 0.5% Commission Fee with .00042 ETH Network Fee.
Security: It offers 2FA with Google Authenticator and HTTPS protocol.
Verification: A confirmed email address is all that is needed to start trading. You could easily use a throwaway email if there are concerns over privacy. There are also links to your Google+ or Facebook Profile, which seems a little uneccessary.
Customer Service: Like ShapeShift, Changelly suffers in its reviews due to inexperienced users. Those using Credit Cards especially will feel ripped off despite a clear disclaimer stating that rates are high. They have an extensive FAQ, but do not appear to have a ticket system for complaints and their social media pages are more geared for press releases than support. Their subreddit is a similar story in changelly, but their support staff u/changelly_com runs circles trying to solve issues. Because of the honest effort, I believe they can do better and can improve.
Bottom Line: When it comes to criticisms of Changelly, the apple does not fall far from the tree with MinerGate. Users rightfully have some distrust about the lack of opacity in the management and operations of this exchange. I feel that they are more honest and fair in the Credit Card services than CEX.io, but still should cut the service as it generates a ton of bad experiences. If you are looking to convert coins, it seems to be an acceptable service, but some of the benefits are lost with having to verify an email address. In this way it is hard to compete with ShapeShift.
https://preview.redd.it/2a9ct7or4u021.png?width=1167&format=png&auto=webp&s=0cd523b70cd51439e86a2e5b223e76318039144d Rule number 1. Personal responsibility Each user is personally responsible for the security of their account and the safety of personal savings. Rule number 2. Official website address Recently, the creation of phishing domain names that are most similar to the domain names of popular cryptocurrency exchanges is popular among cybercriminals. Therefore, always check the domain of the site in the address bar. Rule number 3. Two-factor profile authentication For the best possible account protection, use two-factor authentication, which is an access system based on two “keys” and is used to enhance the protection of user accounts. Benefits: * Work does not need additional devices, since authentication occurs through a mobile device, which, as a rule, is at hand; * There is a constant update of the verification code, which is more secure than a single password to the system. We also recommend using Google Authenticator: * While using Google Authenticator there is no risk of delays when entering the site; * The application generates a unique six-digit key every 30 seconds, thereby reducing the chance of information leakage to a minimum. Important! Do not give anyone a personal device with Google Authenticator installed. Rule number 4. Security of your Email Breaking mail is common, followed by the theft of funds from a stock exchange account. Therefore, when you first suspect a hacking account, you should contact support with a request to block withdrawal of funds. It is also important to remember that: * Do not open emails from unverified email addresses; * Do not send your personal data to third parties; * It is necessary to pay attention to the sender's address: as a rule, distribution from large stock exchanges comes from the official domain. Rule number 5. Only original desktop and mobile apps. Do not install untested desktop and mobile applications. Cryptocurrency exchanges post information about existing applications on their official sites. Some more security tips for your account: * Each time you log in to your account, you must receive an email with the specified IP address from which you are logged in; * If you have noticed a suspicious activity, report it to the support service; * Create unique passwords for each account; * Do not log into your account with an unverified device; * Do not go to the site through an unconfirmed link; * Get information from the source. These precautions increase the chances of securing your account and protecting information from intruders. Do you follow these rules? #deposit#trade#bitcoin#криптовалюта#биржа#invest#btc#bitfex#exchange#eth#cryptoexchange#защита#аккаунт
NOTE: I'm trying my best but because of the sheer volume of tidbits popping up every day, this post might ocasionally miss some updates. Please feel free to point it out in the comments whenever you feel there is information missing in the post, thanks! A note on recovering funds: We have no information on how to recover fiat/bitcoins/goxcoins yet and MtGox has only given very vague statements so far. It is speculated Mark Karpeles (CEO of MtGox) is currently figuring out what to do and not flying to the Bahamas with our money. It is advisable to have patience and wait for new developments on the subject for the time being. March 26th, 2014
Following its application for commencement of civil rehabilitation, MtGox Co., Ltd. consulted with the metropolitan police department with regard to the disappearance of bitcoins which is one of the causes for said application. MtGox Co., Ltd. hereby announces that it has submitted necessary electronic records and other related documents. MtGox Co., Ltd. intends to fully cooperate with each competent authority. Further, MtGox Co., Ltd. continues to make efforts to clarify facts as quickly as possible and to recover from damages.
Match 25th, 2014 A new rumor has surfaced twitter, currently unsubstantiated, from @CanarslanEren who according to his previous tweets would have previously either guessed correctly or know in advance about the recovered 200K BTC (emphasis mine):
Within a few days(or hours) @MtGox will announce that "they found ~670.000 #bitcoin & may release some BTCs to the victims. @PatronaPartners
There's a new update on mtgox.com confirming the previous story of having recovered 200K BTC that were thought lost. Key points:
On March 7, 2014, MtGox Co., Ltd. confirmed that an oldn format wallet which was used prior to June 2011 held a balance of approximately 200,000 BTC (199,999.99 BTC)
For security reasons, the 200,000 BTC which were at first on the 7th moved to online wallets were moved between the 14 th and the 15th to offline wallets.
The bitcoins held today by MtGox Co., Ltd. amount to a total of approximately 202,000 BTC, including the above 200,000 BTC and the approximately 2,000 BTC which existed prior to the application for commencement of a civil rehabilitation proceeding.
March 20th, 2014
Several users were reporting issues with the balance-checking tool online at mtgox.com, namely that bank transfers and transactions stuck in progress were not showing. This is now apparently fixed and balances seem to have been accordingly updated. Thread here.
In line with the blockchain movements we've seen for the past few weeks and the respective MtGox API activity, finally a japanese news article appeared where MtGox lawyers announce MtGox has found and owns 200K BTC, translation, courtesy of h1d:
Bitcoin exchange Mt.Gox which collapsed in February announced on 20th that they have found they're still in possession of the 200,000 BTC out of the 850,000 BTC that was reported to be lost. According to the lawyer, they found them on the 7th of this month by searching through a storage on the internet called a "wallet" which was being used by MtGox up until June 2011. MtGox has reported that they have lost almost all of the 850,000 BTC owned while filing for bankruptcy protection on February 28th.
A new update on mtgox.com is now online: account holders can now provide their login authentication data on the site to retrieve the last status of their wallets for convenience. It would appear that this update is legimitate, Redditcoinstates:
I just called the MtGox call centre in Japan - they confirmed that the login has been put there by "legal" and they have not been hacked. I called this number from the original banckrupty announcement (I called from Australia - we are only 2 hours ahead): +81 3-4588-3922. A nice man with an American accent said that the login has been put there by "legal" for users to check their balances and that the website has not been hacked.
Redditcoin asked for transaction history data as well:
I called the number again (about an hour later) - again, absolutely no waiting - I called again to ask about my transaction history. The same man answered, with the American accent (although sounded Japanese), who spoke impeccable English. He said that the transaction history is still unavailable because the courts still have to "polish" it (whatever that means). I said I needed it for taxation purposes. He replied by saying he will "check on this, and post an update on the website soon".
As for the balance data that can now be retrieved on mtgox.com, the site notes (emphasis mine):
This balance confirmation service is provided on this site only for the convenience of all users. Please be aware that confirming the balance on this site does not constitute a filing of rehabilitation claims under the civil rehabilitation procedure and note that the balance amounts shown on this site should also not be considered an acknowledgment by MtGox Co., Ltd. of the amount of any rehabilitation claims of users. Rehabilitation claims under a civil rehabilitation procedure become confirmed from a filing which is followed by an investigation procedure. The method for filing claims will be published on this site as soon as we will be in situation to announce it.
The MtGox API which used to list pending transactions has been removed today. In the past few weeks, this API had shown that the hundreds of thousands of BTC moving in the blockchain connected with MtGox wallets could still belong to Gox. Thread.
we are working on resuming service, can't say how soon it'll be
While the authenticity is still in question, if true this would be in line with all the rumors and hints we've seen up until now. March 15, 2014
The hundreds of thousands of coins moving in the blockchain that MtGox allegedly still own have been spotted doing something new: the outputs are now merging in new addresses of 2K BTC each. This was first spotted in this thread and later confirmed here. As usual, we have zero indications of what this means yet. -Mahnspeculates:
The only thing I can imagine myself is that whoever is doing the splitting decided 50 BTC was too little or would take too long and switched to bigger outputs per address.
New movement in the MtGox order book as reported by their still online API has been detected. Thread.
March 14th, 2014 There's a new update on mtgox.com concerning their Chapter 15 US filing. It contains no new information other than the confirmation of the news that appeared on March 11th. March 12th, 2014
MtGox US subsidiary assets have been temporarily frozen by US Judge. Story here.
"On February 7, 2014, all bitcoin withdrawals were halted by MtGox due to the theft or disappearance of hundreds of thousands of bitcoins owned by MtGox customers as well as MtGox itself. The cause of the theft or disappearance is the subject of intensive investigation by me and others -- as of the present time I believe it was caused or related to a defect or "bug" in the bitcoin software algorithm, which was exploited by one or more persons who had "hacked" the bitcoin network. On February 24, 2014, MtGox suspended all trading after internal investigations discovered a loss of 744,408 bitcoins presumably from this method of theft. These events caused among others MtGox to become insolvent and to file the Japan Proceeding."
Question: what is the minimum fee that motivates the miners to do their task?
Basic stuff The miners as a whole have the mission of validating all transactions that users generate (with sufficient fees), as quickly as possible, and place them into a PoW-secured blockchain. The users can ensure that the miners as a whole will accomplish this mission by offering them the right incentives. If the incentives are adequate, the miners as a whole will want to accomplish that task, and will eventually do so -- assuming the stupid 1 MB block size limit is removed, of course. If that happens, it does not make much difference for the system how the miners go about that mission, and how the incentives get split among them. The miners as a whole can be considered a contractor of the bitcoin network, who receives a payment to perform a certain job. As long as the contractor delivers what was expected, the customer does not care how the contractor did it, how much each worker got paid, if any staff got fired, etc. Reward motivates regular mining of blocks The block reward has been, since 2012 or earlier, more than sufficient incentive to motivate the miners to append new valid blocks to the blockchain, at the mean rate of about 1 every 10 minutes. However, the block reward does not motivate the miners to include any transactions in the blocks. On the contrary, a longer block is more expensive for the miner who mines it, and has a reduced chance of winning the PoW race, because of propagation delays. So, without considering the transaction fees, there is a significant disincentive for miners to include transactions in their blocks. Marginal cost of processing a transaction To a first approximation, we can assume that adding to a block another transaction with size S (in kB) will entail an expected cost (or expected loss of revenue) to the miner of at most M x S, for some constant M -- the marginal transaction cost (in USD/kB). This parameter will of course vary from miner to miner. The marginal cost M includes the cost of extra bandwidth to broadcast the node (if the miner wins the race), the extra cost of validating that transaction, and the extra expected loss of reward and fees that would result from the increased propagation delays because of those S extra kB. Since we will want to encourage all miners to include all transactions that they can, we can make a reciprocity assumption: if a miner decides to include a transaction of size S in his block, but fails to win the PoW race, he will have to download some other miner's version of that block, which will probably include that transaction too. So the bandwidth component of M must be counted for any block, like the validation cost. (If he loses, he will not have to validate the signatures of that transaction again). On the other hand, the marginal cost M does not include the cost of mining proper (solving the PoW puzzle), since this cost is independent of the block size. Its economics must be analyzed seprately from the incentives to include transactions. Fees motivate the inclusion of transactions The immediate incentive for miners to include transactions into blocks are the transaction fees. As soon as a miner knows the transactions that were confirmed in the previous blocks, he can start filling his candidate for the next block with still-unconfirmed transactions. Suppose that block size is effectively unlimited. In order for a miner to be motivated to include an transaction in the candidate block, its fee rate F (in USD/kB) must be significantly larger than his marginal cost M. Conversely, if F is significantly less than M, the miner will rather leave it out. Therefore, for a single block, the miner will maximize his revenue if he includes all transactions with a fee rate higher than his marginal cost M, and ignores all those that pay less than M. Moreover, it is better for the miner (and for the network, of course) if the blocks are effectively unlimited. As that demand grows, he will want to expand his connectivity and validation CPU power to process all transactions that pay more than M, no matter how many there are: since the cost of that expansion is included in M, by definition, and therefore will be covered by the fees. Miner profits Besides covering his cost, each miner also needs to to make a reasonable profit in order to remain in the business. If there was no block reward, the transaction fees would have to pay that profit, as well as the cost of PoW. As long as the reward is sizable, we can assume that it pays the full cost of the PoW and also enough profit to remove most of the need for the fees to yield a profit. Note however that, no matter how much profit the miner makes from the block reward, he will only want to include transactions whose fee rate F is greater than the marginal cost M. In fact, the higher the block reward, the higher the marginal cost M will be, and therefore higher fees will be required to motivate the miner to procees the transactions. Empty blocks Even when there are transactions paying more than the marginal cost M, a miner may still mine empty blocks, with unverified parents. That happens because the miner can start mining a candidate block B(N+1) as soon as it gets the hash of the parent B(N), but cannot include any transaction in it until it has received the content of all blocks up to B(N). However, these empty blocks will be mostly harmless, even if it may not seem so at first. They will happen only if the miner gets lucky and solves B(N+1) in a short interval of time, after it got the hash of B(N) but before it has managed to download and validate its contents; and he is motivated by the fees to make that interval as small as he can. More generally, a miner will not want to generate empty blocks, if he is able to fill them with transactions that pay more that his marginal cost M. Conversely, if all transactions pay less than M, the miner will want to process only empty blocks. Once an empty block B(N+1) has been mined, all miners can start working on empty candidates for B(N+2). Since B(N+1) is empty, They can start filling their B(N+2) as soon as they finish downloading B(N). Eventually that download will finish, and then they will put into the non-empty B(N+K) all transactions that accumulated in the meantime. As long as the time interval between an empty blocks and its parent is short compared to the average block interval T (600 sec), the impact of emty blocks on the expected confirmation delay T will be relatively small -- approximately 1/2 of the average block download time. For example, if the latter is 30 seconds, then T will be 615 seconds instead of 600 seconds. The question So, in numbers, what is the marginal cost M (in USD/kB) for a typical miner to add one more transaction to his candidate block -- assuming no block size limit taking into account all costs, including the expected loss that results from the reduced chances of getting that block accepted because of the size increase? I expect the bandwidth component of the marginal cost M to be small (on the order of a penny or less per transaction). I guess that the cost of validation will be insignificant, since it can be trivailly parallelized and there will be constraints on the number of script ops. But I have no idea about the term due to expected reward loss. It is however proportional to the USD value of the current block reward, currently about 9000 USD/block (while the other two terms do not depend on it). How is the situation now? The miners are still processing, more or less promptly, all transactions that pay more than the current minimum fee per byte. There are empty blocks, but they may be just the unavoidable ones, I don't know. So, perhaps the current minimum fee rate is already above the marginal cost M of all miners, or at least of the largest ones. Or maybe they just haven't realized that the current minimum rate is too low, and they could earn more by mining only empty blocks. Posting the miner fees The minimum transaction fee rates should not be set by the developers. Since the fees are paid by users and earned by miners, developers have no "right" to influence them. Instead, each miner X should estimate his marginal cost M and choose his minimum required fee rate Freq[X]. These fee rates then should be combined somehow into a global minimum fee rate Fmin, or in a fee x delay function T(F), for use by the clients. I have no especially bright ideas on how to do this. Optimal fee rate A miner X can try to increase his revenue by posting a required fee Freq[X] substantially higher than his marginal cost M. However, that may cause some drop in the overall demand, and the loss of the fee revenue from transactions that pay less than Freq[M] but moe than M. The miner will want to set his posted fee rate Freq[X] t the value Fopt[X] that maximizes his net revenue. This will depend on the fee x demand curve of the user base, and on the fee rates Freq[Y] posted by his competitors. But this is the problem that every business owner has to solve. Although the PoW race is not a proper free market, I would guess that (barring cartel formation, explicit or tacit) the fee Fopt[X] for every miner X will be only 10-20% above his marginal cost M. But this is just a wild guess.
[uncensored-r/Bitcoin] Surging mining fees last 7 hours - can someone explain this please?
The following post by Butt_coiner is being replicated because the post has been silently removed. The original post can be found(in censored form) at this link: np.reddit.com/ Bitcoin/comments/7l7ll2 The original post's content was as follows:
I stumbled upon this: https://blockchain.info/unconfirmed-transactions this afternoon at 3pm PST. At the time there was 250,000 unconfirmed transactions, and total pending mining fees around 40 BTC. Now, 7 hours later, the pending transactions are still approx 250,000 but the mining fees are at 366 BTC. I haven't paid attention to any of this until this afternoon. A) Is it normal to have this many unverified transactions B) Is it normal for the pending mining fees to surge so high / be this high?
The most popular and trusted block explorer and crypto transaction search engine. Solving unconfirmed Bitcoin transactions in Electrum Date Fri 03 Mar 2017 Tags bitcoin / electrum / child pays for parent / unconfirmed transaction. Bitcoin is becoming more and more popular. The amount of transactions per day is increasing and is at an all times high: While this is good news, it also has its downsides. Because the size of each mined block is fixed to 1MB, the amount of ... For about two months bitcoin users had been suffering from all-time high transactions fees and long waiting time. But since mid-January things started getting better. Now both transactions fees and the number of unverified operations in the mempool have significantly decreased, breaking 2018 record. Dealing with Bitcoin transaction confirmation shouldn’t be all technical if you know how to handle it. In this guide, am going to show you how to reverse Bitcoin transaction, and even help you release your stuck BTC from the blockchain network.. Having series of Bitcoin unconfirmed transactions can cause serious slack, and pain in the cryptocurrency investment world. While confirmed bitcoin transactions are irreversible, that’s not the case with unconfirmed bitcoin transactions. With little effort and the help of our guide, you can cancel your unconfirmed transaction. Here are the steps on how to do that: Step #1: Check if your transaction is really unconfirmed. You can easily check whether your transaction is unconfirmed: Go to the website Blockchain ...
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