delvingbitcoin

Taxonomy of Transaction Fees in Smart Contracts

Taxonomy of Transaction Fees in Smart Contracts

Original Postby oohrah

Posted on: February 2, 2024 04:49 UTC

In the exploration of cost-saving measures for Bitcoin transactions, an argument is raised against the approach of securing low fees through on-chain transactions while maintaining a semblance of security.

It's posited that if minimizing fees is paramount and one is willing to take on security risks, utilizing a centralized database or blockchain with a more central structure than Bitcoin's would be more appropriate. However, the primary concern identified here is the potential threat to decentralization when large miners are paid off-chain, creating an economic environment that could be detrimental to smaller miners' profitability and sustainability.

The discussion moves onto the topic of V3 transactions and how they might influence payment strategies among Lightning Service Providers (LSPs) and other entities. The suggestion is that these parties may circumvent high on-chain fees by paying miners out-of-band to prioritize their transactions, while allowing anchor outputs—intended to ensure transaction finality—to remain unspent. This practice doesn't necessarily require a trusted relationship, as the fallback option remains the costly on-chain V3 mechanism. Additionally, there is skepticism about whether LSPs would be concerned with the implications of having unused anchor outputs cluttering the UTXO set.

Finally, the conversation shifts to consider why a large Lightning Service Provider (LSP) with substantial transaction volume would choose to operate its own mining operation rather than leveraging existing acceleration services like mempool.space, ViaBTC, or Binance. These third-party services already offer transaction acceleration, suggesting that it might not be necessary for an LSP to have an independent mining operation.