Transaction fees are key parts of a blockchain model, as they are used for different purposes on different networks. For Proof of Work consensus models like Bitcoin and Ethereum, they are used to reward the miners who confirm transactions, this is also true for many Proof of Stake models today. Transactions fees for the block are rewards sent to the validator who finds the block. But or protocols like Stellar Lumens, fees are so negligible they are burned.
Stellar Lumens with an Advantage
One basic advantage Stellar Lumen has over the Bitcoin and Ethereum network it is possible to send ten thousand transactions for just ten cents ($0.10). This is aside from the fact that it processes transactions way faster than both. Transaction initiators on BTC and ETH network struggle to make small payments since it incurs a much larger transaction fee.
But since the transaction fee on Stellar protocol is so small, it can encourage spam transactions with phishing links in their memos to scam the receiver. These and many more downside to a way lower transaction fees have been reopened for discussion by the Stellar Development Foundation (SDF) on 21st July 2020. In a release, Justin Rice, SDF’s Head of Ecosystem stated:
“About a year ago, there were several threads discussing the possibility of raising the minimum fee for Stellar transactions. At the time, there was no real consensus, the network wasn’t prepared for an increase, and there wasn’t a dire need for a higher minimum fee… Things have changed a lot since then, and based on feedback we’ve received recently from the community, we feel like it’s time to reopen that discussion.”
From the article, he stated that apart from the fact that spammers can utilize the super low fee, there remains a huge challenge from multiple developers who creates trading bots that take advantage of small arbitrage opportunities. This is all because of the “path payment” feature on the Stellar Protocol that eases the conversion of a currency to another:
“The problem is, a lot of people built arbitrage bots, and they all look for the same opportunities. When one comes up, it’s a race: the winning bot submits a transaction that claims the opportunity and succeeds; the remaining bots submit transactions conditioned on the existence of that opportunity, and since it’s no longer available, those transactions fail.”
The many failed transactions are included the ledger since their transaction fees are above the minimum. These transactions bloat the leader filling spaces that other transactions need to fill. The suggested way forward was to increase the minimum transaction fee to 0.001XLM from 0.00001XLM which will discourage developers and spammers thus making them “think twice” before they initiate a transaction. Since the suggested minimum is still quite low, it will not affect other forms of transactions.
On the Flip Side
The Questions are:
- Will the developers who “profit” from these trading bots agree to allow the raise of transaction fee minimum?
- 0.001XLM feels so small right now since 1XLM is approximately $0.10 as at the time of writing what if the price rose to a price of $10,000 like Bitcoin? It means people will contend with huge transaction fees for people who sent a large number of transactions.
Discussions are open for the reaction and response on the Stellar Developers Google Group.