Subject: Re: [bitcoin-dev] Rebatable fees & incentive-safe fee markets

From: Mark Friedenbach <[email-masked]>
Date: Thu, 28 Sep 2017 19:45:02 -0700

> On Sep 28, 2017, at 7:02 PM, Peter Todd <[email-masked]> wrote:
> 
>> On Thu, Sep 28, 2017 at 06:06:29PM -0700, Mark Friedenbach via bitcoin-dev wrote:
>> Unlike other proposed fixes to the fee model, this is not trivially
>> broken by paying the miner out of band.  If you pay out of band fee
>> instead of regular fee, then your transaction cannot be included with
>> other regular fee paying transactions without the miner giving up all
>> regular fee income.  Any transaction paying less fee in-band than the
>> otherwise minimum fee rate needs to also provide ~1Mvbyte * fee rate
>> difference fee to make up for that lost income.  So out of band fee is
>> only realistically considered when it pays on top of a regular feerate
>> paying transaction that would have been included in the block anyway.
>> And what would be the point of that?
> 
> This proposed fix is itself broken, because the miner can easily include *only*
> transactions paying out-of-band, at which point the fee can be anything.

And in doing so either reduce the claimable income from other transactions (miner won’t do that), or require paying more non-rebateable fee than is needed to get in the block (why would the user do that?)

This is specifically addressed in the text you quoted. 

> Equally, miners can provide fee *rebates*, forcing up prices for everyone else
> while still allowing them to make deals.

Discounted by the fact rebates would not be honored by other miners. The rebate would have to be higher than what they could get from straight fee collection, making it less profitable than doing nothing. 

> Also, remember that you can pay fees via anyone-can-spend outputs, as miners
> have full ability to control what transactions end up spending those outputs.

You’d still have to pay the minimum fee rate of the other transactions or you’d bring down the miners income. Otherwise this is nearly the same cost as the rebate fee, since they both involve explicit outputs claimed by the miner, but the rebate goes back to you. So why would you not want to do that instead?

A different way of looking at this proposal is that it creates a penalty for out of band payments.