They are an easy way to limit transactions to prevent spam, as well as give the option to pick and choose which transactions get into a limited size block.
Without fees, miners have no incentives to include anything into a block in a PoW system (since not including any transactions is faster, which would mean more profit over time), and users have no incentive to not make significant amounts of transactions for no reason on the blockchain.
So in practice, it appears not to be working as theorized.
For starters, i'm not convinced it's "spam" and not just people consolidating dust with low fees that don't really care if it never gets confirmed, but will try for a time when it might anyway.
I have done this myself, by carefully crafting a transaction with a ton of dust addresses and setting the fee to be a hair over 1 sat/byte, and it sat in the mempool for a month or 2 (after being rebroadcast several times) before finally getting confirmed a while back. You might call that spam, but for me it was Bitcoin working as intended. My "low importance" transaction waited until the mempool was low to get included.
But even then unless the "spammers" are spending a LOT of money on the fees, it won't affect anything, since all you need to do is spend 1 sat/byte more than them and you will get in next block...
>Furthermore, exchanges like Coinbase haven't implemented TX batching and Segwit, which further compounds the problem.
And fees provide them the ONLY incentive to fix those problems. Without the need for fees, why would anyone in the bitcoin ecosystem ever do batching (a complicated and potentially less secure way of managing transactions), segwit (requires more development resources), and even things like compressed keys (which some exchanges still don't use).
Coinbase passes the fees directly onto their customers, and they don't seem to care much. They also don't let users change the fees. In fact, Brian has started shilling Bcash on Twitter, so one might guess they're intentionally pushing up fees to push an altcoin (Bcash).
Protip: GDAX pays the TX fees, so it's possible to workaround the TX fees by moving your coin to GDAX.
Also, I'm well aware of GDAX and coinbase and their pitfalls and benefits, but that doesn't have much to do with the discussion of fees and why they are necessary.
There are even ways to get around the extreme majority of the fees for settlement transactions! Look up Channel factories for an idea on how even the opening and settlement transactions can be reduced to about 10% of their current size/cost for a single user. And there might be ways of interacting with channel factories to keep those settlement transactions off the main blockchain for the most part!
Also, I'm fairly certain IOTA doesn't have any TX fees, as well as several others that came before RaiBlocks.
- partially closed source
- has its own custom crypto
- uses a bizarre internal trinary digit system, instead of binary
- I've heard that it doesn't actually work, as in, you can't perform transactions
In terms of the top ~25 coins by market cap, AFAIK RaiBlocks is the only feeless one which acutally works. Regardless, it's worth watching these coins to see how the economics work out.