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Taxonomy of Transaction Fees in Smart Contracts

Taxonomy of Transaction Fees in Smart Contracts

Original Postby ajtowns

Posted on: February 2, 2024 04:23 UTC

In the evolving landscape of blockchain technology, where transaction fees are on the rise, users may prioritize cost efficiency over security.

However, this doesn't necessarily translate into a compromise on security, as one might opt for centralized databases or blockchains that lean more towards centralization than platforms like Bitcoin to save on costs. Decentralization, however, is under threat from practices that favor larger miners, such as off-chain fee payments within trusted relationships, which could potentially make smaller miners less competitive and even unsustainable.

The issue of transaction prioritization becomes especially pertinent when Lightning Service Providers (LSPs) need to unilaterally close a channel and commit a transaction on-chain in an environment with high or variable fees. Traditional methods such as using anchor outputs and Child Pays for Parent (CPFP), or preparing specific UTXOs with ALL|ANYONECANPAY signatures, are ways to manage fees but can be costly due to the additional inputs and outputs required.

On the other hand, a large LSP with its own mining capabilities may simply prioritize its transaction with zero fees, avoiding the need for additional fee inputs/change outputs and associated overhead. This approach implies a shift towards internalizing fees within a business's operations, where transactions from the LSP side are amalgamated into a single transaction with no fee, processed at the start of a block. Consequently, there's no need for introspection logic in this setup, as it would introduce unnecessary complexity. This model suggests that endogenous fee strategies will be leveraged where possible, aiming for single transactions that combine multiple operations while minimizing exogenous fee transactions.