On 3rd October, Coinbase, one of the biggest cryptocurrency exchanges in the world released an official blog post on how the platform uses economic incentives to improve Bitcoin [BTC] reliability. Here, Coinbase mentioned that the confirmation time of a transaction can slow down at times due to the fluctuating and unpredictable transaction fee. The platform stated this as the reason for implementing economic incentives.
On its official Twitter handle, Coinbase also wrote about how the technology known as ‘Child Pays for Parent’ is being used by the platform to tackle the challenges. The tweet read:
“Blockchain transaction fees can be notoriously volatile. Learn how our engineering team is using a technique called Child Pays for Parent to improve the reliability of #Bitcoin transactions for our customers. #CPFP”
The blog also explained how the technology works. Coinbase stated that it attempts at balancing two important factors when a user wants to make a Bitcoin transaction to another address on the network, i.e., the transaction fee or the amount paid by the customer to include their transaction into a block and the speed of transaction confirmation in that block.
It further explained that Bitcoin operates on the model of a fee market, which is different from a credit card processor that charges the fee by cutting out a percentage of the transaction. Coinbase cited:
“This is somewhat analogous to a pay-as-bid auction, which is structured as follows: potential buyers will submit bids at different prices, and the auctioneer will select the highest bidders as the winners.”
Similarly, the users may choose the transaction fee according to the confirmation time they are comfortable with.
Coinbase also posted two figures wherein it stated the historic daily transaction fees in Satoshis/Byte and average recommended 2-block transaction fees in Satoshis/Byte for the month of September.
James McCue, a cryptocurrency and blockchain space follower and software developer criticized Coinbase on Twitter. He wrote:
“Seriously coinbase you need to reduce fees. Especially between your customer’s crypto wallets and their usd wallets. Great service, yes but your fees are huge moving between accounts ON your service. Why isn’t selling into my usd wallet on coinbase free?”
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