The Power of Free Transaction Fees

Updated: Jul 19, 2019


Paying the Miners without Transaction Fees

Paying the miners encourages them to mine, ultimately increasing security of the overall network. Most cryptocurrencies pay their miners using transaction fees. The reason for this is because most cryptocurrencies need to prevent attackers from creating millions of transactions to spam the network, forcing miners to process and store them all.


However, Frink is in a unique position of being able to pay the miners without transaction fees as Proof of Person is able to counter this problem in a way that does not require fees. More on this later.


Customers Love Free Transaction Fees

In general, there is something special about free. Who doesn't love getting something for free?


Some interesting research done by MIT has shown that when choosing between two products, in this case chocolates - Hershey Kisses or Lindt Truffles, people are more than 3x more likely to choose the free product than they are to choose the product that only costs a measly 1 cent.


And not only this, but the same research showed, they value the free product as being more valuable than one they paid for. When asked to rate which product was best, people rated the free chocolate roughly 50% higher than any other offer, even the same chocolate just 1 cent pricier.


Now consider that traditional cryptocurrencies require users to pay a transaction fee of roughly 20 cents. Think 3x or more users will also choose to switch to Frink?


The Average Businesses Can Make 33% More Profit with Frink

Being aware of the above effect, credit card companies have chosen to hide these fees from users and instead put the burden onto businesses.


The average credit card fee is roughly 2.5% of the purchase when considering both the per transaction fee as well as a fixed percentage fee. Meanwhile, the average business has a profit margin of 7.5%.


This means that the average business could go from 7.5% to 10% profit margin, increasing their profit by 33%. Not only is this huge, now consider that the free versus small fee debate from above applies to business owners too.


Switching to Frink is an easy choice for businesses.


Transaction Fees are Bad for the Economy

Another argument for avoiding transaction fees is that research has shown higher sales taxes are bad the economy and transaction fees are sales taxes for all practical purposes.


State by State analysis in the US shows that a 1% increase in sales tax causes a 5.5% decrease in payroll and a 6.7% decrease in the number of new hires:

https://www.ntanet.org/NTJ/65/4/ntj-v65n04p1023-41-effect-sales-taxes-employment.pdf


Value Added Tax in Nigeria reduces the consumption expenditure:

https://www.researchgate.net/publication/299585242_Value_Added_Tax_and_Consumption_Expenditure_Behaviour_of_Households_in_Nigeria_An_Empirical_Investigation


General Sales Tax in Jordan substantially affects economic growth:

https://www.researchgate.net/publication/320962231_The_Causal_Relationship_between_Sales_Tax_Revenue_and_Economic_Growth_in_Jordan


Frink Goes Beyond Free - Frink Pays You

So how does Frink prevent free transaction fees from overloading the network and ultimately pay the miners without transaction fees?


Frink combats this problem by allowing users to link transactions to their decentralized private IDs. Users are allowed to send 100 free transactions per month, more than most people will need before transactions fees are needed. In order to maintain free transactions, Frink proposes a separate method for paying the miners, a small amount of ongoing inflation of the money supply.


Essentially this means that Frink continually creates small amounts of money and pays it to the miners. Which is actually economically healthy and contrary to the worry of many cryptocurrency users, does not necessarily cause the money itself to become less valuable.


Inflating Money Supply Does Not Automatically Inflate Prices

Many economists will tell you that printing money like this which inflates the money supply, leads to the price of goods increasing, which we will refer to as price inflation.


This is based on a popular economic formula, the "Quantity Theory of Money": MV=PT

Where:

M=Money Supply

V=Velocity of Circulation

P=Average Price Level

T=Number of Transactions of Goods and Services​

The long standing assumption has been that the velocity of the money and number of transactions will remain fixed when the Money Supply increases, and that this will lead to the average price level increasing, leading to every unit of money becoming less valuable.


However, imagine if this money is instead spread across and paid to all the people who contribute by mining the currency, there is a good chance that instead of converting it to a different currency, causing it to lose this value, they will instead spend it. This means that instead the number of transactions will increase, thus balancing this equation. At the same time, this benefits the economy by stimulating and growing it.


Recent research attempting to link money supply growth to price inflation in the real world has found that in moderation, there is practically no noticeable effect on prices when a little extra money is printed. This suggests that in moderation, small inflation of the price supply actually benefits Frink's economy.



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