If a transaction is that expensive, how can this system even work for transactions with a value of that order? Are large transactions "sponsoring" small transactions?
What happens if more people use the system for small transactions? Will BTC become unusable?
Yeah, that's inaccurate. The major portion of that energy expenditure is keeping the bitcoins that aren't moving secure.
Put another way, this is saying it is estimated to take about $800M it keep $40B of bitcoin secure.
This is probably a bit expensive in terms of comparing to fiat currencies (But then we are probably not covering all the real costs of those currencies)... but bitcoin is still in the technology adoption life-cycle and has not yet become a currency.
When the inflation of BTC has declined and it has become fully adopted (assuming this happens) then the numbers will likely start to make a lot more sense.
Also, the vast majority of transactions in about 2 years will likely be happening off chain using lightening network and the like.
Those transaction fees will happily be covered by merchants who are currently paying %2-%5 per transaction to Visa et. al. and will be more than happy to pay %1 or less to Bitcoin to manage a lightening channel.
Really, it will be companies disrupting Visa building payment networks out of lightening channels and they will have to keep fees really low because LN is open source and anyone can compete with them.
Prices are set by what the market is willing to pay, rather than what the service costs to run. Visa, et al, charges what it does because most merchants are willing to pay it, evidenced by the relatively few "cash/check only" businesses out there.
This doesn't mean that merchants wouldn't switch to a lower-cost payment system if it were available and there were enough customers using it, but it does mean that you can't just assume that Visa, et al, would not lower their prices if they felt the competition was serious enough. What their actually cost is, in such a circumstance, is harder to say. Their basic payment processing cost is probably quite low, even accounting for the people who maintain it, but they also provide fraud protection and frequently kickbacks to customers (cash back, airline miles, points); whether they could switch to chip-and-pin exclusively (in the US) and severely curtail kickbacks while still offering a desirable service to customers as well as merchants...
[Their credit services are presumably well-funded through their high interest rates.]
Large transactions are not sponsoring small transactions. Transactions are priced by their size in bytes, so the monetary value of the transaction is totally irrelevant to the fee.
People holding bitcoin are essentially sponsoring all transactions, if you want to look at it that way, because miners are making money both from fees and from new bitcoin that is created, which dilutes the value of all existing bitcoin.
So, if you look just at transaction cost the system clearly cannot sustain itself. But as more people buy into BTC, the system keeps from collapsing. If you ask me, that's starting to look like a Ponzi scheme in disguise ...
A transaction here is a block. A block averages 2000 or so transfers, so that $20 becomes $0.01 for any individual transfer in the block.
Electricity price in the US is also irrelevant. As the article shows just over 0% of blocks are mined in the US, or a rounding error. Bitcoin mining chases cheap electricity.
No, a transaction here is referring to a transaction. The block reward on Bitcoin is already 12.5BTC is 12.5 × $4000+. That incentives the expenditure of significantly more energy than $20 worth.
Thats about $20 in the US.
If a transaction is that expensive, how can this system even work for transactions with a value of that order? Are large transactions "sponsoring" small transactions?
What happens if more people use the system for small transactions? Will BTC become unusable?