In the introduction article we talked a little bit about the subject of this article: the costs for a transaction in the Universa network. Compared with other blockchains, they’re very cheap. But what makes a transaction with the Universa Blockchain so cheap?
In the previous article we compared the speed of the Universa Blockchain to Bitcoin (BTC) and Ethereum (ETH). Now in this second article, we’ll compare the costs of the Universa Blockchain protocol to Bitcoin and Ethereum.
Universa Today is maintained and translated by the community. Do you see things in the articles that should be translated better, feel free to contact @starnold on Telegram to discuss how you can participate.
Transaction fees in Bitcoin
If you would like to pay someone in bitcoin, you have to add a transaction fee (also called a tx fee) to the payment. The higher the fee, the faster the transaction will be processed. The miners choose the transaction with the highest fee from the mempool (or: memory pool) and they ‘put’ it in the block they generated. So in most cases, the higher you set your fees, the sooner your payment will be processed.
But during times when a lot of people are trying to use the network all together at the same time (like in December 2017), the time to get picked out of the mempool grows. So if you would like to do a payment which must arrive in a short time, you have to add a higher transaction fee to it.
Besides that, if the price of Bitcoin rises, the value of the tx fee also automatically fluctuates. It’s not stable and it depends on certain circumstances.
Transaction fees are charged in bitcoin and fluctuate in price all the time.
- The cost of a transaction may rise because of the fluctuating price of bitcoin;
- The transaction may become more expensive if the mempool is full.
Universa solves both of these problems. But before you can read how this is done, we first compare the Universa Blockchain Protocol to Ethereum.
Tx fees in Ethereum
With Ethereum it is almost the same story. You have to pay “for gas” for sending ETH and other (ERC-20) tokens. Even if the token you want to send is not ETH, you still need some ETH in your wallet. This can be very frustrating for the end user. Have you ever sent some UTNP? This placeholder – hence the UTNP – is an ERC-20 token and based on the Ethereum network. To send it you also need to have some ETH in your wallet. It’s quite inconvenient if your business has nothing to do with the ETH cryptocurrency.
- Again: if the price of ETH fluctuates, the cost of a transaction also does;
- For sending tokens (which are not ETH), you still need to have some ETH in your wallet.
Transaction costs in Universa
To do a payment with the Universa Blockchain, you need Us. These are internal units in the network which can be purchased with UTN. This U is not the native currency of the network, like BTC and ETH are in their protocol. What does “U” mean exactly? “U for Universa”? Is it just some “U-nit”? Maybe, as it is an “u-nit storing the energy”, this is even “u-ranium”? You name it…
Even though Us are not a currency, they are also smart contracts (as virtually everything handled by Universa) which rules prevent them from changing ownership. Usually, a currency smart contract has two permissions in it: changing owner (who can give the whole smart contract to someone else), and split-join (to share and merge it). U has neither of it. It cannot change owner, it cannot resplit and remerge; the only thing it can do is “decrease its value”: in every U, there is an amount field, and this field can decrease during the usage (by its current owner), and can do nothing else.
These Us are needed to submit operations to the network. It’s value is pegged to the euro: €0,01. This means that, despite the rising and falling price of the UTN token, the transactions will have a stable cost.
Imagine the price of UTN rising from €0,10 to €0,20. First, you could have reserved 10 “Units” for each UTN. But if the value of the UTN token rises, you can reserve 20 Us with it. But the price you have to pay for the transaction remain stable.
If you’re using the Universa Blockchain, you have to purchase a Universa pack with these Units. You could do it yourself at the mainnet.
These Us have several advantages:
- If the price of the UTN token changes, the transactions will always remain equally cheap;
- You don’t have to pay higher fees to get the transaction processed faster;
- To make a transaction you don’t need to own a cryptocurrency (but only the internal units), which might be a good thing regulatory-wise;
- Governments and companies can make a budget planning, based on these stable costs. It is possible to reserve a sufficient amount of Us in advance (for a period of up to 1 year, as the U contracts are limited in duration), and, during this period, do not worry a bit about rates fluctuation: 10 thousand reserved Us will give you about the same amount of network of operations, no matter of the variable rates of UTN.
With the price of one U pegged to €0,01, it does not mean that each transaction is equal to one eurocent. Registering a smart contract takes more time and effort for the network and hence the nodes are entitled to get a higher reward. This is where quanta comes in. The quantiser-tool checks the amount of work (or energy) that is needed for each specific task, and calculates the total quanta of the transaction to register. For example:
- Checking a 2048 bits signature costs 1 quanta;
- Checking a 4096 bits signature costs 8 quanta.
At the Knowledge Base you can read more examples. A basic transaction registration will require just 1 U. More complex combinations of contracts may deplete more Us from your balance.
How about UTN(P)?
A common question is about the token price and transactions costs: what’s the position of Universa in this and how does it affect the price of UTN(P)? It might seems like the token is not taken into consideration at all. But that’s not the case.
Let’s dive into this process, step by step.
Credits to @Guusting for this explanation. Remember that UTNP is the placeholder of UTN, and they represent the same value. But only UTN can be used to purchase Us.
- Universa sells/delivers a product/service.
- Users of this product/service make use of the network of Universa.
- When making use of the network, transactions are involved. With these transactions, transaction fees are involved.
- The transaction fees for Universa are charged through « U ». This is an essential difference compared to some other networks/protocols.
- One of the reasons that makes the use of Universa interesting, is the possibility to fix the (relative) value of 1 U at € 0,01. Because of this the transaction costs (in terms of euro) are stable.
- « That’s all fun and games, but when we fix transaction costs how can (my) tokens possible increase in value? » Good question; through the MainNet of Universa (see access.mainnetwork.io and beta.mainnetwork.io) it is possible to obtain U with UTN. The idea is that the ‘rate’ of UTN↔︎U is dynamic. Therefore it is based on the exchange rate of UTN in terms of EUR.
- In other words; 1 UTN is €0.01 in the market? In that case 1 UTN = 1 U. This decreases to €0.005 per UTN? Now it 2 UTN = 1 U. Does it increase to €0.025? 0.04 UTN = 1 U. Etc.
- « But why would there be an increase in the price of UTN(P)? » Another good question; If one would want to use the Universa network there is a necessity for U. If one wants to obtain U, there is a necessity for UTN. Does the usage (amount of txs) of the Universa network increase? In this case inherently the intrinsic value of UTN increases. There is a finite amount of tokens for one, an increase in demand with an unchanged amount of supply in essence leads to a higher price. Also see 12).
- How users (in this cases enterprises/governments) will obtain UTN(P) can occur in multiple ways. This will also be subject to regulations/laws in place. In one case an entity will enter the open market (exchanges) on its own to purchase UTN(P).
- However, not everywhere it is permitted for enterprises/financial institutions/etc. to own/purchase crypto-assets (mainly financial sectors). In this case an option would be that Universa enters the market, obtains UTN(P) and with that obtains U for the user of the network. Essentially this comes down to the same thing but in some cases it might be a necessity due to regulations.
- Another option that has come to mind (but less likely/obvious) is an enterprise/entity expresses their wish to obtain UTN(P) publicly and individuals owning the token(s) can contact them for a trade over-the-counter (OTC).
- The network of nodes of Universa will process the transactions. 80% of the transactions fees will be divided among the node operators whereas 20% will be for the Universa Foundation. Universa has reserved the right to (on a daily basis) burn 1% of the received transaction fees by Universa Foundation. That is, 1% of 20% of the total fees. This means that the total amount of UTN(P) will at all times (slightly) decrease. This decreases the (possible) supply which in essence (should) lead to an increase of the price per token (given the same demand).
There are several reasons why the Universa Blockchain Protocol is so cheap en convenient to use. Transactions are cheap because it does not costs a lot of work or energy to validate the state of the smart contract. It’s only verifying (and not executing it). The quantiser-tool is designed to efficiently estimate and value the costs which the nodes make for their specific tasks. Using U’s instead of a native currency has also several advantages:
- Despite the fluctuations of the price of UTN(P), the transactions will always remain equally cheap;
- You don’t have to pay higher fees to get the transaction processed faster;
- U’s might be a good thing regulatory-wise;
- Governments and companies can make a budget planning, based on these stable costs.