ICON Updates ICX Transaction Fee System to “Fee 2.0”

July 15, 2019

Yesterday, “Fee 2.0” was published to the ICON mainnet. Fee 2.0 is a major update to ICON’s transaction fee system that allows DApp operators to pay transaction fees for users. At first glance, this update may seem insignificant, but it’s actually a huge step in the right direction for mass adoption of DApps.

Value in Invisibility

For better or for worse, in today’s society, we take many incredible innovations for granted. We value “invisibility” without even knowing it. This post that you’re reading is a perfect example of how we value invisibility. How did it get from my web server in Los Angeles to your screen wherever you are?

  • Your web browser makes an HTTP request to BrianLi.com.
  • Cloudflare, my DNS provider responds, and routes the request to the IP address of my web server in Los Angeles.
  • NGINX, my web server, receives the request and passes it to WordPress.
  • After the webpage is built, it’s sent back to your web browser.

Everyday, billions of similar requests are made across the Internet, and most people don’t know, or don’t care, how it happens. It just does.

Designing for the Mainstream

Over the past few decades, the technology that connects us has gotten faster, smarter, and more reliable. At the same time, there has been an intense effort to simplify the way we interact with technology with the goal of creating a better user experience. Operating a computer 30 years ago was intimidating. It required interacting with a command line interface with a specific command syntax. Nowadays, we have beautiful point and click GUIs that take 99% of the guess work out of operating a computer.

User experience is negatively correlated with effort. Most people don’t like putting in effort when they don’t have to – that’s just the way of life. Thus, in order to create a technology product that many people will want to use, it needs to be optimized for user experience. It needs to be frictionless.

User Experience vs. Effort

DApps are Not Frictionless

Public blockchains have transaction fee systems in place to reward block producers and deter spammers. Since a blockchain transaction cannot be made without paying a transaction fee, DApp users must acquire the underlying platform token before they can use the DApp.

Let’s say I wanted to use a DApp built on the XYZ platform. Here are the steps I’d have to complete before using the DApp.

  1. Research how to use the DApp.
  2. Realize I need to buy this thing called XYZ in order to use it.
  3. Research how to buy XYZ.
  4. Realize I need to buy this other thing called Bitcoin in order to buy XYZ.
  5. Research how to buy Bitcoin.
  6. Make an account at Coinbase, and buy Bitcoin.
  7. Make an account at Binance.
  8. Figure out how to send Bitcoin to Binance.
  9. Finally send Bitcoin to Binance after messing it up a few times.
  10. Research how to use Binance because all I see are numbers and colors.
  11. Buy XYZ on Binance.
  12. Research how to make an XYZ wallet on my phone.
  13. Accidentally forget to backup my private key.
  14. Make another XYZ wallet on my phone.
  15. Send XYZ from Binance to my XYZ wallet.

The situation highlighted above is the exact opposite of frictionless, and it is why DApps will not not receive any meaningful level of mainstream adoption until someone reduces fifteen steps of effort into a single step – use the DApp.

The Magic of ICON’s Fee 2.0

ICON’s Fee 2.0 consists of two components – “fee sharing” and “virtual step”. According to ICON, fee sharing “enables DApp service operators to have the choice to pay transaction fees on behalf of the service users,” and virtual step “enables DApp service operators to pay fees with the ‘virtual steps’ generated through an ICX staking process”.

Source: ICON Foundation

ICON’s fee sharing model effectively removes the fifteen steps of effort highlighted above. A blockchain transaction requires a transaction fee, but it doesn’t matter who pays the fee, and that’s the exact mechanism that ICON is leveraging in order to build a frictionless user experience for both DApp developers and users. With ICON’s fee sharing, DApp developers will not have to waste effort explaining how to acquire ICX in order to use the DApp. On the same note, DApp users will not have to deal with signing up for exchanges, buying ICX, submitting documents for KYC, and maintaining an ICX wallet.

Fee sharing is already an innovative concept in itself, but ICON has taken it one step further with virtual step. DApp users are incentivized to use fee sharing to cover users’ transaction fees because it makes DApp usage frictionless and users happy. The catch here is that an increase in user experience isn’t free – there’s always a tradeoff. In this case, the tradeoff is a financial one. In order to pay users’ transaction fees, the DApp operator needs to acquire and spend ICX – a financial burden. That’s where virtual step comes in.

Virtual step is essentially a virtual token that is generated when a DApp operator stakes ICX by depositing it their own SCORE (smart contract). The time commitment for a virtual step deposit ranges between 1 month and 24 months, and longer deposit commitments generate virtual step at a higher rate. In order to encourage active DApp usage, virtual steps have a one month expiration time. Lastly, DApp operators will face a financial penalty if they withdraw ICX before the end of the committed period.

Fee 2.0’s economic model is beautiful, and it incentivizes all parties involved. DApp operators are incentivized to cover users’ fees because it creates a better user experience, which in turn increases the chance of adoption. DApp users are incentivized to try the DApp if they want to because there is no longer a technical roadblock. Lastly, DApp operators are incentivized to stake ICX because if they’re going to pay users’ fees with ICX, they might as well just stake the ICX and pay, or subsidize, transaction fees with virtual steps. Furthermore, staking ICX secures the network, which in turn creates a more stable environment for the DApp to operate in.

To find out more about the technical details of Fee 2.0, fee sharing, and virtual step, check out ICON’s official announcement.


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