There is no such thing as free lunch. Everything has a cost and somebody has to pay. But just paying because there is a cost ins't a very good plan. Before we get into the cryptos we need to talk about what fees are and their use. Everything needs to have a positive use or there is no point in keeping those things around. Fees are not some metaphysical entity that is just there and has to be within a market. To uncover the nature of something we need to ask correct and relevant question.

What function does "Fees" serve?

Fees exist to keep things efficient and sustainable within the market. Before going too deep, let's ask how much would you post onto the STEEM blockchain if you weren't getting paid. I know I would be posting about 5 times less if I weren't getting paid. Some will not post at all. People are willing to do good things when/while they are free and relaxed. You will help even a complete stranger with all sorts of work every now and then. You can ask someone to deliver a message, some money, some food or ask someone to help you build a website or move your stuff to a new place. All these things are good things and in order to create prosperity, market needs a whole bunch of these good things happening all the freaking time.

That's what fees does. Have you ever done some errands for enough money to buy an ice-cream or help someone with some random stuff for a bunch of chocolates or some other candy? Well that's fees in action. Fees are reward based incentives that greatly increase the frequency of something good and valuable happening in the market. But that's not all.

Fees keep things sustainable. Anything that has more expenses than income isn't sustainable. Even a charity can't run on just good will. All resources get depleted when they are being used. Thus there is the need for an income stream. Fees also express the needs of the market. Fees allow people to vote with their spending. Fees allow people to get fast-track treatment when necessary. InstantSend functions of Dash and its copy-cats are a great example of this. Bitcoin's massive fees to get into the next block is a pretty lousy example of this.

At the end of the day, fees are just keeping thigs efficient and sustainable. We can never build prosperity on a gift based model. If STEEM didn't pay anyone, then this site would be a gift based model. Compare that with a blog on steemit and you'll see the difference. The second problem is the value discovery. When we give a gift what is mostly considered is the subjective value perception of the giver: Basically how valuable is the time you spend delivering that pizza? In a fee based system the question is more focused on the consumer: How valuable is it to get that pizza ASAP? Third problem with gifts is that you can easily run out of gifts making things unsustainable.

Fees are simply solving these 3 problems.

What about the "Fee-less" Cryptocurrencies?

If there is an efficient & sustainable system that can make good stuff frequent, properly valued & prioritized, and continued without depletion of the available resources that doesn't use the concept of "Fees" we can have something that appear to be a Free Lunch. The only way to do this in the blockchain AFAIK is the "Fee-less" model used by STEEM which would also be used on EOS. On STEEM each action you do on the blockchain is a Tx. This may seem odd to some people. I invite you to take a look at https://steemd.com

That awful relic BTC mostly just records who owns how many coins and few more things like the block rewards for making new blocks etc. When you transfer tokens using our wallet, the same thing happens. Your other actions on steemit, Zappl, Dmania etc are recorded in a similar way. The blockchain is simply a distributed ledger. You could even call it a decentralized database. STEEM is a database that contain more than just who owns how much. How anyone keep the whole thing going without fees? For that make yourself a restaurant or an internet cafe.

Just think you own one of those. It doesn't make sense for you to pay to eat from your own restaurant or watch DTube in your own internet cafe. You can forget about the fess. Now think you get a bunch of friends as investors and they are also consuming the resources without paying any fees. How can you keep this going without any screwups? You can make a free stuff allowance based on the amount invested. That way, nobody is getting free stuff on the backs of another person. The cost is self-sustained.

Now imagine your company stopped serving customers altogether and decided to just give free stuff to the owners based on their ownership stake. That's how STEEM operate. It's a company that exclusively serve its owners. That's why you get free STEEM when you sign up. If you own 0.04% of all SP you can use 0.04% of the Tx capacity of the STEEM blockchain.

As for IOTA it's just a tangled mess that made me see red flags all over the place only to be confirmed later with congestion issues. IOTA is simply the TSLA of the crypto-sphere. Each day passing I'm seeing more and more parallels with Tesla and IOTA. IOTA is a terrible example of a Fee-less model.

One size doesn't fit all and Sometimes you need "Fees"

The "Currency" application of blockchain is a dumb system and it's the simplest application of the blockchain DLT(Distributed Ledger Technology) We don't have to make everything smart and complex. EOS is like an SUV and Dash is more like a Formula 1 which is only good for one thing - Digital Cash. STEEM is designed to be fully transparent. The same goes for EOS. It's hell a lot easier to just ask people to pay a fee each time they transfer their currency. No ownership stake strings attached and nobody is going to spam the network without having to face a massive expenses.

But it's always incentives incentives incentives!

Take a look at the original and now relic Bitcoin (SegWit coin) and explore the charts on https://fork.lol/reward/feepct
Since January 2018 32.45% to 4.25% of the total rewards received by the miners came in the form of fees. For the most part the fees stayed at over 15% of the total earnings of the Bitcoin miners. Now my question to my readers is that are you willing to loose 15% of your income so that a bunch of random people can have cheaper transactions? Most mid tier earners would be cool with it. Those who are already earning only a little or earning millions each month with Bitcoin mining will show more reluctance. Most people will want to the good thing. But there is no way they are going to be efficient or enthusiastic about it. There certainly isn't a natural drive towards cheaper transactions. Miners won't be too happy about their profit margins getting a haircut.

Enter PIVX

Nobody gets the fees in PIVX. They are all burnt. PIVX has 60 second block time and each minute there are 5 newly created PIV and 5 X 60 X 24 X 365 is 2.628 million PIV created each year. But the currency could actually end up deflating during the times of high volume. Those who are willing to spend more for better speeds will be allowed to value the services subjectively and receive priority treatment. But those who get the block rewards won't be able to capitalize on this to drive up the prices. Bitcoin had it average Tx fees rise several hundred times higher because the incentives weren't properly aligned. When nobody is getting the fees and everybody wants cheaper and faster Tx then everybody will be hell bent on making things faster and cheaper.

As an added benefit you make your coins/tokens more valuable as the demand gets higher and deflationary forces take more and more coins/tokens out of circulation.

The commie madness of Reward Pool Redistribution

It's easy to make a cause out of reward distribution on STEEM and gather up a bunch of minnows and start flagging and trolling because it's easy to hype people into getting their share of the pie. With lousy incentive structures present, the flagging starts to happen not in the name of creating, rewarding and maintaining quality in the platform and it happens in the name of sheer redistribution with no concern towards the subjective valuation of content. It's easy to rally people into putting a collective flag of $500 even though its going to be split among tens of thousands of active users with minnows just receiving practically nothing at all even though the minnows and few whales are the only ones acing Gung-ho about it. It's actually those who receive a large amount of upvotes are the ones who benefit the most from flags. That's more incentives for whale flags.

There are flags happening because somebody got too many upvotes and upvotes happening because somebody got flagged too much creating zero contribution to the platform while wasting time and resources. This adds zero-sum elements to the STEEM Ecosystem.

Why not just burn the flagged rewards?

Haters are going to hate regardless of incentives. There is no such thing as a perfect system. But if no rewards are redistributed, we can keep more commie ideologies away while reducing inflation bringing more value to the token holders. There are talks about Burning author rewards instead of declining rewards. But what about flagged rewards allowing nobody to lay a claim on another person's rewards. Then the community can focus more on whether the content is adding value to the platform.

When Fee-Burning doesn't work

One size doesn't fit all. You can't make all things Fee-ess and you can't burn all the Fees either. The easiest example that comes to my mind is New Economy Movement (XEM) which is one of my favorite Cryptocurrencies. NEM has encrypted messaging, smart contracts, private blockchains on top of being a great currency with already tiny fees and 4000 Tx/s
The Proof of Importance method calculates how much involved you are in the ecosystem to allow yourself to claim any block rewards. Just holding a stake won't get you rewards. You need to be engaged. There is no inflation of deflation involved. There are less moving parts in the internal economics.

If there are no newly created coins then somebody has to use the existing coin fees to reward the block creation. The PoI model makes sure that you have to participate and just sitting on top of a pile of NEM (XEM) won't do much. This is a very clever system that is very fair to everybody participating.
The following is a 10 months old video. NEM has grown even more.

You can check this nifty awesome monster at https://nem.io/enterprise/use-cases
That's it about Fees, Fee-less systems, Fee-Burning and other alternatives.
Hope you learned something valuable:-)
Happy steeming! Resteem and share the the Knowledge!