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As far as I understand, one of the ERC20 token's features is that you can pay a transaction fee with it. In other words, you can send them without having Ether. I transferred REP tokens to the exchange and back without using Ether on that exchange so that works.

I suppose that fee goes to miners. Where else?

So someone creates a token that has no value at all, makes a transfer and pays a fee with it, then some miner gets it but he doesn't have any idea what it is.

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It is not really true at the moment that you can pay fees in anything except ETH, although there is some discussion about changing this. The way things normally work, you have to pay the fee in ETH. When you sent REP to the exchange you probably used ETH in your own account to deposit tokens in the exchange, and the exchange would have paid for the transaction to send them back out.

In theory, since it's up to the miner whether they include your transaction, you could send a low or zero fee in ETH and have a separate arrangement with a miner where you would give them some ERC 20 token, or send them USD via PayPal, or FedEx them a chicken. This depends on the miner thinking what you are giving them is valuable and being prepared to accept it as payment. If you've sent them a chicken but they don't want one, or you've sent them an ERC 20 token that they've never heard of and don't consider valuable, you shouldn't expect them to mine your transaction.

Update (Dec, 2021): Since EIP1559, the account must hold ETH to pay the fee at the time it is included in the block, and most of this ETH is burned (disappearing, to the benefit of anyone holding ETH whose ETH become proportionally more valuable) rather than being given to the miner. It is still technically possible for a miner to include a transaction from an account with no ETH at the time of sending, but they will have to add a transaction before it crediting the account with the ETH required to pay the fee.

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  • 11
    I love the chicken example. It conveys a very essential and deep understanding of miners' incentives.
    – Thorkil Værge
    Mar 31, 2017 at 12:37
  • The perception of value is interesting, and I suppose it'd a market for conversion or an escrow who finds the ERC20 token valuable (sounds hackish). I'd assume there's an EIP open on this already.
    – Dakota Quint
    Apr 7, 2017 at 4:04
  • I'm wondering will all of this change when EIP1559 goes through? There'll always be a base fee in ETH so FedEx chickens on there own won't be an option anymore. This is gonna result in lost jobs in the delivery sector and less demand from chicken factories and this will cause the whole economy and "ethosystem" to collapse...
    – David Callanan
    May 2, 2021 at 14:14
  • @david-callanan Economically what's happening is that the miners have an extra cost for including your transaction so you'll need to send them enough chickens to make this worth their while, and they'll pay the ETH that get burned. However the spec seems to require (unnecessarily) that the sender of each tx have enough ETH in their account to cover the basefee, so to send a tx without having ETH, the miner will have to add an extra transaction crediting your account with the ETH, which is then immediately deducted to pay the basefee.
    – Edmund Edgar
    May 3, 2021 at 0:10
  • @EdmundEdgar Yes that is the unfortunate problem
    – David Callanan
    May 3, 2021 at 14:58
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Everytime you make a transaction on ethereum you need to pay a fee to the miner of the block that will calculate the result of your smart contract. While this might change in the future, for the moment fees can only be paid in ether and therefore all users of your tokens need it. Tokens in accounts with a balance smaller than the fee are stuck until the owner can pay for the necessary fee. But in some usecases, you might not want your users to think about ethereum, blockchain or how to obtain ether, so one possible approach would have your coin automatically refill the user balance as soon as it detects the balance is dangerously low.

The creator of the token may have set it up so the fee is paid in ETH under the hood, users are just not aware of it. Source

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as an additional information, recently an opensource protocol(0x protocol) has been presented to enable free EC20 token treading over Ethereum blockchain. the white paper is available https://github.com/bellaj/Bitcoin_Ethereum_docs/blob/master/0x_white_paper.pdf

How it Works

0x protocol is a hybrid implementation of a few existing technologies, combining the off-chain functionality of state channels with on-chain settlement, which they refer to as “off-chain order relay with on-chain settlement” for making transactions. What does this mean? Orders are relayed off-chain and then settled on-chain, lowering the costs for market makers while simultaneously benefiting from the near-instantaneous settlement time of the Ethereum blockchain.

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  • The link to the white paper did not work for me. I get a 404...not found message. Could you please double check that it is accurate?
    – Tesa
    Jun 1, 2017 at 5:16
  • Thanks for your indication, I have a copy on my github : github.com/bellaj/Bitcoin_Ethereum_docs/blob/master/…
    – Badr Bellaj ♦
    Jun 1, 2017 at 10:23
  • Doesnt that mean x0 controls your ether like a custodian wallet?
    – Patoshi パトシ
    Jun 6, 2017 at 5:45
  • Did anyone implement within the smart contract?
    – Kamran Jabbar
    Apr 5, 2018 at 13:23
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This is possible! Your service can take fees in your own tokens and pay fees for users in ETH in absolutely trustless and secure way. See this answer: https://ethereum.stackexchange.com/a/46546/3032

In this README you can found MyToken smart contract example, which transfer calls can be delegated to anyone (who will pay fees): https://github.com/bitclave/Feeless

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-1

TomoChain is implementing a protocol named TomoZ. It will help token holder can pay transaction fee by tokens.

In normal case:

  • Sender send tokens to receiver

  • Sender pay tx fee by native token (TOMO) to nodes

In TomoZ:

  • Sender send token to receiver

  • Sender send tx fee in token to Issuer

  • Issuer send tx fee in native token (TOMO) to nodes

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