I agree with db on this. The issue can be put simply like this: the generator which accepts the lowest fees, makes the most profit. given any two generators with the same capacity.

I don't quite understand da2ce7's post, but he seems to be implying that it's profitable "in the long run" to accept higher fees only. This seems flawed, because in the short run, such a generator will be the first to go out of business.

I want to start thinking about solutions.

One avenue might be to impose some sort of protocol restriction on the fee distribution of transactions in a block. In such a way that generators can't just include every little transaction in a block or else the network will reject it. For example, for a block to be valid, no more than half of the transactions in the block can have fees below the average fee for that block. So, if 10 transactions have a fee of 1BTC and 10 more have a fee of 0.5BTC the average is 0.75. Now half the fees are already below this so an additional transaction with a 0.5BTC fee cannot be accepted, but a 0.8BTC fee is okay. That's just an example, I'm not sure if it would actually work.

How will the fees build up if the smaller generators are constantly processing them. there isn't going to be a sudden influx of high fee transactions... The large generators will simply be leaving all the profit to competitors. And if the competitors are snapping up any transaction no matter how small the fee, there is little incentive to pay a high fee in the first place.

This is the problem: there is NO incentive to NOT accept every fee paying transaction, unless the fee is extremely small (ie. it costs more for the ram + cpu time than the value of the fee). Fundamentally, I think there has to be a built in cost for generators to process a fee and this cost must scale with economic activity.

Adjusting the block size automatically is fine, if you can find a function that scales appropriately. This creates an artificial scarcity for transactions, so generators prioritize higher fees.

We need more debate on this issue. This is a serious economic flaw.

It seems to me that the spam issue and the txfee issue are related. Some want to limit the block size to stop spam and some want to limit it to create an artifical scarcity to drive up txfees.

The problem, as I see it, is that there is NO incentive to NOT accept a fee paying transaction, unless it's ridiculously small. Once a generator has established his infrastructure, It costs a negligible amount to process a transaction. If you can impose some sort of protocol rule on blocks that makes smaller fee transactions less desirable, this would solve both problems.

Automatically adjusting the block size is a solution, if you can find an algorithm that scales appropriately with economic activity. If set too high, there will be too much spam and transactions will be too cheap; generators will leave. If set too low, transactions will become very expensive and people will stop using bitcoin.

Also, there is the idea of restricting the distribution of transactions fees in each block. Like mandating that a frequency distribution of fees fit a linear scale. I don't know if this is workable, I'm just throwing ideas around.

So, I think that we need an incentive for generators to NOT accept fee paying transactions as they get smaller. I particular, build in some sort of fixed cost to processing a transaction, that adjusts with the market.

Okay, I'm starting to like this idea. It could be a bit messy with blockchain splits, but it seems like it will work.

I meant:
"I'm pretty sure the computation time is linear with respect to data size, for hash functions"

Anyway, as theymos pointed out, you only have to hash the transaction once, not on every attempt. So, this isn't a problem.

how about making the max block size a function of the difficulty? If there are too few generators, then the max block size will decrease making transactions scarce. This will drive up the txfee and create incentive for new generators to enter the market. vice-versa.

Ahhh, okay then. Thanks for the reassurance.

Well it's pretty simple really, unless I'm missing something, or hashes don't actually work like I think they do. The more data you have to hash, the longer it will take to compute the hash. Makes sense right? I'm pretty sure the computation time is linear with respect to data size, so double the number of transactions and you double the time to compute the hash.

This is a huge problem now, because why would anyone hash more than one transaction to generate a block. They get 50BTC either way, so you might as well just hash one transaction giving you the optimal hash/s.

I hope I'm wrong about this, I'd really like more feedback from you guys. Perhaps we need a minimum block size or something.

Are you sure? Given any difficulty, you still have to crunch the numbers to solve a block. The more transactions, the more numbers to crunch, thus the longer it takes to compute a given hash.

I just thought of something. The time it takes to generate a hash if proportional to the number of transactions you're hashing, right? So, it'll take twice as long (on average) to generate a block with 1000 transactions as one with 500. You're not going to waste precious hasing time on small fee transactions, they'll just decrease your hash/s for negligible gain.

Say for example, there are 999 transactions with 0.1 fee to process and one transaction with a 1BTC fee. It's more profitable to just process the one transaction and ignore the rest, because your hash/s will be 1000 times faster!

Now if you have 10 transactions with a 1BTC fee, your best off processing all 10 of them, because there's a small overhead in processing a hash. But, including an 11th transactions for 0.9BTC fee probably won't be worth it. 0.99BTC fee, maybe. It depends on the size of the overhead.

This implies that generators will only process the transactions with the highest fee! I'm still thinking through the implications of this. Ideas anyone?

This is a bad idea. The generators will collude to keep the block size small; transactions scarce, gouging the market.

Lack of centralized (government) control and fixed supply.
I think that if bitcoin becomes widely adopted, it will severely mitigate the ability of government to raise revenue by force (tax and inflation). This will shrink the size of government and make it more accountable.

No dependance on 3rd party for transactions.
Bitcoin gives us a way out of the parasitic banking system and limits the ability of the government to monitor/audit our economic activity. This means it will be very difficult to regulate much of the economy leading to freer markets and therefore, greater economic growth. Taking away the power of the government to manipulate markets kills the incentive for corporate-government partnerships.

Bitcoin is nothing short of revolutionary.

Wouldn't it by much easier to, for example, put a 1 as the first bit of the 64bit int to indicate a 16bit shift in the interpretation of the remaining bits?
so if I have 0000 ... 000110101 coins this could also be represented by 1000 ... 0001101010000000000000000, but now I have 16 more bits of low range precision.

It's not like the first bit will be used for anything else. no one will ever have 2^64 nanobitcoins. Alternatively you could change the precision after a agreed upon block number.

This seems to me much easier that changing the integer size. Clients just need to have a consensus about the protocol change.

I didn't read the thread, but you might be interested in the Netsukuku solution to distributed dns:
http://en.wikipedia.org/wiki/Netsukuku#A_Netsukuku_Domain_Name_Architecture

Netsukuku:
http://netsukuku.freaknet.org/

I used e-forexgold to buy liberty reserve using bank transfer. It took 2 days to clear and cost me %5 in fees.

Sweet! 17 BTC. thanks Bruce. ;-)

Alex Jones didn't seem too enthusiastic about the plan. I would be cool if they actually pulled it off.

Go one step further: artificial neural networks are probably going to surpass the capacity of their biological counter parts (humans). Eventually we'll have ANNs designing ANNs! Your Judges could themselves be computers.

Sounds like a cool book. Have you read Necromancer? It explores the idea of purely digital individuals.

I like the idea of OT cash backed by bitcoins.

I suppose you can run an OT server on a TOR hidden server? Throwing TOR into the equation gives us a highly resilient system which that government can do little to shut down. Awesome!

Philosophical Tangent...
It seems that the growth of the internet and social networks is quickly out-pacing the ability of governments for control them. I think we are going to see some revolutionary shit in the next 10 years. Bitcoin is one example.

I think that neural networks are going to be a huge thing. The internet will soon become I giant AI hive mind of neural networks and human integration with this system will become more sophisticated with direct brain-to-computer interfaces. We are becoming the internet; the next phase of evolution. cool shit! :-)