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I agree with most of the things that you said.
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This is not the most correct assumption.
First of all the hashrate increase could be because someone made a much more efficient hardware to mine bitcoin (in simple terms a better ASIC). That doesn't have to mean more adoption.
Another reason could be that a very cheap source of electricity were found and more miners got on board in that place. For example the electricity price for home users is ridiculously low where I live ($0.002) but people generally don't know or care about bitcoin mining not to mention that the government regulation that forces any bitcoin miner to register and pay a higher electricity price (equal to export price which is about $0.05 I believe).
Imagine if that changed, and the ASIC production wasn't a bottleneck. The hashrate would shoot up to the moon.
On the other hand we saw how the price crash accompanied with China banning mining and more price crash could lead to hashrate dropping a lot.
In both of these 2 cases everything else about the network remains the same. It takes the same amount of time for nodes to download and verify each block. The number of nodes remain the same, etc. while hashrate jumps up or down.
So, as you can see hash rate is not a good characteristic to use in order to determine the block size.
First of all the hashrate increase could be because someone made a much more efficient hardware to mine bitcoin (in simple terms a better ASIC). That doesn't have to mean more adoption.
Another reason could be that a very cheap source of electricity were found and more miners got on board in that place. For example the electricity price for home users is ridiculously low where I live ($0.002) but people generally don't know or care about bitcoin mining not to mention that the government regulation that forces any bitcoin miner to register and pay a higher electricity price (equal to export price which is about $0.05 I believe).
Imagine if that changed, and the ASIC production wasn't a bottleneck. The hashrate would shoot up to the moon.
On the other hand we saw how the price crash accompanied with China banning mining and more price crash could lead to hashrate dropping a lot.
In both of these 2 cases everything else about the network remains the same. It takes the same amount of time for nodes to download and verify each block. The number of nodes remain the same, etc. while hashrate jumps up or down.
So, as you can see hash rate is not a good characteristic to use in order to determine the block size.
I totally agree with the China example. I mentioned it as well as a problem to be solved. Conceptually speaking, we don't need the block size to change every 2016 block (roughly 2 weeks). It can be changed once a month or even more (this should be picked more carefully of course). If so, the algorithm can get many calculations from different nodes throughout let's say a month, and make some sort of an average in order to represent a general trend in the network.
Now this is all based on the say that there is a good enough relation between the has rate and the transaction amount.
I went to check some data to see something more visual.
I checked these 2 tables:
https://ycharts.com/indicators/bitcoin_transactions_per_day
https://www.blockchain.com/charts/hash-rate
I have seen 2 significant things:
1) It appears that there is no linear relation between the hashing rate and the transactions per day.
One thing that I think should be taken into account, is that today we are already facing the scalability issue's consequences. Meaning that I think it's possible to say with just a little of confidence, that if
transaction fees weren't as high - we would see much more transactions occurring. So basically saying that it might be possible that the data we are seeing today is "manipulated" by the problem itself.
2) When major changes in trends occur, it is seen in both the hashing rate and the transaction 'demand'. You can look at the end of June 2021, end of April 2021, end of October 2020, end of May 2020,
end of March 2020. Although not identical, the downwards trend is similar. It should be said that it's possible that there a 3rd factor I didn't take into account that is effecting both of these rates.
So to sum this one up - I don't believe that the relation between the two factors should be linear. It could be inverted, divided, and etc.
For example, there can be a constant factor added to the formula, let's name is for fun the BS factor (block size). This factor will be used to show the relation we agree on, between the two indicators. This factor could be negative, a fraction and etc.
The role of this factor is to moderate or extend the calculation's value, to whichever the network decides represents it's needs the best. The factor also can be changed if needed throughout time.
I also agree that the hash rate indicator might not be the perfect one to use - I chose it because it was the most logic one I knew and thought that can work. There might be another indicator that will work better.
But overall, I am optimistic about the ability to find a relation that will be good enough, and will enable us to change block size according to need.
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Bottom line is that we can never reach the desired scalability using block size ever simply because there is always a cap and the block could be filled whether with legitimate transactions or spam ones. But with a second layer that doesn't have the same limits, we can achieve a lot of scaling.
I agree and disagree with you on this one. The 'theoretical' infinite transaction cap is also valid with changing block sizes (because you can keep them growing as much as you need). Like the LN, the only limitations are those we and the technology put.
Another deal breaker for me, is that the LN is off-chain. The bitcoin network is some kind of miracle. I believe we should only move to layer-2 solutions after we are 100000% sure that there is nothing else we can do on-chain.
The LN is operated by a company, which is prone to failure, as we all know and suffer even from big corporations such as facebook. What if someone hacks the company? What if it fails? Hacked? Or anything disastrous that might happen. The beauty of bitcoin is that it operates without anything needed except a few nodes.
This can be an issue for the LN. For example, if I am from the US and I wanna pay someone from Japan, I need one of two scenarios: Either we open a direct channel (but then it would not be efficient since you are paying double fees) or either a long long link of people on the LN are active and if one of these links closes - I might not be able to perform the transaction.
Another thing is that on the bitcoin network, I can even send the coins to a wallet, when the other party isn't online. He will just see the coins next time he connects to the internet.
On the LN, both parties have to be always online in order to make and receive the transactions (they have to have the channel active). This might not be a huge deal, but we already have a system that works seamlessly. So why downgrade ourselves?
I am curios to hear your thoughts about these things.
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3) The network adapts the difficulty of mining a block in relation to the hashing power of the system, every 2 weeks.
The adjustment takes place every 2016 blocks.Quote
This concept is based on one major assumption - in general (not in a specific date or short period of time), more hashing power means one of two things:
1) More people are joining the network
2) The same people/mining farms etc. got more power
Either one of these two options, suggests that the network (by the price of it's coin - aka bitcoin) is profitable enough for people to invest in mining power.
So, if the coin's value is high enough, it could imply that more people are adopting the network or the coin - resulting eventually to higher transactions rate.
This is not the most correct assumption.1) More people are joining the network
2) The same people/mining farms etc. got more power
Either one of these two options, suggests that the network (by the price of it's coin - aka bitcoin) is profitable enough for people to invest in mining power.
So, if the coin's value is high enough, it could imply that more people are adopting the network or the coin - resulting eventually to higher transactions rate.
First of all the hashrate increase could be because someone made a much more efficient hardware to mine bitcoin (in simple terms a better ASIC). That doesn't have to mean more adoption.
Another reason could be that a very cheap source of electricity were found and more miners got on board in that place. For example the electricity price for home users is ridiculously low where I live ($0.002) but people generally don't know or care about bitcoin mining not to mention that the government regulation that forces any bitcoin miner to register and pay a higher electricity price (equal to export price which is about $0.05 I believe).
Imagine if that changed, and the ASIC production wasn't a bottleneck. The hashrate would shoot up to the moon.
On the other hand we saw how the price crash accompanied with China banning mining and more price crash could lead to hashrate dropping a lot.
In both of these 2 cases everything else about the network remains the same. It takes the same amount of time for nodes to download and verify each block. The number of nodes remain the same, etc. while hashrate jumps up or down.
So, as you can see hashrate is not a good characteristic to use in order to determine the block size.
Generally speaking any dynamic way of computing block size cap is a bad idea.
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1) Not relating on another network - The mechanism is an integral part of the bitcoin network, and does not require a special and new custom-tailored network to be made.
It should also be mentioned, that the dependency on another layer to process transactions, makes the whole ecosystem more vulnerable because now 2 networks has to work constantly perfect
instead of just one.
Bottom line is that we can never reach the desired scalability using block size ever simply because there is always a cap and the block could be filled whether with legitimate transactions or spam ones. But with a second layer that does't have the same limits, we can achieve a lot of scaling.It should also be mentioned, that the dependency on another layer to process transactions, makes the whole ecosystem more vulnerable because now 2 networks has to work constantly perfect
instead of just one.
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This is in a huge difference from the lightning network, which must have increased fees in order to be economically justified.
Fees have to be low for people to use LN otherwise it would make very little sense to even open a channel if you have to pay for example $100.[/quote]
