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In a discussion about transaction fee, I just sorted out these facts:
A smart mining pool will calculate the block orphan risk when including transactions (more transactions will raise the orphan rate due to longer broadcasting time)
For example, if a full 1MB block containing 2000 transactions will broadcast slower than an empty block, thus raise the block orphan rate by 1%, then the pool will lose 1% of the block reward, which is 0.25 BTC, divided by 2000 transactions, you get 0.000125 btc per transaction, that's the recommended fee right now
For 2MB blocks, the broadcasting time of such a large block might affect the orphan rate more significantly, say raise the block orphan rate to 4%, and then you can include 4000 transactions in each block. As a result, although each block can hold double amount of transactions, a full block will cost 4x more for miners, so the fee for each transaction would double at 2 MB full block
Currently, due to the block reward, you can not enforce a higher fee for miners, since the miners on today's fast network have very low orphan rate if they include all the 2000 transactions, thus any fee above 0.0001 is good enough for them to happily include it
However, if block is larger and the transactions processing speed (CPU/network) is limited, miners can not include as many as possible transactions without added orphan cost, then I guess the fee will rise when blocks grow beyond certain size, regardless of the block size limit
Only a speed increase in CPU/network infrastructure would lower these cost, and we know that the improvement in those area (especially the fiber network infrastructure) are not that easy to upgrade
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http://edition.cnn.com/2014/11/13/world/meast/isis-currency/index.html?hpt=hp_c2--- ISIS is planning to mint its own currency in gold, silver and copper, the group said Thursday. Its aim is to stay away from the "tyrant's financial system," ISIS said in a statement. It said it would issue another statement to explain the new currency's exchange rate, and where it can be found. The currency will include seven coins: two gold, three silver and two copper. The move is "purely dedicated to God" and will remove Muslims from the "global economic system that is based on satanic usury," ISIS said. It seems none of the government/organization that powerful enough is interested in bitcoin, they all want to make their own currency 
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http://www.marketwatch.com/story/5-questions-with-stephen-hawking-technology-is-driving-ever-increasing-inequality-2015-10-08Question: Have you thought about the possibility of technological unemployment, where we develop automated processes that ultimately cause large unemployment by performing jobs faster and/or cheaper than people can perform them? Hawking: If machines produce everything we need, the outcome will depend on how things are distributed. Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine-owners successfully lobby against wealth redistribution. So far, the trend seems to be toward the second option, with technology driving ever-increasing inequality
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Imagine that in future, the transaction fee income for each block raised to 50 bitcoins, while the block reward almost decreased to zero, then every miner would become the early adopter: They can mine bitcoin exactly like early CPU miners at 50 coins per block, and if they want to accumulate coins, after 4 years they would have accumulated 50% of the total coin supply!
Technically, that scenario is not unrealistic: Given average transaction size of about 0.5 bitcoin and a transaction fee of 0.005 bitcoin (1%) is tolerable, you only need to process 10000 such transaction in each block to collect 50 bitcoins in fee, which can be filled within a 4-8 MB block, still manageable even at today's technology
This means, we can bring back the good old days of 50 bitcoins per block already in a couple of halvings!
The benefit? The miners will always redistribute the coins in bitcoin ecosystem to constantly rebalance the wealth distribution, so that centralization of wealth is prevented. At the same time, mining is a risky business, miners have to constantly striving for more efficiency to stay profitable, thus any kind of wealth concentration around miners are only temporary. They also need more incentives to keep investing in mining infrastructure
There is another even bigger benefit: This solved the biggest concern/doubt about bitcoin being a ponzi / pump and dump scheme that early adopters are riding the wave and trying to profit from the late adopters. In fact, if the block reward is 50 bitcoins or even 100 bitcoins in future, late adopters can mine more bitcoins than early adopters, thus make the whole system very long term sustainable and attractive for any participants from future
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Ethereum Founder Vitalik Buterin Talks Cryptocurrency Governance"To discourage a gas limit that leads to high mining centralization, Buterin proposed a target uncle rate. An “uncle” is kind of like an orphan block in Bitcoin—a valid block that doesn't make it into the main chain. So if the target uncle rate were 0.4, it would mean that the network is striving for 4 % of blocks uncled on average, explained Buterin. If the network were uncling at a higher rate, like 0.6, then miners would need to push down the gas limit. The gas limit has this effect because smaller blocks propagate faster and less uncling supposedly occurs in a network where propagation times are less varied." "Buterin agreed, explaining that Ethereum benefits from development centralization in these early stages. But he doesn't expect that arrangement to last forever. “I think in the long-term something that's highly-decentralized is necessary,” he said. " --------------------------------------------------------------------------------------------------------------------- Following his thoughts, for bitcoin, the top priority is decentralization, and a good indicator to measure decentralization is orphan rate. If the blocks process/propagate too slow, orphan rate will rise, indicating centralization risk So, we can set a range for orphan rate, when orphan rate for the latest 2016 blocks is constantly lower than this range, it can be regarded as the block propagation is enough fast thus achieving full decentralization, then the block size can be raised by 10% following the difficulty re-adjustment But there is a catch: If orphan rate is constantly low, block size will be raised to 20+MB but all the blocks will have little transactions in them. A 20MB block will create lots of problem under an attack, so there should also be another trigger condition, for example, average block being more than 75% full before raise the block size In this way, if the PC/network infrastructure can handle, when average block is 75% full, the block size will be raised, so that blocks never become full under normal usage, the fee will be kept enough low while still ensure decentralization However, if the PC/network infrastructure can not handle larger blocks due to higher orphan rate, then block size will not be raised because of the top priority is decentralization. Blocks will inevitably become full, and trigger the fee market mechanism so that other clearing based solutions will be more used to further decrease the fee for micro transactions. This will continue until the infrastructure of major miners improve
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http://www.marketwatch.com/story/state-of-pay-an-overview-of-mobile-payments-2015-03-06In fact some countries have already implemented well-functional mobile payment solutions for more than 2 years. Most of these solutions cost nothing to do payment, payment can be as low as 10 cents, and they confirm instantly While for bitcoin, even if you have super fast nodes, it would still take 10 minutes to get the first confirmation, and it costs something. So it is a large disadvantage to use bitcoin blockchain to compete with those solutions, you must use a centralized service to achieve similar performance. And the real time casual payment space is already crowded with many different actors Anyway, people are not going to spend bitcoin for groceries, they have plenty of depreciating fiat money to get rid of first. Fiat money is a perfect medium for spending: Get rid of it as soon as possible, it is even better to be indebted in it Let's focus on bitcoin's unique strength: Long term inflation resistance and fast international settlement
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http://www.marketwatch.com/story/federal-reserve-opts-to-keep-interest-rates-near-zero-2015-09-17After financial crisis, FED bought so many houses with printed money to support the house price. Now large banks have both house and money (FED is owned by the large banks), but why they are not spending and not creating any inflation? Because this game is so addictive and they desperately need to print more and buy more lands  A common conception is that banks are richest, but if you count the price of land in large cities and add them up, you will see the total value of lands (if developed into houses) are magnitudes larger than the total money supply of the whole world. This indicated that landlords are still the richest, banks are trying their best to take those lands from landlords by printing money
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"The move appears part of the government's recent efforts to curb the potential of capital outflows," said a senior dealer at a major Chinese commercial bank in Shanghai. "We understand that NRAs are part of the sources of onshore and offshore yuan arbitrage activity, but we have no data for either how much funds these accounts have nor the scale of their arbitrage business." http://www.reuters.com/article/2015/09/11/china-forex-nra-idUSL4N11H37B20150911 |
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A simple example of how the amount of transactions can be reduced by magnitudes by using daily settlement between large service providers on blockchain
Suppose that Bob is in US, he buy some bitcoin from an exchange Coinbase, and send those coins to a merchant in China to get a battery charger delivered to his home
In this process, there can be no bitcoin transactions on blockchain at all, because that chinese merchant's bitcoin receiving address is on a chinese bitcoin exchange OKCOIN, and OKCOIN have a daily settlement contract with Coinbase, e.g. combine all the bitcoin transactions between addresses on their platform and only settle the net difference at the end of the day. When Bob input the merchant bitcoin receiving address, he will get a prompt that this address belongs to one of coinbase's financial partner thus the fee is zero and the transaction will be instantly confirmed
If you are using bitcoin for casual daily spending, you are most likely to use a web wallet, due to several conveniences: You don't worry about loss and theft, you can always call their support to block or get your account back. The payment is instantly done without any confirmation time. And since both okcoin and coinbase only need to pay one transaction fee for thousands or even millions of transactions, the transaction itself is almost free. And for casual daily spending, you don't have too much bitcoin stored online, you don't worry about if coinbase or okcoin suddenly disappear
A research paper from Bank of England said, you don't really always need trust-less model. Sometimes a trusted third party will make life much easier
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There are basically two different view of bitcoin's future
1. Bitcoin becomes a popular payment system, everyone pick a smartphone with built-in bitcoin app, and they start to receive bitcoin salary. Its value is very stable so that people don't worry about losing 10% of their purchasing power overnight
2. Bitcoin become the world's most reliable digital currency and fastest international settlement network. Large financial institutions use it to quickly settle millions dollar worth of value transfer across the globe, many mutual/pension funds and even governments periodically invest in it, its value keeps changing every day, but the long term trend is up
The first vision has some difficulties:
First, bitcoin is deflative by design, its value will always rise against fiat money long term wise, thus people will always spend fiat money and save bitcoin if possible, resulting very little amount of bitcoin transactions being done for daily consumption
Typically, when people want to spend their bitcoin, they sell it on exchange during a rally, and slowly spend those fiat money they get from the sale
Second, besides Visa/Mastercard, some of the latest mobile payment network can already do instant transaction with almost zero fee. They use fiat money, thus have 100% domestic merchant support. Bitcoin does not have any fee/speed advantage against them, and the volatile exchange rate also makes it a bad currency for daily spending
So, low value real time transactions are best suited to use a centralized local fiat money payment network. Bitcoin generally can not handle high frequency transactions well due to its design: Every transaction on blockchain is a final settlement and must be written to thousands of databases around the world. On the contrary, a centralized local payment network writes only to its own databases
Due to above difficulties, driving bitcoin development towards first direction will consume large amount of resources and efforts but still get poor result. Being able to buy pizza using bitcoin does not mean that it is created to maily buy pizza. True, it has superior properties than fiat money, but just because it is so much better, people will use it for more advanced purposes than daily shopping. For daily shopping, fiat money is enough
On the other hand, the second vision of a long term saving medium and international payment network is more inline with the unique strength of bitcoin: Limited supply, censorship resistance and trustless transaction. No existing financial solutions can compete with bitcoin in these area, so it will quickly occupy the market where these properties are desired and become the leader
What is your opinion?
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It is very interesting to see how community react to huge amount of spam transaction with very high fee, say 0.1 bitcoin per transaction
This will effectively push most of the transactions in mempool back in the queue so that they would never get confirmed
However, the fee reward for each block will become almost 100 bitcoins, this will greatly increase the profitability of mining, thus many people will start to mine bitcoin. Difficulty will skyrocket again
At the same time, the attacker would need to buy 14400 bitcoins from exchanges every day to facilitate the test, thus raise the exchange rate exponentially
So it seems that a large scale attack will just strengthen the bitcoin exchange rate, and when the price goes up by 10 fold, existing bitcoin holders can afford a much higher fee to compete with the attacker, and new comers would be attracted by the price rally, and accept a fee as long as it is a couple of percent, which they are familiar with in today's banking system
If the network naturally reach such a limitation, then all the participants will also reduce the transaction frequency and raise their fee to be ahead of the queue, so that eventually will achieve the same result, but slowly over time
This is all in contradiction with today's legacy financial system: In legacy financial systems, people always seek for higher and higher transaction speed to devalue the underlying currency. (mv=pq is the quantitative theory of money, with higher v, p becomes higher, means currency becomes cheaper) It is easy to predict that with lower transaction speed, the value of currency will rise
Notice that we are all born in a fiat money infested world, so we have been brainwashed from birth to take all the reasoning logic from the fiat money financial systems, which encourage lending, frequent spending and higher and higher transaction speed, at a cost of depreciating currency
But bitcoin is totally on the other end of the spectrum, it does not have many similarity with the fiat money system, the traditional utility driven behavior might not fit well with its design
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It will be interesting to see a simulation that reducing the block size to under 256KB, thus every block are full of meaningful transactions, and see if a small block size is long term sustainable
The system might still work, because everyone will reduce their transaction frequency thus they can afford a higher fee to get ahead of the queue
This is similar to credit card cash withdraw: For each withdraw you have to pay a flat fee of $5. Then you would never withdraw $20 bills every day, but withdraw once a month for $500, thus the fee becomes less significant
With bitcoin, if your 0.1 BTC transaction with a 0.0001 btc fee is not able to get confirmed, you would wait until you do a 1 BTC transaction with 0.001 fee, which will more likely to be confirmed in 10 minutes
But this also means that you are not able to spend bitcoin for anything that worth less than 1 BTC. Of course those small daily spending are best to be done with fiat money, because people will always spend fiat money first due to its long term inflation potential
So the consumption in bitcoin economy will more likely to be this: Everyone buy bitcoin once a while, hold it for sometime, and send 10+ bitcoins to exchanges during the next rally, sell or mortgage them for large amount of fiat money to spend
If everyone make one transaction per month, then current 4TPS will make 10 million people possible to use bitcoin. For 100 million people they would only be able to do one transaction per year. Still fits some people's style but definitely not majority
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Just had some good reading at http://www.seedsforchange.org.uk/consensus"Consensus decision making is a creative and dynamic way of reaching agreement between all members of a group. Instead of simply voting for an item and having the majority of the group getting their way, a group using consensus is committed to finding solutions that everyone actively supports, or at least can live with. This ensures that all opinions, ideas and concerns are taken into account. Through listening closely to each other, the group aims to come up with proposals that work for everyone. Consensus is neither compromise nor unanimity - it aims to go further by weaving together everyone's best ideas and key concerns - a process that often results in surprising and creative solutions, inspiring both the individual and the group as whole. Consensus can work in all types of settings - small groups, local communities, businesses, even whole nations and territories. The exact process may differ depending on the size of the group and other factors, but the basic principles are the same. " |
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http://cointelegraph.com/news/115135/ethereum-founder-vitalik-buterin-talks-cryptocurrency-governance"To discourage a gas limit that leads to high mining centralization, Buterin proposed a target uncle rate. An “uncle” is kind of like an orphan block in Bitcoin—a valid block that doesn't make it into the main chain. So if the target uncle rate were 0.4, it would mean that the network is striving for 4 % of blocks uncled on average, explained Buterin. If the network were uncling at a higher rate, like 0.6, then miners would need to push down the gas limit. The gas limit has this effect because smaller blocks propagate faster and less uncling supposedly occurs in a network where propagation times are less varied. Later on, Buterin argued that while Bitcoin developers are arguing about whether to change the blocksize from 1MB to 8MB, the thinking behind Ethereum has been less about numbers and more about mechanisms, like the target uncle rate approach. “Choosing institutions rather than choosing results is a kind of a more robust way of doing governance,” Buterin said. “But the meta-level concern is, in general, how do these choices get chosen?” he added. " His last words nailed it, it is not a technical problem, thus any technical solution will not work. The conflict is caused by different view from different person, it will always happen in future How do human solve conflicts? War? Vote? Diplomacy? Divide? When I think about these, I really shocked that human's decision making mechanism are so poor, it is almost like still in stone age
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The great thing about this ongoing core vs XT split is that people will have a chance to understand how should they make decision in bitcoin network
Bitcoin is a voluntarily participated monetary system, it is totally up to the user himself to decide if he accept a set of rules or not
This decentralized model is vastly different from today's society, where most of the people used to wait for the authorities to tell them what to do, be it their parents/professor/mayor/president or God. But in bitcoin they have to make a choice based on their own understanding, research and judgement
This is not a easy task, requires lots of understanding about how bitcoin works under the hood. And to make things worse, both sides of the core devs constantly adding exaggerated claims in the debate. But that's the cost of freedom, with increased freedom comes increased responsibility
However, similar to the society, when complexity raised above certain level, it becomes impossible for normal people without enough skill and time to understand what is going on, they have little choice but listen to their trusted authorities, and the decision making is more and more politicized
To avoid falling into such kind of situation, it is important to keep the things simplified and easy to understand, so that majority of participants can still make decision based on their own understanding. People never need to vote for the validity of 1+1=2, since that is enough simple for everyone to reach a consensus
So, any change that increase the complexity of bitcoin network will have a tendency to increase people's decision making difficulty in future, thus politicize it. These kind of change should always be avoided when people are making their decision
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Some kind of manipulation going on? Then how come the arbitraging is not happening? Does anybody have fiat money withdraw problem?
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Random walk theory indicated that most daily buyer and seller actions cancel each other on the market, so long term wise the price would be stable without major change in market condition, e.g. price have inertia
Another explanation: Most of the people have no idea if an exchange rate is right or wrong: Why should gold cost 35.5K dollar per 1000g? No one knows, it is just a price they get from the exchanges, and they suppose this is the right price decided by market supply and demand
However, once they have this price information, when price rise fast, they will see it is more expensive now, they profited quickly, they will sell some. And when price dropped, they will think it is cheaper now, and buy some. Those actions will keep the price balance at a stable level
Bitcoins exchange rate can rise dramatically during a major rally. However, when the rally is over, it will usually stay at a much higher level, even without all the capital inflow support from the rally
This is because: When exchange rate is rising, mining margin is getting bigger, miners will add more hash power, that will raise the difficulty, and raise the cost of the coin, and the price become more reasonable
However, when rally is done, exchange rate is falling, there won't be same amount of mining power going offline, simply because they have already ROIed, or not everyone will sell their coin immediately for profit/loss. As a result, the network difficulty and the cost of mining now stays at a much higher level than before, which created a "it cost much more to mine now" feeling for every one, so people are less willing to sell
I found out that most of the people's market decision is based on their psychology, and cost is no doubt the most strong psychology support for valuation. This is not saying that the difficult and cost would never go down, it is just they don't go down as fast as they go up
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A usual complain about bitcoin is that some payment processors like Visa/Mastercard/Paypal can do several thousand transactions per second while bitcoin can only do 5-7 That is because those payment processors' transactions are all done in their own server, similar to an exchange. I believe bitcoin exchanges can also do several thousand transactions per second, or even millions like Nasdaq, given the right hardware setup. In fact huge amount of transactions happens daily on bitcoin exchanges But transaction on blockchain is totally a different thing, its a true monetary transaction between different entities. Since with bitcoin you are your own bank, all the transactions on blockchain is essentially a transaction between banks. And we all know that banks do settlements between each other only once a day, not including weekend and holiday. From this point of view, bitcoin's transaction speed is already magnitudes faster than the fastest international bank settlement network (Swift, SEPA, etc...) on earth, it can do settlements between any different banks in 10 minutes, 24/7 So there is no reason to blame the bitcoin's transaction speed, it is already the fastest financial settlement network in world An old article about bank settlement and bitcoin here http://gendal.me/2013/11/24/a-simple-explanation-of-how-money-moves-around-the-banking-system/ |
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