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2601  Bitcoin / Bitcoin Discussion / Re: Bitcoin & Tragedy of the Commons on: March 15, 2012, 01:19:29 PM
Good points by FreeMoney. That is certainly a market where more awareness helps. If everyone understands that certain actions will benefit all (including me) and certain actions will be harmful to all (including me) then I don't see how the tragedy of the commons can surface in any significant way. It doesn't require a cartel either, all serious miners simply know that it makes no sense for them to accept only low fees because it will crush profits very quickly (in a matter of hours, once user clients realize that you can make fast transactions with low fees). So the feedback is very quick as well especially if there are a lot of Bitcoin usage / lot of transactions.


I don't think that's right still. Imagine this game (I know if isn't  close to the mining situation just an example of clear TOC).

There is a $10 pot. Any of 10 players can take the whole pot at any time. Every minute the pot doubles.

It is obvious to everyone that if they can all agree they'll make a fortune. Otherwise nearly nothing. But they can't expect everyone to trust everyone else so they all grab for it.

Mining is pretty different, if even a few can agree they can prop it up. I don't even expect tiny individuals to do that. I expect somone(s) to buy up some significant enough amount of power. Probably there will be plenty of miners who'd rather not be subject to the whims of difficulty and variable fees and will sell for less even that the expected return to reduce variance.
2602  Bitcoin / Bitcoin Discussion / Re: Bitcoin & Tragedy of the Commons on: March 15, 2012, 12:41:48 PM
Of course it won't happen like this in reality, there will be a constant equilibrium where the increase of miners in low fee pools results in the decrease of profits for everyone which basically results in low fee miners moving back to high fee pools because that's the only way they can keep mining profitably.


They can sell their power to someone who realizes it will make more coin by working together.
2603  Bitcoin / Bitcoin Discussion / Re: Bitcoin & Tragedy of the Commons on: March 15, 2012, 12:36:43 PM
@meni

It's true a tiny miner will simply migrate to a pool that takes all fees. However, in the all tiny miner  situation where no one has pricing power the tiny miner doesn't mine at all. But he has cheap/free electric, nice GPUs etc. So he offers to sell it to some smart guy. Smart guy realizes that buying the power of 4000 tiny miners will give him pricing power and profit. It happens to start raising the level of fees across the board making it harder or more expensive for him to buy more miners power because they can better profit on their own now.
2604  Bitcoin / Bitcoin Discussion / Re: Bitcoin & Tragedy of the Commons on: March 15, 2012, 12:20:13 PM
A miner can try to demand high fees, but if 99% of miners accept low fees, nobody will be willing to pay these high fees.


No, that's my whole point. Anyone who wants >99% chance of being in the next block will pay higher fees. Especially if the fee is like .01 on a 100BTC tx.

Even needing to rely on this pricing power phenomenon seems unlikely to me and it's just there as back up.

Already we're paying miners fees so that non-mining nodes will take us seriously enough to pass the tx on.

There are many other things like this that can happen. Maybe some subset of people will be appalled to receive a tx that didn't have a fee. Uncertainty about who these people are may lead to a .0001 (don't hate me for being a freeloading jerk) standard.

Maybe a lot of miners won't keep a complete chain and will be unable to easily verify small or old inputs. You'll need a fee if you don't want to wait for the one generous soul who keeps the whole thing and charges no fees.
2605  Economy / Gambling / Re: SealsWithClubs - Bitcoin Online Poker - No Limit Hold'em + HOURLY FREEROLLS on: March 15, 2012, 11:32:06 AM
Seals is down for scheduled improvements. We expect to return by 10am ET.
2606  Economy / Economics / Re: Aligning Incentives. Bad Nodes? on: March 14, 2012, 07:46:35 PM
If a miner breaks the rules then other miners won't build off of their block (because they are worried (rightly) that other miners won't build off of their block) you don't actually get paid until your block is 120 blocks deep.

Mining a block without including tx isn't really 'bad' but you can do that and all you miss out on is any tx fees you could have gotten.
2607  Bitcoin / Bitcoin Discussion / Re: Bitcoin & Tragedy of the Commons on: March 14, 2012, 07:31:59 PM

There are financial incentives to small timers getting in on mining whenever anyone has any pricing power. That's pretty damn good. I understand that magic could probably do better.

I don't know exactly what technology will look like in the future, so I can't say precisely how you are confused. But I know you are confused. Current hashing technology is constant returns to scale with extremely low entry costs. Under constant returns to scale and low entry costs, any temporary build up of pricing power will lead to rapid entry and rapid dissipation of pricing power.

You need high entry costs to maintain oligopoly (i.e. market power) in a long-run equilibrium. What is the potential source of large barriers to entry? Barriers to entry would require fundamental changes in technology (for example, mining occurs only within a handful of companies using proprietary chips that are not marketed for external use). Even if this happened to be the technological outcome, a closed technological setting like this is highly likely to degenerate into monopoly.


I'm not at all sure that there will be pricing power in the bitcoin mining market in the future.

What I am saying is that if low block reward and low tx fees make people start abandoning mining then the remaining miners will start to pick up some pricing power. This will allow them to raise prices on people who are very concerned about getting into the next block or two. The now higher tx fees and the low barrier to entry you mention then brings in more miners reducing the pricing power from running away.

The only part I disagree with is the constant returns to scale. In order to exercise their pricing power the bigger percentage miners have to decline low tx fees. Small miners get to take the large and small fees.

Brief example. Suppose one 10% miner and countless tiny miners. The 10% miner guesses/experiments to determine that if they refuse to include tx with less than .01 fee 8% of people will pay it to keep their chance of getting in the next block near 100% instead of near 90%. This costs the 10% miner all the small .0005 fees, but the make much more this way because 100 times .0005 is less than 8 times .01. But the small miners still get all the .0005 and they get the .01 fees.

The big miner does it because they would get more than otherwise and the small miners get a free lunch out of it.
2608  Bitcoin / Bitcoin Discussion / Re: Bitcoin & Tragedy of the Commons on: March 14, 2012, 05:55:32 AM

You're overlooking what "tragedy of the commons" means. As you said yourself, the payment processor will make 325 € per block whether he mines or not, so he has no incentive to mine himself - he would much rather have others mine instead.

Besides, if payment processors and banks are the only ones doing mining, it means Bitcoin has become fairly centralized.
You are missing the point: the payment porcessor will make 325€ ONLY if the network is functionnal and secure. So the value add fees are his/her incentive to mine (not the bitcoin mining fees).
I'm sorry, but you are. The contribution of the payment processor's own mining to network functionality is negligible, since he's only a small part of it. It's in everyone's best interest that everyone will mine/pay for mining. But then it's also in everyone's interest to personally cease mining, since the network will be just fine with everyone else mining. The contribution of a miner / mining sponsor is shared by everyone, but the cost is all his own. I can't explain this any clearer, I can only direct you to Wikipedia.

Miners are all different sizes, this gives some of them pricing power in terms of selling "get my txs into a block soon". If all miners are very small and all use the "accept all with fee rule" many may indeed drop out lowering overall power and difficulty. This will make it easier and more likely for someone to gain a pricing power ability. The existence of someone with pricing power ability raises the profitability of all miners causing more small players to enter the mining biz and reducing the possibility/ease with which one party can get >50% (which may not be disastrous anyway, but still makes me uncomfortable).

For example, suppose DeepBit changed policy to only include tx that had fee >= .01BTC. Some people will not care because they can with high likelihood get in a block within 10 blocks anyway. But the few people who need near certainty of getting in within an hour now attach a .01 fee. All miners profit from this in proportion to their hashing power except DeepBit. DeepBit profits (or maybe not if they pick the wrong price) by less depending on how many of the .0005 fees they no longer get.
This makes sense, but I think that quantitatively it will only be enough if power is concentrated with a few (where "few" could be 100) strong players.

Suppose power is not concentrated enough for the effect I describe. Miners will fall out for lack of profitability leaving few miners each having more pricing power until there is enough pricing power to charge higher than minimum fees in at least some cases. Now more negligible miners are enticed to (re)enter taking advantage of the fact that there are now higher tx fees floating around and they can also take the smaller ones. This keeps us away from complete centralization.


this is not enough. we need to do better.


There are financial incentives to small timers getting in on mining whenever anyone has any pricing power. That's pretty damn good. I understand that magic could probably do better.
2609  Bitcoin / Bitcoin Discussion / Re: We should have a humongous party in December to celebrate block #210,000 on: March 13, 2012, 06:30:55 AM
Celebrate a major drop in profits to all the miners, in the same way we celebrate the darkest and dreariest days of the year with Yuletide/Christmas/New Years? Sounds reasonable  Wink

Well now that all depends on if the price of bitcoin is plumetting, staying stable, or skyrocketing huh......future will tell us this while you keep staring in your picture...

If it's plummeting, that'll only be more reason to party harder.
It's too bad a block party will only last an average of 10 minutes.

Didn't you hear? Everyone will be done mining when the reward drops and we'll live at block 210000 forever.
2610  Bitcoin / Bitcoin Discussion / Re: is Venmo a huge roadblock to Bitcoin? on: March 13, 2012, 05:43:15 AM
People only care about how easy it is to covert what comes in as paychecks into stuff they can buy to make themselves happy.

What if they want something that their government forbids them?

EDIT: For example, protecting their purchasing power, donating to a certain organization, gambling online, etc..

+1

Show me Venmo to online poker in minutes and I'll be worried.
2611  Bitcoin / Bitcoin Discussion / Re: Bitcoin & Tragedy of the Commons on: March 13, 2012, 02:01:01 AM

You're overlooking what "tragedy of the commons" means. As you said yourself, the payment processor will make 325 € per block whether he mines or not, so he has no incentive to mine himself - he would much rather have others mine instead.

Besides, if payment processors and banks are the only ones doing mining, it means Bitcoin has become fairly centralized.
You are missing the point: the payment porcessor will make 325€ ONLY if the network is functionnal and secure. So the value add fees are his/her incentive to mine (not the bitcoin mining fees).
I'm sorry, but you are. The contribution of the payment processor's own mining to network functionality is negligible, since he's only a small part of it. It's in everyone's best interest that everyone will mine/pay for mining. But then it's also in everyone's interest to personally cease mining, since the network will be just fine with everyone else mining. The contribution of a miner / mining sponsor is shared by everyone, but the cost is all his own. I can't explain this any clearer, I can only direct you to Wikipedia.

Miners are all different sizes, this gives some of them pricing power in terms of selling "get my txs into a block soon". If all miners are very small and all use the "accept all with fee rule" many may indeed drop out lowering overall power and difficulty. This will make it easier and more likely for someone to gain a pricing power ability. The existence of someone with pricing power ability raises the profitability of all miners causing more small players to enter the mining biz and reducing the possibility/ease with which one party can get >50% (which may not be disastrous anyway, but still makes me uncomfortable).

For example, suppose DeepBit changed policy to only include tx that had fee >= .01BTC. Some people will not care because they can with high likelihood get in a block within 10 blocks anyway. But the few people who need near certainty of getting in within an hour now attach a .01 fee. All miners profit from this in proportion to their hashing power except DeepBit. DeepBit profits (or maybe not if they pick the wrong price) by less depending on how many of the .0005 fees they no longer get.
This makes sense, but I think that quantitatively it will only be enough if power is concentrated with a few (where "few" could be 100) strong players.

Suppose power is not concentrated enough for the effect I describe. Miners will fall out for lack of profitability leaving few miners each having more pricing power until there is enough pricing power to charge higher than minimum fees in at least some cases. Now more negligible miners are enticed to (re)enter taking advantage of the fact that there are now higher tx fees floating around and they can also take the smaller ones. This keeps us away from complete centralization.
2612  Bitcoin / Bitcoin Discussion / Re: Bitcoin & Tragedy of the Commons on: March 13, 2012, 12:30:24 AM
If you capture 75% of the mining market, there is still nothing to prevent a small mining business from entering and mining all fees, including ones the monopoly doesn't take.

If I have 75% I can refuse to build on the small companies blocks and they will never stay in the longest chain.

2613  Bitcoin / Bitcoin Discussion / Re: Letter to a company about Bitcoin on: March 12, 2012, 11:07:26 PM
It is actually reasonable to think they would know bitcoin by now. They have anarchist/libertarian literature in their storefronts. I'm not actually near any of their locations now. I'm not going to use that letter, maybe I'll write one sentence. Maybe it'll be their fourth exposure and they'll look into it now.
2614  Bitcoin / Bitcoin Discussion / Re: Letter to a company about Bitcoin on: March 12, 2012, 09:26:47 AM
I'll add some specific to them stuff for sure before sending. Glad I put it here first, thanks for the feedback.
2615  Bitcoin / Bitcoin Discussion / Letter to a company about Bitcoin on: March 12, 2012, 06:59:00 AM
I haven't sent it yet, please critique. Also feel free to adapt and use.
-------------------------------------------------------

Maybe you're already familiar with Bitcoin, but just in case I want to give you a quick overview. You'll probably find it interesting at least even if you decide not to use it now.

Bitcoin is peer to peer money. No banks are required, any user can send bitcoins directly to another user without permission and without restriction. No one at all has special privilege with regards to Bitcoin or the Bitcoin network. Bitcoin is code that people run on their computers. It is also the name of the network that emerges when those computers are connected.

Bitcoin is a different currency, not another form of dollars like PayPal or Dwolla. It's value is set only by what people are willing to pay for it. Recently it's been fairly stable around $4.90/BTC, but historically it fluctuates a lot.

MtGox.com is the largest exchange, in the last day people traded about $200,000 worth of Bitcoins there.

Bit-Pay.com helps businesses integrate bitcoin and if desired sell them automatically upon receipt to avoid exchange rate risk.

Bitcoin.org is the 'official' site and has links to more information.

I'm not an expert, just an enthusiast but I'm more than happy to help you find answers to any questions you have.
2616  Bitcoin / Bitcoin Discussion / Re: Bitcoin & Tragedy of the Commons on: March 11, 2012, 11:52:47 PM
It doesn't really matter if payment processors mine themselves or buy mining services. It would be like if someone said "In the future no one will make cloth" and someone responded "Yes clothing makers will make cloth because they need it to make clothes". The fact that people demand cloth to make clothes is the reason that cloth will still be produced, but there isn't any particular reason why cloth and clothes makers will be one in the same. And it doesn't matter weather there is many or few clothes makers.

What we do know is that there will be demand for blocks, maybe a lot, maybe not, depends on a lot of things.

Here is another angle, I'm not sure how relevant. Another party that wants there to be a lot of honest mining power: Miners. If you make a block, you only get paid if it is still in the longest chain 120 blocks from now. Issuing a tx from your coinbase (can you even do this?) with a high fee will give more incentive to an honest miner to quickly mine off of your block before someone comes along rewriting yours in order to collect the fees from the transactions you included or just to remove them for some nefarious purpose.

2617  Bitcoin / Bitcoin Discussion / Re: Bitcoin & Tragedy of the Commons on: March 11, 2012, 09:36:52 PM
The payment processors will have incentive to pay fees and maybe also to hold very rapidly exercisable "latest top of the line ASIC mining rig" options.

The latter in order to be ready to rapidly jump to the support of the chain in case of attack or just to enter the mining biz. (Merely paying higher fees might not suffice if a monopolist is secretly setting up top of the line ASIC rigs in co-hosting sites all over the world as you'd be paying the monopolist more and more the closer they got to taking control of the network.)

If you can make over 300 dollars a block just processing payments, a current top of the line ASIC rig would only take what, half a day or less to pay for?

-MarkM-



But when a small player can make 300 dollars a block for processing payments an ASIC will get you virtually no chance of solving a block anyway.

I don't think guessing numbers is really helpful since there there are so many unknown variables. There needs to be a good theoretical game theory type reason why it will work. And I'm pretty sure I know it.

Miners are all different sizes, this gives some of them pricing power in terms of selling "get my txs into a block soon". If all miners are very small and all use the "accept all with fee rule" many may indeed drop out lowering overall power and difficulty. This will make it easier and more likely for someone to gain a pricing power ability. The existence of someone with pricing power ability raises the profitability of all miners causing more small players to enter the mining biz and reducing the possibility/ease with which one party can get >50% (which may not be disastrous anyway, but still makes me uncomfortable).

For example, suppose DeepBit changed policy to only include tx that had fee >= .01BTC. Some people will not care because they can with high likelihood get in a block within 10 blocks anyway. But the few people who need near certainty of getting in within an hour now attach a .01 fee. All miners profit from this in proportion to their hashing power except DeepBit. DeepBit profits (or maybe not if they pick the wrong price) by less depending on how many of the .0005 fees they no longer get.

Interestingly this means that an individual mining at DeepBit will want to leave for solo or a smaller pool when DeepBit makes this change.

I don't claim to completely understand the equilibrium. Some very interesting things can and will happen. Suppose DeepBit wasn't a pool but one entity with a lot of hashing power. Would they "split off" some of their power? This would be the same as using a probabilistic method of determining which tx to include in order to give users incentive to add more fee for better chance, but not completely give up the small fees. I think the right strategy depends heavily on the "willingness to pay distribution". If it is a smooth curve a many tiered solution is probably most profitable. If it's pretty binary then the profit maximizing solution is probably simpler.
2618  Bitcoin / Bitcoin Discussion / Re: [If tx limit is removed] Disturbingly low future difficulty equilibrium on: March 11, 2012, 09:15:05 PM
All this talk of a monopoly. Do you happen to work for Microsft, Adobe, the US Government, Hasbro etc?

missed one :p
2619  Other / Beginners & Help / Re: Bitcoin noob needs a hand. on: March 11, 2012, 09:12:35 PM

btw they shouldn't advertise the 'fee less transaction' thing so much, because eventually mining will have to be paid for with transaction fees.


Why not?  transaction fees are never going to amount to much per transaction, due to it's automated functions.  Such functions, at some level, require human intervention in the case of credit cards and the like.  Bitcoin doesn't need human intervention.

I don't think 'free' is a good way to advertise it. It isn't always true even now and people assume there is a catch anyway, which there really is. I don't know the best way to say it, but the reality is pretty good. Hyper-low? Usually free? Awesome deal?
2620  Economy / Economics / Re: The early-adoptor unfairness on: March 11, 2012, 08:55:38 PM
As casacius mentioned, if you didn't buy bitcoin when it was $2.00 a piece after the crash, then your argument that early adapters had an unfair advantage becomes irrelevant. You were never interested in the success of the bitcoin and are never invested enough to make it succeed.

If an "early adopter" bought or mined (on a cpu) coins for a few cents - and some for much less ( "10,000 bitcoin pizza")- then they have made an enormous amount of money even at today's prices, and much much more if they sold in the bubble, So what is called the unfair advantage is still there in some peoples mind.

If 1 bitcoin becomes worth 1000$  then there isn't much difference if you bought at 1 cent or 4 dollars as far as profit.


Ummm, seems big to me, If you had $100 to invest then buying at 1 cent means you can retire vs at $4 you can buy a decent new car and go on a vacation.
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