Interesting to see the various proposals for an adaptive protocol level maximum block size.

It seems clear that adaption should occur based on transaction fees, since they are supposed to take over as the main incentive for securing the transaction log once initial distribution winds down further.  This means that this is the closest so far to achieving an equilibrium based on incentives which optimise for the properties I, as a bitcoin user, want: https://bitcointalk.org/index.php?topic=140233.msg1507328#msg1507328.  That is: first and foremost I want the (transaction log of the) network to be really well secured.  Once that is achieved, I want more transactions to be possible, so long as doing so doesn't destroy incentives for those securing the network.

That said, I think the proposed rate is too high.  We need to budget what *transactors* in the system should need to pay in order to ensure robust security of the transaction log, and not step too far over that level when designing the equilibrium point.  50 BTC per block works out at 12.5% of the monetary base per annum once all coins are created.  This seems excessive, though admittedly it is what *holders* of bitcoins are currently paying via the inflation schedule. 

Although it is difficult to estimate, the level of transaction fees required, long term, to maintain the security of the transaction log, should be the starting point when designing the equilibrium via which an adaptive maximum block size will be set (assuming one doesn't buy Mike's optimism about those incentives being solved by other means).

Suppose the system needs 3% of the monetary base to be spent per annum on securing the transaction log.  Then, in the long term, that works out at pretty much 12 BTC per block.  Could just call it 12 BTC per block from the start to keep it simple.  So once the scheme is in place and max block size is still 1 MiB, the mean transaction fee over the last N blocks will need to 0.0029 BTC to provoke an increase in max block size.  That seems pretty doable via market forces.  Then, block size increases, and mean transaction fee decreases, but total transaction fees remain around the same, until an equilibrium is reached where either block space is no longer scarce, or enough miners, for other reasons, decide to limit transaction rate softly.

So my question is: apart from waving fingers in the air, are there any good ways to estimate what percentage of the monetary base should be spent by users of the system as a whole, per annum, in order to adequately ensure security of the transaction log?  It's really a risk management question.  As is most of the rest of the design of Bitcoin.

Windows is lying to you. The block files in blocks\ and its parent directory are hardlinked and should only be counted once. You can delete blk0001.dat through blk0003.dat and blkindex.dat.

Miners will want to increase the block size eventually...false short supply of transaction space in a block might temporarily increase the fee paid per transaction...but a block chain that can't support many transactions won't be very useful...so people won't use it...whereas a high block limit would increase the total number of fee payers (and probably decrease the mega fees paid by a very small number of people).

to you as well:

Wouldn't it be better to wait with our plans till the original objective is successful? I gladly discuss world domination plans with you once we have hit the hard limit consistently and have a balance between initial block reward and fees in terms of mining income.

A hard fork won't happen unless the vast super-majority of miners support it.

E.g. from my "how to handle upgrades" gist https://gist.github.com/gavinandresen/2355445

Currently there's a maximum of ~7 transactions per second.

If 0.0001% of the total population (http://en.wikipedia.org/wiki/World_population --> ~7 billion, 0.0001% of that are 7000 persons) use Bitcoin, they can do max. 604800 transactions alltogether --> 86.4 transactions per person per day.

ArcticMine might be off by ~2 orders of magnitude (0.01% --> 700k users --> 0.864 transactions per day max.) but still even with "only" less than a million active users, they have to wait more than a day to be able to do 2(!) transactions!


About transaction markets:
I gave the example elsewhere as well, TOTAL transaction fees will not be different with small and unlimited block sizes (miners need to pay for their electricity etc.).
Let's say 2 BTC/block are required in fees for a miner.
There's a cost (blocks take time to transmit to other miners and the longer it takes the more you risk an orphan block) associated with block size, so if a miner can choose between 200000000 transactions with 1 satoshi fee and 2 transactions with 1 BTC fee, he's better off with the 2 transactions than the 200000000. The equlibrium might be higher with unlimited block sizes than with some limits, but rest assured that miners will find ways to determine how to force fees and make sure they are paid.

The firm I work for, which has made substantial investment into Bitcoin, has already thought quite a bit about this.  This is what we're doing and thinking:

* While this block size issue remains such a big uncertainty, we have drastically slowed our pace of investment and we've shelved some start-ups that were already in progress.  We're not stopping or backing out, but we're proceeding much slower and more cautiously until a clearer resolution to this problem appears.

* If we approach the 1MB limit and a solution does not appear forthcoming, we'll cease all new investment.

* If we pass the 1MB limit without a solution, seeing even the slightest hint that Bitcoin's competitive advantages over the conventional banking and payment systems are being eroded due to an inability to scale, we'll dump all our bitcoin assets and holdings.

* If a controversial solution is proposed, with fierce arguments on multiple sides, we will follow Gavin's fork, even if it's not ideal, on all our sites that accept BTC.

* If the fork hits, and there's even the slightest uncertainty as to which will survive, we will immediately dump all our bitcoin assets and holdings.  We will remove Bitcoin from all of our sites that accept multiple payment methods -- at least while we wait to see how things play out.

* If one fork kills off the other, we'll adopt that one and go back to business as usual.

* If both forks survive, with both being widely accepted (for example if Mt.Gox begins accepting Bitcoin-A and Bitcoin-B), we'll accept neither, dump everything, and write off blockchain based currencies and too risky and too unstable.

What we really hope to see is a nice, smooth transition to a system that scales, which very large majority of the network, including major service providers, agree to.

A hard fork won't happen unless the vast super-majority of miners support it.

E.g. from my "how to handle upgrades" gist https://gist.github.com/gavinandresen/2355445

Sure, it can be used as money (proven fact), similar to the way gold coins can and have been used as money in the past.

But it is not terribly practical to do so.

Especially, if having to fight with the common, government issued money (legal tender), I think Bitcoin will loose this battle.

What I believe Bitcoin community should do is to re-define Bitcoin, more precisely align it with the reality and give it a new name.

With all respect to Satoshi Nakamoto, I think he chose the name Bitcoin poorly. It implies that it is a coin, version of money, yet there are minor similarities between Bitcoin and the legal tender coins.

Instead, IMHO, he should have chosen a name that reflects the nature of the Bitcoin, much more similar to the precious metals and other resources, store of value and incidentally similar to currency, but definitely not the virtual electronic currency it is portrayed as now.

I've studied all bitcoin.org documents as well as what the Bitcoin Foundation has produced, yet I have only seen the same original motion being repeated endlessly, regrettably the Bitcoin community being left wheel-spinning to deal with the practical challenges.

Let me give few examples:

1. Dealing with the regional law and tax regimes - defining Bitcoin as asset instead of money will allow more efficient tax management.

2. Financial regulations - the status quo inevitably antagonises the current financial regulatory regimes, implying that there is a new kind of currency they cannot and will never be able to regulate - if defined as a resource, mined like any other finite resource, and sold and bought on the markets like any other resource (unregulated), the financial institutions may well accept it as something they can trade and not something that threatens their (in many cases self perceived) authority.

3. Common man on the street - the first though that comes when exposed to the idea of Bitcoin is "is it legal, will I get into trouble by using it?", instead one could simply relate to the current legal status of any precious metal, it is just a commodity (albeit of different, digital nature) that can be traded for any legal tender on the one of the many unregulated exchanges.

4. Bank - if the bank cannot use Bitcoins (not legal tender in any country), then they would not support it, they may as well make its use and adoption more difficult. But if it is just a legal commodity, then they would not see reason to oppose it or obstruct its adoption.

5. Terrorists - no one is objecting the terrorists using cash to fund their ventures, but suddenly, the anonymous use of the Bitcoin currency makes it an evil tool - removing the "currency" and "coin" from the definition of Bitcoin would allow for more objective view on the properties of Bitcoin, disassociation from the "evil" anonymous nature of the cash.

6. And so on...

MY QUESTIONS TO THE BROADER BITCOIN COMMUNITY:

Do you agree or disagree with me, please argue you point here - serious discussions only, please.

Do you think the time is right, it is realistic to get the majority of the Bitcoin community to come to a consensus with regards to more precisely defining and naming Bitcoin? If yes, what do you think will be the right process to follow - centralised, decentralised, combination of the two? If no, please argue you reasons here.

That's your opinion and you are free to consent to any rules you wish but I wont.


Interesting idea.

Given the arguments on both sides that I have heard, yes.

he's too.

You had that sentence backwards so I corrected it for you. Perhaps you should read A Lawyer's Take On Bitcoin And Taxes.

With a rise in price there is an unrecognized capital gain which results in no current tax liability until a recognition event.

With mining there is no ordinary income until a recognition event (sale, transfer, barter, etc.) of the bitcoins just like there is no ordinary income with fruit trees, etc. until a recognition event. However, there is a deduction for ordinary and necessary business expenses such as depreciation of mining equipment, power costs, etc. Depending on the nature of your business this deduction could be used to offset other recognized taxable income and reduce current tax liability.

Therefore, mining bitcoins creates a tax asset not a tax liability.

give me BTC and I'll give you BTC to mine BTC...at what rate...is anyone's guess. But it is a "BARGAIN"....instead of letting your investment go up 600% in 8 months, just give it to me and I'll ensure the difficulty of mining goes up too before you can start mining with this SUPER DUPER ASIC HARDWARE.

 

If you sold some coins just prior to the biggest jump in months, raise your hands 

We can now buy a share of facebook with a single bitcoin. What an accomplishment. Spot silver price $29.32...