Bitcoin XT - Officially #REKT (also goes for BIP101 fraud)

[jonald_fyookball]

Mostly I'm saying D -- tragedy of the commons won't ensue, or at least not fatally.  

The reason is simple.  The endgame "tragedy" of miners not securing the network will never happen
because an equilibrium will be reached where 1. some miners will stay profitable and
2. Those remaining miners will charge enough to achieve an acceptable network hashrate,
even with NO subsidies and NO blocksize limits.

How do we know 1. will happen?

This:

However, how does the pool that is driving everyone out
pay their bills?  They have to eventually raise their
fees to at least cover costs.  

Any way you slice it, a new equilibrium will be reached.

That's all fine, but at which point do you think the hashrate will settle? If we go down to 1PH/s, for example, would you be happy about that when the rest of equipment is worthless and can easily be used to attack the network? Also, don't you see a vicious circle of lower fees -> lower hashrate -> lower security -> lower price -> lower hashrate -> ... ?

Moreover, you say we will reach equilibrium. I'm not sure it matters if we end up with fees like 1 satoshi per tx and miniscule hashrate.

In thinking more about my previous post, here's what I can say:

I could be wrong and the amount of an average fee with a cap could be
orders of magnitude higher than without a cap.  The question isn't if
users would pay it.  The question is if miners would charge it.

The tragedy of the commons theory would say that there will be always
some mining pool or miner who is trying to creep in and offer a rate lower
than the market rate but higher than the marginal cost, and so without
controls in place, the rate will drift down to the marginal cost.

However, there may be other factors at play, other than just price war mining.
There could be social norms, minimums built into wallets, positive collusion
by miners, and other consensus building dynamics.  Moreover, if these dynamics
get traction and the number of pools is large, the price war factor may be greatly
mitigated since a large number of pools means people won't wait an inordinate time
for their transaction to get into a lower fee block.

Please note this "positive collusion" also includes miners abandoning small fee
pools and joining larger fee pools.

There could even be purposeful reorging of the blockchain by an economic
majority who doesn't want to see smaller fee blocks.  That's an extreme example,
but my point is that saying the tragedy of the commons will necessarily force fees
down to the marginal cost, even in the face of itself (the tragedy of the commons),
and expecting nothing could be done and there will be no other forces at play,
is, I think, a simplistic and pessimistic view.  

[Peter R]

The tragedy of the commons theory would say that there will be always
some mining pool or miner who is trying to creep in and offer a rate lower
than the market rate but higher than the marginal cost, and so without
controls in place, the rate will drift down to the marginal cost.

It sounds like what you're describing is just normal competition in a free market.  If a new entrant can produce a commodity below the prevailing price (but above his costs) then simultaneously (a) he can earn a profit, and (b) consumers enjoy lower prices [he helps to drive down the prevailing market price].  

I think it is better to ask if there is some negative externality that arises by free-market competition for block space production.  (For example, if Bob could produce cheaper lumber by cutting down Old Growth Forests, the negative externality would be the loss of those forests [and the value they add to the world for other reasons]).  

[jonald_fyookball]

The tragedy of the commons theory would say that there will be always
some mining pool or miner who is trying to creep in and offer a rate lower
than the market rate but higher than the marginal cost, and so without
controls in place, the rate will drift down to the marginal cost.

It sounds like what you're describing is just normal competition in a free market.  If a new entrant can produce a commodity below the prevailing price (but above his costs) then simultaneously (a) he can earn a profit, and (b) consumers enjoy lower prices [he helps to drive down the prevailing market price].  

I think it is better to ask if there is some negative externality that arises by free-market competition for block space production.  (For example, if Bob could produce cheaper lumber by cutting down Old Growth Forests, the negative externality would be the loss of those forests [and the value they add to the world for other reasons]).  

Free market competition, yes.  What the "cap advocates" are saying is that the free market revenue will provide an insufficient level of security and they would like to boost it by decreasing the supply.  
Its a fair argument.  But, A) it can't be proven that the free market revenue will necessarily be insufficient,  B) it is questionable that decreasing the supply is the only way to boost revenue, and C) it is unclear how much of a boost it would actually be able to accomplish.

I don't really see any negative externalities, unless you do actually have a blocksize cap, in which case the negative externality would be the limitation of bandwidth.

[Peter R]

Free market competition, yes.  What the "cap advocates" are saying is that the free market revenue may provide an insufficient level of security and they would like to boost it by decreasing the supply.  Its a fair argument.  

It is a fair argument.  In fact, we can show that--all other variables held constant--that a production quota on block space will have the effect of increasing the equilibrium hash rate.  

But, A) it can't be proven that the free market revenue will necessarily be insufficient,  B) it is questionable that decreasing the supply is the only way to boost revenue, and C) it is unclear how much of a boost it would actually be able to accomplish.

Ignoring the question of whether or not there would be sufficient security, I question whether it is even possible to force fees upwards.  Enforcing a production quota means that you are going against the natural desires of the market.  Normally, to enforce a quota, you need a strong government or organization willing and able to use force if necessary.  I'm not sure Bitcoin Core has sufficient power, especially when other implementations can fork from Bitcoin Core to attempt to satisfy the demands of the market like we've seen with XT.  

I don't really see any negative externalities, unless you do actually have a blocksize cap, in which case the negative externality would be the limitation of bandwidth.

The negative externality could be lower security, just like you said.  Another negative externality could be that people with low-cost hardware and slow internet connections might not be able to run full nodes.  

[RoadTrain]

Ignoring the question of whether or not there would be sufficient security, I question whether it is even possible to force fees upwards.  Enforcing a production quota means that you are going against the natural desires of the market.  Normally, to enforce a quota, you need a strong government or organization willing and able to use force if necessary.  I'm not sure Bitcoin Core has sufficient power, especially when other implementations can fork from Bitcoin Core to attempt to satisfy the demands of the market like we've seen with XT.  

I wonder if you question whether it's possible to keep the 21m cap as well. I guess if 'the market' desires it be scrapped, then we can't do anything?

[jonald_fyookball]

  I question whether it is even possible to force fees upwards.  

I think it is possible.

If you look at retail distribution, often a national distributor will set a minimum advertised price (MAP)
to prevent price wars between retailers from destroying the ecosystem.

Bitcoin mining is more similar to gold or diamond mining where the resource isn't passed down from
another party but mined directly.  I really don't know how those markets operate in depth but
the negative externality of security complicates the matter. 

I think there should be a way to raise fees without compromising the bandwidth via a blocksize consensus rule,
and I've hinted at some of them, but the topic appears complex.

[Peter R]

Ignoring the question of whether or not there would be sufficient security, I question whether it is even possible to force fees upwards.  Enforcing a production quota means that you are going against the natural desires of the market.  Normally, to enforce a quota, you need a strong government or organization willing and able to use force if necessary.  I'm not sure Bitcoin Core has sufficient power, especially when other implementations can fork from Bitcoin Core to attempt to satisfy the demands of the market like we've seen with XT.  

I wonder if you question whether it's possible to keep the 21m cap as well. I guess if 'the market' desires it be scrapped, then we can't do anything?

Correct.  But remember the "market" in this case is all of the Bitcoin holders in aggregate.  Non-holders don't have a say.  Everyone can understand why this "market" would want to increase the block size.  But why would it want to increase the inflation rate and debase the very source of its wealth?  

Nevertheless, I agree that it could happen.  Perhaps in 100 years there will be a decision to grow the Bitcoin money supply at 0.5%, if, for example, this is deemed the best way to maintain the security of the Blockchain global ledger.  

[brg444]

Ignoring the question of whether or not there would be sufficient security, I question whether it is even possible to force fees upwards.  Enforcing a production quota means that you are going against the natural desires of the market.  Normally, to enforce a quota, you need a strong government or organization willing and able to use force if necessary.  I'm not sure Bitcoin Core has sufficient power, especially when other implementations can fork from Bitcoin Core to attempt to satisfy the demands of the market like we've seen with XT.  

I don't really see any negative externalities, unless you do actually have a blocksize cap, in which case the negative externality would be the limitation of bandwidth.

The negative externality could be lower security, just like you said.  Another negative externality could be that people with low-cost hardware and slow internet connections might not be able to run full nodes.  

Yeah we've seen how successful XT was  

To enforce a quota in Bitcoin you only need to include it in the consensus code. The code reflects the desire of the consensus. Those who are against it are free to leave but this exit is not without cost.

[brg444]

Ignoring the question of whether or not there would be sufficient security, I question whether it is even possible to force fees upwards.  Enforcing a production quota means that you are going against the natural desires of the market.  Normally, to enforce a quota, you need a strong government or organization willing and able to use force if necessary.  I'm not sure Bitcoin Core has sufficient power, especially when other implementations can fork from Bitcoin Core to attempt to satisfy the demands of the market like we've seen with XT.  

I wonder if you question whether it's possible to keep the 21m cap as well. I guess if 'the market' desires it be scrapped, then we can't do anything?

Exactly...

Peter would have you believe the block size is the only centrally designed, consensus approved, hard limit in Bitcoin 

[Peter R]

Ignoring the question of whether or not there would be sufficient security, I question whether it is even possible to force fees upwards.  Enforcing a production quota means that you are going against the natural desires of the market.  Normally, to enforce a quota, you need a strong government or organization willing and able to use force if necessary.  I'm not sure Bitcoin Core has sufficient power, especially when other implementations can fork from Bitcoin Core to attempt to satisfy the demands of the market like we've seen with XT.  

I wonder if you question whether it's possible to keep the 21m cap as well. I guess if 'the market' desires it be scrapped, then we can't do anything?

Exactly...

Peter would have you believe the block size is the only centrally designed, consensus approved, hard limit in Bitcoin 

If a rule is "consensus approved" it means the rule is what the market wants.  This is why the anti-spam (1 MB) limit was enforced for the past five years.  However, now the market wants a higher limit.  It will get that higher limit eventually. 

Right now the "consensus approved" limit on the inflation rate is <= 25 BTC / block.  Since the market wants this limit, there is no pressure to change it.  If the market wanted a different limit--and I suspect it will when the halving hits--then we will get a different limit (in this case 12.5 BTC per block). 

The invisible hand of the market is always in charge of the consensus rules and will eventually prevail.  What you're missing is that since this "market" is composed of the community of Bitcoin holders, it will never vote for changes that it believes would hurt it's interest.

I think this chart (which I've shown you several times but I don't believe you've understood) shows the effect best: the blocksize limit was accepted as an anti-spam measure.  It is no longer accepted now that it's beginning to serve as a political measure instead.  The area shaded in brown represents the unmet demand clamouring for change…


 
 

[uxgpf]

Bitcoin as it is works fine and it can scale globally as it is, the proper way to see things is to think that bitcoin simulates gold with the added property of being portable. you would not buy a soft drink using gold or a $100 dollar bill, for that reason alt coins like litecoin o dash have a purpose, we do not need 500 alt coins, but maybe a few are needed.

Bitcoin whitepaper describes it as "A Peer-to-Peer Electronic Cash System" right in it's headline and "an electronic payment system based on cryptographic proof". Wouldn't redefining it as e-gold be breaking the social contract and alienate lot of users? Only time gold is mentioned in the whitepaper is to explain mining, not usage.

When you reduce the use cases for Bitcoin you also reduce its demand. With the reduced demand its valuation will decrease, unless you get enough new e-gold bugs to join to compensate for disappearing sectors of bitcoin economy.

As bitcoin is obviously intended to work as payment system. Wouldn't it be better to create an alternate coin with a whitepaper that tells its users that it's main purpose is to work as e-gold? No one would feel cheated and everyone would be happy.

[jonald_fyookball]

 
 

I get your chart.

Just to play devil's advocate for a second, the cap advocates would
say that once the political measure is introduced, both the
lower and higher bounds of the miners revenue price per byte will shift up dramatically.

[brg444]

If a rule is "consensus approved" it means the rule is what the market wants.  This is why the anti-spam (1 MB) limit was enforced for the past five years.  However, now the market wants a higher limit.  It will get that higher limit eventually.

Clearly we haven't seen a change yet so it seems presumptuous for you to pretend knowing what the market will want "eventually".

Right now the "consensus approved" limit on the inflation rate is <= 25 BTC / block.  Since the market wants this limit, there is no pressure to change it.  If the market wanted a different limit--and I suspect it will when the halving hits--then we will get a different limit (in this case 12.5 BTC per block). 

Your last sentence doesn't make much sense... the halving is baked into the protocol, the market has no responsibility over the upcoming change in inflation rate unless it wants to change it.

The invisible hand of the market is always in charge of the consensus rules and will eventually prevail.  What you're missing is that since this "market" is composed of the community of Bitcoin holders, it will never vote for changes that it believes would hurt it's interest.

Funny you say that. You are aware that the same applies to the block size change? How can you claim to have a genuine picture of what the Bitcoin holders want?

I think this chart (which I've shown you several times but I don't believe you've understood) shows the effect best: the blocksize limit was accepted as an anti-spam measure.  It is no longer accepted now that it's beginning to serve as a political measure instead.  The area shaded in brown represents the unmet demand clamouring for change…

I understand it very well thank you and I do believe it continues to serve a great purpose as an anti-spam measure. Do you understand that only a fraction of the current network load are true p2p transactions between users? By all estimate we are sitting near an average of not much more than 300kb of legitimate transactions. Why would you want to lift the anti-spam measure under these conditions?

[Peter R]

I get your chart.

Just to play devil's advocate for a second, the cap advocates would
say that once the political measure is introduced, both the
lower and higher bounds of the miners revenue price per byte will shift up dramatically.

Correct.  Furthermore, we can even rigorously show that the equilibrium hashing rate will increase when the political measure is introduced--holding all other variables constant. 

[Peter R]

Clearly we haven't seen a change yet so it seems presumptuous for you to pretend knowing what the market will want "eventually".

I'll even put my money where my mouth is: I would like to wager you 1 BTC that by this time next year (September 8, 2016) that the longest proof-of-work chain will include a block greater than 1 MB in size.  If you agree, we will both deposit 1 BTC into a 2-of-3 multisig address.  We will have a neutral third-party hold the third key. 

Would you like to accept this wager?

[brg444]

Bitcoin as it is works fine and it can scale globally as it is, the proper way to see things is to think that bitcoin simulates gold with the added property of being portable. you would not buy a soft drink using gold or a $100 dollar bill, for that reason alt coins like litecoin o dash have a purpose, we do not need 500 alt coins, but maybe a few are needed.

Bitcoin whitepaper describes it as "A Peer-to-Peer Electronic Cash System" right in it's headline and "an electronic payment system based on cryptographic proof". Wouldn't redefining it as e-gold be breaking the social contract and alienate lot of users? Only time gold is mentioned in the whitepaper is to explain mining, not usage.

When you reduce the use cases for Bitcoin you also reduce its demand. With the reduced demand its valuation will decrease, unless you get enough new e-gold bugs to join to compensate for disappearing sectors of bitcoin economy.

As bitcoin is obviously intended to work as payment system. Wouldn't it be better to create an alternate coin with a whitepaper that tells its users that it's main purpose is to work as e-gold? No one would feel cheated and everyone would be happy.

If you felt cheated it's only because of your wrong interpretation of what Satoshi meant by p2p cash. It seems you are suggesting he meant a low-cost, frictionless means-of-exchange. Surely if that was his intention one must be left to wonder why he'd decide on an expensive and inefficient POW algorithm.

Have you considered that maybe what he truly meant was a censorship-resistant bearer instrument free of third-party reliance?

That would seem to fit the design he chose and reflect what Bitcoin is truly great at.

Understand that the use cases you refer to are not what can serve as the makings of an economy. The next paypal maybe, but not the next gold standard which is what we should all hope Bitcoin becomes. Do you have any idea of what the valuation of Bitcoin would be if we attracted a majority of the existing gold bugs? Here's a little more on this:

It is also important that you reconsider this myth that capping Bitcoin's transactions is a cap on its userbase.

Bitcoin, as is, can provide a refuge for the wealth of ANY person on the planet. It can currently accommodate an infinite amount of capital.

The distinction is important because reality shows us that actual Bitcoin users are by and large not much interested in transacting or spending their coins. A great majority of the coins in existence have been and should continue to sit pretty in their cold wallets for years to come.

Why should we expect this to be different for future users? If you believe, much like I do, that the next trove of adopters is likely to be institutional investors with an interest in Bitcoin as a commodity/asset then why should we be worried so much with the system's transactions throughput? Do you expect the Winklevies to go on a shopping frenzy with their 100,000 coins? The analogy with gold is tired but it remains true: it should be expect that most bitcoins in circulation will be stored in digital vaults and shall remain untouched for a long period of time.

All of this is to say that you should stop focusing on "mainstream" users and what you assume their interest in Bitcoin will be. We should expect these to be last in line in your mass adoption scenario.

[brg444]

Clearly we haven't seen a change yet so it seems presumptuous for you to pretend knowing what the market will want "eventually".

I'll even put my money where my mouth is: I would like to wager you 1 BTC that by this time next year (September 8, 2016) that the longest proof-of-work chain will include a block greater than 1 MB in size.  If you agree, we will both deposit 1 BTC into a 2-of-3 multisig address.  We will have a neutral third-party hold the third key. 

Would you like to accept this wager?

 

I am not interested in your wager Peter, I have better use for my money.

Let me ask you again, have you considered Adam's block extension proposal?

[knight22]

Clearly we haven't seen a change yet so it seems presumptuous for you to pretend knowing what the market will want "eventually".

I'll even put my money where my mouth is: I would like to wager you 1 BTC that by this time next year (September 8, 2016) that the longest proof-of-work chain will include a block greater than 1 MB in size.  If you agree, we will both deposit 1 BTC into a 2-of-3 multisig address.  We will have a neutral third-party hold the third key.  

Would you like to accept this wager?

 

I am not interested in your wager Peter, I have better use for my money.

-snip-

That says a lot.

[jonald_fyookball]

Maybe he doesn't have that much money or risk tolerance.

Still, you should bet at least .01 BTC if you are that confident
you are right.  Think of it as a gentlemen's multisig bet

[tvbcof]

Clearly we haven't seen a change yet so it seems presumptuous for you to pretend knowing what the market will want "eventually".

I'll even put my money where my mouth is: I would like to wager you 1 BTC that by this time next year (September 8, 2016) that the longest proof-of-work chain will include a block greater than 1 MB in size.  If you agree, we will both deposit 1 BTC into a 2-of-3 multisig address.  We will have a neutral third-party hold the third key.  

Would you like to accept this wager?

 

I am not interested in your wager Peter, I have better use for my money.

-snip-

That says a lot.

The trouble with most of these bets (which have been ubiquitous as long as I've been around) is that it is extraordinarily labor intensive to prepare the terms and definitions.  For instance, there is a very good chance that within a year there will be a >1MB block on 'the longest proof-of-work chain'.  But which chain is 'the'.