Enforcing a production quota on block space that fights the free market

[brg444]

Fedwire is a gross settlement network, not at all what bitcoin is supposed to be. A single settlement tx could reflect millions of other transactions - out of band from that network. I think that is the ultimate goal for yourself and the MPfags on here. Your dream is that all sidechain/LN activity will have to be settled with bitcoins, and of course the wealthy bankers will have to come to you on bended knee in the hope you might sell them for the equivalent of the GDP of a small country.

Sorry, aint gonna happen.  Its such a ludicrous vision.

All the talk of economics and miner behavior is a side show. There will be a use case for side chain like features in bitcoin ( implemented by alt-coins) in the future, but that is years ahead, and it will be implemented in the context of blocks and transaction rates that will grow with adoption.


YES!

Better start buying  

Banks have a scarce history of giving poor people huge quantities of their money, but this time its different, right?

But I applaud your optimism, even if it is foolhardy.

Why would you think banks don't own a shitload of Bitcoin already? Who do you think has been buying all the coins dropped by the weak hands over the last year and a half?

[sAt0sHiFanClub]

Fedwire is a gross settlement network, not at all what bitcoin is supposed to be. A single settlement tx could reflect millions of other transactions - out of band from that network. I think that is the ultimate goal for yourself and the MPfags on here. Your dream is that all sidechain/LN activity will have to be settled with bitcoins, and of course the wealthy bankers will have to come to you on bended knee in the hope you might sell them for the equivalent of the GDP of a small country.

Sorry, aint gonna happen.  Its such a ludicrous vision.

All the talk of economics and miner behavior is a side show. There will be a use case for side chain like features in bitcoin ( implemented by alt-coins) in the future, but that is years ahead, and it will be implemented in the context of blocks and transaction rates that will grow with adoption.


YES!

Better start buying  

Banks have a scarce history of giving poor people huge quantities of their money, but this time its different, right?

But I applaud your optimism, even if it is foolhardy.

Why would you think banks don't own a shitload of Bitcoin already? Who do you think has been buying all the coins dropped by the weak hands over the last year and a half?

People like you who are speculating as you described above. Banks haven't bought them. Banks dont invest by 'buying money'. They invest in assets and infrastructures than will generate money. All the 'wall street' cash that has gone into bitcoin lately has gone into technology that will use block chain tech.

All the ETF and other derivative investments are concerned with making margins on the trading of those asset classes, not the assets themselves.

[jonald_fyookball]

banks do trade foreign currencies.  There isn't sufficient liquidity for that in BTC though.

[johnyj]

...the power of the network effect. Altcoins that desperately attempt to compete with Bitcoin, or the XT episode are good illustrations. It is extremely likely that the blocksize limit will push people to offchain Bitcoin solution rather than push them away from Bitcoin. This has already been observed with Dice users that got pushed to centralized Bitcoin offchain services when the min relay fee was implemented.

Excellent point, I would also add "the power of time" besides "the power of the network effect".  

Many things exist with lots of imperfection, just because no one can go back in time and re-engineering the whole thing and remove all the effect they have caused. Over time, things will generate strong inertia, any attempt to go against those inertia would become more and more difficult

In my opinion, at this stage, no drastic change would happen in bitcoin space, most possibly people will just continue to use off-chain services which already exists today: Exchanges, mining pools, webwallets, payment processors, gambling sites, ...

If many large actors in these area start to build their clearing and settlement partnership, then essentially majority of the bitcoin transactions can go off-chain and become instant and almost fee free. Anyway, majority of the bitcoin payment transactions just happen between those large service providers

I have explained a such possibility here: https://bitcointalk.org/index.php?topic=1171667.msg12337227#msg12337227

[JeromeL]

I would also add "the power of time" besides "the power of the network effect". 

I agree with you.

What you call the power of time is also known as the Lindy effect (https://en.wikipedia.org/wiki/Lindy_effect) and Bitcoin fully benefits from it : in other words, time is playing in Bitcoin's favor. The longer Bitcoin survives => the longer (remaining) life expectancy => the more confidence people have in it => the more value it gains.

[sAt0sHiFanClub]

I would also add "the power of time" besides "the power of the network effect". 

I agree with you.

What you call the power of time is also known as the Lindy effect (https://en.wikipedia.org/wiki/Lindy_effect) and Bitcoin fully benefits from it : in other words, time is playing in Bitcoin's favor. The longer Bitcoin survives => the longer (remaining) life expectancy => the more confidence people have in it => the more value it gains.

The Lindy effect worked great for MySpace.

[johnyj]

Question: is it possible for Bitcoin to enforce a rule that goes against the will of the market?  How can we enforce rules that most of us disagree with?

As an example, consider the block size limit.  When it was put in place five years ago by Satoshi, it served as an anti-spam measure.  It was actually 800x larger than Q* so the vertical line marked Q_max was actually 100 ft off the chart!  Since the production quota was to the left of the free-market equilibrium point, it didn't affect the market dynamics.  There was no economic pressure to change the limit.  



However, Bitcoin has grown tremendously over the past five years and I believe the limit is now serving as a political measure instead.  It is to the right of Q*, resulting in what economists call a "deadweight loss."  This is the total economic activity lost as a direct result of the quota.  It also represents the will of the market (people) clamouring for change.



If the market wants to be at Q*, but the production quota is forcing it to be at Q_max, what can a group do to continue to enforce the production quota against the will of the market?  How can the invisible hand be restrained?

I rechecked these charts, the "deadweight loss" part means that when there is a blocksize limit on the left of the Q*, some transactions will not be included in the block no matter how people adjust their fees

But my view is that supply and demand curve is not fixed, they would move once the Qmax moved, so that a new Q* will always appear at the left of Qmax regardless of Qmax's position

Imagine that Qmax moved to left of Q*, thus the tranaction capacity is not enough, so the natural reaction of normal user is to reduce the transaction frequency, so demand curve will shift down, and the supply curve will shift up: miners charge much more when the transaction capacity is less. So these two lines will cross at some where left of Qmax to make a new Q*

[sgbett]

Your premise: Bitcoin consensus operates as a free market.

Why this is wrong: Bitcoin is ruled by a protocol enforced by a consensus of the nodes on the network.

The block size limit is not unlike like other consensus rules in the protocol: block interval time, 21M cap. It is indeed a security rule that carefully gages the incentives of the actor in the system and helps to align them toward an equilibrium.

It served as an anti-spam measure and still does.

The reason it is so is because the true cost of the spam is not bore by the miners but by the nodes. The block space is not a commodity produced by the miners but the effect of a limit on the costs of resources for the system.

"There's only one difference between a bad economist and a good one: the bad economist confines himself to visible effects; the good economist takes into account both the effect that can be seen and those effects that must be foreseen." Frédéric Bastiat

This is the total economic activity:



Any of you seeing a "dead weight loss"  

Clearly the "will of the market" is not clamoring for more block size at present. Especially considering surely 20% of that space is filled with spam.

More about this "free market": if it cannot pay for decentralization then it cannot afford more utility. THIS is the negative externality that gets hand waved away by Peter. While he seemingly is very able at drawing lines on charts his ability to discern game theory dynamics are poor at best.

What he is campaigning and openly support is a tragedy of the commons that would create a disproportional and ultimately tragic rise of the resources costs of becoming a peer in the network.

Assuming yearly 20% increase blockchain size & 10% reduction in bandwidth costs, after 15-20 years no new nodes can enter system except maybe huge datacenter operations. https://www.youtube.com/watch?v=TgjrS-BPWDQ&feature=youtu.be&t=7331

It should be clear then that the anti spam limit should represent a measure of the cost of running a node. http://www.truthcoin.info/blog/measuring-decentralization/

A straight line? really?

[VeritasSapere]

I agree with your position Peter R, that Bitcoin is ruled by the free market. Not by some absolutist conception of the consensus mechanism.

[brg444]

A straight line? really?

I don't see the difference between your chart and mine. Everything below 0.6 is mostly noise and spam.

[knight22]

Question: is it possible for Bitcoin to enforce a rule that goes against the will of the market?  How can we enforce rules that most of us disagree with?

As an example, consider the block size limit.  When it was put in place five years ago by Satoshi, it served as an anti-spam measure.  It was actually 800x larger than Q* so the vertical line marked Q_max was actually 100 ft off the chart!  Since the production quota was to the left of the free-market equilibrium point, it didn't affect the market dynamics.  There was no economic pressure to change the limit.  



However, Bitcoin has grown tremendously over the past five years and I believe the limit is now serving as a political measure instead.  It is to the right of Q*, resulting in what economists call a "deadweight loss."  This is the total economic activity lost as a direct result of the quota.  It also represents the will of the market (people) clamouring for change.



If the market wants to be at Q*, but the production quota is forcing it to be at Q_max, what can a group do to continue to enforce the production quota against the will of the market?  How can the invisible hand be restrained?

I rechecked these charts, the "deadweight loss" part means that when there is a blocksize limit on the left of the Q*, some transactions will not be included in the block no matter how people adjust their fees

But my view is that supply and demand curve is not fixed, they would move once the Qmax moved, so that a new Q* will always appear at the left of Qmax regardless of Qmax's position

Imagine that Qmax moved to left of Q*, thus the tranaction capacity is not enough, so the natural reaction of normal user is to reduce the transaction frequency, so demand curve will shift down, and the supply curve will shift up: miners charge much more when the transaction capacity is less. So these two lines will cross at some where left of Qmax to make a new Q*

Basically there is two possible outcome to this, either the pressure for more capacity will increase OR as you state, demand will lower down by driving users away. If demand is lowering down then transaction fees won't rise up.

[sgbett]

A straight line? really?

I don't see the difference between your chart and mine. Everything below 0.6 is mostly noise and spam.

The difference is that I haven't tried to draw a straight line on an exponential trend.

[brg444]

A straight line? really?

I don't see the difference between your chart and mine. Everything below 0.6 is mostly noise and spam.

The difference is that I haven't tried to draw a straight line on an exponential trend.

Exponential? Really?

I took the image from here: https://medium.com/@OB1Company/scaling-bitcoin-9366988972b6

[iCEBREAKER]

I would also add "the power of time" besides "the power of the network effect". 

I agree with you.

What you call the power of time is also known as the Lindy effect (https://en.wikipedia.org/wiki/Lindy_effect) and Bitcoin fully benefits from it : in other words, time is playing in Bitcoin's favor. The longer Bitcoin survives => the longer (remaining) life expectancy => the more confidence people have in it => the more value it gains.

The Lindy effect worked great for MySpace social networking websites.

Fixed that for you, to correct the specious Gavinista talking point.

Here, let me rub the point in your stupid face, because I like to preempt predictable knee-jerk counterarguments with rhetorical supremacy.

The Lindy effect worked great for Pan American America West airline travel.

The Lindy effect worked great for Trident 3dfx GPUs.

The Lindy effect worked great for Deusenburg Packard automobiles.

Now do you see what a colossal fucktard you are?

Now do you appreciate how badly you'll get pwnd and rekt when you smart off to your superiors?

BTW, what happened to your "thermos's censorship will aid XT's triumph, because Streisand Effect" talking point?

Did it die, not with a bang but with a whimper, as everyone but a few zero-percenters laughed at your unethical, grossly exaggerated conflation of moderation and suppression?

Gee that's too bad.  Go try selling XT using FOMO somewhere else!  This is not Reddit; we are not imbeciles here.   

[solex]

Question: is it possible for Bitcoin to enforce a rule that goes against the will of the market?  How can we enforce rules that most of us disagree with?

As an example, consider the block size limit.  When it was put in place five years ago by Satoshi, it served as an anti-spam measure.  It was actually 800x larger than Q* so the vertical line marked Q_max was actually 100 ft off the chart!  Since the production quota was to the left of the free-market equilibrium point, it didn't affect the market dynamics.  There was no economic pressure to change the limit.  



However, Bitcoin has grown tremendously over the past five years and I believe the limit is now serving as a political measure instead.  It is to the right of Q*, resulting in what economists call a "deadweight loss."  This is the total economic activity lost as a direct result of the quota.  It also represents the will of the market (people) clamouring for change.



If the market wants to be at Q*, but the production quota is forcing it to be at Q_max, what can a group do to continue to enforce the production quota against the will of the market?  How can the invisible hand be restrained?

I rechecked these charts, the "deadweight loss" part means that when there is a blocksize limit on the left of the Q*, some transactions will not be included in the block no matter how people adjust their fees

But my view is that supply and demand curve is not fixed, they would move once the Qmax moved, so that a new Q* will always appear at the left of Qmax regardless of Qmax's position

Imagine that Qmax moved to left of Q*, thus the tranaction capacity is not enough, so the natural reaction of normal user is to reduce diversify the transaction frequency, so demand curve will shift down alternative cryptocurrencies fill the demand gap, instead of the naive assumption that the supply curve will shift up: miners charge much more when the transaction capacity is less. So these two lines will cross at some where left of Qmax to make a new Q*

Fixed it for ya.