The deflationary problem

[MoonShadow]

Bitcoin generation does not end in 2040

There IS a minimum transaction fee, it's just optional for the miners to accept or not.  Some will certainly not accept free transactions eventually, others will accept free transactions that are paid off network.  The on-network transaction fees are the "retail" method of paying for the network.  There are a number of likely off-network methods of paying for miners to run the network.  This is not a tragedy of the commons scenario.  Free transactions should always be possible, let the market decide if they are viable, not the code.

[1714037901]

1714037901

[1714037901]

1714037901

[1714037901]

1714037901

[1714037901]

1714037901

[1714037901]

1714037901

[myrkul]

Bitcoin generation does not end in 2040

Yup, not until 2140: https://en.bitcoin.it/wiki/Controlled_supply#Projected_Bitcoins_Long_Term

Of course, block fees will only be one satoshi for four years prior. Bottom line, there will be plenty of time for the market to discover the right price for a transaction.

[firefop]

Also meaning some potential attacker could choose a time with less mining going on to stage his attack (chain only as strong as weakest link as in network only as strong as it is at times with lowest hashrate). So I think I'm against a transaction-amount dependant fee.

So the incentive for someone sending money to include a high transaction fee is not "to secure the network" but to "ensure a speedy transaction". Transacters are competing for scarce space in blocks. However "block space" is not the same resource (in view of miners) as "hashing power".

So is it true that we basically have to "artificially" limit the available block size to ensure miners will receive high enough fees?

I don't believe so - I think the idea of limiting it by size is past it's time and will soon be modified and/or removed entirely. At the very least we need to be able to process transactions on a level that competes with some large private payment network (like visa). Honestly I'd like to see the rate of block creation increase by an order of magnitude and the block reward decrease accordingly (as a start) that would at least put us much closer to where we need to be.

[spartacusrex]

I have to disagree..

I think it is simply NOT reasonable to expect the network to deal with FREE and/or very low tXn fees for really large txns...

I know we can leave it up to the miners and they will come up with a value that meets their demands and the demands of the users, but that will not be as secure as the users want it, and it won't be as many fees as the miners want. It'll be somewhere in the middle..

If the protocol said, it's 0.1%. full stop. The miners get a nice fraction, that always grows proportionally, as the usage of the network grows. They will be paid well, and the network will be VERY secure.

I am not interested in arguing over 1/1000 of a percent. I want to give it to the miners and have a secure network.

All I know is that right now, the fees are NOWHERE near enough to pay for the miners.. https://blockchain.info/charts/network-deficit

And they will have to go up.. A LOT.

If the incentive is sometimes much more than average, then mining will sometimes be more than average. That means it will sometimes be much less, meaning a very long time waiting for a block.

This is true, but only if we find that there is a disparity in the txn amounts in the blocks.. I don't know what the ratio is, but the mathematician inside me reckons that in a global economy they would be pretty standard on average.. But I don't know..

(Throwing a few ideas out here..)

What if we find the 0.1% txn fees are always high enough to make mining worthwhile ? Or maybe the network difficulty needs to be a bit more dynamic in nature.. OR maybe the difficulty could be in some way linked to the txn amout of the block.. hmm.. maybe not..

What i'm saying is there may be other solutions - with the eventual GOAL being - Happy Well-Payed Miner / Secure Network.




 

[MoonShadow]

I have to disagree..

Okay.

I know we can leave it up to the miners and they will come up with a value that meets their demands and the demands of the users, but that will not be as secure as the users want it, and it won't be as many fees as the miners want. It'll be somewhere in the middle..

That's the idea.  The market finds a balance.  There is no other way.

[spartacusrex]

That's the idea.  The market finds a balance.  There is no other way.

Hmm.. Forgive me, but is that not the same as this..

We let Children into a room full of sweets. They will eat as many sweets as they can before they are sick. They won't eat more than that, as they will be feeling ill, and won't want any more.. The Market will find a balance.

Yes this is true, but where is it said that this is the BEST AND ONLY way.. ?

People  do NOT understand the complexities of bitcoin TXNs. They just want to send their money. IF they were perfectly informed about the PRO's and CONs maybe most would choose to pay. But they will not be perfectly informed.

When asked if you could transmit your coins for free, OR pay a tiny TXN fee and help the network be more secure, how many will pick the former over the latter ? I can imagine that MOST people will go for the free option, of course..

Whereas if they weren't given a choice, and told that they had to pay 0.1% fee, MOST wouldn't bat an eyelid.. and say, That's fine.

It just seems that we are giving a choice were the NON-Obvious choice , pay a small fee, has very little against it and WILL make an ENORMOUS difference to the health of the network.

I can see how this goes against the whole FREE-MARKET thing, but don't people need to be BETTER informed, which they WON'T be, to make a GOOD decision ? Could that be the problem..?

Sorry to keep harping on about this, but many FREE-MARKETs have crashed because people are not mathematical objects, that don't have to behave rationally. They're human after all.. 

 

[myrkul]

That's the idea.  The market finds a balance.  There is no other way.

Hmm.. Forgive me, but is that not the same as this..

We let Children into a room full of sweets. They will eat as many sweets as they can before they are sick. They won't eat more than that, as they will be feeling ill, and won't want any more.. The Market will find a balance.

No, not really. Unless, of course, you assume that miners are children.

[spartacusrex]

That's the idea.  The market finds a balance.  There is no other way.

Hmm.. Forgive me, but is that not the same as this..

We let Children into a room full of sweets. They will eat as many sweets as they can before they are sick. They won't eat more than that, as they will be feeling ill, and won't want any more.. The Market will find a balance.

No, not really. Unless, of course, you assume that miners are children.

PEOPLE are the children.. in a nice way..

[myrkul]

That's the idea.  The market finds a balance.  There is no other way.

Hmm.. Forgive me, but is that not the same as this..

We let Children into a room full of sweets. They will eat as many sweets as they can before they are sick. They won't eat more than that, as they will be feeling ill, and won't want any more.. The Market will find a balance.

No, not really. Unless, of course, you assume that miners are children.

PEOPLE are the children.. in a nice way..

People want to have fast transactions. Miners want to have fees. Where these two desires interact, is where the market finds the proper transaction fee. People are not children, and thinking that they are is what has gotten this world into the state it is in. Central planning always fails.

[spartacusrex]

People want to have fast transactions. Miners want to have fees. Where these two desires interact, is where the market finds the proper transaction fee. People are not children, and thinking that they are is what has gotten this world into the state it is in. Central planning always fails.

Hmm.. I mean Children in the sense that they are not informed about all the facts. Is that not a requirement for a free market to work correctly ? Total Information Transparency ? Which requires them to understand the information..

The Children don't know if they eat all those sweets they will damage their bodies, get fat, rot teeth etc etc.. If they did - they'd think twice about it. And 'happily' choose to only eat a few.

[myrkul]

People want to have fast transactions. Miners want to have fees. Where these two desires interact, is where the market finds the proper transaction fee. People are not children, and thinking that they are is what has gotten this world into the state it is in. Central planning always fails.

Hmm.. I mean Children in the sense that they are not informed about all the facts. Is that not a requirement for a free market to work correctly ? Total Information Transparency ? Which requires them to understand the information..

The Children don't know if they eat all those sweets they will damage their bodies, get fat, rot teeth etc etc.. If they did - they'd think twice about it. And 'happily' choose to only eat a few.

Why do you assume that all market participants are ignorant of the functioning of the network?

[kjj]

People want to have fast transactions. Miners want to have fees. Where these two desires interact, is where the market finds the proper transaction fee. People are not children, and thinking that they are is what has gotten this world into the state it is in. Central planning always fails.

Hmm.. I mean Children in the sense that they are not informed about all the facts. Is that not a requirement for a free market to work correctly ? Total Information Transparency ? Which requires them to understand the information..

The Children don't know if they eat all those sweets they will damage their bodies, get fat, rot teeth etc etc.. If they did - they'd think twice about it. And 'happily' choose to only eat a few.

They don't need "Total Information Transparency", they just need enough information to make a reasonable (not necessarily perfect) decision.

The market for fees doesn't exist yet, practically speaking.  We have no tools to collect and distribute the necessary information.  Mostly, this is because bitcoin is still young.  It wasn't born fully formed; we still have work to do.

Allowing fees to float in relation to transaction value was a very wise decision.  Setting a fixed percentage, even as just a floor, is impossible at best, and grotesquely disfiguring at worst.

[spartacusrex]

..grotesquely disfiguring at worst..

HA! Ok.. Children eating too many sweets and being sick it is!

They'll learn the hard way. Just as we will. Maybe that is the only way there is.

 

[myrkul]

They'll learn the hard way. Just as we will. Maybe that is the only way there is.

I think you're starting to get it.

[spartacusrex]

hello.. sorry.. just one more thing..

I quote some guy - http://bitcoin.stackexchange.com/questions/876/how-much-will-transaction-fees-eventually-be

'I read that the market will find the equilibrium how much these transaction fees will be.

It will not. This is perhaps the biggest flaw in Bitcoin at the moment: once mining rewards end there is no direct linkage between the amount of hashpower needed to secure the network and the incentive to mine.

True, there is a limit on the blocksize, so if the transaction volume in a block window (approximately 10 minutes) exceeds the block size you can expect a miniature "auction" where transactions fight for space in the block by bidding up the minimum transaction fee needed to get in. However this isn't really a closed-loop adjustment: the maximum blocksize is an arbitrarily chosen number, and there's no reason to believe the maximum blocksize is small enough to ensure that transaction fees are high enough to incent enough miners to mine to keep the system secure. Unlike the difficulty and the USD/BTC exchange rate it does not respond to market activity. It also has the negative side effect of capping the worldwide Bitcoin transaction throughput since other parts of the protocol rely on the assumption that blocks are created -- in the long run -- no more than once every ten minutes.

As the mining reward is reduced this "direct coupling" between the network's need for security and the incentive to mine becomes progressively more diluted.

I worry a lot about what will happen to Bitcoin once we decouple those two forces. I think the developers ought to at least come up with a story on how this will be solved so people can start testing it.
'

I think he makes a valid point, better than I made it..  and I wanted to point out that this issue is far from clear/certain/set-in-stone to everyone.

Thanks for listening.

Now, where's that bag of sweets...

[kjj]

hello.. sorry.. just one more thing..

I quote some guy - http://bitcoin.stackexchange.com/questions/876/how-much-will-transaction-fees-eventually-be

I read that the market will find the equilibrium how much these transaction fees will be.

It will not. This is perhaps the biggest flaw in Bitcoin at the moment: once mining rewards end there is no direct linkage between the amount of hashpower needed to secure the network and the incentive to mine.

True, there is a limit on the blocksize, so if the transaction volume in a block window (approximately 10 minutes) exceeds the block size you can expect a miniature "auction" where transactions fight for space in the block by bidding up the minimum transaction fee needed to get in. However this isn't really a closed-loop adjustment: the maximum blocksize is an arbitrarily chosen number, and there's no reason to believe the maximum blocksize is small enough to ensure that transaction fees are high enough to incent enough miners to mine to keep the system secure. Unlike the difficulty and the USD/BTC exchange rate it does not respond to market activity. It also has the negative side effect of capping the worldwide Bitcoin transaction throughput since other parts of the protocol rely on the assumption that blocks are created -- in the long run -- no more than once every ten minutes.

As the mining reward is reduced this "direct coupling" between the network's need for security and the incentive to mine becomes progressively more diluted.

I worry a lot about what will happen to Bitcoin once we decouple those two forces. I think the developers ought to at least come up with a story on how this will be solved so people can start testing it.

I think he makes a valid point, better than I made it..  and I wanted to point out that this issue is far from clear/certain/set-in-stone to everyone.

He keep using 'mining reward' wrong.  What he is talking about is actually the subsidy, which will gradually taper off and end, but the subsidy is only part of the mining reward.  He doesn't seem to be unaware of this distinction, but his misuse of the terms suggests muddled thinking, and he would probably benefit greatly from cleanly dividing the concepts in his mind.

I'm not sure that delving deeper into this is a good use of my time.  He seems to be making an awful lot of assumptions, some of which are going to be tricky to expose.  The most obvious is that the competition is for block space, which is already not true today.*  One more subtle is that the mining reward needs to pay for new hash power at roughly the current rate, which seems incredibly unlikely.**

It looks like a very static analysis.  He picked one thing that he knows is going to change, and figured out the ramifications by assuming that everything else was going to stay constant.  Such thinking usually goes horribly wrong when incorrectly applied to complex systems.

*  The competition is for miner attention.  Blocks are rarely full, and yet transactions, even some with fees, are waiting.

** It didn't take many GPUs to make overtake the entire CPU network.  It likewise didn't take many ASICs to overtake the entire GPU network.  But ASICs are the end of that road; now all we can do is make better ASICs.  There may be one or two more generational changes still coming as ASICs start to approach mass-market efficiency, but after that, improvements will be incremental rather than revolutionary.  This means that the furious pace of hardware turnover will slow dramatically.  Thus, mining rewards will only need to pay for operational costs and (relatively) modest upkeep and replacement, plus commodity-level profits.  By contrast, prior to winning the hashpower race, the mining reward has to pay that much, plus finance very rapid growth.

[myrkul]

It looks like a very static analysis.  He picked one thing that he knows is going to change, and figured out the ramifications by assuming that everything else was going to stay constant.  Such thinking usually goes horribly wrong when incorrectly applied to complex systems.

Like predicting the weather based on the assumption that only the temperature will change.

[spartacusrex]

Fizzy-Cola-Bottle anyone ?

I'm feeling a bit queasy.. eaten too many sweets..

[myrkul]

I'm pretty confident that over the next century, the market will learn what the correct price for a block is to maintain the hashpower to secure the network.

[MoonShadow]

That's the idea.  The market finds a balance.  There is no other way.

Hmm.. Forgive me, but is that not the same as this..

We let Children into a room full of sweets. They will eat as many sweets as they can before they are sick. They won't eat more than that, as they will be feeling ill, and won't want any more.. The Market will find a balance.

Yes this is true, but where is it said that this is the BEST AND ONLY way.. ?

It's closer to giving your kids a dollar, and telling them to pick out their own candy at the store.  If you've ever seen a six year old deliberate over the selection for an hour, clutching that dollar in his hand, you've just seen the principles of Praxeology in play.  Particularly "opprotunity cost calculation".  Giving kids candy is a real 'tragedy of the commons'.

People  do NOT understand the complexities of bitcoin TXNs. They just want to send their money. IF they were perfectly informed about the PRO's and CONs maybe most would choose to pay. But they will not be perfectly informed.

Those who need to understand will learn.  It's a fairly easy concept that free transactions can take a long time, so if you need speedy, pay the fee.

When asked if you could transmit your coins for free, OR pay a tiny TXN fee and help the network be more secure, how many will pick the former over the latter ? I can imagine that MOST people will go for the free option, of course..

Probably; unless the confirm times average over a week, which they eventually will.  Again, there are other ways to pay miners for support off network.  On network is retail.  Free transactions must be possible for off network solutions to develop.

Whereas if they weren't given a choice, and told that they had to pay 0.1% fee, MOST wouldn't bat an eyelid.. and say, That's fine.

Most, maybe.  Until they learn that Litecoin permits free transactions.

It just seems that we are giving a choice were the NON-Obvious choice , pay a small fee, has very little against it and WILL make an ENORMOUS difference to the health of the network.

How much?  Can your quantify it, or you just guessing?  Obviously, that was retorical, I know your honest answer.  You must make many assumptions about how much network "health" (a very subjective metric to start with) would be lost, and how mch is enough.  These things are unknowable.  Let the market decide.

I can see how this goes against the whole FREE-MARKET thing, but don't people need to be BETTER informed, which they WON'T be, to make a GOOD decision ? Could that be the problem..?

Sorry to keep harping on about this, but many FREE-MARKETs have crashed because people are not mathematical objects, that don't have to behave rationally. They're human after all.. 

The individuals don't need to be well informed for the 'market' as a whole to be well informed.  Look at intrade.com. 

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

― Friedrich von Hayek