How a floating blocksize limit inevitably leads towards centralization

[solex]

Competing centralised services built atop of Bitcoin to cater for micro payments will not only be more efficient and cheaper ...

These services do not exist yet. It is the root of the problem because the 1Mb limit will cripple bitcoin (later this year) before such services can take over micro-transactions (several years away). The limit needs to be flexible enough to allow bitcoin to work as it does now, until/if synergistic competing services develop on their own merits.

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[hazek]

We seem to have oodles of spare space currently

The problem is the rate of adoption likely isn't linear but exponential meaning it just seems we have "oodles" of spare space. This could change quite fast.

Competing centralised services built atop of Bitcoin to cater for micro payments will not only be more efficient and cheaper ...

These services do not exist yet. It is the root of the problem because the 1Mb limit will cripple bitcoin (later this year) before such services can take over micro-transactions (several years away). The limit needs to be flexible enough to allow bitcoin to work as it does now, until/if synergistic competing services develop on their own merits.

They don't? Users of mtgox can send each other bitcoins off blockchain, so can users of most other exchanges, hell Coinbase is even built with this being it's primary goal..

[markm]

Ripple is out of closed beta too, maybe it can take a lot of the load off the blockchain. A lot of users use online wallets too, those have internal transfers too.

-MarkM-

[cjp]

My prediction for what will happen if we DON'T increase the block size limit:

At some point in the future (this year probably), the block size limit will be reached. People will start noticing that their transactions don't get confirmations, and they start increasing transaction fees. It would be nice to have a feature in the Bitcoin software to retransmit a transaction with a higher fee (as a "double spend", so that it will never be performed twice).

"Frivolous" use of Bitcoin decreases, as it is discouraged by the higher fees. SatoshiDice will be played with higher amounts, so that the fees don't matter that much: we will have fewer SatoshiDice transactions, and more "useful" transactions.

Bitcoin price can still rise, if its use shifts from "consumer-level" to "business-level", where large transactions happen more frequently.

People will start using centralized services for Bitcoin transactions, especially for smaller transactions: these will have smaller fees or no fees at all, since none of these "internal" transactions need to be written into the block chain. Effectively, these services are a sort of "banks". Note that, as mentioned by hazek, these services already exist. Note that this is also a form of centralization (though a more visible one), and that fractional reserve banking becomes possible (it already is, in fact, for these services).

These centralized services will connect to each other to offer interoperability to each others' customers without the high fees of block chain transactions. This will start with ad-hoc solutions, and then become more standardized.

In a couple of years, my Ripple-like concept could be a standard for these interconnections. One of the nice things is that it does not allow fractional banking, and it dramatically reduces the need for trust in the service providers.

Once we reach usage by a significant fraction of the world population, the block size limit won't be high enough to support my Ripple-like concept (fees will be unaffordable for most people), so people will be forced to trust their "banks" again. We'll then have more than enough experience with the effects of the size limit, and computer power has also increased significantly. We'll then be able to make a well-informed jump to a higher limit value.

Problem in this scenario: "banks" have an interest in maintaining this "forced trust" (among other things, it allows them to do fractional banking), so once they exist, they will oppose the limit increase. This is an argument for increasing the limit before "banking" appears in the Bitcoin world.

[solex]

My prediction for what will happen if we DON'T increase the block size limit:

At some point in the future (this year probably), the block size limit will be reached. People will start noticing that their transactions don't get confirmations, and they start increasing transaction fees.

It would be nice if this is true, but bitcoin will hit the limit like a train hitting the buffers and there will be widespread chaos. Right now the price on mtgox has hit silver parity. This is big news and will accelerate wider adoption. Yes, SD could be throttled back to give breathing space, but only a few weeks.

At the very least the 1Mb limit should be decoupled from block-readers, and soon, so that only block-writers are constrained.

They don't? Users of mtgox can send each other bitcoins off blockchain, so can users of most other exchanges, hell Coinbase is even built with this being it's primary goal..

I defer to your deeper knowledge on this...

[Technomage]

I find the need to rely on centralized services more to send small transactions, as a much more unlikeable scenario than letting the requirements for running a full Bitcoin node or a mining node increase, and let Bitcoin continue to support small transactions. There might be a fundamental vision conflict regarding this issue but we'll see how it goes. This issue should be one of the priorities for the dev team for sure.

Thing is, with centralized services handling small transactions we most certainly face a much higher degree of centralization than if we raise the block size limit. Based on the calculations in this thread running nodes would still be within reach for dedicated hobbyists - NOT super computer level like some FUD-spreading people are trying to imply.

Not raising the limit could lead to a situation where Coinbase literally becomes the new PayPal, and nothing has changed. Currently everyone has the freedom to use the blockchain directly which is sensorship free.

[markm]

I suspect we could double the block size without massive disruption, but once you start where does it end?

Doubling the liimit might well just prove it is going to give way at every push or shove, leading it it being pushed and shoved way up beyond any reasonable person-to-person network's personal computer's ability to actually operate as a node on a personal internet connection.

It will become a business to business or even backbone to backbone network, making the whole p2p premise just a bait-and-switch trick used to con people into doing the initial investment and work to get the elite's new elite billionaire-to-billionaire-network up and running initially and suck people in to the early adoption phase of it.

-MarkM-

[Anon136]

Ripple is out of closed beta too, maybe it can take a lot of the load off the blockchain. A lot of users use online wallets too, those have internal transfers too.

-MarkM-

you bring up a really good point. With ripple we can do off blockchain transactions with out the negative effects of centralization.

[markm]

Ripple is out of closed beta too, maybe it can take a lot of the load off the blockchain. A lot of users use online wallets too, those have internal transfers too.

-MarkM-

you bring up a really good point. With ripple we can do off blockchain transactions with out the negative effects of centralization.

We can also maybe refer to Ripple as a Business to Business network from the outset rather than as a Person to Person network, since it seems designed and intended from the outset to be B2B oriented rather than P2P oriented.

-MarkM-

[Jutarul]

An increase of the block size from 1MB to 100MB is manageable for ordinary users. This equates to a bandwidth of less than 1 MB/s which CAN be arranged if you want to run a validation node yourself (which is advisable if there is a hard fork going on and you need to do validation yourself...).

I could be swayed into increasing the threshold limit to allow for a higher transaction throughput. However it must be maintainable by the AVERAGE miner. An increased orphan rate due to bandwidth limitations can be compensated by increasing hashing power. So the average miner may be faced with a decision to either put investments into bandwidth or increased hashing power.

I would advice against a floating blocksize limit, because it prevents average miners from planning for bandwidth and storage requirements. As pointed out by the OP it also adds another attack vector which is poorly understood.

Let's keep the blockchain accessible (guaranteed)!

[MoonShadow]

I suspect we could double the block size without massive disruption, but once you start where does it end?

Doubling the liimit might well just prove it is going to give way at every push or shove, leading it it being pushed and shoved way up beyond any reasonable person-to-person network's personal computer's ability to actually operate as a node on a personal internet connection.

It will become a business to business or even backbone to backbone network, making the whole p2p premise just a bait-and-switch trick used to con people into doing the initial investment and work to get the elite's new elite billionaire-to-billionaire-network up and running initially and suck people in to the early adoption phase of it.

You seem to fear the inevitable.  If Bitcoin is ever to become truly successful, a transaction throughput volume that is well beyond what the average end user is capable of, or willing to, committing the resources to maintain a full client must occur.  There is no point in crying about this, it has already begun.  I dont run a full client anymore, myself.  While it's important that the blockchain be replicated many places across the Internet, and into the deep web such as Tor, there comes a point of rapidly dimminishing returns.  I think that we have around 10K full nodes that can be identified (which should exclude any in the deep web), who here thinks that this isn't more than enough redundency for security purposes?  There must be some degree of centralization, as the bitcoin network as it presently exists is too costly relative to it's current market size.  We don't want the network to get smaller, really, but nor do we need it to grow more; we simply need the market to outgrow the network until the relative costs of running the netowrk are much lower than now, and we need this to happen well before the block reward cuts in half once again.


Light clients and their supporting overlay networks are the future of Bitcoin, if it is to ever have one. 
Eventually, a live transaction on the main netowrk should become an uncommon event, relative to the number of off-network transactions that occur.  This futture has been known to those of us that are versed in economic theory, for as the economy grows the growth must outpace the ability of the main bitcoin netowrk to scale.  As this happens, there will be incentives for off-network transactions to dominate; and a balance between the costs of the main network with it's high security model versus the costs with overlay and parrallel netowrks with their lower transaction costs and associated less seucre models will develop.  If Bitcoin is to ever become as large an economy as, for example, the SystemD (for which it is so well suited) the vast majority of small value and daily transactions are gointg to be handled by overlay networks and the online wallet-like servies that develop them; while higher value transactions (for example, your weekly paycheck) might still be handled by the main netowrk.

[markm]

Okay then, lets for the sake of argument imagine you are correct that 10,000 nodes is sufficient decentralisation.

1,000,000 bytes divided by 10,000 nodes is 100 bytes per block per node.

Multiply by 144 blocks per day and you get 14400 bytes per node per day.

If transactions were one byte each that would be enough for each node to send one settlement to each of the other nodes per day and still have 4,399 bytes to spare. Unfortunately transactions are what, some 400 or so bytes each on average? But, settling up only requires one of the nodes of each pair of nodes to send coins: the one that owes some to the other.

If all the nodes needed to settle every day, it seems from this very sketchy back of an envelope approximation that they would need about 200 times the block size we currently have. 200+ megabytes per block

Maybe if we can get 10,000 full bitcoin nodes to also run Ripple we can start to see how often they actually do tend to need to settle up with each other. It actually, surprisingly, seems quite a surprise to realise that the core backbone of full nodes obviously is not actually settling up pairwise between all of them every day already. Are my numbers way way off? As it seems from this guestimation that only about one in a hundred of the combinatorial pairs of full nodes is settling up on any given day even if we assume no transaction other than such settlements hit the blockchain. Since we also hear that Satoshi Dice is maybe the biggest user of the blockchain apparently it must be quite a bit less than one day in a hundred that a full node actually settles up with another full node at this time. So maybe we can figure typical full nodes settle up about once per quarter of a year?

The more traffic Ripple can cause to not require immediate settlement on the blockchain the longer 10,000 full nodes should be able to continue to settle up at the same rate they currently are, and if Satoshi Dice also moved off the blockchain, settling with each gambler's full node of choice quarterly too, we'd continue to have plenty of space on the blockchain unless/until far more full nodes sprang up, each wanting to settle with all other full nodes at the same rate full nodes settle up currently.

Yeah I know that is not realistic. But it seems to give some insight into the numbers, at least to me. Full nodes seemingly are not settling up even as often as quarterly right now, why is that? Is it that actually there are only about 10,000 individual users actively transacting currently at any one time / on any given hour or during any given day or something like that?

-MarkM-

[MoonShadow]

Yeah I know that is not realistic. But it seems to give some insight into the numbers, at least to me. Full nodes seemingly are not settling up even as often as qarterly right now, why is that? Is it that actually there are only about 10,000 individual users actively transacting currently at any one time / on any given hour or during any given day or something like that?

-MarkM-

None of the above.  If there are 10K full nodes, then there are 10K copies of the blockchain.  That is all that this implies.  There is no data to tell us; 1) how many are single user nodes versus how many are multi-user nodes or Stratum servers, 2) how many users on any of these light client servers exist nor 3) how often these users need to "settle up".  The actual number of the full clients in the network is mostly a product of the "many-copies-keeps-data-safe" security model.  But the cost of this redundency is not zero (even though it's still cheaper than fiat currencies).  This cost would be spread out greater as the market grows, but the resources that miners consume are not the only costs of running the network, as a great many of those resources are contributed in-kind by users with both the resources and the determination to run full nodes.  As the resources required to participate in the network as a full node increase (at a rate faster than those same resources grow, as available to the average power user) some of those back-up nodes with marginal/non-existent pay-back will stop participating.  Hopefully, the services of running a parrallel payment network, for example BitcoinSpinner's business model, will be able to turn a profit, since they will (out of necessity) also run a full node.

[hazek]

I find the need to rely on centralized services more to send small transactions, as a much more unlikeable scenario than letting the requirements for running a full Bitcoin node or a mining node increase, and let Bitcoin continue to support small transactions. There might be a fundamental vision conflict regarding this issue but we'll see how it goes. This issue should be one of the priorities for the dev team for sure.

Thing is, with centralized services handling small transactions we most certainly face a much higher degree of centralization than if we raise the block size limit. Based on the calculations in this thread running nodes would still be within reach for dedicated hobbyists - NOT super computer level like some FUD-spreading people are trying to imply.

Not raising the limit could lead to a situation where Coinbase literally becomes the new PayPal, and nothing has changed. Currently everyone has the freedom to use the blockchain directly which is sensorship free.

It seems you have two choices:

a) A money system which allows you to validate the rules it functions under but at the same time eventually likely forces you to use a business for your day to day transactions, however again you yourself can easily audit this business at any time and make sure they aren't doing anything you didn't agree with when you signed up for their services

b) A mere payment system, similar to paypal, that eventually you will have no power to validate is following the rules you agreed to when you started using it


Which will it be?

[gmaxwell]

You seem to fear the inevitable.

Something which is currently prohibited by the rules embodied in every bitcoin node can not be easily described as inevitable.

If Bitcoin is ever to become truly successful, a transaction throughput volume that is well beyond what the average end user is capable of, or willing to, committing the resources to maintain a full client must occur.

A fair amount of debuking this has already happened in the thread. There are sound fundamental technical reasons why Bitcoin cannot be fully successful without external (decenteralized if you like) transaction handling. Once you have that, there isn't obviosuly a need for an extreme capacity (beyond millions/day) in bitcoin itself.

There is no point in crying about this, it has already begun.  I dont run a full client anymore, myself.

Kind of an odd comment. A rasberry pi— significantly less powerful than most current smartphones— can keep up with the blockchain with current software. Modulo software bugs and inadequacies the computing hardware and storage I already own would be adequate for a hundred years of the current maximum rate of Bitcoin (though I tend to be a bit overpowered).  

While it's important that the blockchain be replicated many places across the Internet, and into the deep web such as Tor, there comes a point of rapidly dimminishing returns.  I think that we have around 10K full nodes that can be identified

There are about 20k IPv4 _listening_ nodes enumerated in the seeds database, but it's impossible to know how many full nodes there are, though its very likely that its substantially more than the number we can see listening.

There must be some degree of centralization, as the bitcoin network as it presently exists is too costly relative to it's current market size. We don't want the network to get smaller, really, but nor do we need it to grow more; we simply need the market to outgrow the network until the relative costs of running the netowrk are much lower than now

The cost of running a node relative to the value to the Bitcoin economy isn't actually a factor in decenteralization. The problem is that no matter how valuable the bitcoin economy is you can always save the cost of validating it by letting (hoping) someone else handles it.  What matters is the absolute cost relative to current technology and keeping it low enough that you get diversity and decentralization through indifference and altruism.  If you depend on profit motives you end up with a tragedy of the commons because its easier to freeload, or easier to monetize dishonest behavior. The system doesn't have any real incentives for honestly validating except the vague "if no one does a good job of it, the whole house of cards collapses".

Eventually, a live transaction on the main netowrk should become an uncommon event, relative to the number of off-network transactions that occur.

Great. Agreed! But that is why some people here are saying that being conservative with Bitcoin itself and keeping the costs low and decentearlization a top priority is the right path: we can have both scale and decenteralization through the use of off-chain trading and keeping the chain small... but if we bloat up the chain so that only some ten thousand central banks validate it, we'll lose decentralization.

[johnyj]

I think that due to bitcoin's limited supply nature, the price will rise forever, so it will never be used at mass scale at retail market, the small transactions will more and more happen internally at exchange and web based service

It will take centuries to replace the currency system today. And since there are lot's of ways to improve the current currency system (for example FED can write off loans periodically to reduce the burden of debt-laiden government), that might never happen

But to function as a store of value and a method to do anonymous value transfer globally, that is the strength of bitcoin, and that does not require a lot of daily transaction

[n8rwJeTt8TrrLKPa55eU]

Doctors have the right idea: Primum non nocere.  Or if you prefer: if it ain't broke, don't fix it.

Clearly Bitcoin, as currently implemented, 1MB limitation included, is doing something right.  Otherwise demand wouldn't be growing exponentially.  Gavin: with each Bitcoin purchase, users are implicitly "voting" that they approve of its current embedded constants (or at least, they don't mind them, yet).  So why risk breaking that dynamic, unless a proven crisis arises?

As clearly evidenced in this thread, there is no consensus as to whether the block size limit will be a problem or not.  Both the "1MB-is-fine" as well as the "1MB-is-doom" scenarios are based around hypotheses, speculation, and behavioral modeling.  But: humans are notoriously crappy at predicting the future.  If anyone here could actually see 4 years out wrt. Bitcoin or anything else, why aren't they rich beyond belief, sitting on giant stashes of coins mined in 2009?

So here's my vote in favor of doing nothing until there is hard proof that any limit is, in fact, a deadly problem which cannot be worked around through overlay services and altchains.  Let's not be like politicians: always at the ready with preemptive and precautionary "solutions", 99% of the time resulting in disastrous unintended side-effects.

PS: and if the "1MB-is-doom" scenario is correct, the beauty of not tackling problems until they are a clear and present danger, is that if a hard fork must take place, then it will be much easier to reach 100% consensus when disaster is staring everyone in the face and modeled solutions are based on less fuzzy parameters.  As it stands right now, splitting the community over this issue seems far more dangerous to Bitcoin's future than any fall in transactional usage arising from increased fees.

[solex]

Doctors have the right idea: Primum non nocere.  Or if you prefer: if it ain't broke, don't fix it.

Clearly Bitcoin, as currently implemented, 1MB limitation included, is doing something right.  ...

Except that Satoshi had foreseen the limit being a temporary requirement and gave an example of raising it by block 115,000 (in the future). That is now the past.

I have 25 years experience in commercial systems, much of that processing $US billions per day, and am fully aware that software issues ignored invariably blow up badly. The human body is different as it has the capability to fix itself (in fact that is 99% of modern medicine).

[markm]

We won't even need a new hard fork, since everyone and their descendants will have centuries or millenia in which move their coins to another chain if they come to feel that the primary chain no longer serves their need.

Indeed they can pre-emptively start securing positions in additional chains before the time their own predicted doomsday-of-blocksize actually hits.

We might find that several merged mined chains that think they have not been getting enough attention will be eager to double their maximum block size and have so few current users, including full nodes and miners,  that doing so will be easy to get consensus on.

As already said, the primary chain is doing something right. Actually it is maybe doing several things right, maybe even in the right combinations, as so far none of the experiments in providing alternate ways of doing things secured by the same hashing-power as the primary chain have caught on even enough to actually get even half of the quantity of hashing power the primary chain has. No one is serious enough about needing larger blocks yet, it seems, to have triggered an increase of block size in response from the market, even from co-operating (merged mined) chains. Heck if it was truly massively needed / essential surely one or more of the non-cooperating chains would have done it by now and touted it as one of their "clear advantages over the primary chain / bitcoin".

-MarkM-

[Nagato]

Doctors have the right idea: Primum non nocere.  Or if you prefer: if it ain't broke, don't fix it.

Clearly Bitcoin, as currently implemented, 1MB limitation included, is doing something right.  Otherwise demand wouldn't be growing exponentially.  Gavin: with each Bitcoin purchase, users are implicitly "voting" that they approve of its current embedded constants (or at least, they don't mind them, yet).  So why risk breaking that dynamic, unless a proven crisis arises?

As clearly evidenced in this thread, there is no consensus as to whether the block size limit will be a problem or not.  Both the "1MB-is-fine" as well as the "1MB-is-doom" scenarios are based around hypotheses, speculation, and behavioral modeling.  But: humans are notoriously crappy at predicting the future.  If anyone here could actually see 4 years out wrt. Bitcoin or anything else, why aren't they rich beyond belief, sitting on giant stashes of coins mined in 2009?

So here's my vote in favor of doing nothing until there is hard proof that any limit is, in fact, a deadly problem which cannot be worked around through overlay services and altchains.  Let's not be like politicians: always at the ready with preemptive and precautionary "solutions", 99% of the time resulting in disastrous unintended side-effects.

PS: and if the "1MB-is-doom" scenario is correct, the beauty of not tackling problems until they are a clear and present danger, is that if a hard fork must take place, then it will be much easier to reach 100% consensus when disaster is staring everyone in the face and modeled solutions are based on less fuzzy parameters.  As it stands right now, splitting the community over this issue seems far more dangerous to Bitcoin's future than any fall in transactional usage arising from increased fees.

To further add on to this,

we are unlikely to come to a generally accepted consensus on whether the 1MB size limit will be an issue, let alone how to work around it.
I suggest we continue observing how the market reacts once the artificial 250KB limit is constantly reached(probably a few months to go).
What % of TXs pay fees when free TXs have a delay in inclusion?
How much do fees rise by?
Is there a reduction in wasteful TXs(SD sending back 1 satoshi as cfm) by services?
Does SD start implementing a deposit feature to help cut down on TX fees?
Do the big wallets and exchanges introduce or promote internal transfers to help people save on TX fees?
How is TX volume affected?

Once we see how this plays out, we will be at a better position to gauge if there is indeed a problem or not.
Lastly id like to remind everyone that the day will come when there is no significant block reward, fees will be the only motivation to mine and secure the network. Eventually, fees for most if not all transactions will become a norm(however small they may be). If we have to increase the block size in future, it should ideally be to a point where your average low end PC with an average connection can still run a full node to sustain current levels of decentralization.