How a floating blocksize limit inevitably leads towards centralization

[ElectricMucus]

Just leave it alone, bitcoin as it is now favors a steady state economy, in contrast to the problematic inflationary system of world banks.

[misterbigg]

we should see what happens as we run into the soft blocksize limits...what do you predict will happen?

In this order:

1. Most blocks are at or near the 250 kilobyte soft limit.
2. The memory pool of transactions grows due to insufficient space in blocks.
3. Users notice trend of transactions taking longer to confirm, or not confirming at all.
4. Fees increase as users pay more to improve confirmation times.
5. Miners (or mining pools) modify code to select transactions with the highest fees per kilobyte to fit into blocks. They remote the 250 kilobyte soft limit. Some miners disallow free transactions entirely.
6. Transactions clear much more quickly now, but fees decrease.
7. Blocks increase in size until they are at or near the one megabyte hard limit.
8. Fees start increasing. Free transactions rarely confirm at all now.
9. Small transactions are eliminated since they are not economically feasible. SatoshiDice increases betting minimums along with fees. The volume of SatoshiDice transactions decrease.
10. Users at the margins of transaction profitability with respect to fees are pushed off the network.
11. Many people, most non-technical, clamor for the block size limit to be lifted.
12. Fees reach an equilibrium where they remain stable.
13. Spurred by the profitability of Bitcoin transactions, alternate chains appear to capture the users that Bitcoin lost.
14. Pleased with their profitability, miners refuse to accept any hard fork to block size.

[wtfvanity]

Just leave it alone, bitcoin as it is now favors a steady state economy, in contrast to the problematic inflationary system of world banks.

[misterbigg]

...

Nice job polluting a wonderful thread with great technical insights with your Jennifer Lawrence spam.

[ElectricMucus]

Just leave it alone, bitcoin as it is now favors a steady state economy, in contrast to the problematic inflationary system of world banks.

care to create a constructive response on that?

[wtfvanity]

...

Nice job polluting a wonderful thread with great technical insights with your Jennifer Lawrence spam.

My prediction is we see a dip to $4-$7 with a rebound to $9, back to $7.50, then $10......or all hell breaks loose and pirate crashes the price to $0.01 

[wtfvanity]

care to create a constructive response on that?

Cross post to one of the three threads going about this

From the mouth of satoshi himself!!

Applying this patch will make you incompatible with other Bitcoin clients.

+1 theymos.  Don't use this patch, it'll make you incompatible with the network, to your own detriment.

We can phase in a change later if we get closer to needing it.

It wasn't needed then, but we are getting closer. Hmmm..... long live satoshi.

[ElectricMucus]

Notice the if and the emphasis on need...

[wtfvanity]

Notice the if and the emphasis on need...

Let's get him on the phone and see what he says.

[BradZimdack]

If I'm understanding this right, a miner with a slower internet connection can be put at a disadvantage by a guy with a better connection who blasts out large blocks.  So let's say Mr. Slowpoke is put at a 20% disadvantage due to his connection.  Would that really end up putting him out of business?  There are so many other factors that he might be able to use to compensate for his connection speed disadvantage such as cheaper electricity, cheaper labor, lower profit margin, lower borrowing costs, etc.  Businesses fight on many fronts, so would a competitive disadvantage in just one really matter that much?

[markm]

It is not, at extremis, about a little bit of profit margin more or less... It is about total PWNing of everyone not in the top however many percent you have to be in to get the limit raised to where you are just fine thanks and all the moaners and crybabies who were, afterall, just cutting into your top percenter obscenely vast income, people who you can employ far better as menial codemonkeys or sysadmins or branch-managers or whatever than by letting them run around encroaching into your top-percenter domains of rulership, are PWNed.

It is a slippery slope, and there might not even be any mechanism to prevent the already existing pre-bitcoin establishment's 1%-ers from remaking the entire resistance movement against them that bitcoin once might have been into just another back forty of their empire.

So far our primary stength has been the world's most difficult proof of work, in the hands of we the people, a power hopefully sufficient to enable we the people to finally, after all these centuries escape the whole paradigm of 1%-ers versus the 99%.

Now some of us seem to suspect we are starting to see the arguments of the 1% insidiously arising ready to corrupt and undermine the entire experiment, turning it into just another too big to fail, too big to hide from Big Brother therefore too vulnerable to being seized by Big Brother tool of, ultimately, good old Big Brother himself, in poison.

-MarkM-

[solex]

It is not, at extremis, about a little bit of profit margin more or less... It is about total PWNing of everyone not in the top however many percent you have to be in to get the limit raised to where you are just fine thanks and all the moaners and crybabies who were, afterall, just cutting into your top percenter obscenely vast income, people who you can employ far better as menial codemonkeys or sysadmins or branch-managers or whatever than by letting them run around encroaching into your top-percenter domains of rulership.

It is a slippery slope, and there might not even be any mechanism to prevent the already existing pre-bitcoin establishment's 1%-ers from remaking the entire resistance movement against them that bitcoin once might have been into just another back forty of their empire.

So far our primary stength has been the world's most difficult proof of work, in the hands of we the people, a power hopefully sufficient to enable we the people to finally, after all these centuries escape the whole paradigm of 1%-ers versus the 99%.

Now some of us seem to suspect we are starting to see the arguments of the 1% insidiously arising ready to corrupt and undermine the entire experiment, turning it into just another too big to fail, too big to hide from Big Brother therefore too vulnerable to being seized by Big Brother tool of, ultimately good old Big Brother himself, in poison.

-MarkM-

MarkM, the problem I have is that not increasing the max blocksize will eventually force 99% of transactions off the blockchain. So only millionaires buying Ferraris and pirate funding his gox account get onto the blockchain. In order to keep Mr. Slowpoke miner's node running most of the rest of us are forced off the blockchain. Madness

[markm]

s/the blockchain/the primary blockchain/

Also, I am pretty convinced we can double the max block size every eighteen months fairly safely, or if not that much then maybe increase it 50% every year, so I am really more on the lets do absolutely minimal increases to ensure normal consumer machines upgraded every five years or so can keep up side than the lets never increase even when the machines we pick up at the furniture bank for free see the entire blockchain as trivially small and 7G networks flood the city making internet free pretty much everywhere that isn't a total middle of nowhere wilderness/backwoods side.

-MarkM-

[solex]

s/the blockchain/the primary blockchain/

Also, I am pretty convinced we can double the max block size every eighteen months fairly safely, or if not that much then maybe increase it 50% every year, so I am really more on the lets do absolutely minimal increases to ensure normal consumer machines upgraded every five years or so can keep up side than the lets never increase even when the machines we pick up at the furniture bank for free see the entire blockchain as trivially small and 7G networks flood the city making internet free pretty much everywhere that isn't a total middle of nowhere wilderness/backwoods side.

-MarkM-

Agreement!  I also think the max block size should be increased only by what is necessary. It still allows bitcoin to grow. It also means that that, unfortunately, a hard fork is necessary.

Gavin - the 250Kb test results. My prediction is that Eligius will pick up the slack when the blocks are saturated. Because there is a safety valve at present.

[Technomage]

There is most likely no need to do incremental changes. There are already pretty good looking suggestions on how we can simply let miners decide the block size. To do that we would need some fairly strict rules for how long validating blocks by regular nodes can take until they are rejected. This would create a cap for the block size that is actually relative to the processing power of most full nodes. That is something we want, I think.

The other interesting suggestion was linking mining difficulty and the block size. Those are the two decent suggestions so far. Finding a long term way to fix this is much better than simply making a one time increase. If there is a one time increase, it should be a massive increase together with a smaller soft limit, so that the soft limit can be raised more easily in the future if necessary.

[misterbigg]

the problem I have is that not increasing the max blocksize will eventually force 99% of transactions off the blockchain.

Explain why this is a bad thing? A fixed block size maximizes the hashing power since it forces fees to increase to the equilibrium level. What's wrong with Bitcoin the block chain as the ultimate store of value, with the most amount of hashing power, and with the most accessibility for anyone with modest resources to verify transactions? So what if transactions are infrequent?

I consider it an enormous victory if Bitcoin's 1% of transactions becomes the lynchpin that backs the other 99% of off-blockchain activity.

[Domrada]

the problem I have is that not increasing the max blocksize will eventually force 99% of transactions off the blockchain.

Explain why this is a bad thing? A fixed block size maximizes the hashing power since it forces fees to increase to the equilibrium level. What's wrong with Bitcoin the block chain as the ultimate store of value, with the most amount of hashing power, and with the most accessibility for anyone with modest resources to verify transactions? So what if transactions are infrequent?

I consider it an enormous victory if Bitcoin's 1% of transactions becomes the lynchpin that backs the other 99% of off-blockchain activity.

+1

Freedom creates beauty every time it is tried.

[Sukrim]

I don't trust off-blockchain transactions as much as transactions in the block chain.

Especially with off-blockchain transactions who rely on the "threat" that they could be executed by being put into the blockchain at any time there might be issues if it then takes high fees or a long time until these are even verified.

I'd rather see a dynamic solution with a VERY long warning beforehand, similar to what was already done in the past - something like "after this block which will be mined in 2 years block sizes following these rules will be accepted too, until then 1,000,000 bytes it is!".

[Technomage]

Centralized services handling a larger amount of payments has another drawback that hasn't been discussed much, it's the fact that using a fractional reserve would become much easier. As long as the blockchain itself is the dominant transaction platform, widespread use of fractional reserve is impossible. This is one more reason to do everything possible to keep as much of the transactions in the blockchain as reasonably possible.

With this I mean the exact same thing as Gavin meant. Subcent transactions should be disregarded as not viable. Transactions worth more than $0.01 should be something that Bitcoin can handle. There really is no reason why it can't, only a whole truckload of FUD.

[justusranvier]

A fixed block size maximizes the hashing power since it forces fees to increase to the equilibrium level.

If this theory is true why don't Mastercard and Visa set a limit on the number of transactions they process in order to maximize their fee revenue?