How a floating blocksize limit inevitably leads towards centralization

[MoonShadow]

The worst thing that can happen for Bitcoin is for scalability solutions to exist, but not be adopted for political reasons.

Amen, brother.  However, this is really a fairly distant issue.  Jgarzik is certainly correct that bitcoin can scale external to the main blockchain as well as it can via a hard fork for the main chain.  If we can't garner an overwelming majority in favor of changing the protocol, it's not likely to ever be changed.  That would not be the end of bitcoin, but would certainly alter how the average end user transacts with bitcoin.  I would be in favor of raising the hard limit to 10-20 MBs, so long as the soft limit remains, and perhaps a passive soft limit rule is included in future clients; but only after much consideration and time.  It has taken us four years to start bumping into the soft limit, we're not really at risk of hitting the hard limit any time soon. 

Guys, cool down.  No one is going to be making any changes to anything soon.

[markm]

Those two quotes overlap but they don't quite coincide if you notice.  In mikes it would appear "deliberately cripple" means not raise the limit from 1 MB ever. garizk's on the other hand said it can scale even with the limit.......... correct me if I'm wrong plz

There is also a thread, maybe even this one, that starts with the premise that raising the limit before the optimisations are in place pretty much just invites not bothering with the optimisation, since the limit can just be skyrocketed, or eliminated, or increase over and over again (any time someone otherwise might have to actually materialise these vapourware optimisations even maybe...)

Which makes maybe a middle ground: deliberately crippled by the vaporware optimisation creators' or inventors' failure to materialise the optimisations.

Once optimal use is made of the size already provided, more size might reasonably be made available. While the size already provided is being wastefully wasted, throwing good size after bad doesn't seem like a good way to motivate materialisation of that vapourware.

The worst thing that can happen for Bitcoin is for scalability solutions to exist, but not be adopted for political reasons.

If they weren't vapourware, they would probably have been adopted by now.

Increasing the size prematurely isn't scalability, its actual scaling. Heck even when it is time to do it (when it is no longer premature) it still will be actual scaling, not mere scalability. Get the difference? Scaling (actually increasing the size) awaits scalability (the mythical or vaporous or simply not quite yet ready to be merged-in optimsations).

-MarkM-

[MoonShadow]

The block size is an intentionally limited economic resource, just like the 21,000,000-bitcoin limit.

I can not reconcile this statement with the comments made by Satoshi in the rest of the thread. Apparently nobody knew it was "intentionally limited" back then, including the designer.

Actually, he did.   But just like us, Satoshi didn't have any crystal ball, and thus no way to objectively determine what the block limit should actually be.  We can take an average of the transactions over the past four years, but that would not account for either protocol enforcible contracts nor transaction scripting that is likely to eventually increase the average size of transactions.  Nor would it account for many-in-many-out transactions that would only become common in the context of some large companies' weekly payroll.  The problem is that we don't know what the future holds, and can only make educated guesses as to how bitcoin will be used in the future.  There is no precedent for any of this guys, try to remember that we are all pioneers in this field and no one really has any applicable experience to guide us.

Satoshi chose a hard limit of 1 meg as an arbitrary design decision, effectively putting off the issue till the future, wherein hopefully there would be more useful data to make a more informed decision.  Unfortunately, we really don't have better data; at least not data that we know how to use for this purpose.  And since Satoshi left, we really don't have a tiebreaker to make a final decision when we can't come to a consensus.  Thus, what we are left with is some measure of dissent no matter what we choose to do.  The soft limit really was a short term convention.  Can we come to a decision regarding that first?  That is actually more pressing.  Should we permit the miners to double that soft limit, comment out the soft limit altogether, or include passive/aggressive enforcement rules to the vanilla clients in order to punish violators, or nothing at all.  Bear in mind, nothing is the default condition and that is what we will get with gridlock.

[justusranvier]

It has taken us four years to start bumping into the soft limit, we're not really at risk of hitting the hard limit any time soon.

Are you sure about that?

http://blockchain.info/charts/my-wallet-n-users

Given the pace of news stories regarding more businesses accepting bitcoin payments, and new exchanges and payment processors popping up around the world I'd be very surprised if we don't hit the hard limit before the end of the year.

Looking at how long it took to go from 0.7 to 0.8 there really isn't a lot of time to waste.

[MoonShadow]

It has taken us four years to start bumping into the soft limit, we're not really at risk of hitting the hard limit any time soon.

Are you sure about that?

http://blockchain.info/charts/my-wallet-n-users

Given the pace of news stories regarding more businesses accepting bitcoin payments, and new exchanges and payment processors popping up around the world I'd be very surprised if we don't hit the hard limit before the end of the year.

Looking at how long it took to go from 0.7 to 0.8 there really isn't a lot of time to waste.

Once again, we're all really just guessing.  I suppose time will tell which one of us was the luckiest guesser.

[justusranvier]

250k to 1M is only two doubling times.

The transaction volume has gone up by a factor of 5 during the last year.

[MoonShadow]

250k to 1M is only two doubling times.

The transaction volume has gone up by a factor of 5 during the last year.

So you're saying that we have at least 6 months?

Or are you saying that past performance is not a reliable indicator of future returns?

Or, perhaps, both?

Again, we're just guessing.  Did that transaction volume increase because there are 5 times as many active users?  Or was the metoric rise of Satoshi Dice the greater factor?  If the latter, how many times is that going to happen?  Truth be told, I've suspected that Satoshi Dice was set up the way it was in order to function as a block transaction padding system.

[solex]

What changed in your understanding of marketing during the last three years?

https://bitcointalk.org/index.php?topic=1347.msg15145#msg15145

I'm glad you asked

Being the person who actually posted a faux-patch increasing the block size limit, it is important to understand why I disagree with that now...  it was erroneously assuming that the block size was the whole-picture, and not a simple, lower layer solution in a bigger picture.

The block size is an intentionally limited economic resource, just like the 21,000,000-bitcoin limit.

Changing that vastly degrades the economics surrounding bitcoin, creating many negative incentives.

I, like many others who have commented in support of changing the max block limit, have a primary objective: to prevent bitcoin hitting a wall.

This is where the 1Mb limit is reached and transaction delays occur to such an extent that the chaos and negative press stops enough people from using bitcoin that it can limp along with saturated 1Mb blocks. Just when everyone thinks the problems are resolved they pile in again and the delays occur again. In this scenario, which may be within a year, the alternative layers/systems may not be mature enough to handle bitcoin volume growth without a lot of bad press and very upset people, badly tarnishing bitcoin's reputation.

Surely , making the limit algorithmically flexible so that it increases by a minimum to support growth without bottlenecks, until alternative layers/systems take up the slack, on their own merits, will NOT "vastly degrade the economics surrounding bitcoin, creating many negative incentives.".

[misterbigg]

The soft limit really was a short term convention.  Can we come to a decision regarding that first?  That is actually more pressing.  Should we permit the miners to double that soft limit, comment out the soft limit altogether, or include passive/aggressive enforcement rules to the vanilla clients in order to punish violators, or nothing at all. 

You don't understand the soft limit.

[MoonShadow]

The soft limit really was a short term convention.  Can we come to a decision regarding that first?  That is actually more pressing.  Should we permit the miners to double that soft limit, comment out the soft limit altogether, or include passive/aggressive enforcement rules to the vanilla clients in order to punish violators, or nothing at all. 

You don't understand the soft limit.

You keep using those words.  I don't think they mean what you think they mean.

[markm]

Given the pace of news stories regarding more businesses accepting bitcoin payments, and new exchanges and payment processors popping up around the world I'd be very surprised if we don't hit the hard limit before the end of the year.

And if that does happen, at that predicted time, the developers will have a much better idea of exactly how much to raise the hard limit by then, so setting the actual value of the #define can be a last moment thing just before they all compile the upgrade that fixes it.

Right now we don't even know whether it even will hit that limit that soon, and the soft limits make it pretty much impossible (more transaction fees than there are bitcoins to pay them with, I was told) to actually hit the hard limit.

(Admittedly, commenting out the soft limits would be a cheaper method of reaching the hard limit, but what percent of hashing power has done that so far? At what rate is how much hashing power doing it? By the end of the year how much percent of hasing power will have done it?)

Now don't panic about that "#define at the last moment" bit, I am thinking in terms of Gavin having obtained from us all by then a range of values and possibly a range of network conditions affecting the decision as to the final number to plug in, not that he will by fiat pull a whole different new number out of his ass that hadn't even come up in the discussions carried out between now and the end of the year*.

* "end of the year": an alias for "the time the fix is compiled for release"..

-MarkM-

[misterbigg]

...the 1Mb limit is reached and transaction delays occur to such an extent that the chaos and negative press stops enough people from using bitcoin that it can limp along with saturated 1Mb blocks.

I already outlined the likely scenario describing what happens when transaction volume reaches the max block size limit:

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.

There will be no "chaos" or long transaction times, just high transaction fees. Users for whom it makes economic sense to utilize the Bitcoin network will pay the fees. Everyone else will use alternatives which are guaranteed to appear for economic reasons. If Bitcoin's transaction volume requires fees that are so high that some people get pushed off the network (like SatoshiDice) there is clearly a market for payment networks.

We should be so lucky that we get transaction volume sufficient to drive up fees to where users look for alternatives. It means Bitcoin is doing something right!!!

[justusranvier]

Again, we're just guessing.  Did that transaction volume increase because there are 5 times as many active users?  Or was the metoric rise of Satoshi Dice the greater factor?  If the latter, how many times is that going to happen?

How many times can it happen? A few orders of magnitude more times.

How many potential customers does Mega have compared to Satoshi Dice? What happens if a blockchain-based game takes off in Japan, China or India? Do you think 2013 is going to be better or worse for BitPay and Coinbase than 2012 now that they've got high-profile customers like Wordpress and Reddit. Where's the tipping point where web business owners have heard so much positive news about bitcoin that a bunch of them decide to jump in en masse?

[MoonShadow]

Again, we're just guessing.  Did that transaction volume increase because there are 5 times as many active users?  Or was the metoric rise of Satoshi Dice the greater factor?  If the latter, how many times is that going to happen?

How many times can it happen? A few orders of magnitude more times.

How many potential customers does Mega have compared to Satoshi Dice? What happens if a blockchain-based game takes off in Japan, China or India? Do you think 2013 is going to be better or worse for BitPay and Coinbase than 2012 now that they've got high-profile customers like Wordpress and Reddit. Where's the tipping point where web business owners have heard so much positive news about bitcoin that a bunch of them decide to jump in en masse?

I don't know.  Neither do you.  That is my point.  We're just guessing!

[justusranvier]

We are guessing, but we know that up until now the number of lily pads at least doubles every day and the pond is about 25% covered already.

[markm]

The block size is an intentionally limited economic resource, just like the 21,000,000-bitcoin limit.

I can not reconcile this statement with the comments made by Satoshi in the rest of the thread. Apparently nobody knew it was "intentionally limited" back then, including the designer.

I'll accept that you and other developers changed your mind at some point about whether or not to increase the block size, but that leaving it limited was the plan from the beginning is not at all credible.

Leaving unchanged until closer to actually needing it to be raised was what I thought was being said in that ancient thread.

What did Satoshi say would constitute an actual need, as possibly distinct from lobbyist pressure or gosh knows what other things that could lead some folk to use words such as "need"?

Can haz moar? Needz moar moar moar! Must haz moar!

Who was it said "always leave the audience wanting more", or maybe it was "always leave them wanting more"? Someone with no knowledge of and/or experience with markets and/or marketing?

-MarkM-

[solex]

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.

All this might have to happen in a frantic week!
I think it is terribly sanguine to just assume that alternate chains can appear quickly and integrate seamlessly alongside the main blockchain. This is extremely speculative. We need some of these alt-chains to be up and running right now, taking volume, and proving themselves. Is coinbase an "alt-chain" in your example?

markm. You seem to advocate waiting until the last minute before executing the hard-fork. Yes, more information will be available to set the increased value/formula, but surely in opensource the best hard-fork is one that is executed as early as possible so that people can upgrade at their convenience.

The lily pads are increasing 10-fold per year (500 transactions per day in Jan 2011, 5000 per day in Jan 2012, 50000 per day in Jan 2013. Jan 2014 will require 1.8Mb blocks if that continues. Yes SD could be throttled or killed, yet I think it is doing bitcoin a favor, by highlighting this issue "within the community". It would be different if it was Mega or Wordpress racking up the volume.

[misterbigg]

All this might have to happen in a frantic week!

Well I don't know about that. More likely we will see fees trending upwards over several months until an equilibrium is reached.

I think it is terribly sanguine to just assume that alternate chains can appear quickly and integrate seamlessly alongside the main blockchain.

I agree, but alt chains are already in development. When I say that they will appear, I mean that previously unused or rarely used networks may gain popularity.

Is coinbase an "alt-chain" in your example?

Hmm...no, coinbase is not an alt chain. They are merely an exchange. Ripple is an example of an alt chain.

[markm]

50000 per day in Jan 2013. Jan 2014 will require 1.8Mb blocks if that continues

Oh nice, an actual number, thanks! And it is less than a doubling of the max size, too!

Thanks. There ya go Gavin, we got a times two so far for, likely, the bottom of the range of values to have at your fingertips when time comes to type the proverbial #define



Sounds like maybe the times 1.5 each year won't cut it, but times two per eighteen months might still be in the running.

-MarkM-

[d'aniel]

What changed in your understanding of marketing during the last three years?

https://bitcointalk.org/index.php?topic=1347.msg15145#msg15145

I'm glad you asked

Being the person who actually posted a faux-patch increasing the block size limit, it is important to understand why I disagree with that now...  it was erroneously assuming that the block size was the whole-picture, and not a simple, lower layer solution in a bigger picture.

The block size is an intentionally limited economic resource, just like the 21,000,000-bitcoin limit.

Changing that vastly degrades the economics surrounding bitcoin, creating many negative incentives.

Would you mind briefly listing the negative incentives you perceive?

The negatives that bother me about not changing the block size limit are:
1) It will end the promise of a universal payment network (modulo micropayments).
2) It will end the promise of widespread disintermediated finance/personal financial sovereignty.
3) With (2) comes the possibility of a few intermediaries having "sovereignty" over a very large quantity of all bitcoins.
4) Also with (2) comes a weakening of the promise of censorship-resistance (it could very well work like in China, for example, where it's possible to evade censorship, but too much of a pain in the ass for most to bother).
5) It will end the promise of stability due to widespread direct use of "high-powered money" (i.e. it opens the possibility of a fluctuating fractionally backed money supply).

I'll take my mention of "sovereignty" here as an opportunity to drop an Omar Little quote cause I like it: "Man, money ain't got no owners, only spenders."