How a floating blocksize limit inevitably leads towards centralization

[justusranvier]

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

That's only a good number if we want to have this debate all over again on February 2014.

[misterbigg]

The negatives that bother me about not changing the block size limit are...

I very much doubt any of the items in that list are valid concerns. The only real broken promise of a fixed block size are the eventual high transaction fees. It is still not clear that this is a bad thing. One thing is for certain, however. A fixed block size should deliver Bitcoin's promise of "largest hash rate of any block chain"

[markm]

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

That's only a good number if we want to have this debate all over again on February 2014.

Only if its not a good enough number to be used to #define a macro instead of a constant. As a muliplier that happens again by/in June 2015 (18 months after its Jan 2014 first application) though, who knows?

-MarkM-

[d'aniel]

The negatives that bother me about not changing the block size limit are...

I very much doubt any of the items in that list are valid concerns. The only real broken promise of a fixed block size are the eventual high transaction fees. It is still not clear that this is a bad thing. One thing is for certain, however. A fixed block size should deliver Bitcoin's promise of "largest hash rate of any block chain"

You didn't actually address any of my concerns, you just dismissed them all.  Any reasons why?

I gave a reason to doubt the assumption that a fixed block size will necessarily lead to greater hashing power here: https://bitcointalk.org/index.php?topic=145641.msg1546008#msg1546008

[zveda2000]

I'd like to throw in my 2 cents. I would like to see the block size cap removed. I think the decentralization of bitcoin could be similar to the decentralization of science, in that not everybody checks everything but everybody *can* check anything with a certain investment of time and money. As long as anyone can become a miner with an investment of $50k in today's dollars, it ensures there will always be competition and the profit margins for miners won't grow too high.

We cannot predict how miners will behave and almost certainly many of them do not act not in the best interests of bitcoin. As long as the barrier of entry is not too high though, it should keep the mining community more or less honest. Compare that to the banking community, where no new banks have been approved in the US or the UK in the last 100 years afaik.

[notig]

...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!!!

What about step 15? The fact that if an alternate chain starts being used and gains value.. and that chain can do everything bitcoin can do but also doesn't have the artificial limit... or maybe it has a smarter limit that dynamically adjusts... would bitcoin cease to exist? Because some people seem to think that expensive transactions will kill bitcoin.  I realize that in order for transactions to get that expensive... to an extent that means bitcoin has to "succeed" to get to that point.

what if a transaction costs the equivalent of 10 dollars? It's going to push more than just 10 dollar and less transactions off the network. Even if you use a payment processor you have to send your money to the processor. And then what? Right now I can spend money for instance and send some to the reddit tip bot. Or I can donate to wikileaks. If I'm forced to use a payment processor then in order for me not to kill myself financially I would have to move everything I own to it all at once and leave it in their hands. I'm no longer in control of my own wealth. Exchanges are a weak link because governments or criminals can attack them. If they go down... that hurts.

So just to be clear it seems to me this is the case: Gavin and Mike hearn want to "wait and see what happens" . But it sounds like they want to raise the limit somehow and do it in an intelligent way. It sounds like Jgarzik wants to leave the cap in place and never move it.

Maybe we shouldn't worry about it.......... because in order for it to be a problem bitcoin has to succeed. But I don't want it to collapse after it succeeds.  I realize that "microtransactions" like satoshi dice will inevitably have to be done off the blockchain. But that still doesn't justify 10... 15... 20 or even higher transaction fees.

[misterbigg]

...would bitcoin cease to exist...

No, because Bitcoin would remain the chain with the highest hash rate / proof of work.

[notig]

...would bitcoin cease to exist...

No, because Bitcoin would remain the chain with the highest hash rate / proof of work.

that's another thing i meant to ask you about... I was wondering how do you figure that? just out of curiosity.  for instance if you suddenly have high transaction rates of.. say 10-20 dollars you are going to push a lot of transactions off the chain to something else. Those transactions pay fees too that you no longer would be getting right? (or do I misunderstand?)

[MoonShadow]

what if a transaction costs the equivalent of 10 dollars? It's going to push more than just 10 dollar and less transactions off the network.

Well, to some degree, this is true.  However, don't forget that the $10 transaction fee would only be for those who needed their confirmations now.  The majority of transactions would just be delayed until their fee made sense.  If they never made sense, that becomes the economic incentive for the out-of-band parrallel transaction networks and solutions, which in turn reduces the future demand upon the main chain, thus reducing the common transaction fees.  It's just another marketplace, and doesn't necessarily spell the end of bitcoin.  It certainly doesn't imply that a alternative cryptocurrency would take over in bitcoin's place, because the economics of bitcoin and it's desirability as a payment method isn't so easily separated from the clearinghouse service that the blockchain provides.  More likely, IMHO, several solutions that provide for out-of-band transfer networks as well as off network member2member wallet services would fill those gaps; both in the context of subdivisions of the economy (Silk Road and other specialized markets with an internal M2M exchange, already so and pretty much required anyway;  MtGox or Coinbase develops cryptographicly signed digital cheques; some unknown programmer develops an android app that lets users trade in the private keys in some semi-trustworthy manner for use in meatspace) and locales (The Bitcoin Bank of Hong Kong develops a member android app that is widely used in Hong Kong, but not often elsewhere; The Bitcoin Bank of London uses plastic casino chips; etc.).

Most of these alternatives suffer from either a loss of anonimity or an increase in security risks, which are themselves a form of cost to the users; but most of them will have their own place within their own niches.  I wouldn't be surprised at all if wallet services can be developed with the two factor signing that prevents the newer wallet services from losing your deposit from root hacks as well as a business2buisness network similar to Ripple that permits Alice to buy a widget from Bob using their separate wallet services and a mutually trusted middle service, and still preserve anonimity of both Alice and Bob but also Wallet Service A from Wallet Service B using Wallet Intermediary C; and everyone settling  up accounts once each week on the main blockchain only if there is an unresolved balance from all the various B2BRipple transactions during the week.  (It's an idea, feel free to steal it)

[tvbcof]

Already controversy is brewing... Already businesses are starting to back away from bitcoin because if the block limit isn't raised then one of three things will happen: 1. Bitcoin fails. 2. Bitcoin gets used only for moving large amounts of money and other cryptocurrencies take over eventually displacing bitcoin itself. 3. Bitcoin gets used for only moving large amounts of money and "bitcoin clearing houses" fill the gaps, which increase the risk of fraud/theft/unaccountability, add avenues of attack, and form REAL centralization. Not some hypothetical BS.

1 - seems doubtful.

2 - seems 'so what?'

3 - seems that Bitcoin would fall into a role where it can provide a solid and reliable backstop against which other solutions may built and evolve.  Some will be scams or maybe even fractional <gasp!> but those which don't work or are mis-managed will die and those which do and are well managed will thrive.  Critically, Bitcoin may still be used...possibly at some cost...as a shuttle between competing solutions when the need arises.

Of course I would like to see Bitcoin be everything to everybody.  Perfect in every way and all that.  But it's not realistic.  #3 would still be one hell of an achievement and a great leap forward.

[notig]

Already controversy is brewing... Already businesses are starting to back away from bitcoin because if the block limit isn't raised then one of three things will happen: 1. Bitcoin fails. 2. Bitcoin gets used only for moving large amounts of money and other cryptocurrencies take over eventually displacing bitcoin itself. 3. Bitcoin gets used for only moving large amounts of money and "bitcoin clearing houses" fill the gaps, which increase the risk of fraud/theft/unaccountability, add avenues of attack, and form REAL centralization. Not some hypothetical BS.

1 - seems doubtful.

2 - seems 'so what?'

3 - seems that Bitcoin would fall into a role where it can provide a solid and reliable backstop against which other solutions may built and evolve.  Some will be scams or maybe even fractional <gasp!> but those which don't work or are mis-managed will die and those which do and are well managed will thrive.  Critically, Bitcoin may still be used...possibly at some cost...as a shuttle between competing solutions when the need arises.

Of course I would like to see Bitcoin be everything to everybody.  Perfect in every way and all that.  But it's not realistic.  #3 would still be one hell of an achievement and a great leap forward.

Isn't it possible to have a better happy medium though? Where transactions are say........ a dollar at most? Or maybe a few?  Just how big would they get? Maybe that's why all the devs are saying wait and see. :T
But yeah it would still be an achievement to actually need a greater block size

[markm]

Aren't you yet running into meatspace retailers who don't accept cards for transactions totalling less than somewhere around five bucks/loonies or so?

Or are merchants where you are still offering minitransactions (meaning, seemingly, less than five bucks/loonies or so) over card networks?

Downtown? (aka, is downtown / uptown more or less commonly doing this than less-trafficked parts of town?)

Are card companies losing userbase due to the common pedestrian's inability to buy a cup of coffee with a card unless they accompany it with a cookie, or other similar crippling failures to accomodate minipayments? (Wah, I can't buy a stick of gum with it, I am off to find a more useful alternative...)

-MarkM-

[Rampion]

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

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

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.

One of the most lucid comments I have read so far. Thank you jgarzik

[d'aniel]

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

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

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.

One of the most lucid comments I have read so far. Thank you jgarzik

Haha, I asked him to elucidate that comment.

[jgarzik]

Isn't it possible to have a better happy medium though? Where transactions are say........ a dollar at most? Or maybe a few?  Just how big would they get? Maybe that's why all the devs are saying wait and see. :T
But yeah it would still be an achievement to actually need a greater block size

* "the devs" do not even agree amongst themselves

* There is no immediate need to change the block size (as you point out), only a perceived, debatable future need.

* Until that point happens, it is impossible to know what is a happy medium.  And how will we know that happy medium?  The free market and user choice will decide, not some cabal of miners or devs.

It is entirely within the realm of possibility that the userbase would refuse to change the block size.  It is inevitable that some users will indeed refuse to upgrade, thereby rejecting all (in their opinion) oversized blocks, thereby creating that most undesirable of outcomes, the long-lived chain fork.

Will a majority endorse the block size change, or refuse?  An unanswerable engineering question, for the moment.  And given the present lack of need for a hard forking change, there is not much point in speculation.

[mp420]

I kind of like the idea of high transaction fees. Bitcoin is a premium service requiring high amount of computing and networking resources.

But when I say that, I mean I like the idea of $10 fee per transaction, not $100 per transaction. (USD-2013 for nitpickers.)

If Bitcoin ever becomes even moderately widely adopted and the 7tps in-chain transaction limit is kept, we're talking about very high fees.

This is why I support misterbigg's voting proposal.

[Maged]

Another method would be to permit an un-limited block based upon an interval that miners could not depend upon.  For example, the difficulty is adjusted every two weeks or so, but the difficulty adjustment block could also be an unlimited block, also permitting (perhaps expecting) the miner that finds that block to not only include every single fee paying transaction in the block, but also every single transaction still in his queue.  This would limit the delay for free transactions to a two week maximum, and only burden the bandwidth challenged clients and miners once every two weeks and on a predictable schedule.

Occasionally flushing the transaction queues would benefit all players, without significantly impacting the scarcity of transaction space for the remainder of the time period.  However, the second method is likely to encourage free transactions leading up to the unlimited block's expected arrival; whereas the prior method of permitting unlimited blocks based upon a fee-less transaction queue would not encourge same, but nor could users be certain that their free transactions be processed in any reasonable time frame, as there is not way to be certain that any miner would be willing to do this.

You could use block hashes as a random number generator to make it so that the unlimited block will happen on average every 2 weeks, but not at any specific time. Each block could have a field for the hash of an "additional block" which would be added onto the mined block if the block hash met the random condition (otherwise, the field would just be ignored and the "additional block" wouldn't even be transmitted).

[Maged]

if we scale up to a point where only the Googles of the world are capable of keeping up, what does that buy us?

We should

1) Have a more rigorous argument / test data that shows how a block size above a certain threshold will push miners off the system

2) Figure out how to relate measurements of the network to estimating the largest block size threshold

The algorithm itself can do that by watching the global orphan count from, say, the last difficulty period.

[Maged]

I don't know that I'd agree that a 1% change per difficulty adjustment is going to be enough.

All of the baked in constants are of course subject to tuning before final implementation. I used 90% and 1% as examples.

Granted.

Upon further consideration, I think that this might be a great way to move the soft limit, but I still think we need to have a (much higher) hard limit.  For the reasons that I stated before, and others, a hard limit removes many of the incentives for big players to engage in anti-competitive activities; since it puts a very real limit to the long term effectiveness of such underhanded methods.

As I mentioned before, we could have it so that the current hard limit is the least of several hard limits. Therefore, we could add in expiring hard limits that get removed after a certain block, allowing us to set it to a new value manually via soft-forks after that point.

[TierNolan]

As a slight tweak on the pay for space rule, what about making it exponential.

When difficulty is updated, update the max block size for the next period based on the total fees for the previous period.

MAX_BLOCK_SIZE (MB) = pow(2, ((tx + minting fees for the last period) / 50 / 2016) - 1)

This would allow reasonably fast growth, but still guarantee tx fees.

In fact, in the extreme, you could just remove the block size limit for any block that is has at least 50 total fees.

By averaging it over a period, it prevents combing lots of transactions into 1 block to bypass the rule.

<small fee> -> <small fee> -> <small fee> -> <large fee allows massive block> -> <small fee> -> <small fee>

OTOH, maybe that is a good thing.  Most "small" miners could still mine the small fee txs.

The sizes would be

6.75:
12.5: 0.59MB
25: 0.7 MB
50: 1 MB
100: 2MB
150: 4MB
200: 8MB
250: 16MB
300: 32MB
350: 64MB
400: 128MB

To use up the entire bitcoin coinbase each year in fees requires around 400 BTC per block on average, so it is still hitting a hard limit.

The dynamic system could be that if the (tx + minting) fees are > T per block in the last period, then increase by 10% and if less than 0.5T, then decrease by 10%.