How a floating blocksize limit inevitably leads towards centralization

[hazek]

However, I am worried about centralization and I don't want miners to be filthy rich. I just want them to do their job, and I will pay whatever the electricity costs + operating income is. Like many have said here (which I can't follow any more), bandwidth is just another factor in the competition. Just like electricity - we don't have a solution for an aggressive miner with free/cheap electricity.

I tend to believe that these things always end up centralizing. Especially where lots of money is involved. So where does that leave us?

Your problem is your lack of knowledge in economics. If you understood markets regulated strictly by consumption i.e. free markets you'd know that if there is no barrier to entry (and there isn't one in Bitcoin, all you need is a capital investment to be a miner, no laws or regulations that would stop anyone to become a miner) and there are huge profits to be had it is impossible to arrive at a monopoly service provider unless that service provider does the job better and cheaper than anyone else. Well with mining there is no better, all miner deliver the same quality so a monopoly is out of the question. And if more profits are to be had in mining more miners, small and big will eventually come online.

So throwing money at the problem of security is precisely what you want to do in this situation if your goal is more miners more decentralized.

[WiW]

If you understood markets regulated strictly by consumption i.e. free markets you'd know that if there is no barrier to entry ... and there are huge profits to be had it is impossible to arrive at a monopoly service provider

I'd love to learn. How about an example?

Well with mining there is no better, all miner deliver the same quality so a monopoly is out of the question. And if more profits are to be had in mining more miners, small and big will eventually come online.

That's an interesting approach, but you fail to take in to account that it's not as simple as just "coming online". Mining is competitive. Like you said, it requires capital investment. Although there is no better quality service, there is a difference in efficiency for delivering such a service.

If we are to regress to a similar example, Apple is well known for having the most flexible, adaptive, highest capacity and most cost efficient smartphone manufacturing capabilities. For the most part, much of this ability is attributed thanks to simply them being the biggest (now second biggest) player in the market. No factories would do the things they do for other smartphone manufacturers like they do for Apple, because everybody wants to be part of Apple's business. The only player able to dethrone Apple happens to be another huge manufacturer with years of experience and having in advance all the in-house capabilities to run such an operation (Samsung). No other competitor ever managed to just "come online". You and I cannot make smartphones - we won't even cover the initial capital investment because everyone is buying Apple and Samsung.

With mining it's an even more extreme case. The better you are at mining, the worse I am at mining. Unlike smartphones, where theoretically everyone can buy as many as they want, there is a limited number of blocks per time. The Apple/Samsung miner wouldn't only be number one - they'd be so far ahead that you and I couldn't even imagine getting a single block ever. Even if lots of people wanted our blocks and not Apple's or Samsung's...

[Akka]

Your problem is your lack of knowledge in economics. If you understood markets regulated strictly by consumption i.e. free markets you'd know that if there is no barrier to entry (and there isn't one in Bitcoin, all you need is a capital investment to be a miner, no laws or regulations that would stop anyone to become a miner) and there are huge profits to be had it is impossible to arrive at a monopoly service provider unless that service provider does the job better and cheaper than anyone else. Well with mining there is no better, all miner deliver the same quality so a monopoly is out of the question. And if more profits are to be had in mining more miners, small and big will eventually come online.

So throwing money at the problem of security is precisely what you want to do in this situation if your goal is more miners more decentralized.

I absolutely agree here, despite one point. A marked with no (or very low) entry barriers can't be very profitable. In such a marked new players enter constantly until the profit margin becomes very low.

As soon as this point is reached, big players that are more efficient sort out the competition.

Therefore monopolies, or at least a marked with very few players can and will form.

The only point is, as soon as this players try to exploit their position in this marked, they immediately open space for new players to enter again.

[Akka]

If you understood markets regulated strictly by consumption i.e. free markets you'd know that if there is no barrier to entry ... and there are huge profits to be had it is impossible to arrive at a monopoly service provider

I'd love to learn. How about an example?

Basically everything almost everyone can do.

Opening a bar / cafe / restaurant / online shop.

No monopolies there. Some big players (MC Donalds, Starbucks, Amazon etc.) yes. But only because they are more efficient (cheaper). As soon as they try to exploit this position to increase their profits, new big players would step in.

And you can see this companies are really trying hard to build artificial barriers to make competition harder, but haven't succeeded yet.

An example where there is some success with artificial Barriers are ERP systems for companies, though.

Basically it would be possible for a decent programmer with some business skills to make such a program and the possible profits are enormous, but the big players (Microsoft, SAP, etc.) are working together to make their products more compatible across their platforms to make new competition harder.

Well with mining there is no better, all miner deliver the same quality so a monopoly is out of the question. And if more profits are to be had in mining more miners, small and big will eventually come online.

If we are to regress to a similar example, Apple is well known for having the most flexible, adaptive, highest capacity and most cost efficient smartphone manufacturing capabilities. For the most part, much of this ability is attributed thanks to simply them being the biggest (now second biggest) player in the market. No factories would do the things they do for other smartphone manufacturers like they do for Apple, because everybody wants to be part of Apple's business. The only player able to dethrone Apple happens to be another huge manufacturer with years of experience and having in advance all the in-house capabilities to run such an operation (Samsung). No other competitor ever managed to just "come online". You and I cannot make smartphones - we won't even cover the initial capital investment because everyone is buying Apple and Samsung.

Apple has no production (to speak of) of its own. They are basically only doing design
(and I mean design not development) and software (and in some rage the end manufacturing).

Everything else is done by EMS providers.

And no one is doing business with apple because he wants to be part of Apple's business. They are doing it because there is money to be made.

Also, the entry barrier to make phones is not very high. Apple hat a bit of a innovator advantage in this sector, but this is already crumbling.

The Hardware for a smartphone is not high tech anymore and Android as OS takes away the software advantage.

The rest that remains are artificial barriers (I-Tunes, App Store, Coolness Factor, Patent-Bullsh***). But these can be very efficient.

[hazek]

If you understood markets regulated strictly by consumption i.e. free markets you'd know that if there is no barrier to entry ... and there are huge profits to be had it is impossible to arrive at a monopoly service provider

I'd love to learn. How about an example?

Well with mining there is no better, all miner deliver the same quality so a monopoly is out of the question. And if more profits are to be had in mining more miners, small and big will eventually come online.

That's an interesting approach, but you fail to take in to account that it's not as simple as just "coming online". Mining is competitive. Like you said, it requires capital investment. Although there is no better quality service, there is a difference in efficiency for delivering such a service.

If we are to regress to a similar example, Apple is well known for having the most flexible, adaptive, highest capacity and most cost efficient smartphone manufacturing capabilities. For the most part, much of this ability is attributed thanks to simply them being the biggest (now second biggest) player in the market. No factories would do the things they do for other smartphone manufacturers like they do for Apple, because everybody wants to be part of Apple's business. The only player able to dethrone Apple happens to be another huge manufacturer with years of experience and having in advance all the in-house capabilities to run such an operation (Samsung). No other competitor ever managed to just "come online". You and I cannot make smartphones - we won't even cover the initial capital investment because everyone is buying Apple and Samsung.

With mining it's an even more extreme case. The better you are at mining, the worse I am at mining. Unlike smartphones, where theoretically everyone can buy as many as they want, there is a limited number of blocks per time. The Apple/Samsung miner wouldn't only be number one - they'd be so far ahead that you and I couldn't even imagine getting a single block ever. Even if lots of people wanted our blocks and not Apple's or Samsung's...

Please stop drawing analogies to any industry in the physical economy. There are no markets regulated strictly by cunsumption (i.e. free markets) there and you shouldn't think there are if you want to arrive at accurate theories of what might happen to Bitcoin mining. Apple isn't a big company with which no one could possibly compete because no one can build what they build, Apple is such a big company because they send GOVERNMENT THUGS after anyone who would dare use their ideas and copy their products. You don't have that in Bitcoin hence why there is no barrier to entry and hence why this market will never yield the same result as the physical one.

[WiW]

Please stop drawing analogies to any industry in the physical economy. There are no markets regulated strictly by cunsumption (i.e. free markets) there and you shouldn't think there are if you want to arrive at accurate theories of what might happen to Bitcoin mining. Apple isn't a big company with which no one could possibly compete because no one can build what they build, Apple is such a big company because they send GOVERNMENT THUGS after anyone who would dare use their ideas and copy their products. You don't have that in Bitcoin hence why there is no barrier to entry and hence why this market will never yield the same result as the physical one.

What makes you so sure bitcoin is different in this regard than any other economy? What makes you thing big miners won't send thugs against smaller miners? I'm thinking history will repeat itself, as we have seen over and over.

As much as I love bitcoin, it's not going to solve inequality of wealth distribution. It may help by making large scale monetary fraud (a relatively new field of organized crime) somewhat more difficult and if bitcoin is to return trust to third parties then even that is not assured. But it will absolutely not make this world a more fair or equal place.

If you believe otherwise, you are probably naive and the onus of proof is on you.

[2112]

because they send GOVERNMENT THUGS after anyone who would dare use their ideas and copy their products. You don't have that in Bitcoin hence why there is no barrier to entry and hence why this market will never yield the same result as the physical one.

How beautifully naive. Or even naïve, with an umlaut.

Bitcoin thugs like Luke-Jr or gmaxwell are just not up to par in their thuggery skills, when compared to the government thugs.

Anyone can pretend that Bitcoin doesn't attract thugs, pump&dump artists and other problematic social element, but the "free market" is like the "spherical cow in a vacuum": it exists only as an idealized model.

[misterbigg]

Apple isn't a big company with which no one could possibly compete because no one can build what they build, Apple is such a big company because they send GOVERNMENT THUGS after anyone who would dare use their ideas and copy their products.

This is so true. People think Apple is a technology company but what they are really good at is using the government's monopoly on the use of violence to eliminate competitors.

[MoonShadow]

Apple isn't a big company with which no one could possibly compete because no one can build what they build, Apple is such a big company because they send GOVERNMENT THUGS after anyone who would dare use their ideas and copy their products.

This is so true. People think Apple is a technology company but what they are really good at is using the government's monopoly on the use of violence to eliminate competitors.

They also have some creative people working there, it's not like Apple's business model is based up copying the best features of competitors.  They are not an ideal example of an upstanding corporation, but nor are they Micro$oft.  From 1994 till at least 2007, I've literally not ssen anything new out of M$ that wasn't available first, in some form, on GNU/Linux, or some other open source project.  I'm not convinced that M$ ever did anything particularly novel outside the scope of copyright legal theory.

[WiW]

Everybody shut up about Apple, this is totally off-topic.

The only reason is was brought up was to show an example of how a strong competitor aggressively pushes smaller competitors out of the game. The means are not relevant, the point is that big time miners will find whatever means necessary, as does Apple and many other large corporations in very lucrative and relatively free markets.

I'm just pointing out that some are suggesting to maintain such a market with a small max block size and risk such a nature as seen in examples here before us and over history.

There are two things one can do to poke holes in my argument, and I would love it if someone up for the challenge would try:
- Either prove to me that a lucrative and relatively free market (small max block size) does not have to end up with a centralized monopolistic power
- Or alternatively prove to me that a non lucrative, very saturated market (floating/unlimited max block size) can end up with a centralized monopolistic power

Once again, I believe centralization is inevitable and bitcoin does not provide a foolproof solution, however it intuitively seems to me (by historical examples alone) that making the market artificially lucrative (where motivation for abuse is naturally higher) is a quicker and surer way to end up with a strong monopolistic power.

[misterbigg]

I'm just pointing out that some are suggesting to maintain such a market with a small max block size and risk such a nature as seen in examples here before us and over history.

Nice job completely missing the point of the original post. Here's the short-bus explanation for the challenged:

small max block size: high fees, secure network, decentralized mining

large max block size: low fees, lower hash rate, centralized mining.

Any questions?

[solex]

small max block size: high fees, secure network, decentralized mining

large max block size: low fees, lower hash rate, centralized mining.

The situation is not as black and white as this because even zero fees can help secure the network by raising the BTC fx rate.

Please consider my earlier post:

"Actually, free transactions do earn money. They encourage new users. More people will try bitcoin, accelerating its growth. By implication this contributes a proportion to its exchange rate against fiat. So, miners that include free transactions are indirectly benefiting from them as their block reward is higher in fiat terms."

I am not saying if this is good or bad. I am describing the reality of the situation that exists.

Has no one heard of a loss leader? http://en.wikipedia.org/wiki/Loss_leader
Bitcoin is exponentially growing against fiat currencies and established payment systems. By accident or design some/lots of this growth is via its loss leader of free transactions. Arguably, SD abuses this facility.

However, loss leading might be the best "winning" strategy that will have BTC kill off most of fiat in the shortest time (if that is the goal). When the competition is decimated all transactions can have compulsory fees (if that is the goal). Bitcoin does not exist in a vacuum and obtaining value in fiat during the growth phase is sensibly leveraging an external. The network benefits as most participant nodes would have a long-term BTC holding.

Hotmail and Yahoo mail, Google search, Facebook social network, Huffpost news: all are free, all are loss leading to get market-share! Once/if they decimate their respective competition their fees will rise. Their goal is transparent. In the vernacular: to monetize eyeballs. Loss leading is essential to get there.

[misterbigg]

...even zero fees can help secure the network by raising the BTC fx rate...

I disagree with all of that. I think it's flawed logic.

[Syke]

The absolute minimum transaction size(1) is for single input single-output transactions. They are 192 bytes each, 182 if transaction combining is aggressively used. 1MiB/10minutes * 182bytes = 9.6tx/s

Ok, let's go with 9.6 tps. That means roughly 25,000,000 transactions per month. If Bitcoin becomes a payment backbone where users transactions are reconciled monthly, the current blocksize limit supports 25 million users. I strongly dislike hard forks, so until we have several million users, the blocksize needs to be left alone.

[twolifeinexile]

The absolute minimum transaction size(1) is for single input single-output transactions. They are 192 bytes each, 182 if transaction combining is aggressively used. 1MiB/10minutes * 182bytes = 9.6tx/s

Ok, let's go with 9.6 tps. That means roughly 25,000,000 transactions per month. If Bitcoin becomes a payment backbone where users transactions are reconciled monthly, the current blocksize limit supports 25 million users. I strongly dislike hard forks, so until we have several million users, the blocksize needs to be left alone.

When the user is in serveral millions, it is even harder for a hard fork. Actually, that is almost an event that may kill bitcoin.

[WiW]

Nice job completely missing the point of the original post. Here's the short-bus explanation for the challenged:

small max block size: high fees, secure network, decentralized mining

large max block size: low fees, lower hash rate, centralized mining.

Any questions?

Yeah, how did you miss my entire post (and previous ones)? I refer to each and every thing you mention here. Why do high fees lead to a secure network and decentralized mining? I don't even think network security necessarily correlates with decentralization.

I'm making a point to the opposite, and I even explain how to prove me wrong. Here's a short-bus explanation:

Small max block size: High fees, high motivation for abuse, centralization (I even provide an example)

Large max block size: Low fees, low motivation for abuse, no monopoly (I even provide an example)

[misterbigg]

...

And yet, somehow when the reward got cut in half (block fees went down) the hash rate went down. Doh!

[solex]

...

And yet, somehow when the reward got cut in half (block fees went down) the hash rate went down. Doh!

Perhaps we can agree here. The block halving to 25BTC was the most significant event affecting the hash power in 4 years and we might have predicted that it would take a couple of years for the hash power to return to end-Nov 2012 levels. Yet in a few months the peak is being attained again. Sure the few ASICs running make a big difference, but halving the hash power did not stop millions of dollars of ongoing new investment which secures the network.

[hazek]

The absolute minimum transaction size(1) is for single input single-output transactions. They are 192 bytes each, 182 if transaction combining is aggressively used. 1MiB/10minutes * 182bytes = 9.6tx/s

Ok, let's go with 9.6 tps. That means roughly 25,000,000 transactions per month. If Bitcoin becomes a payment backbone where users transactions are reconciled monthly, the current blocksize limit supports 25 million users. I strongly dislike hard forks, so until we have several million users, the blocksize needs to be left alone.

When the user is in serveral millions, it is even harder for a hard fork. Actually, that is almost an event that may kill bitcoin.

Bullshit. Bitcoin is entirely voluntary and nodes are entirely sovereign. What this means is that if you don't like the rules, you can fork Bitcoin and go your separate way where your bitcoins are incompatible with mine. My Bitcoin doesn't get hurt from that, well only as much as the exchange rate would likely drop due to decreased demand if many users left. And you can have a new Bitcoin out of thin air with new rules and if you can find enough demand for it it can also be valuable and keep a respectable exchange rate.


There is no need for a one size fits all solution with Bitcoin. We can have as many forks as we want. And you can use the one the rules of which you agree with and I'll stick with the one the rules of which I agree with.

[twolifeinexile]

The absolute minimum transaction size(1) is for single input single-output transactions. They are 192 bytes each, 182 if transaction combining is aggressively used. 1MiB/10minutes * 182bytes = 9.6tx/s

Ok, let's go with 9.6 tps. That means roughly 25,000,000 transactions per month. If Bitcoin becomes a payment backbone where users transactions are reconciled monthly, the current blocksize limit supports 25 million users. I strongly dislike hard forks, so until we have several million users, the blocksize needs to be left alone.

When the user is in serveral millions, it is even harder for a hard fork. Actually, that is almost an event that may kill bitcoin.

Bullshit. Bitcoin is entirely voluntary and nodes are entirely sovereign. What this means is that if you don't like the rules, you can fork Bitcoin and go your separate way where your bitcoins are incompatible with mine. My Bitcoin doesn't get hurt from that, well only as much as the exchange rate would likely drop due to decreased demand if many users left. And you can have a new Bitcoin out of thin air with new rules and if you can find enough demand for it it can also be valuable and keep a respectable exchange rate.


There is no need for a one size fits all solution with Bitcoin. We can have as many forks as we want. And you can use the one the rules of which you agree with and I'll stick with the one the rules of which I agree with.

when I say harder, I mean a hard fork event that bring most/dominant hashing power with it quickly and resolve the general uncertainty that "which block chain will win". When you have that many users, it is harder to get to that point.
Everyone can do a fork to his own liking, it is only up to others to decide follow or not.