The Blocksize Issue = Doing the Dirty Dishes

[Zangelbert Bingledack]

So many spats between husbands and wives end up revolving around the dishes. What is it about dirty dishes that causes so much friction?

It's not so much that the annoyance of doing the dishes causes the contention, but more that the dishes serve as a focal point for all the various little things that bother the spouses about each other. The dishes merely bring matters to a head.

The recent controversy over the coming change in blocksize reminds me of this, and specifically I think we are witnessing the first wave in the clash between ideological bitcoiners and practical bitcoiners.

The first party are more motivated by what they perceive as Bitcoin's ideals than its practical benefits, and the second party care more about benefits than ideology. Some people wear both hats at different times, and insofar as ideology is ultimately (if roundaboutly) aiming at some kind of benefit there is a degree of overlap and interplay between the two. For example, the concern that larger blocksizes will leave poorer people behind can be called both ideological and practical. Moreover, Bitcoin's immense practical advantages inevitably move the world toward shifts that happen to be favored by certain ideologies.

At first the ideologues dominated, and this was good because it gave bitcoins their initial value. Inasmuch as Bitcoin continues to be advertized in terms of its ideological points, it is clear that the ideological side is both strong and persuasive. But as we leave the innovator/early-adopter phase and the general public starts pouring in, the ideologues will be drowned out, and the pace of this drowning out will only accelerate.

As such I expect more controversy going forward, and I think recognizing the undercurrent and pedigree of the controversies will be of great assistance in sorting them out.

[misterbigg]

Ideological evangelists on this board are typically non-technical (i.e. they don't understand the technical details of how Bitcoin works, despite ample documentation). Probably they are not fluent in any compiled languages, but that's just conjecture.

Speaking of which, do you know any languages? Computer languages I mean.

[DannyHamilton]

Ideological evangelists on this board are typically non-technical (i.e. they don't understand the technical details of how Bitcoin works, despite ample documentation).

I think that is a false conjecture.  I have not seen evidence of that.

[DannyHamilton]

- snip -
Now for the supply and demand part:
Imagine that there are 1000s of transaction requests, all competing against each other so they can be signed and confirmed. What are they fighting over? A limited amount of block space. The Bitcoin protocol explicitly allows a market to form because it allows users to send bids ("donations") to the miner. This encourages miners to sort all the transaction requests and only accept the most profitable ones.
- snip -

I don't think this process will work well until there is a user-friendly method in place to cancel an unconfirmed transaction (or at least a way to add to the fee of an unconfirmed transaction).

It is difficult for a user to know at the time they are creating the transaction how big of a fee they will need if they want their transaction added to one of the next 6 blocks.  If half an hour goes by and they are getting anxious, there is no way to increase their bid.  There is a possibility of creating a transaction with such a low fee (and total network transaction frequency to get so high) that the transaction will never make it into a block.  What options are available to the sender (or receiver) of the transaction at that point?

[DannyHamilton]

- snip -
Now for the supply and demand part:
Imagine that there are 1000s of transaction requests, all competing against each other so they can be signed and confirmed. What are they fighting over? A limited amount of block space. The Bitcoin protocol explicitly allows a market to form because it allows users to send bids ("donations") to the miner. This encourages miners to sort all the transaction requests and only accept the most profitable ones.
- snip -

I don't think this process will work well until there is a user-friendly method in place to cancel an unconfirmed transaction (or at least a way to add to the fee of an unconfirmed transaction).

It is difficult for a user to know at the time they are creating the transaction how big of a fee they will need if they want their transaction added to one of the next 6 blocks.  If half an hour goes by and they are getting anxious, there is no way to increase their bid.  There is a possibility of creating a transaction with such a low fee (and total network transaction frequency to get so high) that the transaction will never make it into a block.  What options are available to the sender (or receiver) of the transaction at that point?

That's a good point and I don't have an answer for that, however...
- snip -

One solution that would go a LONG WAY toward addressing this issue would be if miners/pools would look at the entire tree of unconfirmed transactions and compute the best bitcoin-per-byte payoff for each branch.

Example:
Transaction A 10,000 bytes 0 fee (2 outputs)
Transaction B 400 bytes 0.01 BTC fee
Transaction C uses one output from Transaction A and is 400 bytes 0.1 BTC fee
Transaction D uses the other output from Transaction A and is 800 bytes 0.3 BTC fee

Right now, Transaction B gets confirmed, and Transaction C and D (both of which have higher fees) are stuck.

A forward looking calculation would find that:

Transaction A alone pays 0 BTC per byte
Transaction B alone          pays 0.00002500 BTC per byte
Transaction A & C together pay 0.00000962 BTC per byte
Transaction A & D together pay 0.00002778 BTC per byte

Clearly it is more profitable to include Transaction A & D together than it is to include Transaction B alone.

If most miners would adopt an algorithm like this, then a receiver (merchant?) could create a transaction that used inputs from multiple payers and add their own fee to increase the "bid" ensuring that all the small "free" or low fee transactions that they accept still get confirmed.

[johnyj]

I like OP's post! Seems many people here are just too technical to grasp the obvious

Under the cover of all of these excuses for increasing/holding block size limit, there are basically 2 motivations:

1.Afraid that bitcoin will fail to function and lose its adoption and value
2.Afraid that bitcoin will lose people's trust and fail

Functional view is the view of most of the developers, if an application failed to provide an intended function, it will fail

But this is a service provider view. Central banks never view things this way, they know that scarcity cause demand and abundant cause abuse. They never provide enough money, they even put every money as a debt, and all people work hard to repay those debt and it will never get repaid fully, in this way, they successfully command the whole society to work for them

How could they achieve this? Through trust. Although they are stealing people's money and making profit, people still trust them, since they always take the most expensive and good looking house in the city and wear nice clothes, professional looking, very consistent, seldom changes, looks stupid, but that is how it gained the trust of majority

IMO, it's the same for bitcoin, it really doesn't matter how difficult the transaction will be, as long as bitcoin holds it's promises, it will gain people's trust and support. When you have the support of merchants/exchanges/miners, no matter what kind of problem there will be, all of these people will come out with brilliant ideas and help. But if bitcoin could not hold what it promises, people will just simply abandon bitcoin

[bullioner]

There seems to be a bit of a dilemma:
a) Block space needs to be sufficiently scarce in order to sustain a market for transaction-signing.
b) Block space needs to be sufficiently abundant in order to for Bitcoin to stay competitive against other protocols.
c) Trying to keep both sides happy by making ad-hoc changes to the protocol risks breaking everything.

So set a target in (recent mean) BTC tx fees per block and form an equilibrium around that.  Over the target: max block size increases slightly.  Under the target: max block size decreases slightly.  My suggested target is 12 BTC per block because long term, this means transactors are paying 3% of the total monetary base for the service of securing the transaction log, which just seems about right.  The key, though, is seeing that by setting this target (to whatever value) we resolve the dilemma you outline above.

[twolifeinexile]

IMO, it's the same for bitcoin, it really doesn't matter how difficult the transaction will be, as long as bitcoin holds it's promises, it will gain people's trust and support. When you have the support of merchants/exchanges/miners, no matter what kind of problem there will be, all of these people will come out with brilliant ideas and help. But if bitcoin could not hold what it promises, people will just simply abandon bitcoin

Well-said, and people worried is not just a block size issue, but an overall trust issue. ( If bitcoin protocol could change via a easy route, then it is a worring sign).

[tvbcof]

IMO, it's the same for bitcoin, it really doesn't matter how difficult the transaction will be, as long as bitcoin holds it's promises, it will gain people's trust and support. When you have the support of merchants/exchanges/miners, no matter what kind of problem there will be, all of these people will come out with brilliant ideas and help. But if bitcoin could not hold what it promises, people will just simply abandon bitcoin

Well-said, and people worried is not just a block size issue, but an overall trust issue. ( If bitcoin protocol could change via a easy route, then it is a worring sign).

To me the over-arching issue related to blockchain size, or more generally how to modulate growth and deal with scaling issues,  is not really one of trust per se.  It relates to whether the system remains distributed, or whether it grows into a solution where it is, for all intents and purposes, controlled by a small fraction of the community.  I prefer that it does not since if it does it opens a variety of new failure modes.

Framed differently, I would prefer a small and robust system to a large and at risk one.  I already have my foot in the door to Bitcoin-land which probably influences my personal feelings on the matter, but I think that it goes deeper and exposes my general tastes in system design.  'Brilliant ideas to help' sound to me like one of the most likely of things which could causes a complete system collapse.

[blablahblah]

Alternative idea:

Just let Bitcoin saturate to whatever maximum size it can sustain.

Eventually the fees could get so high that people are forced to shop around for cheaper alt-coins. This would challenge the popular perception that Bitcoin is resistant against inflation. It's not -- any "Alternative Coin" that steps into the same niche (pseudonymous Internet money...) inflates the overall "currency soup".

This would ruin some people's idea of using bitcoins as "hard money" for their retirement savings.
On the other hand, some day soon we may be faced with transactions that cost the same or more than competing bank rates. After all, Bitcoin is so awesome, pseudonymous and everything -- why shouldn't the miners be able to charge a premium? Oh that's right. Open source software promotes competition. While pissed off at inflation, at least people will be happy that transaction fees stay cheap.

[tvbcof]

...
This would ruin some people's idea of using bitcoins as "hard money" for their retirement savings.
...

I guess the developers warnings that Bitcoin is 'experimental' was not enough.

[Domrada]

Alternatively, why should future generations be born into and forced to respect "debt arrangements" that were decided by their ancestors?

That is exactly what the US Treasury is doing.

But that's not what is happening with Bitcoin.  Not a single person is being forced into it.

[WiW]

I'm not understanding this argument for ensuring miner profits by making block space scarce.

Miner profits are ensured by adjusted mining difficulty, no? If block space is scarce then the txn fees dwindles and miners sell their rigs/farms, until it demand overcomes supply and txn becomes expensive and profitable and more miners come to take a share of the larger pie. All this with correlation to electricity prices, of course.

Why create block space scarcity if miner profits are ensured anyway?

[WiW]

My earlier point was if the scarcity (or amount of supply) is right, people will want to buy a piece of that block space by bidding for it. But if it's so abundant or near infinite that nobody wants to pay -- well then your mining income is screwed when the mining reward starts getting low.

Mining income gets low. If less miners are producing the same amount of blocks (1 block/10 minutes), then prices rise (less competition). Once prices rise, more miners come back and prices fall (more competition).

Mining income can't get screwed because miners will simply charge more for txn inclusion in their blocks. Either that or all miners will quit, in which case there will certainly be no abundance of block space. Again, self-adjusting.

Ultimately, even with "endless" block space the miners are still competing between each other who gets to distribute it. Since it's all arbitrary, the difficulty will ensure the users always have block space to bid for, but the prices will be adjusted purely by miner's electricity costs plus operating income.

What am I missing?

[mpfrank]

I'm not understanding this argument for ensuring miner profits by making block space scarce.

Miner profits are ensured by adjusted mining difficulty, no? If block space is scarce then the txn fees dwindles and miners sell their rigs/farms, until it demand overcomes supply and txn becomes expensive and profitable and more miners come to take a share of the larger pie. All this with correlation to electricity prices, of course.

Why create block space scarcity if miner profits are ensured anyway?

Scarcity is basically "one over supply". More supply = less scarcity.

My earlier point was if the scarcity (or amount of supply) is right, people will want to buy a piece of that block space by bidding for it. But if it's so abundant or near infinite that nobody wants to pay -- well then your mining income is screwed when the mining reward starts getting low.

On the other hand, if (from an ideological and technological POV) we want a 1000 times more people using Bitcoin for their shopping, something might have to be done. The tricky thing is that the scarcity is totally artificial. It's just an arbitrary thing that people are discussing. E.g.: "should we magically make more block space available, or not?"

I think this problem automatically fixes itself even if there is no hard-coded limit.  At Bitcoin becomes more and more popular, and used for more and more transactions (including micropayments), eventually one would reach a point where the costs to communicate, process and store all that data (even with molecular memories, etc.) becomes too large for miners to accept EVERY zero-fee transaction, and they would start screening for transactions with higher fees.  In other words, even if there was no artificial scarcity (hard-coded block-size limit), there would still be real-world scarcity.  Information is physical, and information processing isn't free.  So, fees would automatically increase to the point where the miners could stay in business even with huge transaction rates.

[mpfrank]

My earlier point was if the scarcity (or amount of supply) is right, people will want to buy a piece of that block space by bidding for it. But if it's so abundant or near infinite that nobody wants to pay -- well then your mining income is screwed when the mining reward starts getting low.

Mining income gets low. If less miners are producing the same amount of blocks (1 block/10 minutes), then prices rise (less competition). Once prices rise, more miners come back and prices fall (more competition).

Mining income can't get screwed because miners will simply charge more for txn inclusion in their blocks. Either that or all miners will quit, in which case there will certainly be no abundance of block space. Again, self-adjusting.

Ultimately, even with "endless" block space the miners are still competing between each other who gets to distribute it. Since it's all arbitrary, the difficulty will ensure the users always have block space to bid for, but the prices will be adjusted purely by miner's electricity costs plus operating income.

What am I missing?

Yes, exactly right.

[johnyj]

I'm not understanding this argument for ensuring miner profits by making block space scarce.

Miner profits are ensured by adjusted mining difficulty, no? If block space is scarce then the txn fees dwindles and miners sell their rigs/farms, until it demand overcomes supply and txn becomes expensive and profitable and more miners come to take a share of the larger pie. All this with correlation to electricity prices, of course.

Why create block space scarcity if miner profits are ensured anyway?

Although miners do affect price, there isn't any direct relationship between mining and txn, the number of blocks per day is fixed no matter how many people are mining, even there are thousands of ASICs mining, each block is still the same as when there were only hundreds of CPUs mining

The price is mostly decided by sentiment, not mining profitability. In 2011, difficulty dropped while price also dropped, it can go on for a long time

[bg002h]

There seems to be a bit of a dilemma:
a) Block space needs to be sufficiently scarce in order to sustain a market for transaction-signing.
b) Block space needs to be sufficiently abundant in order to for Bitcoin to stay competitive against other protocols.
c) Trying to keep both sides happy by making ad-hoc changes to the protocol risks breaking everything.

So set a target in (recent mean) BTC tx fees per block and form an equilibrium around that.  Over the target: max block size increases slightly.  Under the target: max block size decreases slightly.  My suggested target is 12 BTC per block because long term, this means transactors are paying 3% of the total monetary base for the service of securing the transaction log, which just seems about right.  The key, though, is seeing that by setting this target (to whatever value) we resolve the dilemma you outline above.

If you want to hit 12 btc in fees per block, you're gonna need a lot of transactions...big transactions
Don't happen that often. You will need to _raise_ the limit to increase total fees...

[Mageant]

I think services like Ripple could solve the blockchain size problem.

If Bitcoin gets really big then then small transactions would be handled by these services instead, essentially using Bitcoins IOUs instead of actual Bitcoins.

The blockchain would then only be used for large transactions and would have a significant transaction fee.

[rebuilder]

As it stands, Bitcoin's block size is already too big. It is one of the reasons why the exchange rates tend to be so bubbly/unstable.

I don't see the connection. Could you clarify?