Economics of block size limit

[justusranvier]

The only reason people pay fees now is because there is a minimum fee requirement in order for transactions to get relayed. Paying more than the minimum fee requirement doesn't help because blocks aren't full.

And?

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[Nagato]

Because at 250KB soft limit, free transactions still get included in blocks which breach the limit. Once you hit the hard limit of 1MB constantly for every block, there will be competition to be included in blocks and drive up fees.

[justusranvier]

Once you hit the hard limit of 1MB constantly for every block, there will be competition to be included in blocks and drive up fees.

A hard limit is not necessary for competition. The reason there is only a little bit right now is because transaction fees are so small compared to the block subsidy that miners don't have much incentive to be selective.

You also can't predict with certainty how far users will be willing to bid up the transaction fees. We know how much they are willing to pay now. If future users are unable to get their transactions in a block they might be willing to pay more, or they might decide not to use Bitcoin at all. You can't take demand for granted. Right now Bitcoin is attracting new users because the advantages it offers, but anything that reduces the value proposition reduces the number of people willing to use it. How many businesses maximize their revenue by intentionally limiting the number of customers they service and refusing to increase production to meet demand?

Based on the facts we have available we know Bitcoin users are willing to pay 50 BTC per day in transaction fees with 250k blocks. Right now the number of transactions can only increase by a factor of about 4 before the block limit is reached. At this point we can only process 7 tps no matter how many people are trying to use bitcoin. Assuming that the world-wide users of Bitcoin will happily accept this situation and try to outbid each other to get their transactions included instead of just giving up on Bitcoin entirely is extraordinarily dangerous.

The idea that you can preserve the decentralized nature of mining with a hard cap on the transaction rate is insane. Once the blocks saturate and you get price discovery for transaction fees, then the total mining revenue will reach its maximum possible value. After this point the block subsidy will decrease, and the fee revenue will remain constant. Assuming Bitcoin remains in use after this point there will be no incentive for new miners to enter the market. Mining will slowly get less profitable over time so existing miners will slowly drop out until only a few are left.

Nice job preserving decentralization.

[markm]

The exchange rate is probably one of the most influential variables.

I expect that if bitcoins go up to $125 per coin over the next few months only very late comers to the mining game would not be eager to upgrade their homes to the best home bandwidth they can get.

Right now is a bad time to talk about increasing expenses because everyone is still waiting since last year for the supposedly any moment now advent of ASICs. The huge delay in getting ASICs along with the constant claims they would be arriving at any moment already screwed up GPU system upgrades and new investment in GPU rigs, now there is talk of making everyone devote twice as much (or more) bandwidth yet here we still sit waiting to buy ASICs or even to just find out whether there are really going to even be any ASICs.

Once we can order an ASIC that will be shipped immediately, and, as looks likely, bitcoin exchange rates are up farther too, talk of upgrading our bandwidth will maybe be better received.

Currently we don't even know if we will even be able to have ASICs, or those will always be order a year in advance items or even no longer sold to end users at all, instead all being destined for a few huge hashing centres in Iceland and suchlike places, with only a few of the initial prototype batches ever getting into independent hands at all.

-MarkM-

[justusranvier]

Right now is a bad time to talk about increasing expenses because everyone is still waiting since last year for the supposedly any moment now advent of ASICs. The huge delay in getting ASICs along with the constant claims they would be arriving at any moment already screwed up GPU system upgrades and new investment in GPU rigs, now there is talk of making everyone devote twices as much (or more) bandwidth yet here we still sit waiting to buy ASICs or even to just find out whether there are really going to even be any ASICs.

Once we can order an ASIC that will be shipped immediately, and, as looks likely, bitcoin exchange rates are up farther too, talk of upgrading our bandwidth will maybe be better received.

I do not dispute the problems caused by ASIC delays.

At the same time Bitcoin is in extremely vulnerable place. It's attracting attention but isn't yet too big to shut down. Anything that slows down or stops the rate of adoption, such as an inability to process more than 7 tps, is dangerous.

[MoonShadow]

Right now is a bad time to talk about increasing expenses because everyone is still waiting since last year for the supposedly any moment now advent of ASICs. The huge delay in getting ASICs along with the constant claims they would be arriving at any moment already screwed up GPU system upgrades and new investment in GPU rigs, now there is talk of making everyone devote twices as much (or more) bandwidth yet here we still sit waiting to buy ASICs or even to just find out whether there are really going to even be any ASICs.

Once we can order an ASIC that will be shipped immediately, and, as looks likely, bitcoin exchange rates are up farther too, talk of upgrading our bandwidth will maybe be better received.

I do not dispute the problems caused by ASIC delays.

At the same time Bitcoin is in extremely vulnerable place. It's attracting attention but isn't yet too big to shut down. Anything that slows down or stops the rate of adoption, such as an inability to process more than 7 tps, is dangerous.

Really?  We just crossed 400 Petaflops, roughly 20 times the tested max for the fastest (unclassified) supercomputer on Earth, and you consider Bitcoin not yet too big to shut down?  Who would be doing the shutting down?

[justusranvier]

Really?  We just crossed 400 Petaflops, roughly 20 times the tested max for the fastest (unclassified) supercomputer on Earth, and you consider Bitcoin not yet too big to shut down?  Who would be doing the shutting down?

I meant in terms of commerce conducted in Bitcoins, exchange volumes in countries outside the US and Europe, international trade, use for remittances, etc.

The user base is still below what I would consider a safe critical mass that would continue to grow in spite of active attempts to forbid or hinder bitcoin use.

[cypherdoc]

thank you for this.  thus, i would suggest making any changes to block size only if absolutely necessary.

I don't think many here is suggesting we do a hard fork unless absolutely necessary. Thing is, it's very likely to become necessary at some point. It isn't necessary now, or in a while yet, but we anticipate it will be in the future.

It really doesn't matter even if Bitcoin doesn't become the jack of all trades (which I think it won't because the blockchain structure is just too heavy for doing everything), it's just that the usage of it in any mainstream capacity will become fairly impossible for anything other than the transfer of very large amounts, unless this is eventually changed. 7 transactions per second is simply not enough.

It's extremely important for people to stop looking at this like we either have Bitcoin as this very rigid and inflexible system that can store value well, or we "try to scale it infinitely and risk safe value storage". The real issue is anything but that. There is a clear middle ground which is what we should aim for.

Bitcoin is not suitable for all possible transaction types that people have need for but it can do more than 7 transactions a second, and it needs to do more than that. Otherwise we will at some point hit a brick wall in Bitcoin adoption.

the way i view this is that by arguing that we need to increase block size in anticipation of a large growth in tx's, you are in essence making a "market prediction".  right now, as the price continues to escalate it is easy to see why you might assume this.

but what if the US starts to have economic problems like Europe?  what if we follow in the footsteps of Japan and have a prolonged deflationary episode lasting many years?  the # tx's might never get to the size you envision.

the other thing to consider is what if Bitcoin was meant to become the world's next reserve currency to be used to settle daily trade imbalances like we had with the gold standard?  perhaps that is it's most optimum and efficient usage and might be served by the block size staying right where it is.  

[justusranvier]

the other thing to consider is what if Bitcoin was meant to become the world's next reserve currency to be used to settle daily trade imbalances like we had with the gold standard?  perhaps that is it's most optimum and efficient usage and might be served by the block size staying right where it is.

That would be suicide for Bitcoin. The Napsters and Megauploads of the world get shut down while Bittorrent successfully resists all efforts to stop it. The only protection Bitcoin has is growth and widespread, diversified usage.

[markm]

But that is why we don't want to scale it up to the napsters and megauploads scale, we want to keep it lean and mean so millions of pople all over the world can run full nodes at home.

-MarkM-

[cypherdoc]

the other thing to consider is what if Bitcoin was meant to become the world's next reserve currency to be used to settle daily trade imbalances like we had with the gold standard?  perhaps that is it's most optimum and efficient usage and might be served by the block size staying right where it is.

That would be suicide for Bitcoin. The Napsters and Megauploads of the world get shut down while Bittorrent successfully resists all efforts to stop it. The only protection Bitcoin has is growth and widespread, diversified usage.

i'm not saying that central banks would be the only ones using Bitcoin.  after all, even individuals used gold under the gold standard.

[justusranvier]

But that is why we don't want to scale it up to the napsters and megauploads scale, we want to keep it lean and mean so millions of pople all over the world can run full nodes at home.

Millions of people all over the world can run already Bitcoin at PayPal-like transaction rates if a few identified optimizations are implemented.

You'll never get millions of users, though, if you ration them to a couple of transaction per person per year.

[solex]

But that is why we don't want to scale it up to the napsters and megauploads scale, we want to keep it lean and mean so millions of pople all over the world can run full nodes at home.

Millions of people all over the world can run already Bitcoin at PayPal-like transaction rates if a few identified optimizations are implemented.

You'll never get millions of users, though, if you ration them to a couple of transaction per person per year.

+1

I am amazed that some people just cannot understand this point...

All those wanting higher fees should check out this chart!

https://blockchain.info/charts/transaction-fees-usd?showDataPoints=false&timespan=&show_header=true&daysAverageString=7&scale=0&address=

Do we really need to ration blockspace? Why not let this plateau out and then decide whether fees are high enough?

[oleganza]

we want to keep it lean and mean so millions of people all over the world can run full nodes at home.

The amount of totalitarian way of thinking in this community is amazing. Who appointed you to say "we want"? Where do you get what people want to do at home? My personal opinion is that no one wants to run full node at home. If it is possible to ensure great security by verifying random 1% of transactions and throwing away old spent outputs, then many people would do just that. Because no one really likes to waste more resources than his own level of paranoia allows. Only miners would need to run full nodes, and only people who want to mine, will mine.

How about talking about *economics* instead of *morality*? That is, what everyone wants for themselves and how this can be achieved, what incentives are moving people, what solutions they might embrace or reject, and for what reasons. You cannot force others to follow your "shoulds" and "should nots" anyway. It's like having a business negotiation and saying "you SHOULD do X because it's meant to be this way" instead of "how about doing X, does it sound interesting to you?"

[markm]

You're right, it is totalitarian not to want people to throw themselves upon the mercy of oppressive regimes.

Seems like what the lemmings always do so might as well sit back and let them.

Luckily there are plenty of altcoins, maybe not all of them will be descended upon by swarms of locusts determined to bring them to Big Brother's attention. Or maybe we should plan on each one in turn following the same route, so those who want to stay hard to stamp out must constantly move to new small grass-roots systems. Each new system can maybe even finance itself by selling-out the previous one.

-MarkM-