Thoughts on raising the Hard 1Mb block size limit

[totaleclipseofthebank]

Any transaction network is going to need some kind of transaction fees. Why? To prevent spam. If transactions can be spammed by bots on the network, you end up with a whole load of pointless data, that will still need to be verified, and reverified for all eternity.

The 1Mb hard limit is designed to create a LIMIT on the amount of transactions on the blockchain per unit time. This is there to create demand/limit supply, and to allow miners to collect fees for securing transactions in the network. The transactions with the highest fees (which are presumably either the largest or most important transactions) will make it into blocks, NOT the free/tiny transactions.

Eventually the block rewards will go to zero, and miners WILL NOT ACCEPT transactions that do not pay fees. Like it or not, this is the long-term prediction for bitcoin mining. As business owners they will be interested in maximizing profits (on average, and in the long run).

If the 1Mb limit (keep in mind 1Mb/block means a max size of 52.6GB/year for the blockchain, which is a ridiculous quantity) is raised, then the potential FUTURE mining revenues, namely transaction fees, are being diluted. Gavin calculates that RIGHT NOW there is only a small cost to blocks being orphaned (https://gist.github.com/gavinandresen/5044482see his back-of-the-envelope calculation). But in the future, when transaction fees are far larger than the block rewards, and bitcoins are at $1000/each, an orphaned block will represent a much larger cost to miners.

A bitcoin fork with 1Mb hard limit will attract more miners, and will thus be more secure than a fork with larger blocks. For this reason it is likely that the 1Mb hard limit (similar to the 21million bitcoin cap) will not be raised in the MAIN fork of bitcoin. The beauty of bitcoin is that it allows the free market to decide. Sure, some altruistic miners could raise their blocksize in a hard fork of bitcoin, and this can be used to sling change around the internet and max out some hard drives. But the main fork will stay at 1MB, will be the most secure network, and will have large transaction fees, that are dwarfed by the monetary value of transactions being much higher than they are today.

TLDR
Any fork with a larger hard block size limit will be less secure, and therefore less valuable, than the fork with the hard limit in place.

[lucif]

I am proponent of adaptive maxblocksize.

Transactions with fees should temporary increase current maxblocksize proportionally.

So the 1Mb limit will be only for free transactions.

[totaleclipseofthebank]

I am proponent of adaptive maxblocksize.

Transactions with fees should temporary increase current maxblocksize proportionally.

So the 1Mb limit will be only for free transactions.

OK, but why would miners accept those free transactions into their blocks?
My point here is to identify the end-game protocol that will win out in the long run. I think the 1MB version will be the one.

[lucif]

I think free transactions needed for miners only as kinda random entropy source for their sha2 block solving engines.

There wasn't any motive to accept free transactions from the beginning (in network algo) (as well as there is no motive for broadcasting them or store them). They accepted them as transaction pool was thin. But things gonna change.

[totaleclipseofthebank]

I think free transactions needed for miners only as kinda random entropy source for their sha2 block solving engines.

There wasn't any motive to accept free transactions from the beginning. They accepted them as transaction pool was thin. But things gonna change.

Not true: The motivation was the block reward, despite the fact that the fees on all transactions were insignificant. If there were a bunch of people paying fees in excess of the block reward, believe me those would have gone into the blocks. One day this is what it will look like, if bitcoin really scales (in amount of value transferred, not by # of transactions) the way people want it to.

[lucif]

Not true: The motivation was the block reward, despite the fact that the fees on all transactions were insignificant. If there were a bunch of people paying fees in excess of the block reward, believe me those would have gone into the blocks. One day this is what it will look like, if bitcoin really scales (in amount of value transferred, not by # of transactions) the way people want it to.

You wrong. There is absolutely no motivation for decision to include separate transaction into block.

Miner may include free transaction, or may not. Nothing will change for him as result of his decision.

[lucif]

Miner even can mine just empty block with coinbase transaction to his address and ignore any incoming transactions.

[conv3rsion]

Any transaction network is going to need some kind of transaction fees. Why? To prevent spam. If transactions can be spammed by bots on the network, you end up with a whole load of pointless data, that will still need to be verified, and reverified for all eternity.

The 1Mb hard limit is designed to create a LIMIT on the amount of transactions on the blockchain per unit time. This is there to create demand/limit supply, and to allow miners to collect fees for securing transactions in the network. The transactions with the highest fees (which are presumably either the largest or most important transactions) will make it into blocks, NOT the free/tiny transactions.

Eventually the block rewards will go to zero, and miners WILL NOT ACCEPT transactions that do not pay fees. Like it or not, this is the long-term prediction for bitcoin mining. As business owners they will be interested in maximizing profits (on average, and in the long run).

If the 1Mb limit (keep in mind 1Mb/block means a max size of 52.6GB/year for the blockchain, which is a ridiculous quantity) is raised, then the potential FUTURE mining revenues, namely transaction fees, are being diluted. Gavin calculates that RIGHT NOW there is only a small cost to blocks being orphaned (https://gist.github.com/gavinandresen/5044482see his back-of-the-envelope calculation). But in the future, when transaction fees are far larger than the block rewards, and bitcoins are at $1000/each, an orphaned block will represent a much larger cost to miners.

A bitcoin fork with 1Mb hard limit will attract more miners, and will thus be more secure than a fork with larger blocks. For this reason it is likely that the 1Mb hard limit (similar to the 21million bitcoin cap) will not be raised in the MAIN fork of bitcoin. The beauty of bitcoin is that it allows the free market to decide. Sure, some altruistic miners could raise their blocksize in a hard fork of bitcoin, and this can be used to sling change around the internet and max out some hard drives. But the main fork will stay at 1MB, will be the most secure network, and will have large transaction fees, that are dwarfed by the monetary value of transactions being much higher than they are today.

TLDR
Any fork with a larger hard block size limit will be less secure, and therefore less valuable, than the fork with the hard limit in place.

A bitcoin will never be worth $1000 if the Bitcoin network cannot handle more than 7 transactions per second or if the fee to send a portion of a bitcoin is high enough for most general use cases of bitcoin to no longer be competitive.

The only way that a bitcoin will be worth $1000 each is if the use of bitcoins represent significant economic activity. And that only way for that to happen is if transaction fees remain low enough for Bitcoin itself to be competitive.

We are going to run out of transactional space 120 years before we run out of the block reward incentive. Potential future mining revenues WILL NOT be diluted because revenue equals the number of transactions times the transactional rate. A supply ceiling however will limit maximum transactional revenue. In other worlds, its better to sell 10,000 apples at $0.75 each, instead of 5 at $1.25 each, especially when the variable cost of additional apples is almost zero.

[jwzguy]

No reason to start another thread on this, especially when you haven't read the ones before it.
Your premise is clearly contradicted by Satoshi's emails/posts.

[nevafuse]

This is there to create demand/limit supply, and to allow miners to collect fees for securing transactions in the network.

Where did Satoshi mention coding the 1MB limit so that miners can collect more fees?

[totaleclipseofthebank]

Miner even can mine just empty block with coinbase transaction to his address and ignore any incoming transactions.

you are right, of course. miners up until now have been motivated largely by altruism in accepting any transactions at all.

but, the block reward will eventually go down, and eventually, transactions are going to have to have put on their fancy shoes if they want to get picked up by the network.

the point is that I doubt people are going to altruistically DL 56Gigs of half-cent gambling transactions every year (see user Psy's posts), when they could instead process a smaller, and more secure fork of bitcoin that has a realistic outlook on transaction rate limitations.

RE transactions fees making bitcoin less competitive,
You can make bitcoin transactions of $10 million dollars with a 1 cent fee right now. That's pretty competitive to me. As transaction size approaches 1 cent, the fee becomes a larger percentage of the transaction itself. In this way, the market decides how many tiny transactions it has room for (it has room for plenty right now), but it wont always. People who want to do tiny transactions will have to resort to using trusted parties (like banks/trust networks or whatever else emerges) to carry out their transactions.

[Akka]

...

If the 1Mb limit (keep in mind 1Mb/block means a max size of 52.6GB/year for the blockchain, which is a ridiculous quantity) is raised, then the potential FUTURE mining revenues, namely transaction fees, are being diluted. Gavin calculates that RIGHT NOW there is only a small cost to blocks being orphaned (https://gist.github.com/gavinandresen/5044482see his back-of-the-envelope calculation). But in the future, when transaction fees are far larger than the block rewards, and bitcoins are at $1000/each, an orphaned block will represent a much larger cost to miners.

...

Just some some points on that:

1 Mb/blocks allows for max ~180 Million transactions a year. How many people could actually use bitcoin in that case? 2 - 3 Million maybe, if they only use it rarely.

Do you think that's enough for your 1.000 Dollar coins?
Do you think business will keep accepting /add accepting BTC if this only reaches such a small group?

Also, do you think the amount for transaction fees is unlimited. Why should someone use Bitcoin if he has to pay (significantly) more when using it? There is a limit to the amount of fees people are willing to pay. At this point it would be more providable to allow more transactions.

A free marked would find a balance between fees and number of transactions.

But a hard cap is hardly free.

[conv3rsion]

the point is that I doubt people are going to altruistically DL 56Gigs of half-cent gambling transactions every year (see user Psy's posts), when they could instead process a smaller, and more secure fork of bitcoin that has a realistic outlook on transaction rate limitations.

This will limit the value of BTC as expressed in other currencies. As that value drops, resources invested in mining will decline, and so will the total hash rate, leaving that "fork" less secure.


Read this and understand, if bitcoins cost more to spend, they are worth less relative to other currencies.  

[conv3rsion]

RE transactions fees making bitcoin less competitive,
You can make bitcoin transactions of $10 million dollars with a 1 cent fee right now. That's pretty competitive to me.

You're ignoring that you have to pay 2 currency conversion fees because the $10 million in bitcoins is less useful (prior to and following the transaction) than the $10 million in cash. The only way to fix that is make it so bitcoins are more useful so that you don't want to / need to convert them into cash. That only happens if they are inexpensive to spend and and as a consequence are widely adopted.

Do you people genuinely not understand this?

[totaleclipseofthebank]

This is there to create demand/limit supply, and to allow miners to collect fees for securing transactions in the network.

Where did Satoshi mention coding the 1MB limit so that miners can collect more fees?

does it matter?
My point is that a sensible version of Bitcoin will have a limit on how much data is put into the blockchain, i.e. that scarce resources (disk space and network bandwidth) are allocated in an optimal way. The optimal way will be determined by what transactions miners voluntarily include and which blocks the market considers valid bitcoin transactions.

Think about this scenario.

A hard fork is created with a self-adjusting block size limit. All users have a balance of original, authentic 1Mb-limit bitcoins, and also, a balance of 1+XMb limit, bigblockchaincoins (BBCcoins). Exchanges will be created that allow people to exchange these two types of coins between forks.

As the two forks compete, the BBCcoins will see their blockchain keep getting larger at an exponential rate, while the bitcoin blockchain is pinned to linear growth at 1MB/10mins. People will start realizing that the vast size of the BBCblockchain is leading to lots of centralization (only few nodes verifying everything, only large mining ops able to compete). Now they are wondering whether the original bitcoin blockchain is preferable to mine/verify due to its smaller data size, and the presence of less spam, and higher fees/MB mined.

Inevitably, the original bitcoin miners are less centralized, due to the smaller, spam-free blockchain. The added security makes bitcoins more valuable than the BBCcoins, and people start selling their BBCcoins. The lower fees/Mb in mining BBCcoins also makes people want to mine bitcoins for the higher fees, and over time, BBCcoins become worth a lot less, having a 4TB blockchain, while bitcoins are worth a lot more, having a 500GB blockchain. The smart investors win, the free market wins, BBCcoin holders lose, SD bots lose.

[conv3rsion]

This is there to create demand/limit supply, and to allow miners to collect fees for securing transactions in the network.

Where did Satoshi mention coding the 1MB limit so that miners can collect more fees?

does it matter?
My point is that a sensible version of Bitcoin will have a limit on how much data is put into the blockchain, i.e. that scarce resources (disk space and network bandwidth) are allocated in an optimal way. The optimal way will be determined by what transactions miners voluntarily include and which blocks the market considers valid bitcoin transactions.

Think about this scenario.

A hard fork is created with a self-adjusting block size limit. All users have a balance of original, authentic 1Mb-limit bitcoins, and also, a balance of 1+XMb limit, bigblockchaincoins (BBCcoins). Exchanges will be created that allow people to exchange these two types of coins between forks.

As the two forks compete, the BBCcoins will see their blockchain keep getting larger at an exponential rate, while the bitcoin blockchain is pinned to linear growth at 1MB/10mins. People will start realizing that the vast size of the BBCblockchain is leading to lots of centralization (only few nodes verifying everything, only large mining ops able to compete). Now they are wondering whether the original bitcoin blockchain is preferable to mine/verify due to its smaller data size, and the presence of less spam, and higher fees/MB mined.

Inevitably, the original bitcoin miners are less centralized, due to the smaller, spam-free blockchain. The added security makes bitcoins more valuable than the BBCcoins, and people start selling their BBCcoins. The lower fees/Mb in mining BBCcoins also makes people want to mine bitcoins for the higher fees, and over time, BBCcoins become worth a lot less, having a 4TB blockchain, while bitcoins are worth a lot more, having a 500GB blockchain. The smart investors win, the free market wins, BBCcoin holders lose, SD bots lose.

Ok, now lets talk about what's actually going to happen.

1. A new client is released and blocks are compatible between the two for months / years in advance because new clients maintain the block restriction until a specified date or event has occurred.
2. During this time, the vast majority of bitcoin users, miners, merchants, integrators, etc, upgrade their clients to support the newer block rules
3. Eventually only a small portion of the network is running old and outdated software, perhaps that even has security issues that were not patched.
4. As the "cut over" date is approaching, messages are sent to the old clients to indicate that they are out of date and require upgrades
5. The small portion of the network running old and outdated software is reduced in size further as more users upgrade.
6. The block change deadline happens and the hard fork turns out to be 95%+ already migrated
7. A portion of the remaining 5% DO start an alternative chain, without the backing of bitcoin.org or the Bitcoin foundation. However the value of the coins in the alternative chain drop rapidly as its clear that almost all of "Bitcoin" has long since migrated to newer clients and the newer chain.
8. The value of any remaining coins on the smaller older chain drops further to nearing 0.
9. The developers put in reasonable blocksize limits on the "new chain" that prevented the exponential growth you are so worried about.
10. "Bitcoin" learns how to handle a necessary hard fork.

[conv3rsion]

Inevitably, the original bitcoin miners are less centralized, due to the smaller, spam-free blockchain. The added security makes bitcoins more valuable than the BBCcoins, and people start selling their BBCcoins.

Oh really, people are going to sell their "BBCoins" for other coins that are now less useful, more expensive to spend, artificially restricted, impossible to scale as computing resources do, and don't have the backing of any of the major parties working on or investing in Bitcoin?

Yea good luck with that.

[totaleclipseofthebank]

1. A new client is released and blocks are compatible between the two for months / years in advance because new clients maintain the block restriction until a specified date or event has occurred.
2. During this time, the vast majority of bitcoin users, miners, merchants, integrators, etc, upgrade their clients to support the newer block rules
3. Eventually only a small portion of the network is running old and outdated software, perhaps that even has security issues that were not patched.
4. As the "cut over" date is approaching, messages are sent to the old clients to indicate that they are out of date and require upgrades
5. The small portion of the network running old and outdated software is reduced in size further as more users upgrade.
6. The block change deadline happens and the hard fork turns out to be 95%+ already migrated
7. A portion of the remaining 5% DO start an alternative chain, without the backing of bitcoin.org or the Bitcoin foundation. However the value of the coins in the alternative chain drop rapidly as its clear that almost all of "Bitcoin" has long since migrated to newer clients and the newer chain.
8. The value of any remaining coins on the smaller older chain drops further to nearing 0.
9. The developers put in reasonable blocksize limits on the "new chain" that prevented the exponential growth you are so worried about.
10. "Bitcoin" learns how to handle a necessary hard fork.

This kind of reminds me of the "hard fork" we had in US currency by leaving the gold standard. Gold was a limited, scarce, and unwieldy currency, considered by many to be old-fashioned. Eventually it was abandoned in favor of unrestricted fiat currency which was more flexible and much more practical than the old-fashioned gold.

Nevertheless, people who stuck with the gold rather than greenbacks did pretty well for themselves, even though it is barely used as a transactional currency.

[conv3rsion]

This kind of reminds me of the "hard fork" we had in US currency by leaving the gold standard. Gold was a limited, scarce, and unwieldy currency, considered by many to be old-fashioned. Eventually it was abandoned in favor of unrestricted fiat currency which was more flexible and much more practical than the old-fashioned gold.

Nevertheless, people who stuck with the gold rather than greenbacks did pretty well for themselves, even though it is barely used as a transactional currency.

Bitcoin's value comes from its function. It functions as an inexpensive way to transfer value across the world, almost instantly.

Anything that limits its function in that capacity, damages its value.

By the way, I can trade gold for free. It has no "transactional fee".

[totaleclipseofthebank]

Honestly, I'm just sick of people saying it is feasible to have a 2000tps distributed protocol, where everyone is downloading and storing half-gig blocks every 10 minutes so. (see the wiki) https://en.bitcoin.it/wiki/Scalability#Current_bottlenecks

Don't people understand that this would mean thousands of GB each year in blockchain size? How do you think this is reasonable? There are limits to data storage, and thats just one of the economic constraints that have to be faced.