New video: Why the blocksize limit keeps Bitcoin free and decentralized

[Peter Todd]

Video: http://www.youtube.com/watch?v=cZp7UGgBR0I

Website: http://keepbitcoinfree.org/

Pretty simple right now, but this is the beginning. For those of you at the 2013 conference, I'll be giving a presentation about off-chain transactions on Saturday as part of the tech stream.

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[Meatpile]

Reminds me of those movies where they start out with all this proven science .. Then suddenly go off on a batshit crazy tangent

Ah yes it was called what the bleep do we know

[bg002h]

The video is really well done. I'm not sure where the tipping point is for the block size to push the little guy out of running a node, but surely it's a lot more than 1MB.

I love the idea of off chain transactions. Is it anything more than an idea at this point though?

[misterbigg]

Website: http://keepbitcoinfree.org/

Really nice site!

[Peter Todd]

The video is really well done. I'm not sure where the tipping point is for the block size to push the little guy out of running a node, but surely it's a lot more than 1MB.

I though that too until I thought more deeply about how important privacy is.

I love the idea of off chain transactions. Is it anything more than an idea at this point though?

Yes and no.

Off-chain is how the majority of transactions are probably performed on Bitcoin today: all the exchanges are off-chain for internal activity, The Silk Road and every site like it is totally off-chain, and then there's stuff like the recent Russian payment processor now supporting Bitcoin denominated accounts, again, off-chain.

However, the technology to do anything other than simply trust the payment processors is all stuff on paper right now. Some of the tech, like processors signing to prove they actually own the Bitcoins they say they do, is dead obvious that it'll work. The other extreme is stuff like fidelity bonded banks where we don't really know yet. Then you have in-between stuff like trusted hardware that has been used very successfully outside of Bitcoin, think smartcards, but whether that'll actually be seen on Bitcoin is an open question.

Of course, from the FinCEN guidance we've seen they're very against off-chain transactions and will consider it highly regulated. That's a tough hurdle for stuff like BitPay, although for anything underground they don't care one bit.

[misterbigg]

"Bitcoin is off the chain!"

Had to say it.

[acoindr]

Peter, that is a fantastic video. I especially like the emphasis on off-chain transactions.

I would however add one thing at the end...

"And by the way, Litecoin (or other alt-coins like Novacoin) can ALSO be cryptocurrencies with smaller fixed limit blocks, allowing Bitcoin to raise the limit and the free market to appreciate which works best."

[fornit]

i think developing off-chain transaction technology is very important to bitcoin in the long run. however, until that is done, increasing the block size limit is still the only way to move forward. current consumer hardware can handle a lot more than just 1mb.
so encouraging users to support a 1mb limit is imho the wrong way. if we should go beyond 5, 10 or 20mb in the next few years is up to discussion. but staying at 1mb is just not an option. it will massively hamper short-term growth and thats too high a price to pay just to have every c64 be able to run a full node.

[bg002h]

i think developing off-chain transaction technology is very important to bitcoin in the long run. however, until that is done, increasing the block size limit is still the only way to move forward. current consumer hardware can handle a lot more than just 1mb.
so encouraging users to support a 1mb limit is imho the wrong way. if we should go beyond 5, 10 or 20mb in the next few years is up to discussion. but staying at 1mb is just not an option. it will massively hamper short-term growth and thats too high a price to pay just to have every c64 be able to run a full node.

A testnet mega workout would be helpful.   I'm running a testnet node on consumer level (but decent) hardware on a decent (but home based) internet connection.  Perhaps we could all offer our computers to the devs to run a stress test on testnet?  We could try block sizes of 1-100 mb and see how it goes.

[gmaxwell]

The important point of this is recognizing there is a set of engineering tradeoffs here.

Too big and everyone can transact but the transactions are worthless because no one can validate— basically that gives us what we have with the dollar.

Too small and everyone can validate but the validation is worthless because no one can transact— this is what you have when you try to use real physical gold online or similar.

The definition of too big / too small is a subtle trade-off that depends on a lot of things like the current capability of technology.  Retep added to my thinking on this by pointing out that anonymization technology lags the already slow bandwidth scaling we see in the broader thinking, and the ability to potentially anonymize all Bitcoin activity is protective against certain failure scenarios.

My general preference is to error towards being more decentralized. There are three reasons for this:

(1) We can build a multitude of systems of different kinds— decentralized and centralized ones— on top of a strongly decenteralized system but we can't really build something more decentralized on top of something which is less decentralized.  The core of Bitcoin sets the maximum amount of decentralization possible in our ecosystem.

(2) Decentralization is what makes what we're doing unique and valuable compared to the alternatives. If decentralization is not very important to you... you'd likely already be much happier with the USD and paypal.

(3) Regardless of the block size we need to have robust alternatives for transacting in BTC in order to improve privacy, instant confirmation, lower costs for low value transactions, permit very tiny femtopayments, and to (optionally!) better support reversible transactions. ... and once we do the global blockchain throughput rate is less of an issue: Instead of a limit of how many transactions can be done it becomes a factor that controls how costly the alternatives are allowed to be at worst, and a factor in how often people need to depend on external (usually less secure) systems.

...and also because I think it's easier to fix if you've gone too small and need to increase it, vs gone too large and shut out the general public from the validation process and handed it over to large entities.

All that said, I do cringe just a little at the over-simplification of the video...  and worry a bit that in a couple years it will be clear that 2mb or 10mb or whatever is totally safe relative to all concerns— perhaps even mobile devices with tor could be full nodes with 10mb blocks on the internet of 2023, and by then there may be plenty of transaction volume to keep fees high enough to support security—  and maybe some people will be dogmatically promoting a 1MB limit because they walked away from the video thinking that 1MB is a magic number rather than today's conservative trade-off.  200,000 - 500,000 transactions per day is a good start, indeed, but I'd certainly like to see Bitcoin doing more in the future.  ... But I suppose the community can work on educating people about that them with concrete demonstrations.  Thing like bg002h's suggestion of a maxed out testnet would be interesting in establishing exactly what the scaling limits of current technology are.

[benjamindees]

If you're concerned about anonymity, then above all you want as many people using Bitcoin for as many transactions as possible.  The weak link in maintaining anonymity will always be the person you are sending Bitcoins to.  If you're the only person who sent him Bitcoins this week, or this month, or if you're the only person who uses Bitcoin in your neighborhood, then you're not remotely anonymous.

[gmaxwell]

If you're concerned about anonymity, then above all you want as many people using Bitcoin for as many transactions as possible.  The weak link in maintaining anonymity will always be the person you are sending Bitcoins to.  If you're the only person who sent him Bitcoins this week, or this month, or if you're the only person who uses Bitcoin in your neighborhood, then you're not remotely anonymous.

I think you're mistaking the kind of anonymity being talked about here.  Say some random authority wants to force miners to only mine transactions that the authority approves of and not mine any that match some kind of blacklist, and to not extend any chains that contain violations of these rules.  If successful this would substantially undermine the purpose and goals of Bitcoin.

If it is easy to mine with relatively high anonymity— if you can validate on a single high performance server with a commodity consumer grade broadband connection and announce over tor or some other anonymity network— it would be difficult to impose such a criteria: too many miners would disappear into the mists if you tried, and so there would be no reason to try. If, instead, running a _validating_ node (much less a miner) requires a rack of expensive equipment and a multi-gigabit network connection that is far less clearly the case.

[solex]

All that said, I do cringe just a little at the over-simplification of the video...  and worry a bit that in a couple years it will be clear that 2mb or 10mb or whatever is totally safe relative to all concerns—

gmaxwell, it is always a relief to read your level-headed analysis of a problem after a serious amount of arm-waving and hyperbole.

The video is completely dishonest from the point where data-centers is mentioned. It makes the false case that up to 1MB blocks allow for decentralization and anything larger needs PayPal-like server farms for each node. It may be that the network would hum along fine with 2MB or 5MB blocks right now. We just don't know.

If Peter Todd had run NASA's Apollo space program no astronauts would ever have landed on the moon because they would still be doing Earth orbit missions, tinkering with the technology.

What is desperately needed is software that scans the Bitcoin network and provides metrics of exactly how much decentralization exists (by what ever measurement is sensible, such as propagating node-hours up-time) and plot this against average block size. Blocks are now about 0.18 MB each, so there is still time to gather stats and project how much fall-off (if any) occurs at values above 1.

[Serith]

retep, with your design, no more then 5 payment processors will have 80% share of all bitcoin transactions because this is how things work, you can take the clue practically from any other global market consolidation. So what is the point of having decentralized validation system if a user has to choose between 5 centralized solutions to make a transaction?

EDIT: just realized that some people may not understand the consequences. It will be super easy to regulate those payment processors and enforce arbitrary rules about what people can or can't do with their money.

[gmaxwell]

gmaxwell, it is always a relief to read your level-headed analysis of a problem after a serious amount of arm-waving and hyperbole.

The video is completely dishonest from the point where data-centers is mentioned. It makes the false case that up to 1MB blocks allow for decentralization and anything larger needs PayPal-like server farms for each node. It may be that the network would hum along fine with 2MB or 5MB blocks right now. We just don't know.

At the same time, it's a video made in an environment where some people are saying that it would be totally fine to _completely_ uncap it or leave it up to some hash-power majority— some even going so far as arguing that people who urge caution have dishonest motivations.  It's outright toxic at times.
(I'd provide some citations— they're easy enough to find... but I think it might be a little unfair because in places where the debate has become heated some people have made arguments that I don't think they would have made outside of the heat of the argument, and I don't think they ought to be held personally accountable for them... the fact that the discussion goes acrimonious so easily is problematic, not the people)

I'm personally suffering some conflict over the "controversy" making needless drama and the fear that the video exaggerates some points while at the same time feeling thankfulness that someone has taken an extreme position that moves the middle and maybe makes thoughtful dialog _easier_  because careful discussion about the very real tradeoffs might suffer less from people blowing it off saying its a non-issue.  If you want to argue it's a non-issue, first you must duke it out with the one-meggers. In the mean time, people who want to think instead of fight are free to find the middle path.  I was also happy to see that the website linked from the video seemed to have a more even handed presentation.

I certainly think the nuance here is far more easily explained as a tension between two completely legitimate engineering objectives which we— as a community— have to carefully compromise over, rather than just some right vs wrong binary question of "is a bigger blocksize bad".

From one perspective— bitcoin as an unstoppable, unregulatable, absolutely trustworthy egold—  practically any block size is bad... smaller is pretty much always better. People are already using SPV wallets in large numbers because of the current cost of validating the chain, people are choosing centeralized pools over P2pool because of the cost of dealing with the chain. There is no doubt in my mind that this is already hurting the decentralization of the system to an unacceptable degree: Hacking or kidnapping just _two_ people (or hacking one and DOS attacking one or two others) is enough to do enormous chain rewrites right now. For untrusted high value transaction people should be waiting 10-20 confirmations now— or more: ASIC miner claims plans to have a signficant multiple of the whole network's hash rate in a few months: What if they already have it now?   Centralization creeps in easily, and it really undermines our security model... but at least being fully decenteralized is still _possible_, the centralization we see now is an artifact of the path of least resistance rather than a requirement at our scaling level.

And at the same time— from another perspective— Bitcoin as practical unit for common every days payment cheaply available to as many people as possible— practically any block size restriction is bad. It's also completely clear to me that transaction costs— even insubstantial ones— have already turned some people off from using Bitcoin. A tiny sub-bitcent fee is _infinitely_ worse than zero by some metrics. If we can first just accept that each of these views are valid conclusions from different objectives for the system... then after that we can have a polite discussion about where on the compromise spectrum the system will delivers the best value to the most people.

An interesting question that this begs is how do we measure the decentralization impact. Right now the best I have is basically a "gmaxwell-test"— what is my personal willingness to run a node given a certain set of requirements? Given that I'm an exceptional sample in many regards— including having hundreds of cores and tens of terabytes of storage— at home, if some scale level would dissuade me it's probably a problem.  Whatever qualities or flaws that criteria might have as an engineering objective, though, one way that it completely fails is that its not persuasive for other people. It doesn't form arguments that can act as a consensus mechanism, excepting insofar is that other people might apply their personal version of it and get the same results that I do.

[solex]

I certainly think the nuance here is far more easily explained as a tension between two completely legitimate engineering objectives which we— as a community— have to carefully compromise over, rather than just some right vs wrong binary question of "is a bigger blocksize bad".

From one perspective— bitcoin as an unstoppable, unregulatable, absolutely trustworthy egold—  practically any block size is bad... smaller is pretty much always better. People are already using SPV wallets in large numbers because of the current cost of validating the chain, people are choosing centeralized pools over P2pool because of the cost of dealing with the chain. There is no doubt in my mind that this is already hurting the decentralization of the system to an unacceptable degree: Kidnapping _two_ people is enough to do enormous chain rewrites right now.

And at the same time— from another perspective— Bitcoin as practical unit for common every days payment cheaply available to as many people as possible— practically any block size restriction is bad. It's also completely clear to me that transaction costs— even insubstantial ones— have already turned some people off from using Bitcoin. A tiny 0.0005 bitcent fee is _infinitely_ worse than zero by some metrics. If we can first just accept that each of these views are valid conclusions from different objectives for the system... then after that we can have a polite discussion about where on the compromise spectrum the system will delivers the best value to the most people.

I hear you, and agree completely. There are different visions for Bitcoin, some people are happy with a niche off-grid currency/payments system, some (more?) people are keen to see Bitcoin achieve greater goals, a global system which makes existing fiat currencies and card companies all but obsolete. Leaving those visions aside however there is indeed a middle ground on the block size issue between no-change and infinite blocks. I have always considered an algorithmic increase keeping ahead of demand as the conservative option.

An interesting question that this begs is how do we measure the decentralization impact. Right now the best I have is basically a "gmaxwell-test"— what is my personal willingness to run a node given a certian set of requirements. Given that I'm an exceptional sample in many regards— including having hundreds of cores and tens of terabytes of storage— at home, if some scale level would dissuade me it's probably a problem.

Anecdotal evidence like this is helpful, but surely we can do better. This is the nub of the argument about Peter's video. He makes no attempt whatsoever to provide a numerical measurement of decentralization before and after 1MB average block sizes occur. Perhaps nodes should be able to issue query responses which contain information about their transaction handling capacity.

So what is the point of having decentralized validation system if a user has to choose between 5 centralized solutions to make a transaction?

In Peter's vision of the future those centralized solutions will all be Fidelity-bonded (Chaum-trusted) banks.
https://bitcointalk.org/index.php?topic=146307.0

While I think the idea of them is very good, they must take market share of transactions on their own merits, not because Bitcoin is deliberately crippled.

[edmundedgar]

I'm a bit puzzled why the people behind this video think that the _blocksize_ of all things is going to be the thing that pushes small miners out of business. Bitcoin mining is a simple, commodity business with serious economies of scale. Specifically:

* Buying 10,000 ASICs will cost you substantially less than 10,000x the price of buying 1 ASIC.
* A commercial customer buying a lot of electricity in volume will pay substantially less per kWh than a domestic customer buying a little bit.
* Setting up, monitoring and maintaining 10,000 identically-configured boxes will cost you orders of magnitude less than 10,000x the cost of setting up and running 1 box.

Bitcoin is designed to make mining a competitive market, so as more efficient miners show up, less efficient miners will constantly be finding that they can't operate at a profit and forced to close. The network connection for transmitting the blocks is a completely trivial factor compared to the raw economics involved in buying hardware and operating it to turn electricity into hash power more cheaply than anyone else.

Centralization of mining power may turn out to be a serious problem, but if it is, it's a fundamental problem with the Bitcoin design, not something that you can prevent by throttling the network to 7 transactions per second. The only way throttling the network might help would be if it kills Bitcoin's growth and makes mining so unprofitable that only hobbyists bother with it.

[Serith]

So what is the point of having decentralized validation system if a user has to choose between 5 centralized solutions to make a transaction?

In Peter's vision of the future those centralized solutions will all be Fidelity-bonded (Chaum-trusted) banks.
https://bitcointalk.org/index.php?topic=146307.0

I read the thread but didn't find an answer to the question, was it posted somewhere else e.g. dev mailing list?

[Anon136]

* Buying 10,000 ASICs will cost you substantially less than 10,000x the price of buying 1 ASIC.

If the discrepancy was really that huge than surely some enterprising entrepreneur would capitalize on this opportunity by purchasing in bulk and redistributing individual units for a small mark up.

* A commercial customer buying a lot of electricity in volume will pay substantially less per kWh than a domestic customer buying a little bit.

i think this is the opposite of the truth. many small scale miners have free electricity for mining as in land lords or parents dont notice a few extra watts.

* Setting up, monitoring and maintaining 10,000 identically-configured boxes will cost you orders of magnitude less than 10,000x the cost of setting up and running 1 box.

This also is wrong i think. The heat given off by a single unit is an asset to many people in helping to heat their house, with 1000 units that same heat that used to be an asset becomes a huge liability. A single unit costs you nothing in storage if you happen to have a little free space in your room, storing 1000 units would be extremely costly.

[edmundedgar]

* Buying 10,000 ASICs will cost you substantially less than 10,000x the price of buying 1 ASIC.

If the discrepancy was really that huge than surely some enterprising entrepreneur would capitalize on this opportunity by purchasing in bulk and redistributing individual units for a small mark up.

That "small markup" has to cover delivery, support, returns and the cost and risk of holding stock, because sales won't be predictable, plus the distributor's profit margin. Someone paying wholesale prices has a huge competitive advantage over someone paying retail.

* A commercial customer buying a lot of electricity in volume will pay substantially less per kWh than a domestic customer buying a little bit.

i think this is the opposite of the truth. many small scale miners have free electricity for mining as in land lords or parents dont notice a few extra watts.

What proportion of people currently running ASICs do you think are running on somebody else's "free" electricity? Realistically, Bitcoin mining is now becoming capital-intensive, so the network isn't going to be mainly powered by people using it as a roundabout way to steal money from their parents.

* Setting up, monitoring and maintaining 10,000 identically-configured boxes will cost you orders of magnitude less than 10,000x the cost of setting up and running 1 box.

This also is wrong i think. The heat given off by a single unit is an asset to many people in helping to heat their house, with 1000 units that same heat that used to be an asset becomes a huge liability. A single unit costs you nothing in storage if you happen to have a little free space in your room, storing 1000 units would be extremely costly.

There are some datacenter designs that trap the heat and use it for something useful - the classic one is colocating a datacenter and a swimming pool. In practice these have tended to have the same problem as doing this at home, namely that the logistics of putting everything in the right place and getting it running at the right time tend to outweigh the saving. This is particularly true if, like most of the places where humans live, your house is sometimes too hot instead of too cold, because you have to either idle your (expensive, fast-depreciating) hardware or eat the opposite cost of cooling, which will be much worse than a datacenter because your house was designed for living in, not getting rid of server heat.

Before we had GPU mining, then ASICs, this was sort-of feasible: You just need to run software on hardware that you already have, and since there's no capital cost it doesn't matter if you only run it some of the time. But once the hardware started becoming specialized and capital-intensive, as it inevitably did, mining was always going to move out of people's bedrooms and move towards getting done by professionals.

Edit to add:

Some people have made alt-coins that try to come up with proof-of-work schemes that are more resistant to capital-intensive, specialized hardware, and therefore resist the economic tendency to industrialization -> centralization (oligopolization?). IMHO if the OP's that worried about centralization he'd be better off working on one of those, and making clear from the start that _that_ will have a limited block size, probably smaller than 1MB. But it needs doing from the ground up, starting with the proof-of-work scheme - if it still uses proof-of-work.

Right now he's trying to stop people putting petrol in the car for fear of making it too heavy to fly, but his efforts are wrongly directed because there are much more serious problems in getting this particular car to fly, starting with the fact that it doesn't have any wings.