What's preventing minners from manipulating transaction rewards?

[zemario]

I don't know if I am missing something in here, but AFAIK, there is nothing stopping a miner from picking up  only transactions with a reward above a certain value. Once he finds a block, if it is valid, there is nothing preventing other miners from doing the same, so in theory we could end up in a situation where the users would have to bid to get the transactions confirmed.

Has this problem been discussed? Is this a non issue? why? Is it already solved? How?

[Holliday]

So, miner A will only include transactions with fees 0.0005 and above.

Miner B will include transactions with fees 0.0001 and above.

Over time, Miner B will earn more money (they collect more fees). Since they are more profitable, they will be able to purchase newer hardware and find more blocks, resulting in getting even more money further increasing their advantage.

Why would anyone want to be miner A?

Basically, competition and the free market will solve this. It's not going to happen until the block reward is tiny compared to the fees per block.

[zemario]

I don't understand. Why is miner's B activity more profitable? You are assuming that transactions are scarce. And/or that a larger amount of smaller rewards will add up to a larger sum than a smaller amount of high rewards. Is any of this the case? How are such conditions imposed?

[Peter R]

we could end up in a situation where the users would have to bid to get the transactions confirmed.

Yes, the idea is to end up with a situation where the users would have to bid to get transactions confirmed the next block but it should always be possible to get eligible zero-fee transactions confirmed if one is willing to wait.  

My understanding is that the core developers are working to (a) expedite the rate at which new blocks can be propagated to the network to reduce the chance of an orphan, and (b) move to a floating fee structure.  

It takes slightly longer to propagate a 1 Mbyte block than a 250 kbyte block.  Thus, you are very slightly more likely to have the larger block orphaned than the smaller block and lose your 25 BTC block reward, so this is the incentive to produce smaller blocks.  On the other hand, larger blocks contain more transaction fees, so there is also an incentive to produce larger blocks to capture more fees.  The question is at what point does adding a fee-paying TX go from EV positive to EV negative?

I think someone worked out all the math for this [perhaps someone above my pay grade can point us to the appropriate thread] that shows the balancing point between when adding extra transactions goes from profitable to non-profitable.

When the core developers have succeeded in increasing the block propagation time, there will be more incentive to include as many transactions as can fit within a block.  

[Holliday]

I don't understand. Why is miner's B activity more profitable? You are assuming that transactions are scarce. And/or that a larger amount of smaller rewards will add up to a larger sum than a smaller amount of high rewards. Is any of this the case? How are such conditions imposed?

Transactions are not scarce, but there is a limit to how many transactions can be included in a single block.

If miner A is excluding fee paying transactions because the fee is too low, he may be creating blocks which are not full. If that is the case, another miner can fill his blocks by including lower fee transactions and thus earn more per block.

If blocks are always full, and all transactions are fee paying transactions, miners may choose to cut off lower fee transactions in favor of higher fee transactions. If this is the case, the market is working properly, you get faster transactions if you are willing to provide more incentive to the miners.

Miners (actual miners, not blind hashers working for a pool) can choose to include whichever transactions they want in their blocks. Obviously, they are going to include those which increase their income. If there are no high fee transactions, they are going to include lower fee transactions because earning a lower fee is better than earning no fee.

[greenlion]

I don't know if I am missing something in here, but AFAIK, there is nothing stopping a miner from picking up  only transactions with a reward above a certain value. Once he finds a block, if it is valid, there is nothing preventing other miners from doing the same, so in theory we could end up in a situation where the users would have to bid to get the transactions confirmed.

Has this problem been discussed? Is this a non issue? why? Is it already solved? How?

This is not actually a problem, this is the mechanism whereby the free market decides transaction fees.

[empoweoqwj]

I don't know if I am missing something in here, but AFAIK, there is nothing stopping a miner from picking up  only transactions with a reward above a certain value. Once he finds a block, if it is valid, there is nothing preventing other miners from doing the same, so in theory we could end up in a situation where the users would have to bid to get the transactions confirmed.

Has this problem been discussed? Is this a non issue? why? Is it already solved? How?

That's the system, and why you should attempt transactions with zero fees attached.

[Sonny]

I don't understand. Why is miner's B activity more profitable? You are assuming that transactions are scarce. And/or that a larger amount of smaller rewards will add up to a larger sum than a smaller amount of high rewards. Is any of this the case? How are such conditions imposed?

Transactions are not scarce, but there is a limit to how many transactions can be included in a single block.

This.

The limit of "7 transactions per second" is always mentioned and have been discussed a lot of times.
It could be a problem in the future, but at this very moment, we are far from that.
Indeed, most of the blocks are just 250KB still, and is far away from the max block size 1MB.

[volcanokid]

Thanks for the explanation.. Sonny 

[zemario]

Tank you for that important bit of info. I googled 'bitcoin 7 transactions limit' and there is plenty of opinion, discussion, and technical talk to go through.

For people saying that it is how free market is suposed to work, I strongly disagree with you. You are basically saying that the ability to make a transaction should be treated as a valuable resource and subject to supply and demand laws. That is a fundamentally flawed logic. Free markets are built on an easy, established trading means. If you remove that, you cannot possibly expect supply and demand dynamics to function because goods are not presented to the buyer in equal terms.

[Sonny]

Thanks for the explanation.. Sonny 

Tank you for that important bit of info. I googled 'bitcoin 7 transactions limit' and there is plenty of opinion, discussion, and technical talk to go through.

You are welcome

[empoweoqwj]

Tank you for that important bit of info. I googled 'bitcoin 7 transactions limit' and there is plenty of opinion, discussion, and technical talk to go through.

For people saying that it is how free market is suposed to work, I strongly disagree with you. You are basically saying that the ability to make a transaction should be treated as a valuable resource and subject to supply and demand laws. That is a fundamentally flawed logic. Free markets are built on an easy, established trading means. If you remove that, you cannot possibly expect supply and demand dynamics to function because goods are not presented to the buyer in equal terms.

The ability to make a transaction is indeed a valuable resource, because its the 'bitcoin network' that both processes these transactions and ensures the integrity of the transaction and the whole bitcoin network. Bitcoin works  how it works. Its gone pretty well to date.