About block size limit and transactions fees

[topcoin360]

Just found a simple equation to balance supply and demand that could be easily introduced in btc source code:

next block size limit = previous block size limit + (total fee in the last period / avg fee in the previous period - space used in the last period) / block occupancy rate for the last period

Your equation does nothing to address the issue I brought up previously. Miners can and do receive transaction fees in ways that are not attached to the transaction. For example, viaBTC offers a paid transaction accelerator service for people who have attached too low of fees to their transaction. They charge a fortune for this service, so it is not widely used, but if pools have incentives to show transactions having lower fees than is actually the case, you can guarantee more pools would offer this service, and the cost would be very low.

As you said it is not a common practice, therefore it shoudn't have a significant impact on the result of the equation.

Now I challenge you to find an equation based on "not centralizing bitcoin too much".

Well, I had tried in the past, but it was a function, not an equation. It made me feel very ambitious.  

Yes, I think function is the right word, ultimately we want to find a function but for that we need to have an equation!

Just found a simple equation to balance supply and demand that could be easily introduced in btc source code:

next block size limit = previous block size limit + (total fee in the last period / avg fee in the previous period - space used in the last period) / block occupancy rate for the last period

The harder part is testing the equation on various network condition and accepted by the community.

Absolutely, we can calculate the next limit without applying it and see if it seems to work in theory. If it does seem to work then we can give the system a test run, we would set a floor and a hard cap in the testing phase.

I'll just explain my equation to make sure everyone understands it:

total fee in the last period / avg fee in the previous period = quantity supplied (Qs) at the previous price for the total amount that was paid in the last period

Qs - space used in the last period = excess demand in the last period before considering the block occupancy rate (a negative value means there was an excess supply)

(Qs - space used in the last period) / block occupancy rate = excess demand in the last period after considering the block occupancy rate

Now I challenge you to find an equation based on "not centralizing bitcoin too much".

See BIP 103. The exact number and equation definitely need more research though.

It's an interesting proposal but it doesn't address the "market inefficiency" problem. I think this is where I and ranochigo have a disagrement, I don't think Bitcoin will ever scale as a medium of exchange because our credit cards are just too convenient (and we generally don't have to pay any conversion/transaction fee to make a purchase with a CC) but I do believe that it can answer a particular need and the block size limit can be high enough to answer that need without being too high.

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[PrimeNumber7]

Just found a simple equation to balance supply and demand that could be easily introduced in btc source code:

next block size limit = previous block size limit + (total fee in the last period / avg fee in the previous period - space used in the last period) / block occupancy rate for the last period

Your equation does nothing to address the issue I brought up previously. Miners can and do receive transaction fees in ways that are not attached to the transaction. For example, viaBTC offers a paid transaction accelerator service for people who have attached too low of fees to their transaction. They charge a fortune for this service, so it is not widely used, but if pools have incentives to show transactions having lower fees than is actually the case, you can guarantee more pools would offer this service, and the cost would be very low.

As you said it is not a common practice, therefore it shoudn't have a significant impact on the result of the equation.

It is not a common practice now, but this is primarily because miners have no reason to engage in this practice currently, other than to help the less technically inclined get their low-fee transactions confirmed. If engaging in this practice would lead to potentially higher total fees, I can guarantee miners will make this practice much more common, or potentially will not even consider transactions that don't have their fees paid this way.

What I describe is an edge case, and for something like bitcoin, it will need to be considered. You should really always consider edge cases, and corner cases (a situation in which multiple edge cases are combined into one) in production code, however with something with bitcoin, where there is literally billions of dollars potentially available if problems can be exploited, it is especially important to address, even perceived unlikely, or unusual scenarios.

[kano]

... and yet the obvious:

If you want your transaction confirmed, pay a transaction fee that should get it into a block.

If you want to skimp on the fee, you may have to wait a while to get it confirmed, or if you skimp too much, it may not ever be confirmed.

How is this a problem?

[ranochigo]

I think this is where I and ranochigo have a disagrement, I don't think Bitcoin will ever scale as a medium of exchange because our credit cards are just too convenient (and we generally don't have to pay any conversion/transaction fee to make a purchase with a CC) but I do believe that it can answer a particular need and the block size limit can be high enough to answer that need without being too high.

Yes, that is correct. I have the same sentiments actually, so not technically a disagreement because I never believed that you can ever scale on-chain, to match those of major payment processors. As you've mentioned, due to the convenience (to a certain extent also its feasibility) and the general reluctance to adopt Bitcoin as an actual currency.

The disagreements (CMIIW) that we've had is; whether we should have sustainable limits on the block size increase. Believe that I've made my point here, so it's just a clarification.

[topcoin360]

The disagreements (CMIIW) that we've had is; whether we should have sustainable limits on the block size increase. Believe that I've made my point here, so it's just a clarification.

I think a block size limit increase based on demand is more sustainable than a block size limit increase based on "what everyone can pay to run a full node" which doesn't make sense to me.

[NotFuzzyWarm]

(and we generally don't have to pay any conversion/transaction fee to make a purchase with a CC)

Actually we the consumer DO pay the tx fee. More specifically, the merchant pays it to the payment processor and their cost is added onto what we are paying for things - we just do not see it as a separate charge. The Merchants fee is generally anything from 2-6% of the transaction value. That is how/why some (local of course) merchants will give a discount for using cash vs credit/debit cards.

[topcoin360]

(and we generally don't have to pay any conversion/transaction fee to make a purchase with a CC)

Actually we the consumer DO pay the tx fee. More specifically, the merchant pays it to the payment processor and their cost is added onto what we are paying for things - we just do not see it as a separate charge. The Merchants fee is generally anything from 2-6% of the transaction value. That is how/why some (local of course) merchants will give a discount for using cash vs credit/debit cards.

Actually, you're wrong. The merchants will usually not charge the transaction fee to the customers.

[NotFuzzyWarm]

(and we generally don't have to pay any conversion/transaction fee to make a purchase with a CC)

Actually we the consumer DO pay the tx fee. More specifically, the merchant pays it to the payment processor and their cost is added onto what we are paying for things - we just do not see it as a separate charge. The Merchants fee is generally anything from 2-6% of the transaction value. That is how/why some (local of course) merchants will give a discount for using cash vs credit/debit cards.

Actually, you're wrong. The merchants will usually not charge the transaction fee to the customers.

Not from what I've seen in the US. I've traveled for in work in every state and in all of them have often come across signs like I just saw today in my local doughnut shop:
  All credit/debit cards are +3.5% of total

Same for the local small hardware stores like Ace, TruValue, etc along with a smattering of other small local businesses. That said, most other stores do not give the discount and pocket their usual tx fee when folks pay with cash.

Our company accepts credit cards for orders and MasterCard & VISA card companies want 3% and AMEX takes 4% of the transaction which we add to a customers order. If they pay their PO with check or direct EFT they save the 3 or 4% fee. Merchants are not going to eat that cost - it is passed on to the customer. Tx fees is how the cc companies make their money.

[kano]

...
Actually, you're wrong. The merchants will usually not charge the transaction fee to the customers.

Alas they do in all cases, some obvious and some not so obvious.

Some may say it up front on a sign and request that extra % as Fuzzy mentioned.

Others it is as simple as part of their business accounting.
All businesses that aren't going broke yesterday, will know their costs.
It is simply yet another cost to cover in their price.

[topcoin360]

...
Actually, you're wrong. The merchants will usually not charge the transaction fee to the customers.

Alas they do in all cases, some obvious and some not so obvious.

Some may say it up front on a sign and request that extra % as Fuzzy mentioned.

Others it is as simple as part of their business accounting.
All businesses that aren't going broke yesterday, will know their costs.
It is simply yet another cost to cover in their price.

According to https://ycharts.com/indicators/bitcoin_average_cost_per_transaction, for bitcoin, the avg cost per transaction was 231.90 USD yesterday (inflation + commissions), which is a lot higher than the avg cost for a CC transaction.

[NotFuzzyWarm]

According to https://ycharts.com/indicators/bitcoin_average_cost_per_transaction, for bitcoin, the avg cost per transaction was 231.90 USD yesterday (inflation + commissions), which is a lot higher than the avg cost for a CC transaction.

$231.90?   One little problem with stats like that - zero information as to what their average value of the transaction is. It sure as hell is not just a few dollars like the average cc Tx nor even just a few thousand. When I cashed out over $40k in BTC last December to pay off my mortgage the fee was around $30 as I recall. Fees like that require average Tx values in the 100's of k$.

In short - when the basis of data used is not given it is a useless statistic.

[PrimeNumber7]

...
Actually, you're wrong. The merchants will usually not charge the transaction fee to the customers.

Alas they do in all cases, some obvious and some not so obvious.

Some may say it up front on a sign and request that extra % as Fuzzy mentioned.

Others it is as simple as part of their business accounting.
All businesses that aren't going broke yesterday, will know their costs.
It is simply yet another cost to cover in their price.

According to https://ycharts.com/indicators/bitcoin_average_cost_per_transaction, for bitcoin, the avg cost per transaction was 231.90 USD yesterday (inflation + commissions), which is a lot higher than the avg cost for a CC transaction.

Why are you adding the cost of inflation to bitcoin transactions? The cost of inflation is generally not included in credit card transactions. If you are spending coin, you are going to be unaffected by any inflation. You might argue you are affected via any coin you don’t spend, but this is also true for USD based transactions.

If you are going to compare CC to BTC transactions, you need to make apples to apples comparison.

[topcoin360]

Just found a simple equation to balance supply and demand that could be easily introduced in btc source code:

next block size limit = previous block size limit + (total fee in the last period / avg fee in the previous period - space used in the last period) / block occupancy rate for the last period

Your equation does nothing to address the issue I brought up previously. Miners can and do receive transaction fees in ways that are not attached to the transaction. For example, viaBTC offers a paid transaction accelerator service for people who have attached too low of fees to their transaction. They charge a fortune for this service, so it is not widely used, but if pools have incentives to show transactions having lower fees than is actually the case, you can guarantee more pools would offer this service, and the cost would be very low.

As you said it is not a common practice, therefore it shoudn't have a significant impact on the result of the equation.

It is not a common practice now, but this is primarily because miners have no reason to engage in this practice currently, other than to help the less technically inclined get their low-fee transactions confirmed. If engaging in this practice would lead to potentially higher total fees, I can guarantee miners will make this practice much more common, or potentially will not even consider transactions that don't have their fees paid this way.

What I describe is an edge case, and for something like bitcoin, it will need to be considered. You should really always consider edge cases, and corner cases (a situation in which multiple edge cases are combined into one) in production code, however with something with bitcoin, where there is literally billions of dollars potentially available if problems can be exploited, it is especially important to address, even perceived unlikely, or unusual scenarios.

Users will always have the option to offer a commission on their transactions, which gives the miners an incentive to include those transactions in their block. I hardly see how miners could collude to prevent that.

...
Actually, you're wrong. The merchants will usually not charge the transaction fee to the customers.

Alas they do in all cases, some obvious and some not so obvious.

Some may say it up front on a sign and request that extra % as Fuzzy mentioned.

Others it is as simple as part of their business accounting.
All businesses that aren't going broke yesterday, will know their costs.
It is simply yet another cost to cover in their price.

According to https://ycharts.com/indicators/bitcoin_average_cost_per_transaction, for bitcoin, the avg cost per transaction was 231.90 USD yesterday (inflation + commissions), which is a lot higher than the avg cost for a CC transaction.

Why are you adding the cost of inflation to bitcoin transactions? The cost of inflation is generally not included in credit card transactions. If you are spending coin, you are going to be unaffected by any inflation. You might argue you are affected via any coin you don’t spend, but this is also true for USD based transactions.

If you are going to compare CC to BTC transactions, you need to make apples to apples comparison.

In the case of btc, inflation is part of the payment system, it is not the case for the traditional banking system where account balances' and payments are separate. I guess there are different ways of seeing it.