Gold collapsing. Bitcoin UP.

[cypherdoc]

EXCEPT, the game theory arguments. The bitcoins you mine are likely to be worth less simply because people won't like the idea of you having all of the control. Even if people didn't mind that you had 100% control, they would certainly mind if you abused your power.

Am I missing something?

i don't think you are:

[–]cypherdoc2 0 points 2 hours ago

It wouldn't die because Bitcoin owners have an almost infinite reason to defend the network; the potential for Bitcoin to Moon as a result of its fixed monetary supply.

https://www.reddit.com/r/Bitcoin/comments/3g3qje/serious_if_the_block_size_limit_was_removed_why/ctuotpg

[1713857443]

1713857443

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1713857443

[hdbuck]

Am I missing something? I can't think of a single way to design a system where it is economically advantageous to move away from centralization (where we are intentionally neglecting the possibility that bitcoins might be worth more in a more decentralized environment).

Heat dissipation, possibly.

A huge mining datacenter will produce a lot of heat, and may not be able to make efficient use of it.

Whereas, a million individuals with ASICs in their hot water heater, may be able to utilize close to 100% of the heat. Then their marginal cost to run the miner is close to zero. The difficulty would rise to make the marginal revenue close to zero also, but it would still be an advantage to decentralized mining.

very good pt.  also, those small asics will dissipate the heat much more efficiently even if they can't utilize it.

rofl, keep dreamin.

[cypherdoc]

yeah baby, In Sync!  i loved those guys, btw:

[cypherdoc]

Thank you to everyone for your acknowledgement of my paper--it is satisfying to see something you've worked hard on begin to make an impact in the discussion!  Like I said earlier, it was really just a formalization of some of the ideas we've been discussing here over the past months.    

I'm very happy with how the paper was received.  Between public and private comments (and Peter Todd calling it pseudo science) several aspects of the paper were challenged, and now I'm further convinced that the model and results are both useful and valid.  I think the most accurate criticism of the paper was that I should have spent more effort discussing the inter/intra communication issues (the "you don't orphan you're own block" point).¹ Hopefully, I'll have time to work on this in the fall.  

I exchanged emails with Greg Maxwell over several aspects of the paper that he questioned.  One point he did make, that I admit is valid but do not personally see as an issue, is that the most profitable "configuration" according to the results from the paper is a single "super pool" made up of ALL the network's hashing power (which would be centralizing).  This would minimize the propagation impedance.  While I agree that this is true, it seems like just another way of looking at the 51% problem.  We already know that if one entity controls a huge amount of hash power they can do nasty things and gain certain advantages.  But it would be nice to find a way to explain why this shouldn't happen with more rigour than the "game theory" or "anti-fragile" fallback positions…


The experiment with the $10 bounties produced a mixed result.  On the one hand, I think it got people who normally wouldn't read such a paper more involved in the discussion, but on the other hand (like brg444 pointed out) it may have made the thread less readable.  I ended up paying out $90 to catch several small errors.  The error I was most pleased to catch was Noosterdam's "innumerate" versus "enumerate."  I think I've been using these words interchangeably my entire life but they actually mean very different things!


¹Note that the math is valid nonetheless, as this just affects the propagation delay which was accounted for in the model.  

I can't think of any economic disincentives against centralizing, independent of the block size issue and propagation. You always get economies of scale (e.g., you produce one mask for every new ASIC, but that mask let's you order 10 thousand or 10 million chips depending on your budget/scale... lots of other examples too like data center staff come to mind).

EXCEPT, the game theory arguments. The bitcoins you mine are likely to be worth less simply because people won't like the idea of you having all of the control. Even if people didn't mind that you had 100% control, they would certainly mind if you abused your power.

Am I missing something? I can't think of a single way to design a system where it is economically advantageous to move away from centralization (where we are intentionally neglecting the possibility that bitcoins might be worth more in a more decentralized environment).

here's a very real everyday example of the decentralizing effects Bitcoin is having on ppl:

"The domain expertise, relationships, and career equity I've built are things I never could have done while at Goldman," Chou said. "As a former trader, I'm glad I made this trade-off at the stage of my career that I did."

http://www.reuters.com/article/2015/08/07/us-usa-bitcoin-wall-street-analysis-idUSKCN0QC0EO20150807

[cypherdoc]

yeah baby, In Sync!  i loved those guys, btw:

gathering momentum to the downside.

Dow -117.

uh, Janet?

[Peter R]

Am I missing something? I can't think of a single way to design a system where it is economically advantageous to move away from centralization (where we are intentionally neglecting the possibility that bitcoins might be worth more in a more decentralized environment).

Heat dissipation, possibly.

A huge mining datacenter will produce a lot of heat, and may not be able to make efficient use of it.

Whereas, a million individuals with ASICs in their hot water heater, may be able to utilize close to 100% of the heat. Then their marginal cost to run the miner is close to zero. The difficulty would rise to make the marginal revenue close to zero also, but it would still be an advantage to decentralized mining.

That's a really good point.  The amortized cost per hash, η, in the miner's profit equation can be made very low if the heat byproduct from hashing is useable:  



I think this means that a miner who has a larger η value (e.g., one who can't use the byproduct heat efficiently) must compete by having better connectivity to network hash power so that he can produce larger blocks to claim more fee revenue.

It would be nice to make a table of the aspects of mining that favour centralization versus those that favour decentralization.    

[cypherdoc]

i think everybody and their mother is thinking that the USD is going to go up in the next crisis, which could be now.  i think this will be a mistake:

[lebing]

i think everybody and their mother is thinking that the USD is going to go up in the next crisis, which could be now.  i think this will be a mistake:

go up against what?

against bitcoin? probably not.
Against pretty much any other fiat, its going to go up guaranteed.

[cypherdoc]

the short just keeps getting better and better!:



these guys used to be one of the biggest bulk carrier companies in the world.  not so much anymore:

http://www.dryships.com/index.php

[Peter R]

Peter, I read through about half of your paper and it outlines the issues very well. What it appears to me is how things will be moving forward there will be no block size limit and the network will be self-regulating as there is increased risk in creating larger blocks for more fees (i.e. pay off) in the form of that block being orphaned.

Sorry for the delayed response.  I've been travelling through different time zones and have had limited internet access.

What I am still on the side lines about is whether there will be a successful attack on creating a very large block like say 1 TB just be happenstance.

If there is no limit, then there is always a non-zero probability of a very large block being included in the Blockchain.  The thing is, that this probability becomes exceedingly small as the size of the spam block grows.  Another way to look at this, is the expected cost to create a very large block grows quickly with the block's size.  

I tried to illustrate this effect in Fig. 8:



Even with a propagation impedance of 2 sec/MB (which I'm confident is faster than the present network average), it still costs 1,000 BTC to produce a 1 GB spam block (and astronomically more to produce a 1 TB spam block!).  

Of course putting an upper limit on the block size could help I personally would like to see bitcoin stand on its own two feet with no limit restrictions on block sizes and let the free market of miners and attackers decide on how big the blocks should be going forward.

Me too.  I think BIP101 (Gavin's proposal) is nearly ideal.  If it were my exclusive choice, the only thing I'd change would be to keep the doublings going forever.  We'd double the limit every two year, so as not to create a major disruption with a sudden rule change, but still slowly transition to an entirely market-controlled block size in the far future.  If a genuine problem came up in 10 years, it's a soft fork to reduce the limit (which is easier than a hard fork to raise the limit).

I'll have to read the rest of your paper but so far it is very interesting how you have outline the major issues and put them into visual representations for all to see and understand.

Thanks!

[Melbustus]

...  
I exchanged emails with Greg Maxwell over several aspects of the paper that he questioned.  One point he did make, that I admit is valid but do not personally see as an issue, is that the most profitable "configuration" according to the results from the paper is a single "super pool" made up of ALL the network's hashing power (which would be centralizing).  This would minimize the propagation impedance.  While I agree that this is true, it seems like just another way of looking at the 51% problem.  We already know that if one entity controls a huge amount of hash power they can do nasty things and gain certain advantages.  But it would be nice to find a way to explain why this shouldn't happen with more rigour than the "game theory" or "anti-fragile" fallback positions…
...

I think what a lot of the sharp technical people miss is that realworld markets tend to *not* centralize to a total monopoly, even in a commodity market. A lot of people correctly realize that as bitcoin mining commoditizes, competition will happen on marginal energy cost, economies of scale have large impact, and therefore the market will centralize. People take this to extreme and assume that therefore the market will centralize to a single player with the cheapest energy.

But that usually doesn't actually happen in the extreme. Mining companies will innovate and vertically integrate other services, where the margin on the higher level services easily eclipses any remaining margin on the core commodity product production. Look at oil companies or car insurance... There are plenty of players, despite very similarly centralizing forces as with bitcoin mining.

It kinda boils down to a lack of appreciation for human ingenuity (ability to innovate and vertically integrate driven by profit motive, etc). This is what I think a lot of the small-blockers and uber-decentralists fail to fully understand. I wish I could describe this more rigorously at the moment.

Anyways, great job on the paper, Peter. Awesome that you spent the time to formalize it - the community needs more of that.

[Erdogan]

About centralization:

Absolute centralization does not normally happen in the free market. First, for centralization to happen at all, there has to be large scale advantages. If there are, centralization will start to happen, but there are at least two counter-forces (from the top of my head). The first is the cost of administrating a larger business. You need more layers of administration, and administration is costly and ineffective. Also, with few competitors, the whole business get complacent and start to deteriorate, making room for someone else.

The other point is the risk factor. Say the business centralizes, the best companies grow, steadily increases productivity, and at some point there are only two left, one of them marginally more effective than the other. The least effective of the two then have the choice to wind down, forsaking some of the capital in the process, or sell itself to the other, but for a price that may be low because the other has the upper hand, or, the third option is to continue grinding on with slighly lower profit, and then hope that the other makes a mistake. It is easy to make mistakes when you have optimized fully - bitcoin price move against you - power price, space rent, wages, some regulation, whatever. And the nature - a storm taking out power for a day and so on. Suddenly, the other company is number two and you are number one. The arrest of centralization will probably start far earlier, I believe we will have say twenty large operations, and hundreds of smaller, professional operations spread around the globe. And I mean mining factories, not pool operators. Those can be regarded as service companies for the miners, with their own centralization dynamics.

[tvbcof]

About centralization:

Absolute centralization does not normally happen in the free market. First, for centralization to happen at all, there has to be large scale advantages. If there are, centralization will start to happen, but there are at least two counter-forces (from the top of my head). The first is the cost of administrating a larger business. You need more layers of administration, and administration is costly and ineffective. Also, with few competitors, the whole business get complacent and start to deteriorate, making room for someone else.

The other point is the risk factor. Say the business centralizes, the best companies grow, steadily increases productivity, and at some point there are only two left, one of them marginally more effective than the other. The least effective of the two then have the choice to wind down, forsaking some of the capital in the process, or sell itself to the other, but for a price that may be low because the other has the upper hand, or, the third option is to continue grinding on with slighly lower profit, and then hope that the other makes a mistake. It is easy to make mistakes when you have optimized fully - bitcoin price move against you - power price, space rent, wages, some regulation, whatever. And the nature - a storm taking out power for a day and so on. Suddenly, the other company is number two and you are number one. The arrest of centralization will probably start far earlier, I believe we will have say twenty large operations, and hundreds of smaller, professional operations spread around the globe. And I mean mining factories, not pool operators. Those can be regarded as service companies for the miners, with their own centralization dynamics.

Bitcoin exists in no way, shape, or form in a 'free market' nor is there any realistic way that it will either in a socio-economic and political climate similar to today's or in almost any likely evolutionary or revolutionary increment of it.  This makes all of your theory based assertions and pipe-dreams useless.  Worse than useless actually.  All you have to do is open your eyes and look at almost any aspect of reality these days to see this.

Laissez faire strategies are very much to my liking and are an ideal in a lot of ways to me, but they simply do not work when one is under attack, and distributed crypto-currencies very much are and will be much more so going forward.  I (do) lobby hard for an active and pro-active defense and at least maintaining the ability to go on the offense when it makes sense strategically.

[Adrian-x]

Am I missing something? I can't think of a single way to design a system where it is economically advantageous to move away from centralization (where we are intentionally neglecting the possibility that bitcoins might be worth more in a more decentralized environment).

Heat dissipation, possibly.

A huge mining datacenter will produce a lot of heat, and may not be able to make efficient use of it.

Whereas, a million individuals with ASICs in their hot water heater, may be able to utilize close to 100% of the heat. Then their marginal cost to run the miner is close to zero. The difficulty would rise to make the marginal revenue close to zero also, but it would still be an advantage to decentralized mining.

Would make sense if:

1. The cost of integrating a miner into a consumer hot water heater was negligible.
2. Hot water was consumed at a constant rate, thus providing the necessary temp. differential between coolant and the chip it is cooling. (What happens when the water in the heater is hot, and no one takes a bath?)

it's not that hard to figure out.

1) all businesses have a need for capital, retrofiring an electric hot water tank is a fixed cost and can be amortized over time, having conceived of the exact mechanics to do this it can be achieved at a viable cost.
in other words (1) above is a typical business risk not unlike any other production endeavor. Negligible is a relative term in relationship to the total capital investment, I'd say at this point in time the investment risk is negligible.  One of the many reasons I haven't invested more time in the design is my mining equipment is still producing a profit in excess of 50% of the input costs. (so from a business need perspective its cheaper to wast the heat energy at the moment than use it to reduce my overhead by finding a customer willing to pay for my wast product.) worth noting my equipment is running at around 60% capacity to account for the summer heat, and if I chose to reinvest and grow my mining business when others do not, it would be called centralization, and that is a direct result of the subsidy paid to miners.    

2) the concern you point out is valid but not problematic, if the water in the tank is hot, the miner runs but is not used to heat hot water. (so your wast heat is wasted) but for the rest of the time, the cost of hot water is free, or the bitcoin are being mined for free. you can still mine with 100% efficiency 100% of the time and not mine if your efficiency drops below say 99% or whatever your threshold is.

The way I see mining centralization is just a temporary imbalance as a result of the generous subsidies given in exchange to miners for growing the network. We almost got to a centralization saturation point with ASICminer however fryedCat was at a point where mining operations couldn't scale up any larger and he had started to flood the market with cheep efficient ASICs, personally I think that pissed of a lot of the wrong people and it resulted in very unfortunate circumstance for him, no one knows why he disappeared not even his employees or his immediate family, he is either going to great lengths to convince us and his family to think he is dead or he is dead.    

[iCEBREAKER]

The economy has been growing since 2010.

The economy has been growing since 2010.

Yes, it has been growing since 2010.

these guys used to be one of the biggest bulk carrier companies in the world.  not so much anymore:

http://www.dryships.com/index.php

OMG you sound like the conspiracy idiots at Zero Knowledge.  Don't you know [easy credit * car loans] = [economic growth]?

[cypherdoc]

the fiat money printing system, as we have it now, encourages centralization.  how can that not be more obvious?

money printing funding bailouts of debt ridden companies who've outgrown their competitiveness via cheap credit.  more debt to fix a debt problem, when possible.  if not, print.  printing to fund interest payments is what is driving the Greek problems.  preferred access to cheap credit concentrates wealth into a few hands, like we have today.  wealth concentration leads to better political access to keep it that way.  why do you think many politicians end up in corner offices at financial institutions.  it's called revolving door policy.  

Bitcoin changes all that and suddenly allows hope and opportunity on a permissionless basis in a sound money system where the new entrepreneur doesn't have to worry about that printing variable that can debase his profits or unreasonably encourage competition.  what a relief!  finally a system where one should be judged on his merits, not access or pedigree.  

[Erdogan]

About centralization:

Absolute centralization does not normally happen in the free market. First, for centralization to happen at all, there has to be large scale advantages. If there are, centralization will start to happen, but there are at least two counter-forces (from the top of my head). The first is the cost of administrating a larger business. You need more layers of administration, and administration is costly and ineffective. Also, with few competitors, the whole business get complacent and start to deteriorate, making room for someone else.

The other point is the risk factor. Say the business centralizes, the best companies grow, steadily increases productivity, and at some point there are only two left, one of them marginally more effective than the other. The least effective of the two then have the choice to wind down, forsaking some of the capital in the process, or sell itself to the other, but for a price that may be low because the other has the upper hand, or, the third option is to continue grinding on with slighly lower profit, and then hope that the other makes a mistake. It is easy to make mistakes when you have optimized fully - bitcoin price move against you - power price, space rent, wages, some regulation, whatever. And the nature - a storm taking out power for a day and so on. Suddenly, the other company is number two and you are number one. The arrest of centralization will probably start far earlier, I believe we will have say twenty large operations, and hundreds of smaller, professional operations spread around the globe. And I mean mining factories, not pool operators. Those can be regarded as service companies for the miners, with their own centralization dynamics.

Bitcoin exists in no way, shape, or form in a 'free market' nor is there any realistic way that it will either in a socio-economic and political climate similar to today's or in almost any likely evolutionary or revolutionary increment of it.  This makes all of your theory based assertions and pipe-dreams useless.  Worse than useless actually.  All you have to do is open your eyes and look at almost any aspect of reality these days to see this.

Laissez faire strategies are very much to my liking and are an ideal in a lot of ways to me, but they simply do not work when one is under attack, and distributed crypto-currencies very much are and will be much more so going forward.  I (do) lobby hard for an active and pro-active defense and at least maintaining the ability to go on the offense when it makes sense strategically.

I don't agree, I see bitcoin, bitcoin mining, and the exchange of bitcoin to fiat, as a near perfect free market.

[iCEBREAKER]

money printing funding bailouts of debt ridden companies who've outgrown their competitiveness via cheap credit.  more debt to fix a debt problem, when possible.  if not, print.  printing to fund interest payments is what is driving the Greek problems.  preferred access to cheap credit concentrates wealth into a few hands, like we have today.  wealth concentration leads to better political access to keep it that way.  why do you think many politicians end up in corner offices at financial institutions.  it's called revolving door policy.  

Excellent point!  Who could possibly be stupid enough to confuse cheap credit driven bailouts of auto companies with real economic growth, especially when the prevention of badly needed creative destruction is actually exacerbating the TBTF zombie corporation problem?

[tvbcof]

About centralization:

Absolute centralization does not normally happen in the free market. ...

Bitcoin exists in no way, shape, or form in a 'free market' nor is there any realistic way that it will either in a socio-economic and political climate similar to today's or in almost any likely evolutionary or revolutionary increment of it.  This makes all of your theory based assertions and pipe-dreams useless.  Worse than useless actually.  All you have to do is open your eyes and look at almost any aspect of reality these days to see this.

Laissez faire strategies are very much to my liking and are an ideal in a lot of ways to me, but they simply do not work when one is under attack, and distributed crypto-currencies very much are and will be much more so going forward.  I (do) lobby hard for an active and pro-active defense and at least maintaining the ability to go on the offense when it makes sense strategically.

I don't agree, I see bitcoin, bitcoin mining, and the exchange of bitcoin to fiat, as a near perfect free market.

That is why I see you guys as the biggest threat that Bitcoin faces.

At this point I think it unlikely that Bitcoin itself will succeed due to folks like you.  I've been mentally prepared for this for a long time and have not given up hope completely, but it seems much more likely than not that your types will bring us down.  As I've said for years, though, Bitcoin has already achieved it's promise drawing in interest to the general concepts of distributed crypto-currencies.  That is to say, it was key in opening up Pandora's box.  That cannot be undone.

[Melbustus]

About centralization:

Absolute centralization does not normally happen in the free market. ...

Bitcoin exists in no way, shape, or form in a 'free market' nor is there any realistic way that it will either in a socio-economic and political climate similar to today's or in almost any likely evolutionary or revolutionary increment of it.  This makes all of your theory based assertions and pipe-dreams useless.  Worse than useless actually.  All you have to do is open your eyes and look at almost any aspect of reality these days to see this.

Laissez faire strategies are very much to my liking and are an ideal in a lot of ways to me, but they simply do not work when one is under attack, and distributed crypto-currencies very much are and will be much more so going forward.  I (do) lobby hard for an active and pro-active defense and at least maintaining the ability to go on the offense when it makes sense strategically.

I don't agree, I see bitcoin, bitcoin mining, and the exchange of bitcoin to fiat, as a near perfect free market.

That is why I see you guys as the biggest threat that Bitcoin faces.

At this point I think it unlikely that Bitcoin itself will succeed due to folks like you.  I've been mentally prepared for this for a long time and have not given up hope completely, but it seems much more likely than not that your types will bring us down.  As I've said for years, though, Bitcoin has already achieved it's promise drawing in interest to the general concepts of distributed crypto-currencies.  That is to say, it was key in opening up Pandora's box.  That cannot be undone.

No. You're letting your fear of a technical attack (which is unlikely to actually be the attack vector from the orgs I think you fear) cloud your analysis. Granted, there's a balance to be had, but I contend that the greatest chance for longterm success, and global benefit, lies in bitcoin storing and transacting as much wealth and value as possible. Security, political incentives, and positive impact on humanity stem from that.

And you're just not going to get that without an ability to scale. The notion that bitcoin can be a high-market-cap (orders of mag more than today) system under a model of a small number of high-value transactions is really tunnel-visioned. It'd basically just be used by a small number of people such as yourself in that event, which not only entails giving up massive potential for appreciation, but probably falls back to where things were in 2011 and stays there.