Permanently keeping the 1MB (anti-spam) restriction is a great idea ...

[homo homini lupus]

before you reach that limit you'll upgrade to 50MB and quantitative ease another 10 million btc into existance to cover miners - that's how it'll end up. (not really because people won't even use the 20MB version)

What plausible reasons can you give for either of those assertions?

Why *wouldn't* people use the 20MB version?

Why *would* the network majority agree to create another 10 million BTC?

-you propose to raise the limit without an immediate need now - you'll do it again (what else)

- why they wouldn't use it has been explained already earlier

- the majority will have to agree on that later because mining becomes unprofitable once the inflation fades out - especially if not the number txs actually do occure what you project (in case your fortune telling skills fail, which they will)

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[grau]

What else would make people pay a fee? I do not think alturism would pay for an infrastructure of 300 mio USD and increasing.

What else, is that the miners don't mine if it's not profitable.

Miners not mining does not force people to pay fee. Difficulty would decrease and transactions would confirm again with less miner.
Most would not even notice.

Some would see that security decreases, but will that make them pay more ? Not neccesarily, since their security preference is different.
Some might think it is still sufficient and continue to free ride, and if no longer, then leave for a better chain.

Again, this is a typical "the tragedy of the commons" scenario.

[MrTeal]

What else would make people pay a fee? I do not think alturism would pay for an infrastructure of 300 mio USD and increasing.

What else, is that the miners don't mine if it's not profitable.

Miners not mining does not force people to pay fee. Difficulty would decrease and transactions would confirm again with less miner.
Most would not even notice.

Some would see that security decreases, but will that make them pay more ? Not neccesarily, since their security preference is different.
Some might think it is still sufficient and continue to free ride, and if no longer, then leave for a better chain.

Again, this is a typical "the tragedy of the commons" scenario.

I don't think he's saying that miners won't mine at all, just that they won't mine no-fee transactions. Already with 1MB blocks, most pools limit the number of no-fee transactions. There is a cost to including a transaction in a block for a miner, and there's no economic incentive to do so without fees. No pool operator in their right mind would allow 20MB worth of no-fee transactions into their blocks; that doesn't mean they won't include every TX with a fee large enough to justify its inclusion.

[grau]

Bitcoins current inflation rate is 9.98 % that will drop to 4.26% with block 420000, expected on 29th July 2016.

Current inflation hardly covers the cost of current mining infrastructure, as a consequence we see difficulty stalling since several adjustment cycles.

This means some combination of following needs to happen to sustain security level past block 420000 at current level.

a) Bitcoin purchasing power increases at least 2.32 fold, means to more than 506 USD
b) Transaction fees have to supply 17.14 BTC per block

We all hope that the actual outcome will be more of a) than of b)

a) is a bet
b) implies transaction fees of ca. 0.005 BTC with fully packed 1MB blocks or 0.0003 BTC fees with fully packed 20MB blocks.

Note that above would only sustain current security level.

[grau]

I don't think he's saying that miners won't mine at all, just that they won't mine no-fee transactions.

A rational miner mines all non-zero fee transactions he sees until the block is full, since it has virtually no cost to include one. If he would not include any, he would leave it on the table for an other miner.

Imposing lower limit to fee could only be effective if miner build a cartel for that, and this is not the way of regulation I favor.

[MrTeal]

I don't think he's saying that miners won't mine at all, just that they won't mine no-fee transactions.

A rational miner mines all non-zero fee transactions he sees until the block is full, since it has virtually no cost to include one. If he would not include any, he would leave it on the table for an other miner.

Imposing lower limit to fee could only be effective if miner build a cartel for that, and this is not the way of regulation I favor.

Virtually no cost to include one, but not no cost. Building a 20MB block full of 1 satoshi fee transactions would not make economic sense as the increased risk of an orphan would outweigh the benefit of the less than 1mBTC in fees.

[DeathAndTaxes]

I don't think he's saying that miners won't mine at all, just that they won't mine no-fee transactions.

A rational miner mines all non-zero fee transactions he sees until the block is full, since it has virtually no cost to include one. If he would not include any, he would leave it on the table for an other miner.

Imposing lower limit to fee could only be effective if miner build a cartel for that, and this is not the way of regulation I favor.

You keep saying this but the cost is not zero.  The cost of orphaned blocks is very real.   If you increase propagation time by six seconds then the probability that your block will be orphaned increased by 1%.  Those transactions have to be paying more than the estimated loss due to increased propagation delay or the miner takes a net loss.  As margins squeeze and the subsidy declines, miners that are bad at math will quickly become bankrupt miners that will be replaced by miners less bad at math.

Another way to look at it is if you double the size of a block you double the chance of your block being orphaned however since miners include highest fee transactions first doubling the size of the block does not double your gross revenue.  At some point there is that marginal transaction where despite it having a fee it will result in a net loss to include it.  A rational miner will draw the minimum fee policy just above that line.

[grau]

The cost of orphaned blocks is very real.

I stated the same. We might disagree on the magnitude.

Since there is no marginal cost in including a transaction to the current block,

let me be more precise:
There is a marginal cost implied by block propagation speed being proportional to size and propagation being proportional to orphan rate. There is also a computation cost of updating the merkle tree and updating miner with it. These marginal costs are today however magnitudes below the lowest non-zero fees paid.

A rational miner will draw the minimum fee policy just above that line.

Allowing for that rational line being above zero, the question is if that rational limit pays for the security we need to sustain. See my previous calc. on transaction fees needed.

[wilth1]

Why not implement maximum block size alongside mining difficulty adjustment using the same mechanism?

Rather than an arbitrary 20MB limit or rolling quadruple/exponential maximum size increases, why not incorporate a self-adjusting maximum block sized based on the number of the last n blocks solved that hit the existing hard limit?

[DeathAndTaxes]

Allowing for that rational line being above zero, the question is if that rational limit pays for the security we need to sustain. See my previous calc. on transaction fees needed.

https://gist.github.com/gavinandresen/5044482

I am not sure the numbers are completely sound so I am not saying rely on them like gospel but more as a thought exercise.  I think the underlying study that Gavin relied on has some pretty worst case assumptions backed in and the average miner is probably going to be better connected than the average non-miner.  Still even assuming they estimate is 10x actual cost the idea that there is no cost is simply not supported.   A 1 satoshi fee (or even 100 satoshi fee) for all intents and purposes is a no fee transaction.

As for fees making up the difference of the subsidy cut ... they won't.  However at the current time the network is probably overprotected relative to the actual economic value of the transactions occurring on it.  Subsidies tend to do that in any market.   So over the next five years the difference caused by the two halvings will be compensated by a combination of a) some reduction in overall security, b)the rise in the exchange rate as miners costs are mostly in fiat terms, and c)rise in overall block fees.

[balu2]

Allowing for that rational line being above zero, the question is if that rational limit pays for the security we need to sustain. See my previous calc. on transaction fees needed.

https://gist.github.com/gavinandresen/5044482

I am not sure the numbers are completely sound so I am not saying rely on them like gospel but more as a thought exercise.  I think the underlying study that Gavin relied on has some pretty worst case assumptions backed in and the average miner is probably going to be better connected than the average non-miner.  Still even assuming they estimate is 10x actual cost the idea that there is no cost is simply not supported.   A 1 satoshi fee (or even 100 satoshi fee) for all intents and purposes is a no fee transaction.

As for fees making up the difference of the subsidy cut ... they won't.  However at the current time the network is probably overprotected relative to the actual economic value of the transactions occurring on it.  Subsidies tend to do that in any market.   So over the next five years the difference caused by the two halvings will be compensated by a combination of a) some reduction in overall security, b)the rise in the exchange rate as miners costs are mostly in fiat terms, and c)rise in overall block fees.

the problem is: on gavincoin low fees will lead very fast to reaching the blocklimit again.
If the space is there and it's cheap it will be filled with one crap or another.
So reaching the 20MB limit will likely occure way sooner than most think in case fees are too low.

Gavincoin is basically a proposal for socialist central planning (first on fees and later on moneysupply)

[grau]

https://gist.github.com/gavinandresen/5044482

I am not sure the numbers are sound (I think the underlying study that Gavin relied on has some pretty worst case assumptions) but even assuming they are 10x actual cost the idea that there is no cost is simply not supported.   A 1 satoshi fee (or even 100 satoshi fee) for all intents and purposes is a no fee transaction.

Let me go with his assumptions implying a rational minimum fee of 0.0008 BTC for a 250 Byte transaction.

That would imply a total fee of 3.2 for 1 MB  blocks. We have not even seen that magnitude yet (exceptions were only fucked up transactions).
Means we are not even close to block size limit sqeezing out meaningful fees, so why increase it?

[solex]

https://gist.github.com/gavinandresen/5044482

I am not sure the numbers are sound (I think the underlying study that Gavin relied on has some pretty worst case assumptions) but even assuming they are 10x actual cost the idea that there is no cost is simply not supported.   A 1 satoshi fee (or even 100 satoshi fee) for all intents and purposes is a no fee transaction.

Let me go with his assumptions implying a rational minimum fee of 0.0008 BTC for a 250 Byte transaction.

That would imply a total fee of 3.2 for 1 MB  blocks. We have not even seen that magnitude yet (exceptions were only fucked up transactions).
Means we are not even close to block size limit sqeezing out meaningful fees, so why increase it?

Because the block limit is not creating a fees market. The block reward is too high and masks the theoretical "bidding" process for block space, leaving aside the fact that wallet software does not offer users a way to update a fee on a transaction until it has been dropped from all the mempools.

However 20MB is large enough for a proper fees market to develop. Currently, blocks >900KB are carrying 0.25 BTC in fees. ~5BTC in fees for a full 20MB block and a block reward down to 6.25, means the fees and reward are similar, and the fees market should be healthy.

[phillipsjk]

That's taken right from the FAQ of the project itself. This is just 1 example of potential services that won't be able to get developed completely (if at all).

They just haven't designed it right (so the Bitcoin limits are not really an issue).

Although let's not go off-topic my AT project will be launching "crowdfund" very soon and that could actually work on Bitcoin if Bitcoin were to adopt AT (with no limits for the number of pledges).

Turing-completeness is a non-starter.

The Bitcoin scripts were deliberately designed to not be Turing complete.

I have to admit, the 28 minute (thorough) block propagation time (for 20MB block) mentioned earlier does seem realistic to me. That works out to about 14 hops with each node spending 2 minutes on block verification. Edit: Forgot to add: Turing completeness, even with cycle limits, will obviously increase block verification time.

This lends credence to LaudaM's contention that the blocks will not fill up immediately. Though, I have seen it argued that the large miners will have an incentive to push smaller miners out with large blocks (filled with garbage if need be).

Let me go with his assumptions implying a rational minimum fee of 0.0008 BTC for a 250 Byte transaction.

That would imply a total fee of 3.2 for 1 MB  blocks. We have not even seen that magnitude yet (exceptions were only fucked up transactions).
Means we are not even close to block size limit sqeezing out meaningful fees, so why increase it?

Because a change like this has to be planned months in advance. During the next bubble it will be too late to meaningfully accommodate the increased transaction volume. I suppose that may be the point: to temper speculation with high fees. The difficulty is that the institutions pushing the next bubble have the ability to print their own money.

[CIYAM]

Turing-completeness is a non-starter.

The Bitcoin scripts were deliberately designed to not be Turing complete.

A statement with nothing to back it up (the reason Bitcoin is designed that way is because it was designed that way).

[Peter R]

In response to those claiming that a hard fork to increase the blocksize limit will hurt the miners' ability to collect fee revenue:

The empirical data we have so far does not support the notion that the miners will be starved of fees or that blocks will be full of low fee transactions if the blocksize limit is increased.  If we inspect the fees paid to miners per day in US dollars over the lifetime of the network (avg blocksize << max blocksize), we see that total fee revenue, on average, has grown with increases in the daily transaction volume.



The total daily fees, F, have actually grown as the number of transactions, N, raised to the power of 2.7.  Although I don't expect this F~N^2.7 relationship to hold forever, those suggesting that the total fees would actually decrease with increasing N have little data to support this claim (although, during our present bear market we've seen a reduction in the daily fees paid to miners despite an increase in N.)

Past behaviour is no guarantee of future behaviour, but historically blocks don't get filled with low-fee transactions and historically the total fees paid to miners increases with increased transaction volume.    

[jabo38]

Sometimes I debate D&T on some issues, but not this time.  Great post. 

[justusranvier]

Conclusion
The blockchain permanently restricted to 1MB is great if you are a major bank looking to co-opt the network for a next generation limited trust settlement network between major banks, financial service providers, and payment processors.   It is a horrible idea if you even want to keep open the possibility that individuals will be able to participate in that network without using a trusted third party as an intermediary.

I agree 100%.

There will probably be a role for settlement networks in the future, but even if they do exist those settlement networks should not be artificially subsidized by a block size limit.

[Peter R]

Fantastic work, DeathAndTaxes!

Two things really stuck out for me after reading your post:

(1) How ridiculously low the 1 MB limit is if we envision any sort of "success case" for bitcoin. 

(2) How the "don't-increase-the-blocksize-limit-because-centralization" argument is misguided.  You clearly showed that not increasing the blocksize limit could lead to greater centralization by pricing out individuals from trustless access to the blockchain.   

[CIYAM]

(2) How the "don't-increase-the-blocksize-limit-because-centralization" argument is misguided.  You clearly showed that not increasing the blocksize limit could lead to greater centralization by pricing out individuals from trustless access to the blockchain.  

He didn't as he used a "straw-man" argument that people would use centralised authorities when they could just as easily not (again I am not against raising the 1MB limit but using the wrong arguments for that is simply not persuasive).