Topic: A clean solution to ALL Bitcoin problems: SatoshiDice, Block size, future fees. - page 2. (Read 4351 times)

Be very careful with this. There are valid use cases where free transactions can be completely acceptable because they are paid for some other way. For example, chaining transactions so that the recipient pays the fee instead of the sender. This can be worked around by making sure that the algorithm is aware of that and considers the chain as a single unit. However, my point is that these cases need to all be known at the time of writing the algorithm because it would take a hard fork to change it later.

Also, I'm assuming that every reference to "transaction fee" really means transaction fee per KB, otherwise that opens up the potential for people to use mega-transactions to split single the fee between multiple parties (transactions larger than 500KB make sense now, don't they  ) instead of mega-transactions just receiving a marginally lower fee over using normal transactions.

Finally, does this really require a hard fork? It might be used with one, sure, but could this be done at a later point via a soft fork? I'm trying to figure out if I'm missing anything about your proposal...

Yes.
One solution would be to use Robust statistics, like the median instead of the mean to divide the Standard deviation. Or the Median absolute deviation divided by the median. Let's call it CoVar*. So CoVar* will work as CoVar, but won't be affected by outliers.

Here is an example of what Zeilap  sais:

Suppose the set of transaction fees available is:
1,1,1,1,1,1,1,1,1,1,1,1,2,10

Suppose the maximum CoVar is 1.

We compare two possible sets to choose, one containing 10 and another without it:

(A) 1,1,1,1,1,1,1,1,1,1,1,1,2
(B) 1,2,10


Results for A:

Sum=14.00
Mean= 1.08
Variance= 0.07
StdDev= 0.27
CoVar= 0.25

Results for B:

Sum=13.00
Mean= 4.33
Variance=16.25
StdDev= 4.03
CoVar= 0.93

So the set A pays more fees, and so it will be chosen.

I would discard the 10% percentile, as I said.

Couldn't someone DoS the network for a period by submitting 1 high-fee transaction at a time? So high that including any other normal-fee transactions would violate the CoVar max, and high enough that it is greater than the sum of all the rest of the transactions in the pool?

Yes, it would cost bitcoin to do this, but an entity with deep pockets could just keep buying BTC on the open market to do this as long as they wanted.

It just goes against his own interests. Why would he do that? There is no memory between blocks, so a block cannot influence the next.

Zeilap: This is getting really interesting...


This can be very easily avoided. Before calculating the CoVar, sort them by fees, and remove from the CoVar computation the transactions that in the 10% percentile that pay most.

Then you'll always be able to get the transaction into the next block: send the fee high enough to be in that percentile.

But I'm unsure if a high fee transaction would be ever discarded. I will simulate this.

Let's consider the analogous situation in real life:
[Customer   ] Hi, I'd like to buy this item, would you deliver it to this address
[Shop owner] No problem
[Customer   ] When can I expect delivery?
[Shop owner] I don't know, possibly immediately, possibly never.
[Customer   ] WTF!? Can I pay you a little extra to guarantee I get it by tomorrow?
[Shop owner] Sorry, that's not how the system works.
[Customer   ] So how does it work then?
[Shop owner] Well, I'm thinking of a number between 1 and 100, give me some money between $1 and $100 and if the amount you choose is closer than the other customers, you'll get it delivered tomorrow.


No, what will happen is that multiple transactions will appear all at different values early on, and only one of them will end up being in the winning group. The result is that announcing early gives you least control over getting your transaction processed. The incentive now is to announce your transaction as late as possible, but not too late to miss getting into the block.


If this were to come into force, people would end up realizing that it is in their interest to send their transaction multiple times with different fees. Only one can be processed due to double spends, but if they have transactions at all different fees, they are more likely to get one of them processed.

Further, I could easily set up a service to game the system for people who actually care about getting their transactions processed. How it would work is that they send me multiple versions of the transaction they would like to broadcast, each version with a different fee. I would hold the transactions until I got enough transactions to game the system, then I dump them all at once on the network, creating the best group of transactions or joining the current best group if I can't beat it.

Not true, if everyone included only 1 satoshi as the fee the confirmation time would grow without bound.

This is true even in today's Bitcoin implementation.

Nash equilibrium at 1 satoshi txn fee ruins this idea. There is no incentive to ever submit a transaction with a non-1 satoshi fee.

Yes, but the 1Mb limit is nothing more than a psychological constraint at present, yet fees are rising anyway. The concern is about when it becomes a physical  constraint (due to transaction volumes).

max block limit is the real question in my opinion, since that determines how much free ride could pontentially be and then the block proopagation/verification has long term effect on miner competition.

Sergio's idea sounds great, therefore I went away and examined two blocks.

SatoshiDice launched on April 24, 2012 so I randomly chose a large block two weeks earlier:

April 9, 2012      
block 174997 (Tx = 154)
Fee            Count   
0                 116   
0.0005           35   
0.001              4   
0.00677853     1   
0.01                1   
CoVar = 4.00      

Then I chose a similar sized block which went through in the last hour:
      
Feb 26, 2013      
block 223287 (Tx = 151)
Fee         Count   
0              13   
0.0005      61   
0.001        70   
0.0015        1   
0.002          2   
0.005          4   
CoVar = 0.93      

First, a wider analysis is warranted as this is a very narrow test. However, in the meantime I am not sure if there is a problem to be solved!  In the April 2012 example most transactions did not have fees, in the block today they do. SD is paying a lot in fees. It seems bitcoin is improving its economic "health" organically, or at least through current incentives for fees. All it needs is more time to see whether the fees climb or level off.

I am wondering whether fees are tangential and the real issue about the max block limit is block propagation/verification time as Gavin indicated at the start!

I don't see it as that problematic. Fees would have variance from block to block but that isn't such a big deal. Only the first ones announcing their tx are blind to what is going on and don't really know the optimal fee, but on the other hand they have the most power in defining the fee that's most useful for that block. The ones coming later would simply react to what kind of transactions are in the block already and choose the fee automatically.

The user can simply set an upper bound to how much he is willing to pay. If the next set of transactions is not looking good the client would postpone the tx to be sent once that block clears, or the client could just send it right away but it wouldn't be accepted into the next block because it has a fee that doesn't fit. Not sure if I'm way over the place with this but I think it can work.

This is just going to cause the transaction fees to bounce around wildly, and users will no longer have any real control over transaction priority.

At the moment, to increase your transaction priority, you increase the transaction fee. Pretty simple.

With this system, it is no longer true. Instead the optimal fee to increase your transaction priority is dependent on the other transaction fees in the set of unprocessed transactions. Your goal is to set your fee so that it is similar in value to as many other transactions as possible, so a large group with small variance is formed, becoming most profitable to mine.
But, if you set it to the same fee of a large group of other transactions, the group may get too large (to fit in a block) and so only a subgroup of that group will be used (or another group in a different range of fees), so you might want to set your fee to be slightly larger within the group, to increase your chances of placing in the subgroup. Too large however and it may be more profitable for the miner to include several smaller paying transactions than your slightly larger one etc.

To pick your fee you need to know what the most profitable group of transactions *will be*, i.e. you need to know what transactions other people are going to send before they send them.

I see a problem with this. Would not one dominant source of transactions effectively set the transaction fees? For example S.Dice would be able to set the transaction fee effectively at will in today’s market. http://blockchain.info/

that isn't obvious to me, say you mine a small block with some big fee txn. Great. The moment after that there are no big fee txn— but there is 10gb of low fee txn. So of course everyone mines those next.  Alternatively if the sum of low fee transactions is greater than a high fee one that would blow the covar, you'd drop the high fee txn and take the gigabyte of dust— so instead of keeping fees high, in some cases it would encourage people to lower their fees.

I think it would exaggerate priority effects, I'll have to think more about it.

How does this prevent a miner from creating their own transactions to game the coefficients? The only cost is the orphan rate, which can be kept well under 1% for a miner with sufficient infrastructure.

Yes, as I added to the original post: it's not a solution against malicious miners. Only against selfish (and irrational)  miners that do not think about the future of Bitcoin.

Trying to understand this further... If a miner mean to force out other miners out of network by flooding large block, and make many many many low fee trasactions, how it is affected?
If the block has many low fee transactions, no higher fee txs, then the coVaR may still low and pass the test, no?