Topic: Bitcoin & Tragedy of the Commons - page 5. (Read 21896 times)

they pay for eligius' server so eligius includes their feeless transactions

On a similar note, does anyone know if MtGox owns any mining hardware or contracts?

The assumption that bitcoin payment processors would rely on volatile, thrid party, volunteer mining and take the risk of losing their business is just plain wrong.
They will mine the hell out of the network because they will want to keep it secure.
At equilibrium, processing 1% of the bitcoin tx will entail x% of the hashing power. With more bitcoin tx (in 40 years ?), the value of processing 1% of the bitcoin tx will exceed the cost of x% of the hashing power.

Thank you! Saves one of us the hassle.


If you manage to get 51% and force a protocol change that makes only your blocks valid, yeah. If you capture 75% of the mining market, there is still nothing to prevent a small mining business from entering and mining all fees, including ones the monopoly doesn't take. As those unaccepted small fee transactions add up, mining for them becomes profitable as well. If there is something that can give a miner monopoly power and prevent new entrants, I'm not aware of it. Also, how can mining difficulty be kept artificially low?

Monopolies form because when you're the only one selling a product, you can demand whatever price you want. In Bitcoin mining, if you're a monopoly you can require high transaction fees, and you can keep difficulty artificially low thus lowering your cost.

Added to ignore list.

I've read a lot about monopoly here, as if they are guaranteed, but no real mention of why. Monopolies generally happen only because of economies of scale (http://en.wikipedia.org/wiki/Economies_of_scale, http://en.wikipedia.org/wiki/Natural_monopoly) In short, where the average cost of an extra unit of production falls as you add more units. I'm not convinced that applies to Bitcoin.

At the risk of possibly making this sound stupid, I'm going to keep this simple:
Bitcoin mining is direct Electricity Cost -> BTC profit. You can't make your electricity cost per miner go down by adding more miners.
Sunk costs (infrastructure) play a part, but I don't think it's a large part.
Barrier to entry is low. Buy a GPU or wherever new tech comes out, and you'll get a fraction of overall profits. Just join a pool or P2Pool to reduce variance.
So, I'm not convinced that monopoly is inevitable, and I think the most likely outcome will resemble that of agriculture, where anyone can grow crops, and buy from large corporate farms or locally grown, except even less monopolistic than agriculture due to lack of government incentives (subsidies, import tariffs). In Bitcoin terms, that will mean we will have a combination of large pools and individual miners, just as we have now, but will only rely on increased value of bitcoins in transaction fees for security.
I also wouldn't be surprised if those with large personal Bitcoin holdings will buy their own mining hardware as well. It's a switch from paying $200 a month to your bankers to keep your money/gold/whatever safe, to paying $200 a month in electricity to run your personal rig to help keep yourself safe.

How much would they be? I believe that the fees would need to be similar to or greater than those for credit cards or paypal in order for them to credibly discourage a monopolist. A monopolist might lower fees somewhat because he wouldn't need to use much electricity, but how much could we trust a proof-of-work monopolist?

Right now, the current difficulty level is supported by an implicit inflation tax on all bitcoin holdings of around 30% per annum. The amount sent per annum is not known, but let's say that (largely voluntary) donations currently occur at a rate of 0.01% per send. I believe I am already low-balling here, but even if you believe that 0.001% is the true donation rate, we still need significant fees. Gross Txn fee revenue is currently around 0.03 BTC per block. To match block generation revenue, the fee submission rate needs to increase by 50/0.03 = 1666-fold. That is we need to move fees on sends from 0.01% (my guess of donation rates) to 16%. Volume of sends will decline in response, so even 16% won't actually generate this much revenue. In fact, I expect it is impossible to support current block rewards using txn fees.

What is all this fear of a fork? Better to fork sooner rather than wait for the walls to crumble around you, no? I thought we were revolutionizing currency. Obvious flaws need to be fixed by bitcoin or they will get fixed by some other coin. A tradeoff between no security to speak of and onerous fees is not a quibble. It is a core issue.

it may be much easier to implement and not require a fork. and fees would still be low.

Enforcing a large, unnecessary fee is a solution,  but it is grossly inferior one. Why add significant fees in when they are not needed?

Yes, but FreeMoney's point is that if the miner is big enough, his own impact on the equilibrium by playing hard-ball is enough to justify his costs.

That's certainly a possible solution, but deciding on the minimum fee is not trivial. Alternatively you could limit the block size, but again there's no clear way to decide on the limit.

Of course there are manageable solutions to the problem. Tragedy of the Commons implies that there will not be outside factors influencing the commons and they will be exploited to the point of failure. American manufacturing is an example. Exploitation of health insurance has caused insurance premiums to skyrocket. The high cost of health insurance has in turn caused goods to become overpriced because the labor pool demands higher compensation. When labor compensation is reduced, manufacturing slows due to a lower labor pool. Manufacturers in countries that provide well managed NHC like Japan, Korea, and now even China are able to produce goods with lower labor costs and thus be more competitive. (This is not an argument for or against NHC, just an example of Tragedy of the Commons and a solution.)

If we further this analogy and apply PoS theory to health care and manufacturing, then the solution would be to allow manufacturers with the large bank accounts to dictate healthcare policy for workers. This is where the US is currently. See how well it works?

Increasing fees is not a good solution. Proof-of-stake makes large fees unnecessary.

I thought this was the whole point of the tragedy of the commons: that each miner for himself has no benefit from dropping tx with very low fees. So all tx fees would go towards one satoshi.

There sure are solutions to this problem.

Like a network enforced minimum fee determined by a somehow balanced vote.

Empirical work indicates that market power for undifferentiated goods is extremely limited unless you have very few market participants (approximately less than 5).

I'm sorry, but you are. The contribution of the payment processor's own mining to network functionality is negligible, since he's only a small part of it. It's in everyone's best interest that everyone will mine/pay for mining. But then it's also in everyone's interest to personally cease mining, since the network will be just fine with everyone else mining. The contribution of a miner / mining sponsor is shared by everyone, but the cost is all his own. I can't explain this any clearer, I can only direct you to Wikipedia.

This makes sense, but I think that quantitatively it will only be enough if power is concentrated with a few (where "few" could be 100) strong players.

I'm just pointing out a minor contradiction in your logic. Denying a problem won't make it go away. Besides, I only took you off my ignore list because you seemed to have conviction regarding proof-of-stake. I will await a fully fleshed out hypothesis without contradictory statements. I'll keep an eye on the wiki. It will be especially interesting to see how you refute the arguments of Nobel winning economists based on the premise of Tragedy of the Commons.

Cbeast, I'm sorry but you are going back on my ignore list.

https://en.bitcoin.it/w/index.php?title=Proof_of_Stake&action=view#The_Monopoly_Problem

It doesn't really matter if payment processors mine themselves or buy mining services. It would be like if someone said "In the future no one will make cloth" and someone responded "Yes clothing makers will make cloth because they need it to make clothes". The fact that people demand cloth to make clothes is the reason that cloth will still be produced, but there isn't any particular reason why cloth and clothes makers will be one in the same. And it doesn't matter weather there is many or few clothes makers.

What we do know is that there will be demand for blocks, maybe a lot, maybe not, depends on a lot of things.

Here is another angle, I'm not sure how relevant. Another party that wants there to be a lot of honest mining power: Miners. If you make a block, you only get paid if it is still in the longest chain 120 blocks from now. Issuing a tx from your coinbase (can you even do this?) with a high fee will give more incentive to an honest miner to quickly mine off of your block before someone comes along rewriting yours in order to collect the fees from the transactions you included or just to remove them for some nefarious purpose.