Topic: Enforcing a production quota on block space that fights the free market (Read 2457 times)

I rechecked these charts, the "deadweight loss" part means that when there is a blocksize limit on the left of the Q*, some transactions will not be included in the block no matter how people adjust their fees

But my view is that supply and demand curve is not fixed, they would move once the Qmax moved, so that a new Q* will always appear at the left of Qmax regardless of Qmax's position

Imagine that Qmax moved to left of Q*, thus the tranaction capacity is not enough, so the natural reaction of normal user is to reduce diversify the transaction frequency, so demand curve will shift down alternative cryptocurrencies fill the demand gap, instead of the naive assumption that the supply curve will shift up: miners charge much more when the transaction capacity is less. So these two lines will cross at some where left of Qmax to make a new Q*

The Lindy effect worked great for MySpace social networking websites.

The difference is that I haven't tried to draw a straight line on an exponential trend.

I don't see the difference between your chart and mine. Everything below 0.6 is mostly noise and spam.

I rechecked these charts, the "deadweight loss" part means that when there is a blocksize limit on the left of the Q*, some transactions will not be included in the block no matter how people adjust their fees

But my view is that supply and demand curve is not fixed, they would move once the Qmax moved, so that a new Q* will always appear at the left of Qmax regardless of Qmax's position

Imagine that Qmax moved to left of Q*, thus the tranaction capacity is not enough, so the natural reaction of normal user is to reduce the transaction frequency, so demand curve will shift down, and the supply curve will shift up: miners charge much more when the transaction capacity is less. So these two lines will cross at some where left of Qmax to make a new Q*

A straight line? really?

Your premise: Bitcoin consensus operates as a free market.

Why this is wrong: Bitcoin is ruled by a protocol enforced by a consensus of the nodes on the network.

The block size limit is not unlike like other consensus rules in the protocol: block interval time, 21M cap. It is indeed a security rule that carefully gages the incentives of the actor in the system and helps to align them toward an equilibrium.

It served as an anti-spam measure and still does.

The reason it is so is because the true cost of the spam is not bore by the miners but by the nodes. The block space is not a commodity produced by the miners but the effect of a limit on the costs of resources for the system.

"There's only one difference between a bad economist and a good one: the bad economist confines himself to visible effects; the good economist takes into account both the effect that can be seen and those effects that must be foreseen." Frédéric Bastiat

This is the total economic activity:



Any of you seeing a "dead weight loss"  

Clearly the "will of the market" is not clamoring for more block size at present. Especially considering surely 20% of that space is filled with spam.

More about this "free market": if it cannot pay for decentralization then it cannot afford more utility. THIS is the negative externality that gets hand waved away by Peter. While he seemingly is very able at drawing lines on charts his ability to discern game theory dynamics are poor at best.

What he is campaigning and openly support is a tragedy of the commons that would create a disproportional and ultimately tragic rise of the resources costs of becoming a peer in the network.


It should be clear then that the anti spam limit should represent a measure of the cost of running a node. http://www.truthcoin.info/blog/measuring-decentralization/

Question: is it possible for Bitcoin to enforce a rule that goes against the will of the market?  How can we enforce rules that most of us disagree with?

As an example, consider the block size limit.  When it was put in place five years ago by Satoshi, it served as an anti-spam measure.  It was actually 800x larger than Q* so the vertical line marked Q_max was actually 100 ft off the chart!  Since the production quota was to the left of the free-market equilibrium point, it didn't affect the market dynamics.  There was no economic pressure to change the limit.  



However, Bitcoin has grown tremendously over the past five years and I believe the limit is now serving as a political measure instead.  It is to the right of Q*, resulting in what economists call a "deadweight loss."  This is the total economic activity lost as a direct result of the quota.  It also represents the will of the market (people) clamouring for change.



If the market wants to be at Q*, but the production quota is forcing it to be at Q_max, what can a group do to continue to enforce the production quota against the will of the market?  How can the invisible hand be restrained?

I agree with you.

What you call the power of time is also known as the Lindy effect (https://en.wikipedia.org/wiki/Lindy_effect) and Bitcoin fully benefits from it : in other words, time is playing in Bitcoin's favor. The longer Bitcoin survives => the longer (remaining) life expectancy => the more confidence people have in it => the more value it gains.

I would also add "the power of time" besides "the power of the network effect". 

...the power of the network effect. Altcoins that desperately attempt to compete with Bitcoin, or the XT episode are good illustrations. It is extremely likely that the blocksize limit will push people to offchain Bitcoin solution rather than push them away from Bitcoin. This has already been observed with Dice users that got pushed to centralized Bitcoin offchain services when the min relay fee was implemented.

Why would you think banks don't own a shitload of Bitcoin already? Who do you think has been buying all the coins dropped by the weak hands over the last year and a half?

Banks have a scarce history of giving poor people huge quantities of their money, but this time its different, right?

But I applaud your optimism, even if it is foolhardy.

YES!

Better start buying  

Again this ignores the nodes.

Our goal should not only be to optimizes miners revenue but to do so in context of the costs externalized to nodes.

If we remove this limit the blockchain will grow too fast for nodes to keep up and within 15-20 years no new nodes will be able to enter the network.

I agree with most of your views but I think this is stretching the importance. If you remove political reasons there is basically one reason for the block debate and that is transactions per second. As much as someone may or may not see it as a scalability issue now or in the future, the block size is the [other] easy way to increase transactions per second if there is a limit imposed.



I think you can see that if the dream of 4000 tx/sec is ever to be realised then 1 or 8 MB is rather moot if you cannot change the 10 minute interval.

Where Peter comes in, this limit (whatever it may be) creates a market which he is attempting to analyse. That's fine. But it is an artificially created market due to a design decision. Where I sit (and I think you do to) is that we need to remove the temporary spam limit which would remove his market and a different analysis would come into play - one of optimum block size for best return (blocks size vs orphans). His analysis also covers that, I believe but the buzzword at the moment is the "fee market" which is artificial, to you and I, and more of a bug that needs to be fixed rather than exploited.

One way we might be able to remove the limit completely might be to not allow miners to increment the coinbase integer and instead they must include new transactions to change the hash. This would create a demand for any transaction, not just paid-for ones and make spam/dust/small transactions useful for miners to move forward. They would have to consume any and all transactions just to produce a new hash but can choose a strategy that fits their bandwidth, mining power and other physical and financial constraints but ultimately serving the network rather than the network serving them.

But let me point out that the maxblocksize controversy is not about economics. It's about security, censorship-resistance and permissionlessness.

Fedwire is a gross settlement network, not at all what bitcoin is supposed to be. A single settlement tx could reflect millions of other transactions - out of band from that network. I think that is the ultimate goal for yourself and the MPfags on here. Your dream is that all sidechain/LN activity will have to be settled with bitcoins, and of course the wealthy bankers will have to come to you on bended knee in the hope you might sell them for the equivalent of the GDP of a small country.