Topic: How a floating blocksize limit inevitably leads towards centralization - page 3. (Read 71590 times)

I disagree with all of that. I think it's flawed logic.

The situation is not as black and white as this because even zero fees can help secure the network by raising the BTC fx rate.

Please consider my earlier post:

Nice job completely missing the point of the original post. Here's the short-bus explanation for the challenged:

small max block size: high fees, secure network, decentralized mining

large max block size: low fees, lower hash rate, centralized mining.

Any questions?

Everybody shut up about Apple, this is totally off-topic.

The only reason is was brought up was to show an example of how a strong competitor aggressively pushes smaller competitors out of the game. The means are not relevant, the point is that big time miners will find whatever means necessary, as does Apple and many other large corporations in very lucrative and relatively free markets.

I'm just pointing out that some are suggesting to maintain such a market with a small max block size and risk such a nature as seen in examples here before us and over history.

There are two things one can do to poke holes in my argument, and I would love it if someone up for the challenge would try:
- Either prove to me that a lucrative and relatively free market (small max block size) does not have to end up with a centralized monopolistic power
- Or alternatively prove to me that a non lucrative, very saturated market (floating/unlimited max block size) can end up with a centralized monopolistic power

Once again, I believe centralization is inevitable and bitcoin does not provide a foolproof solution, however it intuitively seems to me (by historical examples alone) that making the market artificially lucrative (where motivation for abuse is naturally higher) is a quicker and surer way to end up with a strong monopolistic power.

They also have some creative people working there, it's not like Apple's business model is based up copying the best features of competitors.  They are not an ideal example of an upstanding corporation, but nor are they Micro$oft.  From 1994 till at least 2007, I've literally not ssen anything new out of M$ that wasn't available first, in some form, on GNU/Linux, or some other open source project.  I'm not convinced that M$ ever did anything particularly novel outside the scope of copyright legal theory.

This is so true. People think Apple is a technology company but what they are really good at is using the government's monopoly on the use of violence to eliminate competitors.

How beautifully naive. Or even naïve, with an umlaut.

Bitcoin thugs like Luke-Jr or gmaxwell are just not up to par in their thuggery skills, when compared to the government thugs.

Anyone can pretend that Bitcoin doesn't attract thugs, pump&dump artists and other problematic social element, but the "free market" is like the "spherical cow in a vacuum": it exists only as an idealized model.

What makes you so sure bitcoin is different in this regard than any other economy? What makes you thing big miners won't send thugs against smaller miners? I'm thinking history will repeat itself, as we have seen over and over.

As much as I love bitcoin, it's not going to solve inequality of wealth distribution. It may help by making large scale monetary fraud (a relatively new field of organized crime) somewhat more difficult and if bitcoin is to return trust to third parties then even that is not assured. But it will absolutely not make this world a more fair or equal place.

If you believe otherwise, you are probably naive and the onus of proof is on you.

Please stop drawing analogies to any industry in the physical economy. There are no markets regulated strictly by cunsumption (i.e. free markets) there and you shouldn't think there are if you want to arrive at accurate theories of what might happen to Bitcoin mining. Apple isn't a big company with which no one could possibly compete because no one can build what they build, Apple is such a big company because they send GOVERNMENT THUGS after anyone who would dare use their ideas and copy their products. You don't have that in Bitcoin hence why there is no barrier to entry and hence why this market will never yield the same result as the physical one.

Basically everything almost everyone can do.

Opening a bar / cafe / restaurant / online shop.

No monopolies there. Some big players (MC Donalds, Starbucks, Amazon etc.) yes. But only because they are more efficient (cheaper). As soon as they try to exploit this position to increase their profits, new big players would step in.

And you can see this companies are really trying hard to build artificial barriers to make competition harder, but haven't succeeded yet.

An example where there is some success with artificial Barriers are ERP systems for companies, though.

Basically it would be possible for a decent programmer with some business skills to make such a program and the possible profits are enormous, but the big players (Microsoft, SAP, etc.) are working together to make their products more compatible across their platforms to make new competition harder.


Apple has no production (to speak of) of its own. They are basically only doing design
(and I mean design not development) and software (and in some rage the end manufacturing).

Everything else is done by EMS providers.

And no one is doing business with apple because he wants to be part of Apple's business. They are doing it because there is money to be made.

Also, the entry barrier to make phones is not very high. Apple hat a bit of a innovator advantage in this sector, but this is already crumbling.

The Hardware for a smartphone is not high tech anymore and Android as OS takes away the software advantage.

The rest that remains are artificial barriers (I-Tunes, App Store, Coolness Factor, Patent-Bullsh***). But these can be very efficient.

I absolutely agree here, despite one point. A marked with no (or very low) entry barriers can't be very profitable. In such a marked new players enter constantly until the profit margin becomes very low.

As soon as this point is reached, big players that are more efficient sort out the competition.

Therefore monopolies, or at least a marked with very few players can and will form.

The only point is, as soon as this players try to exploit their position in this marked, they immediately open space for new players to enter again.

I'd love to learn. How about an example?



That's an interesting approach, but you fail to take in to account that it's not as simple as just "coming online". Mining is competitive. Like you said, it requires capital investment. Although there is no better quality service, there is a difference in efficiency for delivering such a service.

If we are to regress to a similar example, Apple is well known for having the most flexible, adaptive, highest capacity and most cost efficient smartphone manufacturing capabilities. For the most part, much of this ability is attributed thanks to simply them being the biggest (now second biggest) player in the market. No factories would do the things they do for other smartphone manufacturers like they do for Apple, because everybody wants to be part of Apple's business. The only player able to dethrone Apple happens to be another huge manufacturer with years of experience and having in advance all the in-house capabilities to run such an operation (Samsung). No other competitor ever managed to just "come online". You and I cannot make smartphones - we won't even cover the initial capital investment because everyone is buying Apple and Samsung.

With mining it's an even more extreme case. The better you are at mining, the worse I am at mining. Unlike smartphones, where theoretically everyone can buy as many as they want, there is a limited number of blocks per time. The Apple/Samsung miner wouldn't only be number one - they'd be so far ahead that you and I couldn't even imagine getting a single block ever. Even if lots of people wanted our blocks and not Apple's or Samsung's...

Your problem is your lack of knowledge in economics. If you understood markets regulated strictly by consumption i.e. free markets you'd know that if there is no barrier to entry (and there isn't one in Bitcoin, all you need is a capital investment to be a miner, no laws or regulations that would stop anyone to become a miner) and there are huge profits to be had it is impossible to arrive at a monopoly service provider unless that service provider does the job better and cheaper than anyone else. Well with mining there is no better, all miner deliver the same quality so a monopoly is out of the question. And if more profits are to be had in mining more miners, small and big will eventually come online.

So throwing money at the problem of security is precisely what you want to do in this situation if your goal is more miners more decentralized.

I'm not sure I understand what the motives are for someone to execute such a costly operation to destroy bitcoin. What am I missing? Today, I can understand. Central banks and the intertwined governments would love to keep business as usual and bitcoin is a huge threat. But if and when bitcoin takes hold as a universal currency, why would anyone want to destroy it?

The best I can think of is if someone is invested in a competing currency. But if someone invested in a competing currency can carry out such a costly operation, I get the impression that either that competition is strong enough in and of itself, or that it wouldn't catch on anyway...



I'm not sure throwing more money at the issue is what will make it better. I think throwing more money at the issue will make it more prone to abuse. I really like the idea of applying the way the PC industry works on a stable currency system, especially because the PC industry is so stagnant (which is exactly how to not make a monopoly). The OEMs are totally handicapped but they do their job. I don't want miners to be Apple, taking premium profits and locking in services taking whatever course they wish. I want miners to be HP and Dell, entirely constrained by the tiny space between supply and demand. Is there any example of an extremely profitable market (which are usually artificially profitable) that are not monopolized? Every example I can think of is either an emerging market with a clear head start (a la every new market in high tech) or a state-regulated hugely-profitable market with a clear monopoly (a la drug cartels).

Honestly, I'm not quite sure how well the analogy applies because like you say, the network really relies on this security. So, I'm still not taking sides yet. However, I am worried about centralization and I don't want miners to be filthy rich. I just want them to do their job, and I will pay whatever the electricity costs + operating income is. Like many have said here (which I can't follow any more), bandwidth is just another factor in the competition. Just like electricity - we don't have a solution for an aggressive miner with free/cheap electricity.

I tend to believe that these things always end up centralizing. Especially where lots of money is involved. So where does that leave us?

I wonder how much it costs to protect the Crown Jewels?

The Mona Lisa?

That red stripe painting in some Canadian museum (a puny 5 million of value to protect, was it?)

Fort Knox yearly operating budget?

The space shuttle?

The pentagon?

The twin towers... oops too late.

Etc... lets look at some real life numbers...

-MarkM-

It doesn't matter who pays for it. I'm telling you how much the current security costs. And if we want to keep the current security and even have more once it becomes more lucrative to attack Bitcoin, someone will have to pay for it or Bitcoin wont be secure.

Do the hoarders want their hoard to be secure or not?

If transactors revolt, resulting in too few transactions to keep difficulty high, difficulty will start to fall and hoarders can either decide to lower the cap at stake by moving capital out, or pay (e.g. by fee-only transactions) to keep difficulty as high as they feel their hoard needs it to be.

This might actually be a good way to motivate people to continue to look for even cheaper methods of storing value long term, maybe someone will come up with something even cheaper per X amount of value to protect than bitcoin is.

-MarkM-

This is misleading. The current 12.3% is paid by every bitcoin holders, no matter they do transactions or not. When there is no block subsidy, the burden is totally loaded on people who do transactions, but not people who hoard. Asking for the same percentage of fee in term of total money supply is too much

The outcome of this is what we don't want at all.

You'd have fewer miners, only those with the best margins would survive a constantly decreasing fees (as clearly outlined with your computers analogy), transaction fees would get lower and lower (as clearly outlined with your computers analogy) and there be an ever growing demand for transactions (as clearly outlined.. well you get it by now.).

This outcome that your analogy outlines couldn't be worse for a money system. It makes no sense to want fewer most competitive miners or to want them to earn as little in fees as possible. This money system, with it's growth, is bound to become more and more lucrative to attack therefore it makes sense to spend more and more on security which means more and more miners with better and better profits. Miner profits is exactly what we need to be worried about. Too few profits for miners leaves the entire money system vulnerable, and that's a tragedy of the commons scenario where no one will want to pay for it if they can pay as few fees as possible to get their transaction included.


I think we're paying around 12,3% per annum in monetary inflation for security right now, we were paying a hell of a lot more when the subsidy was 50BTC, as Bitcoin grows in user base and consequently with it the value of bitcoins, doesn't it make sense to pay more for security or at least the same in terms of BTC and not less? And yet less is exactly the course we are on atm, especially if we had unlimited block space.

It seriously doesn't make any sense to want the security of a money system to fall victim to the tragedy of the commons.

Yes, I'm still catching up on this thread (lots to read!), but I just have to point something out

Everybody needs to stop worrying about miner's profits already. Even if the block size is increased infinitely, there will always be profits for miners. If, as many here suggest, the txn fees drop to 0, then miners will simply stop mining. When nobody is mining, how much would people pay to get transactions moving again? I can assure you it will not be 0.

Infinite block size does not mean infinite supply. Somebody still needs to mine those infinitely-sized blocks, and they won't do it for free.

As with every non-innovative competitive market, the prices drop to cost of operation (in our case, electricity + bandwidth + equipment) plus competitive operating income. Look at the PC market for instance. All the OEMs use the same parts from the same factories using the same manufacturing process and people are willing to pay less and less for computers. OEMs left and right are losing money with many looking for a way out. Yet, computers are being produced by the millions. The moment one OEM drops out and supply falls, another OEM will pick up the slack for all the pent up demand. People are paying less and less for computers. They'd rather pay nothing, but they still want computers, dammit. even if it costs them whatever is the cost of operation plus operating income.

Seriously, nobody has to worry that miners will simply stop mining. It's not going to happen.