Topic: The economics of the block size (Read 2276 times)

I don't like magic numbers at all, but I can't see a way around using one. Almost any solution makes use of a magic number. The recent proposal made by Gavin (which I think is a very good one) to have the max block size increase automatically by 50% a year is using 1.5 as the magic number that the block size limit will grow by each period. The current 1 MB block limit is a magic number.

The alternative to a magic number selected out the outset is the mining network (through proof of work) or currency holders (through proof of stake) voting on a number continuously, but the downside to that is that Bitcoin becomes more gameable, and possibly loses its immunity to political intrigue and manipulation by parties within the community. And even a dynamic number that is continuously voted on, is still a magic number.

Eliminating the block size limit without putting in place a new protocol-level control on bloat I believe is a poor option for the reasons I outlined in the first post. Block generating nodes outputting a large percentage of the network hashrate could still get away with producing large blocks, and having them propagate to the whole network. The casualty will be network security, as the block generation revenues, net bandwidth costs, on a network wide basis decrease.

If you think otherwise, please take one of the hypotheticals I provided, and explain how incentives, with paid data propagation through micropayment channels, would result in an outcome different from what I suggested.

If there is going to be a magic number, I prefer it to represent the number of block generating nodes we believe that Bitcoin should be able to support, so that it is explicit what we are deciding on when we choose a magic number.

I'd have to see more specifically what this thing entails, but I'm extremely leery about an idea that says that a distributed currency doesn't need consensus. My eyebrow raises further when someone suggests a program that can find prices.

Sometimes it's true that nodes don't need consensus concerning transaction chains that don't concern them, but by-and-large it's crucial that any person using the currency can independently verify that any given transaction was valid.

The reason that I proposed introducing the concept of "fuel" was because it makes the transactions, and the storage/bandwidth they require, an economic good upon which market forces can find an appropriate market clearing price. It's "inflationary" because bandwidth and storage space is assumed to also expand over time. If the block size was held low enough by the other miners, that should keep bandwidth from being an issue.

I do not see it as replacing the currency because people do not gravitate toward inflationary currencies when they have a choice.

At the end of the day this is the important point; We are dealing with a Tragedy of the Commons problem, and historically this problem has only ever been satisfactorily resolved by privatizing the resources in question.

Perhaps this means we will always have a somewhat inadequate solution that needs to be hard-forked from time-to-time... But that would be very unfortunate.

You don't see engineers going around disproving one another. What is worse, believing wholeheartedly in an idealism or being sceptical? I don't hate economists, just their religions of human motivation. In Di Lorenzo's case I'll withhold judgement regarding his Lincoln bashing until I know more about his scholarship.

So on the one hand we have detailed research and a strong theoretical basis from a theory that has repeatedly generated more reliable predictions than competing theories and on the other hand we have... your enjoyment of hating on certain concepts.

Yes, I can see how these two things are equally credible.

Science doesn't start with philosophy and try to back baseless assertions. Science does it the other way around. Correlation is often what we use to find causation. Well, sometimes scientists do this in experimental design, but they use statistics to filter out the bias part. Be careful around philosophers with their mind tricks. If American non-unionized capitalism is so great, then why don't Americans stop killing each other so much. I live in a very poor country now and have never felt safer. BTW, Di Lorenzo is an economist. You ought to know by now that economics is my favorite social science to hate on. I mean at least psychologists get their hands dirty helping people get a second chance, but economists feel nothing about destroying an entire nation. I'll read a book by an economist that works directly with average Joes rather than sits in an Ivory Tower.

I pity that you're falling victim to a "correlation = causation" fallacy.

The problems you see are real, but they aren't caused by a lack of regulation, as DiLorenzo and others have amply demonstrated.

Both articles come to similar conclusions, sort of. I'm not agreeing with early 20th Century about "natural monopolies" but I would give PBS 85% accuracy in the research and Mises 30%. The point was that without regulation energy became a game of speculation and now it's happening again starting with Enron. Your energy brokers are financializing the commons needed to create a healthy economy. I pity that you don't see history repeating itself. You want to blame Central Banks for being a monopoly, but don't see it happening in other commons.

If you're going to source history, then at least make sure you're being remotely accurate.

All the just so stories that supposedly prove the natural monopoly fallacy are fairy tales that fall apart with the slightest bit of investigation:

http://mises.org/daily/5266/

That's the same argument they gave to deregulate electricity in the 1930s. It caused power companies to refuse service to farmers because of the line maintenance costs. It hurt rural development and farming. If there isn't regulated bandwidth then only densely populated regions will have adequate bandwidth for bitcoin. We don't even have good enough bandwidth for bitcoin nodes in most of rural America let alone poorer countries.
http://www.pbs.org/wgbh/pages/frontline/shows/blackout/regulation/timeline.html

Why do you say so?

tl;dr
anyway, could you take a summary?

There's no need for magic numbers, which are wrong by definition.

The blocks miners produce are meaningless unless they reach an economic majority of the network. Therefore miners should be willing to pay relay nodes to ensure this happens.

Other users of the network require timely access to the most recent blocks in order to know the state of the ledger. Therefore users of the network should be willing to pay relay nodes to deliver the blocks to them.

Users want their transactions to reach the miners. Therefore they should be willing to pay relay nodes to deliver them.

Miners want to receive transactions, because the fees embedded within those transactions is a source of revenue for them. Therefore they should be willing to pay relay nodes to deliver those transactions to them.


The only thing needed to make a market for block/transaction relaying work is a mechanism for price discovery and payments.

Price discovery will ensure that relay nodes are sufficiently compensated by an amount that covers their costs, and will also regulate the number of relay nodes to meet the demand of the users, including their demand for decentralization (a user who wants to buy more decentralization does so by connecting to more relay nodes than they would otherwise need).

No magic numbers needed, no central planning needed.

The fact that Bitcoin has a magic number acting as a production quota for transaction processing is a flaw that was supposed to be temporary. Replacing one magic number with a different magic number isn't a long term solution.

The micropayment channel scheme would address the tendency toward centralization, by rewarding non-block-generating nodes that propagate data, through compensation schedules negotiated on a one-to-one basis. The problem I'm pointing out is one of block generating nodes indiscriminately including zero/low-fee txs into blocks they generate, and thus increasing the bandwidth costs of the network as a whole. Paid data propagation via the micropayment channel scheme wouldn't address this.

The solution I'm suggesting is for the protocol to charge block generating nodes for the blocks they create, based on how much data is contained in the block, and distribute fees collected to other block generating nodes (proportional to their share of the network hashrate). This would not solve the centralization problem, but it would solve the problem of txs becoming a net cost to the block generating nodes as a whole. For this proposed solution to work, we need to pick a magic number to represent the minimum number of block generating number we believe the network needs to be sufficiently decentralized, and the protocol needs a way to reach consensus on the cost of bandwidth in relation to bitcoin. Multiplying these two numbers together would give us an estimation of the cost of bandwidth for the network per byte of data included in a block.

Everything in this post is incorrect.

This would require that nodes prove they are in fact running a node (which is surprisingly difficult, especially when payments would instinctive people to fake running a node). This would also mean that Bitcoin would no longer mine via PoW (at least not exclusively) but rather would be mined via PoN (proof of node) or a combination of PoN/PoW. It is said that if Bitcoin were to be forked so that it no longer uses PoW (among other things) then it would no longer be considered Bitcoin

The point is there is no need for global consensus.

This is an excellent idea and I hope it is implemented. However, this doesn't address how to create a consensus on the price of bandwidth, so that block generating nodes that generate large blocks can be charged by the protocol for the bandwidth they force all other block generating nodes to pay.

He should publish it. This one will surely help us bitcoiners learn something new.

I'll just summarize.

The mechanism is micropayment channels. Any two between nodes can set up a micropayment channel between them for handling the actual payments.

All that's left is for the nodes to figure who gets paid and how much. So, some kind an accounting system.

What nodes want to obtain is relevancy, as defined by access to the most recent transactions.

They keep records of which transactions they've sent to each peer first (before the peer sent the same transaction to them) and vice versa. Only transactions that eventually make it into a block count.

Based on this accounting, each node knows if it is more relevant, less relevant, or equally relevant compared to each of its peers.

It uses this information to decide whether to pay a peers, or to charge a peer, or if no net payment is appropriate.

Then it's a matter of each node haggling with its peers, attempting get the best price for its relevancy from the nodes it is charging, while minimizing the amount it spends on the nodes which it pays.

Nodes would also want to improve their position in the network by competing for low-relevancy nodes (source of revenue) while attempting to find equal relevancy peers to lower their costs.

The net flow of funds from the bandwidth-consuming nodes to the bandwidth-supplying nodes means that you can achieve price discovery for bandwidth and compensate the providers for the costs they incur.

He hasn't published yet. But soon...