Topic: Why I support Jeff's BIP100 - page 2. (Read 10573 times)

That's assuming block size demand is superior to block size supply. Otherwise the mempool would essentially be empty after every block. Clearly there is a debate on the projected supply vs demand, but in the absence of a block size limit, I'm expecting the technological gain from fast relay networks will keep the supply way ahead of the demand for pretty much ever.

My expectation is that as long as there is a realistic block size limit in place, the Nash equilibrium will put upward pressure on fees. With the absence of a realistic limit, the Nash equilibrium will induce the opposite effect and fees will be not be sufficiently high to support proper difficulty.

So my response to this:


would be "only if the Nash equilibrium supports it". Which is the same as saying that demand will outgrow supply, which implies there is not enough block space to wipe the mempool of fee paying transactions.

The corollary to this statement would be that if a miner can wipe the mempool, then competing miners cannot afford to do any less.

Agreed.  The miner that sweeps the mempool would profit from this action.  Thus, all miners accepting only fee F transactions is an unstable situation.

What I was arguing is that all miners processing any fee-paying transactions could also be unstable.  It may be profitable for a miner to increase the minimum fee they will accept.  These two situations do not contradict one another.


Yes.


Even with no block subsidy and assuming all other miners always sweep the mempool I expect F will be greater than zero.  I think Alice from the example above could still find a viable mining strategy in only accepting 10-satoshi transactions and waiting for the mempool to grow sufficiently "plump" before beginning to hash.

I can try posting a clearly specified, concrete example if anyone is interested.

Not necessarely. You should look at the problem the other way around. If all miners will only mine fee F transactions, and suddenly one of them decides to just indiscriminately wipe the mempool for every block it finds, then the average fee will go down.

You should also consider the tapering of inflation. Currently the coinbase reward composes the grand majority of miner revenue, so they can afford to mine small blocks as a result of refusing to integrate any transaction with fee < F. That will certainly push the average fee up. However, as the coinbase reward keeps diminishing, we will eventually reach an equilibrium where a miner cannot afford to mine too small a block (based on the fee density he expects) and will either have to take on these transactions paying below F, or not mine blocks until the mempool is "plump" enough (which is not viable).

Honestly, I'm not sure either.  I'm applying the same elasticity of demand thinking you described above but to a single miner.

Imagine a world where basically all fees are <= 1 satoshi.  Suppose Alice is a miner with 5% of the network's total hashrate.  Alice could advertise that she will no longer be processing all transactions but only those that pay at least 10 satoshis.  Each bitcoin user now has the option of paying 9 extra satoshi to reduce the expected first transaction waiting time by about 30 seconds.  Supposing this extra utility is worth the 9 satoshi in enough cases, Alice would increase her revenue.

I also wonder about store of value.  The commodities you listed can all store value but I don't think this can be done with block space.  Supposing commodity super cycles are driven by speculation, what is the equivalent mechanic in Bitcoin?

I am not sure about this.  With no economic blocksize limit, every miner will include as many transactions in the block as possible.  The mempool will be empty and you will not need to outbid anyone to get a fast confirmation.

An economically relevant blocksize limit is therefore required.

Sorry I was not clear.  There were never cartels in my examples.  I just said "had there been" cartels.  In commodity markets copper and oil prices, ect, will recover when supply falls as firms in the industry shut down

You've lost me here.  You explained that prices were artificially high due to cartels.  However, you then say that a cycle is complete when "producers over invest".  How does over investment necessarily lead back to cartels?


Another difference to bear in mind: block space is not treated as a fungible commodity the way oil, iron, gold, and copper are.  Many people are willing to pay more for a faster first confirmation.

Because there is no economic reason, it has only disadvantages.

It is like asking for "more features! more features!", even the bads.

I've already wrote, if there is demand, a business can't make a long plan in the future if there is the fear that an unpredictable time, the miners will force a smaller block, making fees enormously, slow confirmations, breaking plans and investments.

It's full of competitors to Bitcoin that are waiting every seconds to take away users/market from it.

Even the uncertainty that the miners will vote for a bigger blocks is bad, but not so bad as the possibility of decreasing it.

Please explain why we should let miners increase the limit to meet increasing demand, but not lower the limit with falling demand?

Also I would be happy supporting BIP100 with BIP101, or something even more aggresive as the upper bound.

They like it more for two reasons

- The BIP101 is limited to 8GB.
Miners don't like all this fork drama, and they want to avoid it again as long as possible.

- Miners want a BIT100 without the 32 MB limit.

So what they really want is something more huge then the BIP101, and something the Core team will NOT like it even more.

If you go around looking at their replies and even the last one from BitFury, you will find this


I'm kinda ok on all about this, I just don't like at all the possibility to decrease the block size.

Your view appears to be that miners are not forced to make blocks bigger and therefore miners can make small blocks if they want anyway, so why have BIP100?  This is probably the consensus view in the community at the moment.  It could be correct, however I think it is likely to be wrong.

Each individual miner will try to maximize their own profit and share of revenue.  Miners will therefore be incentivized to sweep up as large a share of the transaction fees as they can.  In the example I made above, there is little downside in doing this as the level of technology could enable blocks far greater than the blocksize limit, due to  insignificant propagation costs.  The is just like the classic tragedy of the commons scenario, each individual miner produces larger blocks, in the hope that other miners produce smaller blocks, to maintain a reasonable average fee level.  However the Nash equilibrium ensures that each miner makes larger blocks.  Miners need to maximise their own profit to remain competitive and they would have little choice but to produce larger blocks.  Fee levels would then fall and the equilibrium difficulty would be too low.

The consensus response in the community is that this line of thought is too theoretical and has too much unproven game theory.  I disagree and think this is highly likely to be the outcome.  In fact this is the behavior that is currently occurring in the global commodity space, and has happened time and time again.  Each individual miner producers more and more resources, to maximise their own profit, in the hope that other producers reduce production to allow prices to increase.  Each individual miner acts against the interests of the whole industry and increases production.

Why can miners not voluntarily individually produce smaller blocks?  

This is the common question, but who is this question about, each individual miner or the whole mining industry?  I could ask the analogous questions:

• In 2015, why is Iran increasing oil production?  Can Iran not voluntarily individually produce less oil to support the price, as the industry is currently loss making?
• In 2015, why is BHP Billiton increasing iron ore production?   Can BHP Billiton not voluntarily individually  produce less iron ore to support the price, as the industry is currently loss making?
• In 2015, why is Goldcorp increasing gold production?   Can Goldcorp not voluntarily individually produce less  gold to support the price, as the industry is currently loss making?
• In 2015, why is Freeport-McMoRan increasing copper production?   Can Freeport-McMoRan not voluntarily individually produce less copper to support the price, as the industry is currently loss making?

Or what about these questions:

• In 2015, why are oil producers increasing oil production?  Can they not voluntarily produce less oil to support the price, as the industry is currently loss making?
• In 2015, why are iron ore miners increasing iron ore production?   Can they not voluntarily produce less iron ore to support the price, as the industry is currently loss making?
• In 2015, why are gold miners increasing gold production?   Can they not voluntarily produce less  gold to support the price, as the industry is currently loss making?
• In 2015, why are copper miners increasing copper production?   Can they not voluntarily produce less copper to support the price, as the industry is currently loss making?

The answer, (to all of the above questions) is of course, no.  The Nash equilibrium is for each miner to increase production or produce bigger blocks.  Miners keep producing large volumes until they close the mine, or in the case of Bitcoin, miners keep producing larger blocks until they stop mining altogether.

In the examples above, had there been an effective cartel of producers, miners would be able to collaborate and keep production down to support the price.  The industry would have been supported.  This would be against the interests of consumers.  Luckily in 2015, any cartels have mostly broken down and the prices of these commodities are crashing.  The consumer wins and gets lower prices.  As a result, we see a global commodity super cycle, we see periods where prices fall and industry players fail, capacity then falls and the commodity prices increase again.  Producers then over invest in capacity and the cycle repeats.  This may be a reasonably healthy cycle.

However, Bitcoin mining is different in two respects, first we need a healthy and viable mining industry at all times and secondly, the above cycle cannot occur, because when transaction fees start to fall and miners begin to fail, this will not reduce capacity.  Any one miner can provide all the capacity we need.  All that will happen is we enter a downward spiral when fees fall and miners fail and then difficulty falls.  There are several ways this can be prevented:
1 - A low blocksize limit
2 - Hoping a cartel naturally emerges, which implies mining is centralized
3 - Adopt BIP100 and allow cartel like prices to occur, without an actual centralized cartel

I favor BIP100, which I consider the only viable option.

This is a good reason to not give them any possibility to vote.
Anyone of them can chose, individually, if they want to make blocks bigger or smaller.

This isn't a good reason, miners can always lower the size of their block, none is forced to make them bigger, neither with the BIP101.

Just to remember everyone, that the limit for the block was put on the protocol only to avoid DoS attack, blocks bigger than the network (nodes) can spread between them self.

Satoshi was probably worried because at the time a fund or a government was able to make a big pool full of GPU, without spending so much and making big blocks (32 MB) to DoS the network.

One simple reason is that without this option miners may be too relucant to increase the limit, as the decision could not be reversed.

Another potential reason is a cyclical fall in demand for using bitcoin.

I still can't see any reason to give miners the vote to lower the size.
BIP100 can be "considerable" only if the vote to lower the size isn't present.

Miners are driven to maximise the purchasing power of their income, not simply their nominal bitcoin income.  If most miners felt that a larger block size would yield greater real value then I don't see why they wouldn't vote for it.

Or, as jonny1000 noted:

I don't think this takes into consideration competition.  Transactors will simply move more and more off chain, even to altcoins, if fees are kept relatively high by low block size limits.  Because of this, tx fees alone will not provide enough security for the network.

Ok, my misunderstanding.

(emphasis mine)

Nice clear example.  I agree.  A fee market may cause profit-seeking miners to increase network security.

That said, I don't find network security to be a particularly compelling reason for having a fee market.  There seems to be practically no connection between a miner's incentives regarding voting and true demand for network security.  I could easily imagine this method yielding far too little security or far too much.  I believe there are better solutions to the large-block low-fee tragedy of the commons problem.

If each of the variables:

• The optimal level of network security;
• The point of unit elasticity (where S * P is maximal);
• The artificial limit derived by BIP100, driven by all of a miner's incentives;
• The limit of what a well-decentralised network can supply,

happen to have a particular relationship with one another then I'm sure BIP100 will behave superbly (even in the long term and without limits).  It wouldn't surprise me to learn that there is some subtle robustness (mechanisms naturally drawing these quantities into a healthy relationship) given the technical brilliance of the people that helped created the proposal but it's also possible that BIP100 is built upon a certain amount of wishful thinking.  I've warmed to it slightly thanks to your efforts but I remain cautious.

This is not true no.  In my hypothetical scenario the costs of relaying, processing, and storing any further transactions are very low.  "Technically" the limit could be increased to 5TB and there would be no propagation or storage issues.  Because by 2035 my hypothetical smart watch has a 20TB/s connection and 500EB SSD or whatever.  The 2GB limit is imposed by a miner vote under BIP100 to maximize mining revenue.


I think we may not need the 8GB upper bound limit in this scenario, but we still need the 2GB BIP100 voting limit.  The 2GB is imposed by miners to ensure fees are higher enough.  

Example Continued - The year is 2035

• 2GB BIP100 block limit
• All blocks are full
• $0.01 average fee

Miners then vote under BIP100 to increase the limit to 8GB, the situation changes to the following:

• 8GB BIP100 block limit
• All blocks are full
• $0.0001 average fee

Transaction volume is up, and users have more utility, but users are only prepared to pay $0.0001 per transaction, so the economic utility of these extra transactions for the users are low.  Mining revenue and therefore security has fallen by 25x (excluding the block reward).  This is why we prefer fewer transactions and lower fees, despite the fact "technically" the network could handle more.  Under BIP100 it is up to the miners to decide, in this scenario miners may think they have increased the limit too much and try to lower it again to increase average fees.  Remember more economic utility for users means the Bitcoin exchange rate may be higher, which would drive up mining revenue.  This would also be considered by miners when voting.

The above describes why BIP100 so brilliant.  Miners consider the economic utility of the transactions, to the user, by considering the fee the user will pay.  BIP100 may restrict the volume to a lower level than could technically be achieved, however this is done in a balanced way reflecting the impact on the bitcoin price and the utility users would get from these extra transactions.

Ok, let's see if I understand.

In this scenario, without the 2GB limit, blocks would not generally fill up.  This is not necessarily because no-one can think of any more uses for the space, but because the costs of relaying, processing, and storing any further transactions outweigh the benefits of using the space.  (I'll note that if this is true, we're probably operating under a different idea of "technical limitation").

With the 2GB limit in place, the total transaction volume is reduced but the total value of all transactions actually increases (following the S * P logic from earlier).

If this persisted for decades (as you suggest above 2 decades to 2035 + still more years of the same) I agree that it begins to look pretty safe to remove the 8GB limit.  In this case, I will have been practically proven wrong about my concerns.

Question: Why not remove both the 2GB limit and the 8GB limit?  With both limits gone, mankind will enjoy more transactions and lower fees.  Why should we prefer fewer transactions, higher fees, and a more complex protocol?

This is a good point and I kind of agree with you, although supporters of BIP101 seem to disagree with this.  BIP101 supportrs typically think blocks may not be full.  This is why I advocate a lower and upper bound in BIP100 for now.  My point is that what if there is a stable optimal economic limit under BIP100, based on miner expectations of demand curves, that is much lower than the limit when bandwidth and other constraints begin to come into play?  This could happen, as although there could be an "insatiable appetite for blockspace", users may not be willing to bid a high enough fee.  Therefore miners vote for a lower limit than the elastic demand not supported by strong fee bids.

Lets consider a hypothetical scenario in 2035:
Size limit based on BIP100 voting: 2GB
Upper bound in the protocol: 8GB
Technical limitations, based on broadband speed and storage costs, ect, in 2035: 5TB

If we experience the above scenario for many years, we may decide we no longer need the upper and lower bounds, as we have high confidence in the voting process and high confidence the optimal miner voting strategy will not bring the limit near what can safely technically be done.