Topic: Why Peter Rs Fee Market Wont Work - page 3. (Read 5641 times)

Yes, probably a better explanation then mine.



The orphan based fee-market brakes down when miners act rationally. The incentive is to always reduce orphan rate and that can be done with 2 datacenters with big pipe between them utilising the methods Greg describes for sending blocks.

You have two ways to deal with the situation:
Raise block size to mega centralization levels so only datacenters can run nodes which makes Bitcoin useless but at least you can pay lower fees.
Or keep block size small and decentralized, let a market fee develop, and run spammy transactions through LN.

Choose one.

If a fee market breaks down because miners are not acting rationally,
it seems that that could happen with or without a blocksize limit, and
generally to the same degree.

Example:  Assume a pool/farm with 20% hashing power that solves 1 out of every
five blocks and will include anyone's transaction regardless of fees,
this would cause a problem with a fee market regardless of whether
or not there was a blocksize limit.

although i suppose it would be worse with no limit, since everyone
would have room to get their transaction in , in the irrational miner's
block vs waiting longer.

Not so, according to Peter R himself:

Fits the bill.

https://bitcointalksearch.org/topic/m.13491777

Is Peter R the one who constantly posts "diagrams" rather than "words"?

If so then for sure he is not a very genuine person - as diagrams are generally always used to convince stupid people when you don't have the words to convince those that are not.

I don't know why I wrote "mining pool", it doesn't matter if it's a pool or a big centralized mining entity of any other kind.

If by centralization here you mean miner cartellization,
I don't think there is a disagreement. What I am trying to describe
is the opposite of cartellization, where there is a generous amount
of transactions coming in steadily, and mediated through large
amount of full nodes.

No, it doesn't, that's the point. Centralized mining pools aren't at some disadvantage when it comes to throughput because of some perceived increased risk of orphaning.

In the portion that you quote, as I read it, he is addressing the scenario
where all transactions have been already communicated before,
so the cost (in terms of orphaning rate) of communicating
block information is no longer significant. Not sure what that
has to do with decentralization.

But if throughput of transactions greatly exceed the relay
speeds, so that there is some variation in mempools,
then the orphaning cost again plays a part. For that you need
decentralization by way of having a huge number of widely
distributed full nodes that act as sources of fresh transactions.

Greg Maxwell already addressed this incorrect idea that decentralization is protected because somehow information is better transmitted by being decentralized.


Bolded for emphasis. I would recommend reading the whole exchange.

http://pastebin.com/jFgkk8M3

I admire the approach in the paper and if anything it points us towards asking right
questions. And my every cell cries out that artificial scarcity by central planning is just
plain wrong!

But at present the part quoted above seems to me the only way that the fee market as
outlined in your paper would work.
Because advances in block propagation would push the supply curve slope arbitrarily close
to information-theoretical limits, so that finally all the info transmitted on
block discovery would be the bits necessary to eliminate double spends.
AFAICS The effect on fees would be negligible at this point.

However, besides large throughput other conditions would have to be present
in order to guarantee variation in the tx composition within mined blocks however.
I imagine that it would require a wide distribution of mining nodes that were
dependent mostly on non-mining full nodes for receiving transactions.
That way the transactions would arrive to individual miners from "different directions"
and if the throughput was voluminous enough, there would be always txs that the other miners
had not heard about yet.

That situation is the polar opposite of miner cartellization, and for it to happen
the full nodes would have to be empowered and prove themselves indispensable
to miners. Full nodes forming a relay network would be a good start, but even more
importantly the full nodes should be the points where transactions actually happen. This means
many many Bitcoin businesses and points of sale that all operate a full node.

To sum it up
- Naturally occurring fee market needs
- a large throughput, which needs
- more decentralization by empowering full nodes, which tantamounts to
a cambric explosion of Bitcoin economy

Transaction fee's are bid to the minimum necessary to include them on the blockchain. This minimum does not magically include all miners, and would reach equilibrium, absent any artificial scarcity, at roughly the cheapest rate possible to achieve that end. That collection of rates would be enough to cover a single datacenter in an ideal location.
The only artificial scarcity in the system is the block size limit. With it, fees can be bid above that equilibrium and thereby fund redundancy of both nodes as well as hashpower.
Without it, nodes would atrophy toward that equilibrium (~1 node). Bitcoin would have failed long before that equilibrium would have been reached, not only because it would mean the goal of a decentralized currency would have failed, but also because hashpower would fall below what would be necessary to keep it secure.

If you're saying that even in that outrageously broken scenario that it would still cost money to add transactions to the block chain, yes you are right. Are you planning on actually addressing the real problems with removing the block size limit?

Sorry for the late reply, Gmax and Peter R already mostly answered though. I guess what I did not make clear is that the fee market is supposed to be a long term solution and a stable equilibrium would need to exist long term.

The blocksize supply curve (in Peter Rs speech) is only a function of its orphan rate. Ofcourse the market would place pressure to constantly increase the supply. The methods Gmax described would allow to greatly increase the supply in centralised environment to the point where block size is not an issue.

First let's ask if they would behave this way with today's block subsidies (the other question is harder to answer).  

In order for the fee market to collapse (due to the propagation impedance falling to zero), no new information about the transactions included in the block may be transmitted during block-solution announcement.  But if no new information was transmitted, then the miners must have already come to consensus on the state of the ledger.  If that were case, then what purpose did mining the blocks fulfil?  

Haha but there's a better way to show that the fee market won't collapse even if you ignore the absurdity in the previous paragraph.  It goes like this:

1.  In order for the miners to know another miner's block contents before that lucky miner finds a proof-of-work, all miners must somehow agree to what the possible block contents are beforehand.  Since coming to this agreement cannot happen instantly, this means that the transactions included in the block must all be delayed by at least time T, where T is the consensus time.  The current block would never include a transaction that was announced only a second before the block was found, because the miners couldn't have come to pre-consensus on it.  In other words, if a miner included that new transaction it would mean that he'd have to transmit a non-zero amount of new information with his block solution announcement (he'd have to send the new TX as well), thereby violating the condition required for the fee market to collapse.    

2.  However, maybe that new transaction had a big juicy fee attached to it!  If miners are free to build blocks according to their own volition--and if miners are rational profit maximizing agents--then there should exist some fee that would entice the miner to include that brand new TX in the block he's working on even though doing so increases the amount of information he might have to send with his block solution announcement.  

3.  Lastly, if there are lots of transactions occurring on the network, then there will be a corresponding increase in the number of new TXs that pay decent fees that miners will want to immediately include in the blocks they're working on (i.e., they won't bother waiting for pre-consensus on some of those new TXs).  If rational miners make the decision to immediately include those TXs (and they would because it would earn them more money than by never included brand new transactions) then the block solution announcements will contain an amount of information that also depends roughly linearly on the transactional throughput of the network (i.e., on the avg block size)!  

TL/DR: A transaction fee market exists without a block size limit assuming miners act rationally.

Assuming negligible block subsidies, why would miners agree to behave this way if that would collapse the fee market?  How would security be funded?

See http://www.bitcoinunlimited.info/public/downloads/feemarket.pdf
p.13, from 2nd paragraph onwards. They're there.

Right.  If miners all agreed to behave in this way (e.g., pre-consensus by mining a practice chain first), then the fee market based on orphaning risk would break down.  It would be equivalent to the propagation impedance in my fee-market paper falling to zero.  

Assuming those possibilities, what would be the implication about the fee market? 
Wouldn't this support Daniel's point that a fee market would not develop?

A lot of things are possible.  

Block-size dependent propagation delays can be completely eliminated if all of the miners know with some certainty what the next block could be before it arrives.  In particular, if miners know that the next block will be 1 of N possible blocks, and if N does not depend on the block size, then communicating which of the N expected blocks is the "real" block requires only log₂N bits (plus of course communicating the PoW).

It is even possible to have N=1.  Imagine that the miners mine a "practice blockchain" first and then the "real blockchain" next such that the blocks in the real blockchain lag those in the practice blockchain by, for example, one hour.  All miners agree to make the real chain an exact copy of the practice chain.  Voila: the "real blocks" can be communicated by just transmitting the block headers.  The fee market thus appears to break down.