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Larger block sizes allow more transactions, so although per-tx fees will be lower, there will be more transactions. The computational costs of larger block siz

Larger block sizes allow more transactions, so although per-tx fees will be lower, there will be more transactions. The computational costs of larger block sizes are borne on the entire network, however the effects are most severe for miners as larger blocks tend to increase the profitability of large geographically-close pools in comparison to small pools [1]. This is why segwit is only an increase to ~2.1MB. [1] http://bitfury.com/content/5-white-papers-research/block-size-1.1.1.pdf http://bitfury.com/content/5-white-papers-research/block-siz...

schmichael 10y ago
But the relationship between block size and per-tx fee is based upon the amount of competition between txs, not absolute tx volume. So if the block size is raised high enough to accommodate the current rate of txs with no competition, the fees don't just fall proportionally: they fall to near-0. The higher the tx backpressure, the higher the fees. The larger the block size, the lower the pressure regardless of overall tx volume.
- TD-Linux 10y ago
  Yup, it's not an exact tradeoff, and near-0 it breaks down entirely. At zero it's worse than that, because of the diminishing block subsidy schedule, having zero fee pressure will reduce the incentive for mining, and therefore security. However, miners can't simply apply the limit to themselves without a consensus rule. There is code in Bitcoin Core to apply a soft limit, but as long as there is any fee pressure, ignoring transactions leads to a disadvantage compared to other miners, so in practice all miners tend to always use the maximum permitted block size. Most proposed schemes for increased or variable block size still enforce the same size across all miners for this reason.
- kalleboo 10y ago
  Miners could also simply decide to not include any transactions with a fee smaller than X. Transactions can't "shop around" for a miner, the first miner to mine a block wins.
Frogolocalypse 10y ago
> however the effects are most severe for miners Incorrect. The most severe effects are on the nodes.

schmichael 10y ago

But the relationship between block size and per-tx fee is based upon the amount of competition between txs, not absolute tx volume. So if the block size is raised high enough to accommodate the current rate of txs with no competition, the fees don't just fall proportionally: they fall to near-0. The higher the tx backpressure, the higher the fees. The larger the block size, the lower the pressure regardless of overall tx volume.

TD-Linux 10y ago
Yup, it's not an exact tradeoff, and near-0 it breaks down entirely. At zero it's worse than that, because of the diminishing block subsidy schedule, having zero fee pressure will reduce the incentive for mining, and therefore security. However, miners can't simply apply the limit to themselves without a consensus rule. There is code in Bitcoin Core to apply a soft limit, but as long as there is any fee pressure, ignoring transactions leads to a disadvantage compared to other miners, so in practice all miners tend to always use the maximum permitted block size. Most proposed schemes for increased or variable block size still enforce the same size across all miners for this reason.
kalleboo 10y ago
Miners could also simply decide to not include any transactions with a fee smaller than X. Transactions can't "shop around" for a miner, the first miner to mine a block wins.

Frogolocalypse 10y ago

> however the effects are most severe for miners Incorrect. The most severe effects are on the nodes.