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The common issues are kind of funny. Transaction Fee Death Spiral: Bitcoin is advertised as a way to transfer money at low costs but then you don't want transa

by danbruc 12y ago

The common issues are kind of funny. Transaction Fee Death Spiral: Bitcoin is advertised as a way to transfer money at low costs but then you don't want transaction fees as low as possible? Looks to me like you are not interested in a system with low transaction fees but one to maximize your mining profits. Centralization Death Spiral: The amount of data to keep around depends on the number of transactions, not the block size. The larger block size only ever matters if the smaller block size gets saturated. And then you either increase the block size or you run a system that is constantly overloaded. Higher demand will cause higher fees and may push a couple of transactions that are not worth the costs out but in the long run you will make your users unhappy if their transactions are not executed unless they throw a lot of fees at them. And after all 1 TB per year is not exactly a huge amount of data. Block Subsidy, Fees, and Blockchain Security: Bitcoin is by its very nature an expensive system. Not sure what the current costs per transactions are but they used to be on the order of $10 per transaction. None of the often mentioned target audiences of Bitcoin - unbanked people in poor areas, people looking for low transaction costs, micro payment services - is willing to pay that once the block reward is gone. Then you face the choice - reduce the hash rate or process more transactions, nothing else we reduce transaction costs. Especially not more efficient and cheaper mining hardware in case you want to maintain the security level because attackers will gain the same advances.

omginternets 12y ago
>Centralization Death Spiral Isn't this a non-issue in the long-run due to Moore's law? Even if centralization happens in the short-run as a result of processing expenses, everything is destined to become decentralized as processing power increases. >Transaction fees Could someone please explain why transaction fees are deemed necessary?
- brighton36 12y ago
  Transactions fees are needed Mostly for Spam control.
  - VienneseCPA 12y ago
    "The incentive can also be funded with transaction fees. If the output value of a transaction is less than its input value, the difference is a transaction fee that is added to the incentive value of the block containing the transaction. Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free." http://nakamotoinstitute.org/bitcoin/ http://nakamotoinstitute.org/bitcoin/
- sp332 12y ago
  Transaction fees are paid to the miner who solves the block containing your transaction. It's an incentive for the miner to include your transaction in the block. Without fees, your transaction will get processed eventually, but miners tend to put profitable transactions first. Eventually, the block reward will be very small and transaction fees will be the only profit miners make. So you're basically paying the miners to protect the network by verifying the transactions.
  - wyldfire 12y ago
    > Without fees, your transaction will get processed eventually, but miners tend to put profitable transactions first. IIRC this is only because some generous folks run miners willing to process zero-fee transactions in order to clean them up and forgive those who probably made the transaction fee too small in error. What if they decide to stop upgrading their equipment to keep up with the difficulty?
    - sp332 12y ago
      There are a few of those, but also the default client behavior boosts the priority of old transactions so they will be processed eventually. I would guess that high-throughput miners responsible for the majority of hashing power would have other priorities though, so the "default" config might cover a minority of hashing power. Edit: It's the age of the inputs to the transaction, not the age of the transaction itself that counts. But it's possible to just wait until the transaction inputs are old and then the transaction will go through.
- CyberDildonics 12y ago
  It may end up being a non issue, but not because of moore's law. It may come down to whether chip fabs decide to become miners or sell mining chips. That may come down to how much risk they want to take on. Transaction fees are necessary for the same fundamental reason why bitcoin works at all - proper incentives. If there were no incentive to mine, miners wouldn't do it. The block reward will gradually step to 0, and won't be the primary source of mining income long before that. Transaction fees are the long term solution for miners to get paid. They also create a disincentive for people to create unnecessary transactions which would bloat the blockchain.
  - bunderbunder 12y ago
    Though, speaking of incentives, this may point to an interesting market failure that lies at the very core of the Bitcoin economy: There's a relatively inflexible cost to processing transactions that's built into the Bitcoin protocol. It's possible for an individual to bring down the cost of processing with better hardware, but in order to bring down the cost of processing transactions by making the underlying process more efficient you need to get miners to go along with it. They've got reasons to oppose doing anything of the sort, though, because they want to keep the cost of entry high for any new competitors. They're essentially an informal cartel of players with a strong incentive to engage in rent-seeking behavior.
    - CyberDildonics 12y ago
      That's an interesting point that definitely has some degree of validity. So far I don't think there has been anything that makes actually processing transactions cheaper (maybe moving to levelDB from berkelyDB would count), but I think that part is essentially trivial anyway. If there were high bandwidth costs for mining that would work in the favor of centralization, but I don't think the cost of processing a transaction or the bandwidth are anywhere near being a bottleneck. Processing transactions seems likely to never be more than trivial but I don't know that much about it.
- davidgerard 12y ago
  > everything is destined to become decentralized as processing power increases. No, centralisation proceeds because the hashing is subject to economies of scale. If processing power increases, it increases for all players.
  - omginternets 12y ago
    >If processing power increases, it increases for all players. I'm not sure I follow. If processing the block-chain is cheap enough that everybody can do it, I see no reason to depend entirely on centralized mines. The little guy can still participate, and there's bound to be more little guys than big guys, especially if bitcoin clients do a bit of mining themselves. Sure, it's profitable and large-scale operations will probably arise, but that's distinct from centralization, per se.
    - davidgerard 12y ago
      Well, why's mining centralising now? Processing power has gone up in the past six years. Reason is it's easier to eke out a slight advantage centralised. Also, computing power per watt requires ASICs to compete. This is particularly important because we're at the stage where the cost of mining 1 BTC is close to 1 BTC and the miners are living on scraps (which is why we're seeing hashing power go offline until next hash adjustment).
      - omginternets 12y ago
        >Well, why's mining centralising now? Now we've come full-circle to my original thesis: this is a short-term phenomenon that I predict will slow and eventually reverse. I'm still unclear as to why this shouldn't be the case.
        davidgerard 12y ago
        As I just said: > Also, computing power per watt requires ASICs to compete.
CyberDildonics 12y ago
The $10 per transaction stuff is totally ridiculous and seems to be just a way for people who don't like bitcoin to throw out a scary number which comes from VERY distorted math. I have the whole blockchain on SSD. It's on a smaller drive that I would have trouble making much use of anyway. The bandwidth is basically nothing compared to even watching a youtube video every day. So the whole idea has not basis in a pragmatic reality. The financial industry is 8% of US the entire GDP. There are real inefficiencies out there but bitcoin isn't among them. The incentives are lined up correctly. It also seems that as bitcoin grows, the possibility for centralization is there but outweighed by the increased number of people participating as well as their investment. That is good, because even now there is a web of competing incentives so that it is increasingly unlikely the system won't work as people expect. Miners if anyone have somewhat cloudy incentives, but ultimately if transactions per block are a problem, it is likely that not all miners will agree that they want transaction fees to rise when it is trivial for them to process many more transactions. This is combined with the fact that like the internet itself, if transaction fees grow to something non-trivial for the majority of cases, off blockchain transactions will increase while growing more mature similar to the dynamic of high gas prices have an effect on consumption (or any commodity). When the price went down some people proclaimed that it would be inefficient to mine. The results weren't even noticeable to a casual observer, miners with less efficient mining hardware shut it off, which made mining more efficient for the ones that stayed, and the equilibrium happens organically. Really the blockchain size is a hurdle, but not a technical one. The broad scale incentives are set, they work, and the system is long past the point of fragility.
- danbruc 12y ago
  The $10 per transaction was at least a good estimate of the costs per transaction about four months ago. Electricity costs for miners were at least $6 per transaction, a very rough estimate of hardware and other costs came out on the same order. But feel free to do the math yourself with the current numbers. The last time I did it the numbers were as follows - hash rate 250 PHash/s, mining efficiency 1 GHash/J, energy costs 100 $/MWh and transaction volume 100k transactions per day. Or in short $6 per transaction, electricity for mining hardware only.

by danbruc 12y ago

omginternets 12y ago

>Centralization Death Spiral Isn't this a non-issue in the long-run due to Moore's law? Even if centralization happens in the short-run as a result of processing expenses, everything is destined to become decentralized as processing power increases. >Transaction fees Could someone please explain why transaction fees are deemed necessary?

brighton36 12y ago
Transactions fees are needed Mostly for Spam control.
- VienneseCPA 12y ago
  "The incentive can also be funded with transaction fees. If the output value of a transaction is less than its input value, the difference is a transaction fee that is added to the incentive value of the block containing the transaction. Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free." http://nakamotoinstitute.org/bitcoin/ http://nakamotoinstitute.org/bitcoin/
sp332 12y ago
Transaction fees are paid to the miner who solves the block containing your transaction. It's an incentive for the miner to include your transaction in the block. Without fees, your transaction will get processed eventually, but miners tend to put profitable transactions first. Eventually, the block reward will be very small and transaction fees will be the only profit miners make. So you're basically paying the miners to protect the network by verifying the transactions.
- wyldfire 12y ago
  > Without fees, your transaction will get processed eventually, but miners tend to put profitable transactions first. IIRC this is only because some generous folks run miners willing to process zero-fee transactions in order to clean them up and forgive those who probably made the transaction fee too small in error. What if they decide to stop upgrading their equipment to keep up with the difficulty?
  - sp332 12y ago
    There are a few of those, but also the default client behavior boosts the priority of old transactions so they will be processed eventually. I would guess that high-throughput miners responsible for the majority of hashing power would have other priorities though, so the "default" config might cover a minority of hashing power. Edit: It's the age of the inputs to the transaction, not the age of the transaction itself that counts. But it's possible to just wait until the transaction inputs are old and then the transaction will go through.
CyberDildonics 12y ago
It may end up being a non issue, but not because of moore's law. It may come down to whether chip fabs decide to become miners or sell mining chips. That may come down to how much risk they want to take on. Transaction fees are necessary for the same fundamental reason why bitcoin works at all - proper incentives. If there were no incentive to mine, miners wouldn't do it. The block reward will gradually step to 0, and won't be the primary source of mining income long before that. Transaction fees are the long term solution for miners to get paid. They also create a disincentive for people to create unnecessary transactions which would bloat the blockchain.
- bunderbunder 12y ago
  Though, speaking of incentives, this may point to an interesting market failure that lies at the very core of the Bitcoin economy: There's a relatively inflexible cost to processing transactions that's built into the Bitcoin protocol. It's possible for an individual to bring down the cost of processing with better hardware, but in order to bring down the cost of processing transactions by making the underlying process more efficient you need to get miners to go along with it. They've got reasons to oppose doing anything of the sort, though, because they want to keep the cost of entry high for any new competitors. They're essentially an informal cartel of players with a strong incentive to engage in rent-seeking behavior.
  - CyberDildonics 12y ago
    That's an interesting point that definitely has some degree of validity. So far I don't think there has been anything that makes actually processing transactions cheaper (maybe moving to levelDB from berkelyDB would count), but I think that part is essentially trivial anyway. If there were high bandwidth costs for mining that would work in the favor of centralization, but I don't think the cost of processing a transaction or the bandwidth are anywhere near being a bottleneck. Processing transactions seems likely to never be more than trivial but I don't know that much about it.
davidgerard 12y ago
> everything is destined to become decentralized as processing power increases. No, centralisation proceeds because the hashing is subject to economies of scale. If processing power increases, it increases for all players.
- omginternets 12y ago
  >If processing power increases, it increases for all players. I'm not sure I follow. If processing the block-chain is cheap enough that everybody can do it, I see no reason to depend entirely on centralized mines. The little guy can still participate, and there's bound to be more little guys than big guys, especially if bitcoin clients do a bit of mining themselves. Sure, it's profitable and large-scale operations will probably arise, but that's distinct from centralization, per se.
  - davidgerard 12y ago
    Well, why's mining centralising now? Processing power has gone up in the past six years. Reason is it's easier to eke out a slight advantage centralised. Also, computing power per watt requires ASICs to compete. This is particularly important because we're at the stage where the cost of mining 1 BTC is close to 1 BTC and the miners are living on scraps (which is why we're seeing hashing power go offline until next hash adjustment).
    - omginternets 12y ago
      >Well, why's mining centralising now? Now we've come full-circle to my original thesis: this is a short-term phenomenon that I predict will slow and eventually reverse. I'm still unclear as to why this shouldn't be the case.
      - davidgerard 12y ago
        As I just said: > Also, computing power per watt requires ASICs to compete.

CyberDildonics 12y ago

The $10 per transaction stuff is totally ridiculous and seems to be just a way for people who don't like bitcoin to throw out a scary number which comes from VERY distorted math. I have the whole blockchain on SSD. It's on a smaller drive that I would have trouble making much use of anyway. The bandwidth is basically nothing compared to even watching a youtube video every day. So the whole idea has not basis in a pragmatic reality. The financial industry is 8% of US the entire GDP. There are real inefficiencies out there but bitcoin isn't among them. The incentives are lined up correctly. It also seems that as bitcoin grows, the possibility for centralization is there but outweighed by the increased number of people participating as well as their investment. That is good, because even now there is a web of competing incentives so that it is increasingly unlikely the system won't work as people expect. Miners if anyone have somewhat cloudy incentives, but ultimately if transactions per block are a problem, it is likely that not all miners will agree that they want transaction fees to rise when it is trivial for them to process many more transactions. This is combined with the fact that like the internet itself, if transaction fees grow to something non-trivial for the majority of cases, off blockchain transactions will increase while growing more mature similar to the dynamic of high gas prices have an effect on consumption (or any commodity). When the price went down some people proclaimed that it would be inefficient to mine. The results weren't even noticeable to a casual observer, miners with less efficient mining hardware shut it off, which made mining more efficient for the ones that stayed, and the equilibrium happens organically. Really the blockchain size is a hurdle, but not a technical one. The broad scale incentives are set, they work, and the system is long past the point of fragility.

danbruc 12y ago
The $10 per transaction was at least a good estimate of the costs per transaction about four months ago. Electricity costs for miners were at least $6 per transaction, a very rough estimate of hardware and other costs came out on the same order. But feel free to do the math yourself with the current numbers. The last time I did it the numbers were as follows - hash rate 250 PHash/s, mining efficiency 1 GHash/J, energy costs 100 $/MWh and transaction volume 100k transactions per day. Or in short $6 per transaction, electricity for mining hardware only.