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>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 process

>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.

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.