Subject: Re: [Bitcoin-development] On the optimal block size and why transaction fees are 8 times too low (or transactions 8 times too big)

From: Peter Todd <[email-masked]>
Date: Fri, 15 Nov 2013 05:52:40 -0500

On Thu, Nov 07, 2013 at 10:58:42PM +0100, Michael Gronager wrote:
> > Q=0    -> f = 0.0033 BTC/kB Q=0.1  -> f = 0.0027 BTC/kB Q=0.25 -> f
> > = 0.0018 BTC/kB Q=0.40 -> f = 0.0012 BTC/kB
> 
> You second list of numbers is an unlikely extreme:
> 
> > k = 1mS/kB
> 
> The propagation latency in the network is more due to the block
> verification than due to its network (fiber) propagation time,
> bringing down the number of hops helps tremendously, so I agree that
> we can probably bring down k by a factor of ~10 (k=8-12) if we
> consider only pools directly connected. This should bring us close to
> break even with the current fee size, but we should really get some
> empirical data for interconnected large pools.

Well if large pools wanted it would be trivial for all of them to just
connect to each other... but my 25kB/s average data rate sure indicates
that they either aren't bothering, or aren't bothering to do that
correctly.

> However - important
> note - if you are a 1% miner - don't include transactions!

Which is an awful solution, although probably a correct one.... After
all, if you don't include transactions, you can start mining blocks
earlier too based on just the header.

> > Q=0    -> f = 0.000042 BTC/kB Q=0.1  -> f = 0.000034 BTC/kB Q=0.25
> > -> f = 0.000023 BTC/kB Q=0.40 -> f = 0.000015 BTC/kB
> > 
> 
> > 
> > This problem is inherent to the fundemental design of Bitcoin: 
> > regardless of what the blocksize is, or how fast the network is,
> > the current Bitcoin consensus protocol rewards larger mining pools
> > with lower costs per KB to include transactions.
> 
> I don't see a problem of rewarding economy of scale, as long as the
> effect is not too grave (raising the min fee would actually make it
> more profitable for smaller miners).

That's a fundemental misunderstanding; there's no such thing as a min
fee.

As for economies of scale, the "product" we're paying miners for is
decentralization and resistance to 51% attack. If instead only get 51%
attack resistance, we're getting a bum deal. If that's all we're
getting, we don't actually have 51% resistance...

-- 
'peter'[:-1]@petertodd.org
00000000000000075ed91531e07d2045b5823da050fe373bde7bb363965e44ae