Subject: Re: [Bitcoin-development] Proposed alternatives to the 20MB step function

From: Gregory Maxwell <[email-masked]>
Date: Sun, 10 May 2015 21:33:15 +0000

On Sun, May 10, 2015 at 9:21 PM, Gavin Andresen <[email-masked]> wrote:
> a while I think any algorithm that ties difficulty to block size is just a
> complicated way of dictating minimum fees.

Thats not the long term effect or the motivation-- what you're seeing
is that the subsidy gets in the way here.  Consider how the procedure
behaves with subsidy being negligible compared to fees.   What it
accomplishes in that case is that it incentivizes increasing the size
until the marginal "value" to miners of the transaction-data being
left out is not enormously smaller than the "value" of the data in the
block on average.  Value in quotes because it's blind to the "fees"
the transaction claims.

With a large subsidy, the marginal value of the first byte in the
block is HUGE; and so that pushes up the average-- and creates the
"base fee effect" that you're looking at.  It's not that anyone is
picking a fee there, it's that someone picked the subsidy there.  :)
As the subsidy goes down the only thing fees are relative to is fees.

An earlier version of the proposal took subsidy out of the picture
completely by increasing it linearly with the increased difficulty;
but that creates additional complexity both to implement and to
explain to people (e.g. that the setup doesn't change the supply of
coins); ... I suppose without it that starting disadvantage parameter
(the offset that reduces the size if you're indifferent) needs to be
much smaller, unfortunately.