Subject: Re: [bitcoin-dev] Block solving slowdown question/poll

From: ZmnSCPxj <[email-masked]>
Date: Sat, 28 Mar 2020 02:12:37 +0000

Good morning Andrew,

> Here's a better explanation than I could write of the phenomenon I'm talking
> about:
>
> > As a thought experiment, let’s consider aquaculture (fish farming) in a lake.
> > Imagine a lake with a thousand identical fish farms owned by a thousand
> > competing companies. Each fish farm earns a profit of $1000/month. For a
> > while, all is well.
> > But each fish farm produces waste, which fouls the water in the lake. Let’s
> > say each fish farm produces enough pollution to lower productivity in the
> > lake by $1/month.
> > A thousand fish farms produce enough waste to lower productivity by
> > $1000/month, meaning none of the fish farms are making any money. Capitalism
> > to the rescue: someone invents a complex filtering system that removes waste
> > products. It costs $300/month to operate. All fish farms voluntarily install
> > it, the pollution ends, and the fish farms are now making a profit of
> > $700/month – still a respectable sum.
> > But one farmer (let’s call him Steve) gets tired of spending the money to
> > operate his filter. Now one fish farm worth of waste is polluting the lake,
> > lowering productivity by $1. Steve earns $999 profit, and everyone else earns
> > $699 profit.
> > Everyone else sees Steve is much more profitable than they are, because he’s
> > not spending the maintenance costs on his filter. They disconnect their
> > filters too.
> > Once four hundred people disconnect their filters, Steve is earning
> > $600/month – less than he would be if he and everyone else had kept their
> > filters on! And the poor virtuous filter users are only making $300. Steve
> > goes around to everyone, saying “Wait! We all need to make a voluntary pact
> > to use filters! Otherwise, everyone’s productivity goes down.”
> > Everyone agrees with him, and they all sign the Filter Pact, except one
> > person who is sort of a jerk. Let’s call him Mike. Now everyone is back using
> > filters again, except Mike. Mike earns $999/month, and everyone else earns
> > $699/month. Slowly, people start thinking they too should be getting big
> > bucks like Mike, and disconnect their filter for $300 extra profit…
> > A self-interested person never has any incentive to use a filter. A
> > self-interested person has some incentive to sign a pact to make everyone use
> > a filter, but in many cases has a stronger incentive to wait for everyone
> > else to sign such a pact but opt out himself. This can lead to an undesirable
> > equilibrium in which no one will sign such a pact.
>
> Won't a thousand bitcoin-spenders, individually paying for their transactions
> but collectively paying for their security, end up falling into the same
> dynamic?

Fortunately in our case, only the top 4,000,000 weight worth of transactions gets in a block.
Every bitcoin spender has an incentive to spend as little as possible to get into this top 4,000,000 weight and no more, but they still have to outbid every other user who wants the same security.
Some bitcoin spender will then decide that overpaying slightly to ensure that they do not drop out of the top 4,000,000 weight even in case of a "slow" block.

Thus, there will always be a need for *some* block weight limit, and that is what ensures that miners can get paid.

Now it was brought up earlier that people are moving transactions offchain, but that is perfectly fine, because every offchain mechanism first needs an onchain setup, and will at some point need an onchain teardown.
This allows increasing the effective capacity, while still ensuring that onchain fees remain at a level that will still ensure continued healthy operation of the blockchain layer.
Basically, the offchain mechanism does not remove onchain fees, it only amortizes the onchain fees to multiple logical transactions.

Regards,
ZmnSCPxj