Asking Peter R about a recent comment...

[Joseph Woolfridge]

@Peter R

On reddit recently you said this: "Marginal orphaning risk cost denominated in BTC will fall as things like interconnectivity, coding gain, and signature checking improve--but this is a good thing! For example, if Bitcoin were to 10x in value, then it would cost ~$0.50 per transaction given today's orphaning risks. By reducing this risk by a factor or 10, miners could produce block space more affordably, hopefully keeping fees denominated in $ low (or lower) than they are today."

I see a slight problem with this, but maybe I am overthinking it. Orphan risk is an indirect cost. The problem with the above as I see it is that it assumes there is some predetermined amount miners must make, yet hash power can go up and can go down.

The problem is that subsidy should matter. In other words... if a miner wants to maximize profit he has to say: if I include this? transaction it will increase my block size by this? amount and that will increase my orphan rate by this? percent. This will be different if subsidy is different. If the subsidy is halved, then the proportion of a miners revenue that comes from fees is automatically higher. Therefore when he asks "should I include this transaction because it will increase my block size by this amount and that will increase my orphan rate by this percent" his answer will be different as the amount of his revenue increasingly comes from fees rather than subsidy(subsidy gets halved). That's because orphan risk doesn't directly cost a miner something since it is indirect and an opportunity cost.

 

[Peter R]

I'm not sure I entirely understand what you're asking, but the theory is that a miner would balance the added fee revenue with the increased risk of orphaning, when deciding how big to make his blocks. The "block size of maximum profit" is what each miner would aim for.

Have you seen my Montreal talk or read my fee market paper?

 

[VeritasSapere]

Opportunity cost is the same as a direct cost for a miner, since ultimately it is all random chance, miners do not really know their profits until they make them. I also do not understand what the problem is here, the conditions for mining are always in flux. This calculation will always be different based on the subsidy and hashrate among other factors. Miners themselves are best suited to judging these conditions and carefully weighing up their own risk profile, which is why Bitcoin Unlimited puts this power into the hands of the miners, instead of attempting to centrally economically plan for all of these factors and different people.

I hope this helps to answer your question, if not try and clarify your question I might not have understood what you are trying to say here.

 

[AdrianX]

@Joseph Woolfridge I don't think we will see much of this effect at the next halving, but the following halving it will be all important. It will make or break miners, I see this as an intentional shakeup of any cartel behavior that may have formed during the previous 4 years.

There will be a new race to establish the market average for orphan rate and pricing block space for transaction fees. It will be a fresh start with new winners and losers.

When I think of average orphan risk it is dependent on each miners unique set of variables relative to all other miners orphan rates. A miners optimum return is to target block size below the industry average.

At the time of halving a general shift in average parameters that form the orphan risk will change. A new equilibrium will form after halving as new information in the form of overhead and costs are factor in relative to maximum possible income. Resulting in a new optimization of block size and fee derived profit the result will be a new acceptable level of orphan risk.