Gold collapsing. Bitcoin UP.

[Roger_Murdock]

From that Konrad Graf article:

The two cases are clearly separate under legal theory, but not nearly so much under economic analysis. Government action to impose an output ceiling can only succeed through the threat or actual implementation of officially sanctioned violence against any would-be innocent resisters. In contrast, Bitcoin participation remains wholly voluntary regardless of this or that setting within the code. At the economic analysis level, however, the results of a production ceiling are the same regardless of its source and implementation method.

This case also fails to fit the (mythical) model of a stable free market cartel. Such theoretical arrangements are naturally unstable. Absent legal enforcement, any participant can gain by dropping out and exceeding the ceiling. Any new entrant can start producing without ever joining the cartel. In the current case, however, no particular renegade or newcomer alone can make a hard fork happen so as to break the output ceiling.

So the situation, although certainly novel, remains economically closest to a legally enforced industrywide output ceiling. One implication of this, while fascinating, is not especially encouraging: Not only has Bitcoin demonstrated that some good things that many had considered impossible without government are indeed possible—namely the production of money—it is also threatening to show that some bad things some had considered impossible without government could indeed be possible—namely, successful imposition of a cartel-style industrywide output ceiling.

I was thinking more about this idea of the miners as a "cartel." So it does seem as though Bitcoin's nature makes it at least relatively easy for miners to impose an "industrywide output ceiling" on on-chain transaction-inclusion services (i.e., blockspace). Unlike the situation with a traditional cartel, you can impose this ceiling without the willing participation of all or substantially all firms in the market (instead you just need a simple majority of the hashpower), and, because of the public nature of the blockchain, you don't have to worry about secret cheating.

But even if we think that's what's going on, i.e., that the miners have formed a cartel, they don't appear to be acting like one -- or at least, not a very bright one. You don't form a cartel and then just arbitrarily restrict industry output. I mean, OPEC doesn't go, "hey guys, let's only sell one barrel of oil this year. If we do that, that one barrel will fetch a fortune!" You restrict quantity to the point that maximizes profits (i.e., the point at which marginal cost equals marginal revenue).

Somehow I doubt that 1-MB is the magic number that allows miners to enjoy maximum monopoly profits from transaction fees. In fact, most of us seem to think that the real motivation behind the ceiling is the desire to maximize the profits associated with products that will compete with the miners' products (i.e., off-chain transaction services). So the current situation seems kind of like OPEC having been convinced to cap their oil production at an absurdly-low and profit-sacrificing level ... by a company that sells electric cars.

 

[freetrader]

Christian Decker's PhD thesis: "On the Scalability and Security of Bitcoin" (PDF warning).

His central finding - "Bitcoin does not scale" - is addressed by two proposals:

- Duplex Micropayment Channels (clearly off-chain)
- PeerCensus (has the characteristics of another layer on top of current Bitcoin)

I would love to see some serious discussion and critique of his scaling limitation results. I wonder if the on-chain scaling workshop could shed some more light on those:

https://on-chain-conf.consider.it/discussion-of-c-decker-phd-thesis

The PeerCensus proposal sounds interesting to me as well - does anyone know if it has been implemented?

 

[Dusty]

Excellent analysis @Roger_Murdock, I fully agree with it, in particular the part where the miners "think" that a 1mb production quota will maximize their profits.
I'm not worried for that: I know they will come to their senses at due time.

What bothers me is the fact that a lot of business (and hence, people) are looking for Bitcoin alternatives because they feel that the central control of a group of people over Bitcoin is bad and their business model can't depend on arbitrary limitations imposed by them.

 

[Christoph Bergmann]

That's a great thing to keep in mind when confronted with the crocodile tears of "volunteer" devs who work on "what they want"!

Yeah! This is what's really annoying. They are paid excessively, but we still hear this stupid argument they work volontarily for free and who is not happy with it STFU!

 

[freetrader]

They are paid excessively, but we still hear this stupid argument they work volontarily for free and who is not happy with it STFU!

I'm sure the folks from whose mind RBF sprung would gladly implement your changes to Bitcoin quicker if only you paid them more than the folks at Blockstream. /s

 

[Christoph Bergmann]

Christian Decker's PhD thesis: "On the Scalability and Security of Bitcoin" (PDF warning).

His central finding - "Bitcoin does not scale" - is addressed by two proposals:

- Duplex Micropayment Channels (clearly off-chain)
- PeerCensus (has the characteristics of another layer on top of current Bitcoin)

I would love to see some serious discussion and critique of his scaling limitation results. I wonder if the on-chain scaling workshop could shed some more light on those:

https://on-chain-conf.consider.it/discussion-of-c-decker-phd-thesis

The PeerCensus proposal sounds interesting to me as well - does anyone know if it has been implemented?

Uh, what does he mean with "Bitcoin can't scale"? It seems to me like saying "humans can't run" (because gazelles are faster) or "humans can't walk" (because sometimes they need a rest). Or "tomatoes don't grow" (because they need time to grow).

Wouldn't it be better to say: "Bitcoin can't scale to infinity"? Or "Bitcoin is not good in scaling"?

As we are able to just raise the blocksize and increase througput capacity by a factor of 2 or 4, this seems to me like a proof that "bitcoin can scale". It's just that scaling results in heavier requirements for nodes and that it may be not possible to scale to infiinity. Since nothing can scale to infinity, nothing can scale for this school of thought.

Am I wrong?
[doublepost=1462877527][/doublepost]

I'm sure the folks from whose mind RBF sprung would gladly implement your changes to Bitcoin quicker if only you paid them more than the folks at Blockstream. /s

Hehe ... did you notice this:
https://bitcoincore.org/en/about/sponsorship/programme/

They want moar money!
[doublepost=1462877801][/doublepost]As I have to write about the DAO (daohub.org) from Ethereum, I downloaded mist and had a talk with my contact from the ethereum-devs.

It's great. There is a good atmosphere, mist has a nice implementation of multi-sig, you can manage tokens and contracts in your ethereum-client. And payment are nearly instantly confirmed.

When Ethereum published a light client with full contract functionality, the "blockchain"-thing will start, and if Ethereum get around scalability problems and is accepted at shops / markets, it will be time to leave bitcoin. Just read the lightning-whitepaper - what a monster of complexity just to create a payment channel with specific contracts. On the ethereum blockchain it would be so much easier. Or look at the monstrous and by now incomplete implementations of token-systems on the bitcoin blockchain - and compare them with the easy-peasy implementation in ethereum.

If Bitcon wants to compete with ethereum on the area of contracts - and it seems that that is core's plan - it can't win.

 

[Roger_Murdock]

Excellent analysis @Roger_Murdock, I fully agree with it, in particular the part where the miners "think" that a 1mb production quota will maximize their profits.
I'm not worried for that: I know they will come to their senses at due time.

Thanks! Another thought: I'm not sure it makes even theoretical sense for the miners to cartelize in the manner described. If the apple growers of the world get together to restrict the supply of apples so that they can sell them for two bucks a pound instead of one, the utility of the apples themselves doesn't change. But Bitcoin is different. It's money. If miners restrict blocksize to drive up transaction fees, they negatively affect one of Bitcoin's fundamental monetary properties. A Bitcoin with artificially high transaction fees has a different and worse value proposition than a Bitcoin where blocksize isn't constrained. So any nominal increase in fee profits that miners might be able to get from restricting blocksize seems likely to be more than offset by a decrease in actual purchasing power.

 

[freetrader]

Uh, what does he mean with "Bitcoin can't scale"?
<snipped for brevity>
Wouldn't it be better to say: "Bitcoin can't scale to infinity"? Or "Bitcoin is not good in scaling"?

As we are able to just raise the blocksize and increase througput capacity by a factor of 2 or 4, this seems to me like a proof that "bitcoin can scale". It's just that scaling results in heavier requirements for nodes and that it may be not possible to scale to infiinity. Since nothing can scale to infinity, nothing can scale for this school of thought.

Am I wrong?

I've only skimmed the thesis and watched parts of his video linked here, but he gets concrete about what he means (the "Bitcoin does not scale" is clearly exaggeration for effect, but his findings imo are still interesting):

From his talk here, he mentions the limiting impact of various factors considered by themselves:

Disk space: < 500 transactions per second
Processing power: < 200 transactions per second
Network bandwidth: < 100 transactions per second
Artificial 1MB limit: < 3 transactions per second

He goes into detail in the opening of Chapter 5 of his thesis:

In order to verify whether a new transaction is valid, and in order to bootstrap new peers, every peer in the Bitcoin network stores every transaction ever. The size of an average transaction is 500 bytes, so with 1 transaction per second, every Bitcoin peer now needs almost 20 GB of additional storage each year. A turnover of 500 transactions per second would require 10 TB of additional disk space per year, which is at the limit for a consumer.

A bigger problem is processing power. Checking the signatures of each transaction (mostly because of disk seek time) takes about 5 ms, so with current machines we cannot hope to scale beyond 200 transactions per second.

Every node in the bitcoin network is informed about every transaction, multiple times because of the fault-tolerant gossip process. Assuming a common end-user bandwidth of 10Mbit/s, then the rate peers can receive transactions is limited to approximately 1,000 transactions per second.
Finally, while peers may individually be able to receive and process up to 200 transactions per second, the synchronization mechanism underlying Bitcoin is susceptible to latency, and does not work with transaction rates above 100 transactions per second.

In summary, Bitcoin in its current form will have a hard time scaling beyond 100 transactions per second, because of storage, processing, latency, and bandwidth.

 

[Christoph Bergmann]

@freetrader

ok, thank for clarification. That seems to make sense. Does he really say that with the current technology we can scale to something like 100 tx / sec --> 30 MB blocks? This should be enough for decades.

 

[freetrader]

@Christoph Bergmann : I don't know, he compares it to VISA's 10,000 tx/s and that clearly puts it in perspective.

Today's state of the art should be the future's legacy systems, so I'd hope that Bitcoin can scale far beyond its current limitations. I think this is a situation where all attempts to do that will happen in parallel

Now I'm waiting for CSW to publish full details of his ~340GB blocks / 500k tx/s test results to prove Decker wrong. /s

 

[tynwald]

Can you please point me at a recording of the video? Very interested to that reaction

you'll have to google for it ... since I was there I didn't need to find video evidence afterwards.

 

[albin]

@freetrader

Probably nobody is actually right, because there is no one objectively right answer, as every answer is predicated on a set of assumptions that may or may not be warranted and/or tradeoffs that may or may not be acceptable.

What makes it even worse to me is the way that these studies are all interpreted, as though the numbers analyzed would suddenly happen right now. I wish building a business was actually like that, we'd all be rolling in filthy lucre if customers always showed up the moment you added capacity!

 

[cypherdoc]

@albin

that's precisely why i favor following the technical charts.

and yes, Decker did that analysis years ago, iirc. he doesn't even bother to account for advancements.

 

[Dusty]

What bothers me is the fact that a lot of business (and hence, people) are looking for Bitcoin alternatives because they feel that the central control of a group of people over Bitcoin is bad and their business model can't depend on arbitrary limitations imposed by them.

Here is an example: ethereum has now more nodes than Bitcoin

 

[lunar]

@Roger_Murdock Fantastic common sense points.

The article by Konrad has been posted here a few times. I fail to see why such an eloquently worded critique of everything that is wrong with this stupid blocksize quota has had any effect?

Has their been any response to these simple and coherent arguments? I've yet to see any? When simple logical lessons learnt through a millennia of observing natural market supply and demand are ignored by all those who control the system, then what response do we have? What's next? How does any group of people counteract this reckless abandonment of intelligence, common sense and logic.

Maxwell, Back, Wullie, van der Laan, Todd, Schnelli, Lombrozo....... explain yourselves.

 

[Dusty]

Maxwell, Back, Wullie, van der Laan, Todd, Schnelli, Lombrozo....... explain yourselves.

You will wait forever for a reasonable reply: they are coders, not economists.

They think that with their code they can program the behaviour of people, too...

 

[satoshis_sockpuppet]

@Dusty As our great leader Greg Maxwell explains: The number of nodes is inversely proportional to the max block size. Thus the Ethereum blocksize is apparently getting smaller...

 

[sickpig]

You will wait forever for a reasonable reply: they are coders, not economists.

It's a lot worse than that, they think they knew.

Don't you know that SegWit main goal is to fix an economic bug incentive in bitcoin? (at least this is what Adam Back said)

 

[albin]

@Dusty As our great leader Greg Maxwell explains: The number of nodes is inversely proportional to the max block size. Thus the Ethereum blocksize is apparently getting smaller...

You can't even make this stuff up... one time he dismissed the correlation vs causation problem simply by describing the relationship as "strictly monotonic", as though that even means anything at all with respect to the question. His disease of calling everything "orthogonal" is also incidentally spreading in the /r/Bitcoin clique.

It really stretches the imagination to assume good faith when someone so obviously educated exhibits zero concern for methodology whatsoever.

 

[Inca]

I am slightly worried this Halving period could be make or break for our nascent currency.

My view is that the sound monetary principles around which bitcoin functions are more important than 'decentralisation'. I put the word in inverted commas because it is entirely subjective. Is bitcoin any worse a system with 3000 well funded high traffic nodes compared with 6000? Is it truly better with 50,000?
Would it function any less well with just 500 full nodes housed in data centres? To the hobbiest this is anathema. But bitcoin would continue to be open, verifiable and remain decentralised, especially compared to mining pools.

Personally I would far rather we allow bitcoin to run as far as it can technically on chain and worry about gradations of decentralisation later. The fixed monetary scarcity and open frictionless nature of bitcoin are the key points which attract new users to the currency/asset class and have the actual potential to change the world for the better.

Bitcoin is far better for the world with 1000 nodes and 150 million users, still abiding by sound money principles, than 5000 nodes with a meagre market cap and soviet style daily transaction quotas resulting in a more decentralised currency but at the cost of closing access to those who would stand to benefit the most - the poor.

The honest cynical truth is that almost everyone shreaking 'save the decentralisation' is actually doing so because they want to profit from bitcoin layer 2.0.