Gold collapsing. Bitcoin UP.

Justus Ranvier

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Aug 28, 2015
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Listen to your customers!
Especially when they're trying to tell you they want to buy a different product that you're selling.

That salesman was operating under the working hypothesis that the customer who entered the store wanted to buy a phone, so he tried to sell a phone.

In spite of a growing collection of evidence that falsified the hypotheses ("I don't care about any of that"), the salesman never bothered to form an alternative hypothesis about what product the customer was there to buy and instead assumed the customer was broken.

What if he would have said to himself, "the things the customer keep telling me are not consistent with him wanting to buy a phone, so maybe he's actually here to buy something else."

After that realization, he might have formed a hypothesis more consistent with the evidence. Maybe the customer actually wants to purchase membership in a club called "iPhone owners". In that case, the phone itself isn't the product - it's just the receipt! Of course he wouldn't care what features the phone has, any more than a movie theater patron cares about the font used to print the tickets.

The real question is: why was the salesman unable or unwilling to adjust his hypothesis to fit the empirical evidence?

Maybe the salesman was operating under the implicit assumption, "If I walked into a phone store, I'd be there to buy a phone, therefore anyone who who comes into this store must be here to buy a phone."

Maybe his empathy or theory of mind is so underdeveloped that's he literally unable to perceive that other people are, in fact, people and just as sentient as he with their own independent goals and priorities.

Without that recognition, then regular customers would indeed look like malfunctioning robots which were not performing their designated function of buying what the salesman wants to sell.
 

Peter R

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Aug 28, 2015
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I arrived at the substitution simply by solving equation (5) in your paper, setting profit to zero. Just doing that and working through the math will yield similar equations to yours, but with ηH appearing where your equations have R/T. I did not use any calculus.

It also makes sense intuitively. Think about it this way: ηH and R/T are both values in bitcoins per unit time. ηH is the cost per unit time to produce the total hash rate of the network ignoring orphaning risk, i.e., for empty blocks. R/T is the revenue for per unit time, also for empty blocks. So it makes sense that they are related in some fixed relation accounting for return on capital for miners.

The hashing cost per block is ηHT, so the "production cost" curve should intersect the y-axis at ηHT (where you have written "hashing cost"), and curve up to the right accounting for orphaning risk. The equation for the production cost curve, as you've drawn it, is M=ηHTe^(τ(Q)/T).

Similarly, your "available revenue" curve hits the y-axis at R, where you have labelled "Block Reward".
Oh, I see what you mean. I agree that the hashing cost per block is ηHT but I'm pretty sure the equation for the curve is:

M_totalcost = ηHT + R {e^[τ(Q)/T] - 1}.

This is the reason why it's not clear how fees will pay for security as the block reward falls to zero (according to this equation the second term disappears). Another result is that a bitcoin of fees buys less security than a bitcoin of block rewards.
 
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AdrianX

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Aug 28, 2015
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bitco.in
@cypherdoc let me try again: Even with max block configurability full nodes cannot determine consensus. The full nodes will ultimately accept excessive blocks if the blockchain containing the excessive block grows. And that blockchain can only grow via the actions of other miners. So miners decide whether an excessive block should be build on. All the nodes can do is slow down the propagation of excessive blocks across the network, giving another competing block the chance to be discovered.
In my understanding of Satoshi's Bitcoin it's not individual nodes who decide which blocks are viable and which to build on, its the network of the most nodes that agree on the longest chain that decide in a decentralized and P2P way. Miners choose which blocks to mine on top of but they dont choose which blocks will be financially incentivizes. It's the network of the most nodes that agree on the longest chain that chose the blocks miners will be financially motivated to mine on top of.

So its a reciprocal relationship between nodes and miners
that grow the block chain, Miners write the blocks and nodes accept the blocks. while miners may seem to have more power they are still at the mercy of the network of the most nodes that agree on the longest fork, leaving the balance of power with the nodes not the miners.

We don't want to solve the current block size problem by giving that balance of power to the miners, we want to keep it with the nodes.
 
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molecular

Active Member
Aug 31, 2015
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I am still so disgusted by this that is it hard to get excited about bitcoin finally re-entering a bull phase.

What is also disgusting is how Peter and the rest of the BS crew are now happily talking on reddit about forking bitcoin to include their new op codes, op codes for which there neither is consensus for or full understanding on the implications. But they get to claim consensus because they've banned/censored everyone on reddit and the bitcoin-dev board.

Since this happened a few months ago I've started to re-read about various points in history when a minority of a population was able to radically re-form a society and crush all opposition. It is always the same, a small 5% somehow are able to claim authority, they then use that authority to silence/kill/drive away the 5-10% that is willing to fight back, and the other 90% just go along. The Russian revolution and following White emigre is one example, the Iranian revolution and following emigration of secular intellectuals is another (there are many more in just the past 150 years).

it makes me believe that accepting this path is the wrong thing to do, and that the right thing is to not just go along with dictators but to continue to fight back (i.e. not emigrate away or go along). I am more and more seriously considering creating a client that appears as the standard bitcoin core, but silently rejects all blocks with unknown op codes. If you spin up enough nodes on the network with this behavior miners will see significantly higher orphan rates if they include the transactions and be more financially motivated to not go along. Maybe I am being too sensitive, but it is one thing to read about a historical period when all dissent was crushed, it's another to see it in action (even if it's at a much smaller scale...)
This issue deeply moves me. For the first time I have a feeling that Bitcoin is veering off the tracks. Up to a couple of months ago I was feeling everything was going extremely well. Sure, there were always setbacks, but mainly really just slowdowns. Nothing time wouldn't heal.

But now this ugly power-grab and the way it's being done that just takes a piss on the ideals Bitcoin itself was built upon. Like freedom of speech and censorship-resistance. And the sad thing is: it seems to work.

Thanks for digging up those examples of how oppositions were crushed and the 90% just moved along. It's almost awe-inspiring how effective this small group of people is in silencing discussion.

I just don't know what to do, really. I feel quite helpless. The 2 biggest discussion/meeting places (/r/bitcoin and bitcointalk) had been censored heavily and yet it's impossible to migrate everyone away (where to?). It's just not going to happen. I think it's quite tragic. Setting up another place just doesn't work well at all. It has been tried many many times and sure: you can move your 5-10%, but you're not going to move the reluctant 90%. Then what have you achieved? Nothing, possiby the opposite of what you've been trying to achieve even. So what do I do now? I still frequent bitcointalk and /r/bitcoin and I'm subconsciously avoiding discussion of the controversial issues. It's really amazing how one gets downvoted for objecting to Todd, for example. Not long ago people on reddit seemed to be like 80% pro increasing the block size. Now it seems everyone is against even talking about it.

As for your suggestion: I don't quite see how trying to increase orphan rate for blocks with "new opcodes" by running nodes that (silently) reject those could work. Aren't the big miners all connected to each other anyway so this would be largely ineffective?
 

cypherdoc

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Aug 26, 2015
5,257
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@bitsko

thanks for the walk down memory lane. seems so long ago.

i remember that time vividly. we were stuck btwn $4.50 and $5.20 forever and i remember posting graphs of China starting to break out of an ascending triangle as a signal of the impending rally. it worked out beautifully.

strangely enough, it seems to be China once again.
[doublepost=1445982746,1445981960][/doublepost]wow, just wow.

censorship is turning truly disgusting and from Rusty of all ppl; the last man who had a chance to make Blockstream credible:

https://lists.ozlabs.org/pipermail/bitcoin-dev-moderation/attachments/20151027/3bd0a0af/attachment.mht
[doublepost=1445983587][/doublepost]don't always agree with Tuur but congrats on this one:

https://ybitcoin.com/articles/bitcoin-as-an-investment/
[doublepost=1445984312][/doublepost]
 

cypherdoc

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Aug 26, 2015
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Mengerian

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Aug 29, 2015
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Furthermore, as a miner, I can only really calculate my orphaning risk cost for blocks similar in size to the blocks I've produced in the past.
Yes, this comment made me realize there's another way of formulating things. In your paper, you define "neutral profit" as the profit from mining empty blocks. But as you allude to above, the baseline for comparison should be blocks similar in size to blocks produced in the past. In the future, when fees are significant, empty blocks are not at all similar to the typical block that is mined.

So what if you redefine "neutral profit" as the profit from typical recent blocks, or what I will call equilibrium size blocks (Q_eq)?. Then look at perturbations around that point. So basically mid-way through the derivation in your appendix, just start the integration at Q_eq instead of at 0:



So this equation gives orphaning costs for blocks close to the "typical" size. This also makes sense intuitively, since the orphaning cost should be based on the total fees and reward in the block, multiplied by the increased risk of it being orphaned by including an incremental transaction.

Oh, I see what you mean. I agree that the hashing cost per block is ηHT but I'm pretty sure the equation for the curve is:

M_totalcost = ηHT + R {e^[τ(Q)/T] - 1}.
So it seems to me the equation should be M_totalcost = ηHT + [R + M_supply(Q_eq)] [e^[delta τ(Q)/T] - 1] ?

The value of ηHT will be arrived at in the market by competition among miners, with difficulty adjustments and all that, and it should correspond to total revenues (reward plus fees) in recent past blocks.
 

Peter R

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Aug 28, 2015
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Yes, this comment made me realize there's another way of formulating things. In your paper, you define "neutral profit" as the profit from mining empty blocks. But as you allude to above, the baseline for comparison should be blocks similar in size to blocks produced in the past. In the future, when fees are significant, empty blocks are not at all similar to the typical block that is mined.

So what if you redefine "neutral profit" as the profit from typical recent blocks, or what I will call equilibrium size blocks (Q_eq)?. Then look at perturbations around that point. So basically mid-way through the derivation in your appendix, just start the integration at Q_eq instead of at 0:



So this equation gives orphaning costs for blocks close to the "typical" size. This also makes sense intuitively, since the orphaning cost should be based on the total fees and reward in the block, multiplied by the increased risk of it being orphaned by including an incremental transaction.



So it seems to me the equation should be M_totalcost = ηHT + [R + M_supply(Q_eq)] [e^[delta τ(Q)/T] - 1] ?

The value of ηHT will be arrived at in the market by competition among miners, with difficulty adjustments and all that, and it should correspond to total revenues (reward plus fees) in recent past blocks.
Cool idea to look at perturbations about the equilibrium block size! I think that makes a lot of sense.

I think your math is all completely valid, but I'm having trouble wrapping my head around what it means. At first glance, it seems like it means that M_supply(Q_eq) has precisely the same effect as the block reward. I guess one "gotcha" though is that there are now two unknown constants: ηHT and M_supply(Q_eq); although we know exactly what R is, we can't necessarily predict M_supply(Q_eq) from our model.

Another thing to note (you probably noticed this already but it took me a while) is that your delta_τ will negative for Q < Q_eq and positive for Q > Q_eq.
So it seems to me the equation should be M_totalcost = ηHT + [R + M_supply(Q_eq)] [e^[delta τ(Q)/T] - 1] ?
I think your new equation and my equation must be the same, and it's just that our definitions for delta_τ are different. I do think your formulations is useful, as it is centered around the operating point.
 
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cypherdoc

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just thought i'd catch this screenshot for posterity. may never see the $200's again:

 

Mengerian

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Cool idea to look at perturbations about the equilibrium block size! I think that makes a lot of sense.
It was your comment that gave me the idea! I just ran with it.
I think your math is all completely valid, but I'm having trouble wrapping my head around what it means. At first glance, it seems like it means that M_supply(Q_eq) has precisely the same effect as the block reward. I guess one "gotcha" though is that there are now two unknown constants: ηHT and M_supply(Q_eq); although we know exactly what R is, we can't necessarily predict M_supply(Q_eq) from our model.
How about if we call it M_eq, instead of M_supply(Q_eq)... I'm also in the process of trying to wrap my head around everything, but it seems clear to me that in "equilibrium" R+M_eq will be directly related to ηHT, with some factor to compensate to orphaning risk and return on capital for the miners.
Another thing to note (you probably noticed this already but it took me a while) is that your delta_τ will negative for Q < Q_eq and positive for Q > Q_eq.

I think your new equation and my equation must be the same, and it's just that our definitions for delta_τ are different. I do think your formulations is useful, as it is centered around the operating point.
Yup, agreed. I'm going to sleep on it, and have a look tomorrow. It seems that other equations, like the "cost of spam", Equation (11), should include the M_eq term too, but I haven't thought it through completely yet.
 

Peter R

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Aug 28, 2015
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How about if we call it M_eq, instead of M_supply(Q_eq)
Agreed.
Yup, agreed. I'm going to sleep on it, and have a look tomorrow. It seems that other equations, like the "cost of spam", Equation (11), should include the M_eq term too, but I haven't thought it through completely yet.
I think you could write them this way, but I don't think it makes a difference to the charts, at least the way they're defined in my paper. For example, the "cost of spam" chart shows the cost measured with respect to an empty block, but wouldn't your equation measure it with respect to Q_eq, unless you also accounted for the difference in our definitions of delta_τ (in which case we'd probably get the exact same thing)? I'll be thinking too...

As this is getting pretty technical, perhaps we should continue this discussion in my Transactions Fee Market thread here:

https://bitco.in/forum/threads/block-space-as-a-commodity-a-transaction-fee-market-exists-without-a-block-size-limit.58/
 
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Peter R

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Aug 28, 2015
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I've been thinking about the game theory of the transaction fee market...and I'm beginning to think that miners will not build blocks exactly as described in my paper. Instead, my paper represents a sort of "lowest fee" scenario that assumes that all the miners are viciously undercutting each other.

To see this, consider that software companies charge more for their top tier software even though it has essentially the same marginal cost of production as their lower tier software. All the software companies could start viciously undercutting each other on the top tier stuff, but they don't because it would drive down aggregate profits for everyone and kill their market (they could never recover their development costs).

The analogy to the Bitcoin Fee Market is that that miners will keep "next block service" artificially high and above the marginal cost of production to achieve a similar "top tier" effect. In other words, the miners will purposely delay some low-fee TXs by several blocks even when the marginal cost of the fee is sufficient to cover orphaning risk in the present block. It's sort of a decentralized cartel effect but has a positive effect on the system as a whole.

Hat tip /u/marcoski711
 

AdrianX

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Aug 28, 2015
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I've though about this too, as long as there is a free market, innovation and competition disruption will remain a possibility. Also whatever cartel behavior the miners eek out is disrupted every 4 years when the subsidy is cut in half. The resulting carnage will be like musical chairs as some miners fight to find a spot.

The shakeup will reestablish a new fee equilibrium, and everyone is going to be competing to get by in a new market place with fierce competition. The net winners from this competition will be the network users.

I hardly expect to see it at the next halving but it will start to emerge 5 years from now.
 

seweso

Member
Aug 19, 2015
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18
Netherlands
It seems i'm wanted here.

I own BitcoinUnlimited on github and I'm the owner of /r/bitcoin_unlimited on reddit.

I'm open to giving more people access to github.

On reddit it seems I already have more moderators than readers. :O
[doublepost=1446020909,1446020187][/doublepost]Btw I really don't like the subject of this thread. Stay on topic, or create a new thread is what I would say...
 

cypherdoc

Well-Known Member
Aug 26, 2015
5,257
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I've been thinking about the game theory of the transaction fee market...and I'm beginning to think that miners will not build blocks exactly as described in my paper. Instead, my paper represents a sort of "lowest fee" scenario that assumes that all the miners are viciously undercutting each other.

To see this, consider that software companies charge more for their top tier software even though it has essentially the same marginal cost of production as their lower tier software. All the software companies could start viciously undercutting each other on the top tier stuff, but they don't because it would drive down aggregate profits for everyone and kill their market (they could never recover their development costs).

The analogy to the Bitcoin Fee Market is that that miners will keep "next block service" artificially high and above the marginal cost of production to achieve a similar "top tier" effect. In other words, the miners will purposely delay some low-fee TXs by several blocks even when the marginal cost of the fee is sufficient to cover orphaning risk in the present block. It's sort of a decentralized cartel effect but has a positive effect on the system as a whole.

Hat tip /u/marcoski711
Exactly @Peter_R

I fully agree with this view. Part of the whole process of this transition to fees is the education of miners. They will learn how to be profitable through selective fee inclusion over time; or die.

No one keeps their foot on the pedal when they see a brick wall approaching.