Return-Path: Received: from smtp1.linuxfoundation.org (smtp1.linux-foundation.org [172.17.192.35]) by mail.linuxfoundation.org (Postfix) with ESMTPS id CFBF2258 for ; Thu, 15 Oct 2015 03:36:20 +0000 (UTC) X-Greylist: whitelisted by SQLgrey-1.7.6 Received: from mail-io0-f169.google.com (mail-io0-f169.google.com [209.85.223.169]) by smtp1.linuxfoundation.org (Postfix) with ESMTPS id C58AF79 for ; Thu, 15 Oct 2015 03:36:19 +0000 (UTC) Received: by iow1 with SMTP id 1so77332363iow.1 for ; Wed, 14 Oct 2015 20:36:19 -0700 (PDT) DKIM-Signature: v=1; a=rsa-sha256; c=relaxed/relaxed; d=gmail.com; s=20120113; h=mime-version:in-reply-to:references:from:date:message-id:subject:to :cc:content-type; bh=Vrup2elBMeasoF/VLxXWSLc1aaYZ5yjiL3MizMSLMuA=; b=LqEdyirX4a6AeQqeARfysO6wySTF/xHGilZk/5EarD+Br2LzStnV327oc2dkbOY7gP SCw3WMnFwGw1yfWHszqpi4WC0YjFKLC+YzWX8B+uYjCixEH2/xRWp7/NsAYGKcFNDLmc 506SqtLr6WPoUlA8N8oeRp2PMIFUSIj6Ki5OKcACON328TIYoq9/mWVBdv3Fv7G6wmgv vLepnyUC0ljDPKhUmvw2YlZ5ooXa19PSrGlHpqc3ebofJC3vs01Pc9N6qPz78dnuseO5 Eu8yE6KNBYxjRFUAh1EVUOcq0/+/gcJtYBpFEhnsiNOl72CfP+FrjltnkR+YdeQBzKIO iovA== X-Received: by 10.107.157.80 with SMTP id g77mr7227395ioe.118.1444880179224; Wed, 14 Oct 2015 20:36:19 -0700 (PDT) MIME-Version: 1.0 Received: by 10.107.30.210 with HTTP; Wed, 14 Oct 2015 20:35:59 -0700 (PDT) In-Reply-To: References: <561E2B09.3090509@sky-ip.org> <561E7283.2080507@gmail.com> From: Daniel Stadulis Date: Wed, 14 Oct 2015 20:35:59 -0700 Message-ID: To: Bryan Bishop Content-Type: multipart/alternative; boundary=001a11407d66d364d605221c616f X-Spam-Status: No, score=-2.7 required=5.0 tests=BAYES_00,DKIM_SIGNED, DKIM_VALID,DKIM_VALID_AU,FREEMAIL_FROM,HTML_MESSAGE,RCVD_IN_DNSWL_LOW autolearn=ham version=3.3.1 X-Spam-Checker-Version: SpamAssassin 3.3.1 (2010-03-16) on smtp1.linux-foundation.org Cc: Bitcoin Dev Subject: Re: [bitcoin-dev] Lightning Network's effect on miner fees X-BeenThere: bitcoin-dev@lists.linuxfoundation.org X-Mailman-Version: 2.1.12 Precedence: list List-Id: Bitcoin Development Discussion List-Unsubscribe: , List-Archive: List-Post: List-Help: List-Subscribe: , X-List-Received-Date: Thu, 15 Oct 2015 03:36:20 -0000 --001a11407d66d364d605221c616f Content-Type: text/plain; charset=UTF-8 Content-Transfer-Encoding: quoted-printable It makes economic sense to include a transaction on the Lightning Network, iff the the fee to include the transaction on the blockchain is more than than the Time Value of Money of the encumbered funds on the Lightening Nodes amortized across the number of users pushing funds through a LN node. Large-value transactions are going to hit the blockchain while smaller, predictable, closer-to-median transaction-rates transactions will go into the Lightning Network Blockchain: Car Purchase, House Purchase, Unexpected Medical Expense Lightning Network: Utility Bill, Groceries, Rent, Mortgage. > If transactions happen in a big percent offchain, and they are only > broadcasted on the mainchain where funds are moved in or out of the > lightning network, this means there will be less transactions on the > mainchain This is optimal because the network has minimized the set of costs/externalities to the minimum necessary to conduct a series of transactions > -> less fees collected by the miners. =E2=80=9CIt's tough to make predictions, especially about the future.=E2=80= =9D The effect on fees is going to be hard to predict. 1.) One part depends on user behavior around the dynamics of bid-side demand of fees. I.e. If there is a health ratio of -users who want 1-block- times but are unwilling/unable to bid up the fee of their transactions to push out other 1-block-confirmation transactions (= AKA how firm is that fee support presently and under dynamic conditions) to -users who take their transactions off the blockchain to LN 2.) New classes of transactions will be possible that aren't possible today= . 3.) What market effect will the financial/technical potential of 'instant' transaction (after a network-joining-intro period) have on Bitcoin's utility/price/adoption? It would be elucidating if any blockchain data scientists could study the effect of the fee market when high-volume exchanges unexpectedly halted trading. > What will happen when the block reward will go away? I believe a more specific question to ask is: What will happen when there isn't a convincing economic reason for a large majority of hashing power to be bolstering PoW defense on the main blockchain? Right now we have a pretty good handle on the amount of hashing power that's pointed at extending/defending the 'main' chain but don't have as good intel on how much idle hashing power there is. Idle hashing power becomes more of a threat in market scenarios where chain-extending PoW is scarce (late-game Bitcoin). My humble prediction is that the necessary number of block confirmation will go up and there were be non negligible mining power idle ready to defend actors' preferred chain. If this is the scenario that plays out, I don't think it'll be very concerning; large-value transaction that will be on the blockchain have more flexible time-settlement tolerance (no one needs their home-buying escrow to settle in <=3D 1 day) and lower-value transaction that users want/need to be confirmed quickly will be confirmed 'instantly' over Lightning Network or another Bitcoin-anchored protocol. P.S. I see lots of concern with respect to fee reduction directed at LN while today there are already off-chain databases that remove fee pressure. Like the LN / off-chain databases or not, they will exists. Daniel Stadulis On Wed, Oct 14, 2015 at 8:37 AM, Bryan Bishop via bitcoin-dev < bitcoin-dev@lists.linuxfoundation.org> wrote: > On Wed, Oct 14, 2015 at 10:19 AM, Paul Sztorc via bitcoin-dev > wrote: > > However, the two are also perfect compliments, as LN transactions canno= t > take place at all without periodic on-chain transactions. > > Additionally, lightning network hot wallets are not an ideal place to > store large quantities of BTC and users that don't expect to be > actively using LN should in general prefer confirmed UTXOs for > long-term cold storage. So far the guess that I have seen floating > around is that LN usage will at first be restricted to very tiny > amounts of BTC in tiny hot wallets, since nobody is particularly > interested in running large hot wallets. > > - Bryan > http://heybryan.org/ > 1 512 203 0507 > _______________________________________________ > bitcoin-dev mailing list > bitcoin-dev@lists.linuxfoundation.org > https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev > --001a11407d66d364d605221c616f Content-Type: text/html; charset=UTF-8 Content-Transfer-Encoding: quoted-printable
It makes economic sense to include a transaction on t= he Lightning Network, iff the the fee to include the transaction on the blo= ckchain is more than than the Time Value of Money of the encumbered funds o= n the Lightening Nodes amortized across the number of users pushing funds t= hrough a LN node.

Large-value transactions are goi= ng to hit the blockchain while smaller, predictable, closer-to-median trans= action-rates transactions will go into the Lightning Network

=
Blockchain: Car Purchase, House Purchase, Unexpected Medical Exp= ense
Lightning Network: Utility Bill, Groceries, Rent, Mortgage.<= /div>

> If transacti= ons happen in a big percent offchain, and they are only
>=C2=A0broadcasted on the mainchain where funds are move= d in or out of the
>=C2=A0lightning n= etwork, this means there will be less transactions on the
>=C2=A0mainchain

This = is=C2=A0optimal=C2=A0because the network has minimized the set of costs/ext= ernalities to the minimum necessary to conduct a series of transactions
>=C2=A0=C2=A0-> l= ess fees collected by the miners.
=E2=80=9CIt's tough to make predictions, especially about the = future.=E2=80=9D
The = effect on fees is going to be hard to predict. =C2=A0
1.) One part depends on user behavior around t= he dynamics of bid-side demand of fees. I.e. If there is a health ratio of= =C2=A0
-users=C2=A0w= ho want 1-block- times but are unwilling/unable to bid up the fee of their = transactions to push out other 1-block-confirmation transactions (AKA how firm is that fee support presently a= nd under dynamic conditions)
to
-users who take th= eir transactions off the blockchain to LN

2.)= New classes of transactions will be possible that aren't possible toda= y.

= 3.) What market effect will the financial/= technical potential of 'instant' transaction (after a network-joini= ng-intro period) have on Bitcoin's utility/price/adoption?
=

It would be=C2=A0elucidating=C2=A0if any blockchain data = scientists could study the effect of the fee market when high-volume exchan= ges=C2=A0unexpectedly halted trading.


>=C2=A0What will happen = when=C2=A0the block reward will go = away?=C2=A0
I believe a m= ore specific question to ask is: What will happen when there isn't a co= nvincing economic reason for a large majority of hashing power to be bolste= ring PoW defense on the main blockchain?=C2=A0 Right now we have a pretty g= ood handle on the amount of hashing power that's pointed at extending/d= efending the 'main' chain but don't have as good intel on how m= uch idle hashing power there is.=C2=A0 Idle hashing power becomes more of a= threat in market scenarios where chain-extending=C2=A0PoW is=C2=A0scarce (= late-game Bitcoin).

<= /span>
My humble prediction is t= hat the necessary number of block confirmation will go up and there were be= non negligible=C2=A0mining power=C2=A0idle ready to defend actors' pre= ferred chain.=C2=A0 If this is the scenario that plays out, I don't thi= nk it'll be very concerning; =C2=A0large-value transaction that will be= on the blockchain have more flexible time-settlement tolerance (no one nee= ds their home-buying escrow to settle in <=3D 1 day) and lower-value tra= nsaction that users want/need to be confirmed quickly will be confirmed = 9;instantly' over Lightning Network or another Bitcoin-anchored protoco= l.

P.S. I see lots of concern with respect to fee reduction directed at LN= while today there are already off-chain databases that remove fee pressure= .=C2=A0 Like the LN / off-chain databases or not, they will exists.

Daniel St= adulis


On Wed, Oct 14, 2015 at 8:37 AM, Bryan Bish= op via bitcoin-dev <bitcoin-dev@lists.linuxfoundation.= org> wrote:
On Wed, Oct = 14, 2015 at 10:19 AM, Paul Sztorc via bitcoin-dev
<bitcoin-dev@li= sts.linuxfoundation.org> wrote:
> However, the two are also perfect compliments, as LN transactions cann= ot take place at all without periodic on-chain transactions.

Additionally, lightning network hot wallets are not an ideal place t= o
store large quantities of BTC and users that don't expect to be
actively using LN should in general prefer confirmed UTXOs for
long-term cold storage. So far the guess that I have seen floating
around is that LN usage will at first be restricted to very tiny
amounts of BTC in tiny hot wallets, since nobody is particularly
interested in running large hot wallets.

- Bryan
http:= //heybryan.org/
1 512 203 0507<= /a>
_________________________________________= ______
bitcoin-dev mailing list
bitcoin-dev@lists.= linuxfoundation.org
https://lists.linuxfoundation.org/mail= man/listinfo/bitcoin-dev

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