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Return-Path: <dave@hashingit.com>
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From: Dave Hudson <dave@hashingit.com>
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Date: Tue, 4 Aug 2015 11:41:53 -0700
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To: Peter R <peter_r@gmx.com>
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Cc: Bitcoin Dev <bitcoin-dev@lists.linuxfoundation.org>
Subject: Re: [bitcoin-dev] "A Transaction Fee Market Exists Without a Block
Size Limit"--new research paper suggests
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The paper is nicely done, but I'm concerned that there's a real problem =
with equation 4. The orphan rate is not just a function of time; it's =
also a function of the block maker's proportion of the network hash =
rate. Fundamentally a block maker (pool or aggregation of pools) does =
not orphan its own blocks. In a degenerate case a 100% pool has no =
orphaned blocks. Consider that a 1% miner must assume a greater risk =
from orphaning than, say, a pool with 25%, or worse 40% of the hash =
rate.
I suspect this may well change some of the conclusions as larger block =
makers will definitely be able to create larger blocks than their =
smaller counterparts.
Cheers,
Dave
> On 3 Aug 2015, at 23:40, Peter R via bitcoin-dev =
<bitcoin-dev@lists.linuxfoundation.org> wrote:
>=20
> Dear Bitcoin-Dev Mailing list,
>=20
> I=92d like to share a research paper I=92ve recently completed titled =
=93A Transaction Fee Market Exists Without a Block Size Limit.=94 In =
addition to presenting some useful charts such as the cost to produce =
large spam blocks, I think the paper convincingly demonstrates that, due =
to the orphaning cost, a block size limit is not necessary to ensure a =
functioning fee market. =20
>=20
> The paper does not argue that a block size limit is unnecessary in =
general, and in fact brings up questions related to mining cartels and =
the size of the UTXO set. =20
>=20
> It can be downloaded in PDF format here:
>=20
> https://dl.dropboxusercontent.com/u/43331625/feemarket.pdf =
<https://dl.dropboxusercontent.com/u/43331625/feemarket.pdf>
>=20
> Or viewed with a web-browser here:
>=20
> =
https://www.scribd.com/doc/273443462/A-Transaction-Fee-Market-Exists-Witho=
ut-a-Block-Size-Limit =
<https://www.scribd.com/doc/273443462/A-Transaction-Fee-Market-Exists-With=
out-a-Block-Size-Limit>
>=20
> Abstract. This paper shows how a rational Bitcoin miner should select =
transactions from his node=92s mempool, when creating a new block, in =
order to maximize his profit in the absence of a block size limit. To =
show this, the paper introduces the block space supply curve and the =
mempool demand curve. The former describes the cost for a miner to =
supply block space by accounting for orphaning risk. The latter =
represents the fees offered by the transactions in mempool, and is =
expressed versus the minimum block size required to claim a given =
portion of the fees. The paper explains how the supply and demand =
curves from classical economics are related to the derivatives of these =
two curves, and proves that producing the quantity of block space =
indicated by their intersection point maximizes the miner=92s profit. =
The paper then shows that an unhealthy fee market=97where miners are =
incentivized to produce arbitrarily large blocks=97cannot exist since it =
requires communicating information at an arbitrarily fast rate. The =
paper concludes by considering the conditions under which a rational =
miner would produce big, small or empty blocks, and by estimating the =
cost of a spam attack. =20
>=20
> Best regards,
> Peter
> _______________________________________________
> bitcoin-dev mailing list
> bitcoin-dev@lists.linuxfoundation.org
> https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
--Apple-Mail=_49EA117C-CFBD-4894-AFBE-B0D55361B050
Content-Transfer-Encoding: quoted-printable
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<html><head><meta http-equiv=3D"Content-Type" content=3D"text/html =
charset=3Dwindows-1252"></head><body style=3D"word-wrap: break-word; =
-webkit-nbsp-mode: space; -webkit-line-break: after-white-space;" =
class=3D""><div class=3D"">The paper is nicely done, but I'm concerned =
that there's a real problem with equation 4. The orphan rate is not just =
a function of time; it's also a function of the block maker's proportion =
of the network hash rate. Fundamentally a block maker (pool or =
aggregation of pools) does not orphan its own blocks. In a degenerate =
case a 100% pool has no orphaned blocks. Consider that a 1% miner must =
assume a greater risk from orphaning than, say, a pool with 25%, or =
worse 40% of the hash rate.</div><div class=3D""><br class=3D""></div><div=
class=3D"">I suspect this may well change some of the conclusions as =
larger block makers will definitely be able to create larger blocks than =
their smaller counterparts.</div><div class=3D""><br class=3D""></div><div=
class=3D""><br class=3D""></div><div class=3D"">Cheers,</div><div =
class=3D"">Dave</div><div class=3D""><br class=3D""></div><br =
class=3D""><div><blockquote type=3D"cite" class=3D""><div class=3D"">On =
3 Aug 2015, at 23:40, Peter R via bitcoin-dev <<a =
href=3D"mailto:bitcoin-dev@lists.linuxfoundation.org" =
class=3D"">bitcoin-dev@lists.linuxfoundation.org</a>> wrote:</div><br =
class=3D"Apple-interchange-newline"><div class=3D""><div =
style=3D"word-wrap: break-word; -webkit-nbsp-mode: space; =
-webkit-line-break: after-white-space; " class=3D""><div class=3D"">Dear =
Bitcoin-Dev Mailing list,</div><div class=3D""><br class=3D""></div><div =
class=3D"">I=92d like to share a research paper I=92ve recently =
completed titled =93A Transaction Fee Market Exists Without a Block Size =
Limit.=94 In addition to presenting some useful charts such as the =
cost to produce large spam blocks, I think the paper convincingly =
demonstrates that, due to the orphaning cost, a block size limit is not =
necessary to ensure a functioning fee market. </div><div =
class=3D""><br class=3D""></div><div class=3D"">The paper does not argue =
that a block size limit is unnecessary in general, and in fact brings up =
questions related to mining cartels and the size of the UTXO set. =
</div><div class=3D""><br class=3D""></div><div class=3D"">It =
can be downloaded in PDF format here:</div><div class=3D""><br =
class=3D""></div><div class=3D""><a =
href=3D"https://dl.dropboxusercontent.com/u/43331625/feemarket.pdf" =
class=3D"">https://dl.dropboxusercontent.com/u/43331625/feemarket.pdf</a><=
/div><div class=3D""><br class=3D""></div><div class=3D"">Or viewed with =
a web-browser here:</div><div class=3D""><br class=3D""></div><div =
class=3D""><a =
href=3D"https://www.scribd.com/doc/273443462/A-Transaction-Fee-Market-Exis=
ts-Without-a-Block-Size-Limit" =
class=3D"">https://www.scribd.com/doc/273443462/A-Transaction-Fee-Market-E=
xists-Without-a-Block-Size-Limit</a></div><div class=3D""><br =
class=3D""></div><div class=3D""><b class=3D"">Abstract. </b>This =
paper shows how a rational Bitcoin miner should select transactions from =
his node=92s mempool, when creating a new block, in order to maximize =
his profit in the absence of a block size limit. To show this, the paper =
introduces the block space supply curve and the mempool demand curve. =
The former describes the cost for a miner to supply block space by =
accounting for orphaning risk. The latter represents the fees =
offered by the transactions in mempool, and is expressed versus the =
minimum block size required to claim a given portion of the fees. =
The paper explains how the supply and demand curves from classical =
economics are related to the derivatives of these two curves, and proves =
that producing the quantity of block space indicated by their =
intersection point maximizes the miner=92s profit. The paper then =
shows that an unhealthy fee market=97where miners are incentivized to =
produce arbitrarily large blocks=97cannot exist since it requires =
communicating information at an arbitrarily fast rate. The paper =
concludes by considering the conditions under which a rational miner =
would produce big, small or empty blocks, and by estimating the cost of =
a spam attack. </div><div class=3D""><br class=3D""></div><div =
class=3D"">Best regards,</div><div =
class=3D"">Peter</div></div>______________________________________________=
_<br class=3D"">bitcoin-dev mailing list<br class=3D""><a =
href=3D"mailto:bitcoin-dev@lists.linuxfoundation.org" =
class=3D"">bitcoin-dev@lists.linuxfoundation.org</a><br =
class=3D"">https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev<=
br class=3D""></div></blockquote></div><br class=3D""></body></html>=
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