Return-Path: Received: from smtp1.linuxfoundation.org (smtp1.linux-foundation.org [172.17.192.35]) by mail.linuxfoundation.org (Postfix) with ESMTPS id F3A2B899 for ; Wed, 5 Aug 2015 10:26:21 +0000 (UTC) X-Greylist: domain auto-whitelisted by SQLgrey-1.7.6 Received: from mout.gmx.net (mout.gmx.net [212.227.15.15]) by smtp1.linuxfoundation.org (Postfix) with ESMTPS id CDBDC30 for ; Wed, 5 Aug 2015 10:26:20 +0000 (UTC) Received: from [192.168.1.85] ([84.97.181.71]) by mail.gmx.com (mrgmx002) with ESMTPSA (Nemesis) id 0MIu7d-1ZOrq711Oz-002Ze9; Wed, 05 Aug 2015 12:26:18 +0200 Content-Type: multipart/alternative; boundary="Apple-Mail=_82C09D11-AEC1-497F-BA05-2290BD7F7896" Mime-Version: 1.0 (Mac OS X Mail 6.6 \(1510\)) From: Peter R In-Reply-To: Date: Wed, 5 Aug 2015 03:26:19 -0700 Message-Id: References: <1438640036.2828.0.camel@auspira.com> To: Benjamin X-Mailer: Apple Mail (2.1510) X-Provags-ID: V03:K0:3IMJPZbVabljXSJX5/w1OJU34P9vmROLmqJo5CbYn+BtMVTyreL EJwFAukAdj5C0p5CXPkCzIW41RQNdDhMbUsxnNygEqjJ7FqNwLojopY5vG7cHzHxsE3boRd HoQ0z0mvKsEnKAtMW2BljztLibeGAaC6dJFoZYhMzQP0dLlhVMLFDoSJhcL+D6N/iZLGuFw DJ51m8NRq39ufgF81Jbwg== X-UI-Out-Filterresults: notjunk:1;V01:K0:rQIM97N3c/s=:p55jXe8FYXfjxAi0eBaw9U TeefXLbCzLfU5RUG0hb9hh3Q6VRyn3rvrFvxTV+rnJgyOix0Y3MTVO+KExH+6lVs/Gz/0uykE EQIQLmhDAVdva7MlGoziRJgNeY95klMrNrzPVJ+Omz8rJdo/ltgpTSoPlzyiYcOdmWTIW2TkE oIWK8s9uojYtmBSMHzRzKRKn2nubeIm9zXO+gahXjWaQPk/RZ98cbzEvwgyPSaqR/ib+tBjf2 54SLZ7VwFoEEL5JFyKnQYTg2naKa3587BdgIfKjfsTEB7oq+yLcHYrJ/20h2jw3HjhTvoIts5 UAhP79QcCXYvHZguy2h2it6PlLxcZQVlYBS8enesVPohrJQBz80WtdA4ddykCogAMzlITFZBt zfaBoSp+EuzPAHiLgAJyC3pqWjsgBhySmXYMzAbF6xmhwiqPryibLWfOxRpQ/lCapDZ1SHrT3 sThE/d/JKR+/xRlhT2NeAD5/t9+b0aUMNj0jWF2YK8yfuBMG3GWt1xUAhBVA/RdwJQzTi8nkH 0hsQ+ds18jBfM2Wh7zekja7iPM2Yz0u/nDgdadim+BxUpJp3j0pIQ2EfpwLm/GBYUB//PwUOm mJHUsWC4kc9g+nglx81j5bIVGDl+d4mDU03KNSPHKDoJu0Lic9eAop0ljSjlCPlvnOH5gv1AB y2BOgyzks9gHG+tPv8maQLB09tVdxhcxpqbz1u390vkCoi+FXnDm32X7/HA4+y3eNAXU= X-Spam-Status: No, score=-1.9 required=5.0 tests=BAYES_00,FREEMAIL_FROM, HTML_MESSAGE,RCVD_IN_DNSWL_NONE 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] "A Transaction Fee Market Exists Without a Block Size Limit"--new research paper suggests 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: Wed, 05 Aug 2015 10:26:22 -0000 --Apple-Mail=_82C09D11-AEC1-497F-BA05-2290BD7F7896 Content-Transfer-Encoding: quoted-printable Content-Type: text/plain; charset=windows-1252 Thank you for the feedback, Benjamin. > When you talk about a market, what are you referring to exactly? I define what I mean by healthy, unhealthy, and non-existent markets in = Section 7, and I show a figure to illustrate the supply and demand = curves in each of these three cases. A healthy market is defined as one = where a rational miner would be incentivized to produce a finite block. = An unhealthy market is one where a miner would be incentivized to = produce an arbitrarily large block. A non-existant market is one where = a miner is better off publishing an empty block. I show that so long as = block space in a normal economic commodity that obeys the Law of Demand, = and that the Shannon-Hartley theorem applies to the communication of the = block solutions between miners, that an unhealthy market is not = possible. =20 > A market means that demand and supply are matched continuously, and = Bitcoin has no such mechanism. Take a look at my definitions for the mempool demand curve (Sec 4) and = the block space supply curve (Sec 5). I show that the miner's profit is = a maximum at the point where the derivatives of these two curves = intersect. I think of this as when "demand and supply are matched." > ...I don't think a fee market exists and that demand or supply are not = easily definable. Do you not find the definitions presented in the paper for these curves = useful? The mempool demand curve represents the empirical demand = measureable from a miner=92s mempool, while the block space supply curve = represents the additional cost to create a block of size Q by accounting = for orphaning risk. =20 > Ideally supply of transaction capability would completely depend on = demand, and a price would exist such that demand can react to longterm = or shorterm supply constraints. Supply and demand do react. For example, if the cost to produce block = space decreases (e.g., due to improvements in network interconnectivity) = then a miner will be able to profitably include a greater number of = transactions in his block. =20 Furthermore, not only is there a minimum fee density below which no = rational miner should include any transactions as Gavin observed, but = the required fee density for inclusion also naturally increases if = demand for space within a block is elevated. A rational miner will not = necessarily include all fee-paying transactions, as urgent higher-paying = transactions bump lower-fee transactions out, thereby bidding up the = minimum fee density exponentially with demand. > In such a scenario there would be no scalability concerns, as scale = would be almost perfectly elastic. Agreed. =20 Best regards, Peter >=20 > On Tue, Aug 4, 2015 at 8:40 AM, Peter R via bitcoin-dev = wrote: > 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 >=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 >=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 >=20 > _______________________________________________ > bitcoin-dev mailing list > bitcoin-dev@lists.linuxfoundation.org > https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev >=20 >=20 --Apple-Mail=_82C09D11-AEC1-497F-BA05-2290BD7F7896 Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset=windows-1252
When you talk about a market, what are you referring to = exactly?

I define what I mean by = healthy, unhealthy, and non-existent markets in Section 7, and I show a = figure to illustrate the supply and demand curves in each of these three = cases.  A healthy market is defined as one where a rational miner = would be incentivized to produce a finite block.  An unhealthy = market is one where a miner would be incentivized to produce an = arbitrarily large block.  A non-existant market is one where a = miner is better off publishing an empty block.  I show that so long = as block space in a normal economic commodity that obeys the Law of = Demand, and that the Shannon-Hartley theorem applies to the = communication of the block solutions between miners, that an unhealthy = market is not possible.  

 A market means that demand and = supply are matched continuously, and Bitcoin has no such = mechanism.

Take a look at my = definitions for the mempool demand curve (Sec 4) and the block space = supply curve (Sec 5).  I show that the miner's profit is a maximum = at the point where the derivatives of these two curves intersect. =  I think of this as when "demand and supply are = matched."

...I don't think a fee market exists and that demand or = supply are not easily definable. =

Do you not find the definitions = presented in the paper for these curves useful?  The mempool demand = curve represents the empirical demand measureable from a miner=92s = mempool, while the block space supply curve represents the additional = cost to create a block of size Q by accounting for orphaning risk. =  

Ideally supply of transaction capability would completely = depend on demand, and a price would exist such that demand can react to = longterm or shorterm supply = constraints.

Supply and demand do = react.  For example, if the cost to produce block space decreases = (e.g., due to improvements in network interconnectivity) then a miner = will be able to profitably include a greater number of transactions in = his block.  

Furthermore, not only is = there a minimum fee density below which no rational miner should include = any transactions as Gavin observed, but the required fee density for = inclusion also naturally increases if demand for space within a block is = elevated.  A rational miner will not necessarily include all = fee-paying transactions, as urgent higher-paying transactions bump = lower-fee transactions out, thereby bidding up the minimum fee density = exponentially with demand.

In such a scenario there would be no = scalability concerns, as scale would be almost perfectly = elastic.

Agreed. =  

Best = regards,
Peter


On= Tue, Aug 4, 2015 at 8:40 AM, Peter R via bitcoin-dev <bitcoin-dev@lists.linuxfoundation.org> = wrote:
Dear Bitcoin-Dev Mailing = list,

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. =  

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. =   

It can be downloaded in PDF format = here:


Or viewed with a web-browser = here:


Ab= stract.  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. =  

Best = regards,
Peter

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