From cjp at ultimatestunts.nl  Tue Oct 27 21:34:12 2015
From: cjp at ultimatestunts.nl (CJP)
Date: Tue, 27 Oct 2015 22:34:12 +0100
Subject: [Lightning-dev] Lightning fees vs miner fees
In-Reply-To: <20151027054029.GA6185@navy>
References: <20151027054029.GA6185@navy>
Message-ID: <1445981652.2636.31.camel@ultimatestunts.nl>

> Alternatively, maybe it means that
> miners aren't an effective cartel, and thus can't force fees to
> rise to maximise revenue; that doesn't seem likely to me though...

Why not?

Anyway, it will most likely be the case if we somehow manage to
re-decentralize mining (e.g. let individual miners make the blocks
instead of letting pool operators do that).

So, how do your calculations work out if the miners are not a cartel,
but instead completely non-organized? What if, in the style of the
prisoners dilemma / tragedy of the commons, each miners' actions are
targeted towards maximizing its own profits, even if that comes with a
disproportional cost for other miners?

For a miner it makes sense to include transactions that have much lower
fees than the "cartel optimum": if you don't do that, you don't get the
fees, but some other miner will still include them and "spoil the
market", so it might as well be you who takes the profit. This is how a
free market with many independent actors leads to lower prices than a
market operated by a monopoly / cartel.

Still, even under such conditions, there will be natural limits, since
there are costs related to including transactions in your own blocks. I
made some estimations based on the assumption that, in the absence of an
artificial block size limit, the limiting factor is how long it takes
other miners to download+verify your block, which is assumed to be
proportional to block size. Long download+verification times reduce the
chance that other miners start building on top of your block before
another block is found.

My conclusion was that miners will continue to include transactions
until it takes almost ten minutes to download + verify a block. The
"almost" is a bit dependent on the distribution of fees people are
prepared to pay: if all transactions use the same fee/kB it equals 10
minutes; if a small part of the transactions pays the majority of the
fees, miners are better off including those transactions but excluding
most of the rest. The same is true in the presence of a large
inflationary block reward (current situation): that is effectively a
single transaction with a very large transaction fee. Miners don't want
to risk losing that reward by including lots of low-fee transactions.

I haven't taken into account that it takes different miners different
times to download+verify blocks.

CJP