Date: Sat, 27 Jun 2015 13:20:11 -0400
From: Peter Todd <pete@petertodd.org>
To: Michael Naber <mickeybob@gmail.com>
Message-ID: <20150627172011.GB18729@muck>
References: <CALgxB7udA85BWetBGc-RN=72ZtVPK9Q5HW8YRDKA08M38XqJqQ@mail.gmail.com>
	<1EF70EBC-8BB8-4A93-8591-52B2B0335F6C@petertodd.org>
	<CALgxB7usetoaNCObhG36TrdYgKuP4TSPPNkGatvim1oWUMxaeQ@mail.gmail.com>
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Cc: bitcoin-dev@lists.linuxfoundation.org
Subject: Re: [bitcoin-dev] A Proposed Compromise to the Block Size Limit
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On Sat, Jun 27, 2015 at 12:19:04PM -0400, Michael Naber wrote:
> That test seems like a reasonable suggestion; 840GB is not prohibitive
> given today's computing costs. What other than the successful result of
> that test would you want to see before agreeing to increase the block size
> to 8MB?

The two main things you need to show is:

1) Small, anonymous, miners remain approximately as profitable as large
miners, regardless of whether they are in the world, and even when
miners are under attack. Remember I'm talking about mining here, not
just hashing - the process of selling your hashpower to someone else who
is actually doing the mining.

As for "approximately as profitable", based on a 10% profit margin, a 5%
profitability difference between a negligable ~0% hashing power miner
and a 50% hashing power miner is a good standard here.

The hard part here is basically keeping orphan rates low, as the %5
profitability different on %10 profit margin implies an orphan rate of
about 0.5% - roughly what we have right now if not actually a bit lower.
That also implies blocks propagate across the network in just a few
seconds in the worst case, where blocks are being generated with
transactions in them that are not already in mempools - circumventing
propagation optimization techniques. As we're talking about small
miners, we can't assume the miners are directly conneted to each other.
(which itself is dangerous from an attack point of view - if they're
directly connected they can be DoS attacked)

2) Medium to long term plan to pay for hashing power. Without scarcity
of blockchain space there is no reason to think that transaction fees
won't fall to the marginal cost of including a transaction, which
doesn't leave anything to pay for proof-of-work security. A proposal
meeting this criteria will have to be clever if you don't keep the
blocksize sufficiently limited that transaction fees are non-negligable.
One possible approach - if probably politically non-viable - would be to
change the inflation schedule so that the currency is inflated
indefinitely.

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