Date: Sat, 28 Mar 2020 02:12:37 +0000
To: Andrew Cann <shum@canndrew.org>
From: ZmnSCPxj <ZmnSCPxj@protonmail.com>
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Cc: Bitcoin Protocol Discussion <bitcoin-dev@lists.linuxfoundation.org>
Subject: Re: [bitcoin-dev] Block solving slowdown question/poll
Precedence: list

Good morning Andrew,

> Here's a better explanation than I could write of the phenomenon I'm talk=
ing
> about:
>
> > As a thought experiment, let=E2=80=99s consider aquaculture (fish farmi=
ng) in a lake.
> > Imagine a lake with a thousand identical fish farms owned by a thousand
> > competing companies. Each fish farm earns a profit of $1000/month. For =
a
> > while, all is well.
> > But each fish farm produces waste, which fouls the water in the lake. L=
et=E2=80=99s
> > say each fish farm produces enough pollution to lower productivity in t=
he
> > lake by $1/month.
> > A thousand fish farms produce enough waste to lower productivity by
> > $1000/month, meaning none of the fish farms are making any money. Capit=
alism
> > to the rescue: someone invents a complex filtering system that removes =
waste
> > products. It costs $300/month to operate. All fish farms voluntarily in=
stall
> > it, the pollution ends, and the fish farms are now making a profit of
> > $700/month =E2=80=93 still a respectable sum.
> > But one farmer (let=E2=80=99s call him Steve) gets tired of spending th=
e money to
> > operate his filter. Now one fish farm worth of waste is polluting the l=
ake,
> > lowering productivity by $1. Steve earns $999 profit, and everyone else=
 earns
> > $699 profit.
> > Everyone else sees Steve is much more profitable than they are, because=
 he=E2=80=99s
> > not spending the maintenance costs on his filter. They disconnect their
> > filters too.
> > Once four hundred people disconnect their filters, Steve is earning
> > $600/month =E2=80=93 less than he would be if he and everyone else had =
kept their
> > filters on! And the poor virtuous filter users are only making $300. St=
eve
> > goes around to everyone, saying =E2=80=9CWait! We all need to make a vo=
luntary pact
> > to use filters! Otherwise, everyone=E2=80=99s productivity goes down.=
=E2=80=9D
> > Everyone agrees with him, and they all sign the Filter Pact, except one
> > person who is sort of a jerk. Let=E2=80=99s call him Mike. Now everyone=
 is back using
> > filters again, except Mike. Mike earns $999/month, and everyone else ea=
rns
> > $699/month. Slowly, people start thinking they too should be getting bi=
g
> > bucks like Mike, and disconnect their filter for $300 extra profit=
=E2=80=A6
> > A self-interested person never has any incentive to use a filter. A
> > self-interested person has some incentive to sign a pact to make everyo=
ne use
> > a filter, but in many cases has a stronger incentive to wait for everyo=
ne
> > else to sign such a pact but opt out himself. This can lead to an undes=
irable
> > equilibrium in which no one will sign such a pact.
>
> Won't a thousand bitcoin-spenders, individually paying for their transact=
ions
> but collectively paying for their security, end up falling into the same
> dynamic?

Fortunately in our case, only the top 4,000,000 weight worth of transaction=
s gets in a block.
Every bitcoin spender has an incentive to spend as little as possible to ge=
t into this top 4,000,000 weight and no more, but they still have to outbid=
 every other user who wants the same security.
Some bitcoin spender will then decide that overpaying slightly to ensure th=
at they do not drop out of the top 4,000,000 weight even in case of a "slow=
" block.

Thus, there will always be a need for *some* block weight limit, and that i=
s what ensures that miners can get paid.

Now it was brought up earlier that people are moving transactions offchain,=
 but that is perfectly fine, because every offchain mechanism first needs a=
n onchain setup, and will at some point need an onchain teardown.
This allows increasing the effective capacity, while still ensuring that on=
chain fees remain at a level that will still ensure continued healthy opera=
tion of the blockchain layer.
Basically, the offchain mechanism does not remove onchain fees, it only amo=
rtizes the onchain fees to multiple logical transactions.

Regards,
ZmnSCPxj