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: > > Dear Bitcoin-Dev Mailing list, > > I’d like to share a research paper I’ve recently completed titled “A > Transaction Fee Market Exists Without a Block Size Limit.” 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: > > https://dl.dropboxusercontent.com/u/43331625/feemarket.pdf > <https://dl.dropboxusercontent.com/u/43331625/feemarket.pdf> > > Or viewed with a web-browser here: > > https://www.scribd.com/doc/273443462/A-Transaction-Fee-Market-Exists-Without-a-Block-Size-Limit > > <https://www.scribd.com/doc/273443462/A-Transaction-Fee-Market-Exists-Without-a-Block-Size-Limit> > > Abstract. This paper shows how a rational Bitcoin miner should select > transactions from his node’s 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’s > profit. The paper then shows that an unhealthy fee market—where miners are > incentivized to produce arbitrarily large blocks—cannot 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 > _______________________________________________ > bitcoin-dev mailing list > bitcoin-dev@lists.linuxfoundation.org > https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
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