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. > 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’s 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’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 > > Or viewed with a web-browser here: > > 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 > >
_______________________________________________ bitcoin-dev mailing list bitcoin-dev@lists.linuxfoundation.org https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
