I revisit the taboo topic of block size in my latest presentation. How should we be thinking about the supply and demand of Bitcoin's block space as a long term issue?
Discussion
We can rebalance Lightning channels offchain.
The Lightning whitepaper is dated and not relevant anymore.
Bullish ingenuity. Bearish magic numbers and central planning.
Rebalancing allows people to keep channels open longer. They still need to open and close channels from time to time.
And Lightning is only one of many sources of block space demand.
Now that we can batch transactions thanks to Taproot and connectors, every prior needs to be reexamined.
The return on investment for developing solutions that leverage this new paradigm is far greater than hand-wringing over the block size.
It's not an either / or issue.
Obviously folks should continue improving layer 2 solutions.
What if they are so successful that demand for block space remains below the threshold necessary for a robust fee market?
We will have screwed ourselves out of sustainable thermodynamic security via our own success.
It’s quite incredible that this type of discourse is being held by Bitcoiners.
“What if consumers do no spend enough, we might have to twist the knobs of the economy to fix it”
Layer 2s are anchored in Bitcoin. They directly lead to more economically dense transactions, if adopted.
Trying to intervene with the market is a surefire way to screw ourselves
Not sure if you watched but the economics is only one issue
Another is centralizing forces.
Another is taking advantage of technological growth.
The world will continue to change, the question becomes whether or not Bitcoin will adapt.
The world will adapt to Bitcoin.
Not much else is needed.
Adjusting economic inputs regardless of the motivation is an exercise in centralization.
I think it’s more simpler than this. I’d make the argument that Bitcoiners don’t actually understand Bitcoin.
If that statement is true, then we have a limited understanding of what the blocksize even is. Why are we trying to change something we don’t yet fully understand?
Ugh, so we all don’t know anything really, well what’s all this about then? What’s going on? Who knows what, and do they REALLY know?
Simply put, I believe the answer to how we approach Blocksize is rooted in a completed understanding of both energy, entropy and their relationship to each other and Bitcoin.
Going back to source; what does a peer to peer electronic cash system actually mean?
Ok I'll bite, where's the outline or sketch of such thoughts?
Glad to see these convos on Nostr!
Yeah, and the world may adapt by sending the overwhelming majority of users through ETFs and trusted third parties.
The most convenient way to "scale Bitcoin" is an exercise in centralization.
You don’t need the majority of users to generate sufficient economic demand onchain.
Realistically only a small percentage suffice.
I’m thinking about why adjusting economic inputs is an exercise in centralization. Do you mean that because the action requires coordination it is de facto centralized? Or maybe because the intent is to benefit some group—the ability to focus specific attention is evidence of centralization?
How do you agree on the security target?
How is this any different than agreeing on the “right” inflation rate?
In the face of large scale institutional adoption it seems better to stand on immutability rather than try for Goldilocks.
A change today to the benefit of some will beget a change tomorrow for the benefit of others.
The BIPs you highlighted demonstrate the difficulty of Goldilocksing the protocol.
Maybe we should put the Fed in charge of the protocol. They can fine tune the dials for optimal performance.
No 🫂
Sure, ignorance is always an option.
I'll just choose not to engage with those who don't wish to have productive conversations.
Thank you for the thoughtful presentation and conversation.
I am cautions by nature and this feels abstract.
If you have a moment, could you briefly explain what is definitely lost if the block size stays the same?
If blocks stay at same size some future transactions get priced out?
Need to be aggregated with off chain layer 2.
But miner revenue is predictable/strong?
Main point is on the goldilocks slide.
Demand fluctuates due to a wide variety of factors. If supply is static then the likelihood that the supply is optimal at any given point becomes quite low.
If cost of block space is too low, it has centralizing effects / makes thermodynamic security unsustainable.
If cost of block space is too high, it also has centralizing effects / pushes users to trusted third parties or other networks.
This sort of self correcting mechanism is elegant and appealing.
Seems like the difficulty adjustment.
This is an argument against the bitcoin supply cap as well. Which for some reason everyone gets is fallacious.
Good point Jack.
What’s wrong with the code being a static cosmological constant?
Why can’t it simply be “it is what it is”?
Wouldn’t the ecosystem adapt to the parameters?
That is precisely what an economy does. Limitations of scarcity drive people to organize the resources most efficiently. Blocksize is no different. Humans often drive toward the power in numbers model because of evolutionary survival strategies. But, in this case decentralization mitigates the biggest threat, a single point of failure, I.E. Mining pools. Block template and self administered mining is the best bulwark against this. Even at the institutional level.
Has low cost of block space really resulted in a security risk? I get that security is not maximized in this co text, but maybe it’s optimized?
Is it really a problem for Bitcoin to be a premium network for the most important transactions? Why does it have to be the network for all transactions?
Blocksize is the scarcity that gives Bitcoin TRANSACTIONS value. Whereas the supply cap is the scarcity that gives the coin value. This is why I implore the cypherpunks to learn more about economics and economists to learn more about privacy.
The focus should be Mining. The more you can distribute block template control, the more secure the blocksize becomes. The more centralized mining becomes, the more the blocksize is up for debate.
1-extremely high fees drives people away from self custody bitcoin, it makes bitcoin more like gold, wich is almost useless as money.
2-increase of blocksize is the most elegant, clean, and easy way to allow more people to on-board bitcoin.
3-Problem is how to implement it, it should be dynamicly adjusted with a max cap in time, and problem is it requires an HF. HF on it self isn't a big issue, it's more of a "political", "social" one.
4-Hardware costs and centralization arguments are stupid if we are talking about small increment over time.
5-Arguments that then people will fill the blocks with crap is stupid.
6-Arguments of poor miners and "security budget" are dumb, any decision with the purpose of influence that market is dumb.
7-None of this invalidates layers 2.
Good talk, tough problem. Dynamic seems like the way to go. Difficulty is based on data in previous blocks (timestamps), so block size could be based on data in previous blocks too. Block fullness and transaction fee rates are likely candidates, but the game theory will be tricky to work out.
Monero has a fixed minimum block subsidy (tail emission) compared to Bitcoin's subsidy that decays to zero. If Bitcoin transaction fees were always the minimum 1 sat/vbyte because of unfilled blocks, it would effectively be a minimum block subsidy. Probably not relevant, but I hadn't thought of that until now.