Quote from: DumbFruit on June 11, 2015, 01:27:33 PM

I agree that big miners will not create supersized blocks, but it isn't because it attracts more miners, it's because mining supersized blocks confers a competitive advantage to the other miners that don't. The net effect is I can't imagine a situation in which any miner would create any supersized blocks because doing so would immediately damage their position in the market.

But you didn't explain why "competitive advantage" and "position in the market" matters. And I can't myself think of any reasonable explanation, other than something equivalent to what I said about increasing difficulty. (See also response to molecular below).

Quote from: molecular on June 11, 2015, 08:33:35 PM

"The goal of a miner is to maximize his profits": If miners were individual humans I would say this is false (let's hope it's not and they act rationally maximizing their profits). There are studies showing that humans prefer a small gain to a large one if it is comparatively larger than some implied gain of some other person. Say a choice between receiving 1 Bitcoin or receiving 2 Bitcoins is offered, but another person receives 0 Bitcoins in the first case and 10 in the second case. Then the individual will tend to choose to receive only 1 Bitcoin, just to receive "more than the other guy". That's not "maximizing profit", that's maximizing some kind of "relative perceived profit" and yes, it boils down to jealousy (or rather 'envy'). Not sure this applies here, but I think it's possible. In case such psychological effects do apply, there's more human peculiarities that might be of interest, like loss aversion, where avoiding losses is preferred to acquiring gains of the same amount.

Of course, I am assuming straightforward profit maximization. Assuming otherwise would drastically alter the problem. But, in the scales involved, I think this assumption will be close enough to reality.

Quote from: molecular on June 11, 2015, 08:33:35 PM

"The miner has higher profit choosing S over N": I think this might be dumbfruits point: there might be some other, indirect effects stemming from the increased profit given to the competition influencing the miners profit in the long run. Let's take for a example a rather efficient miner. Let's say he can cover his cost in both cases S and N and let's say his counterpart mines with higher energy cost. Choosing S might push his competition into the profit zone, while choosing N might force the competition to shut down operations. In such a scenario, choosing N would be the more profitable option. Or maybe less crass: by reducing the competitions profit overproportionally to it's own, a miner can maybe slow down their expansion or increase of efficiency and maybe deven drive them out of the game entirely.

This is a special case of what I said about "attracting more miners". It doesn't matter if the miners he is attracting are new miners, or old miners who are now able to continue operating or grow their operation. Note that "competition" in mining only matters through the difficulty mechanism.

Quote from: molecular on June 11, 2015, 08:33:35 PM

;tldr: I'm not so sure if it isn't a prisoners dilemma after all. Sure, Menis math checks out, but maybe that model (looking only at direct profit) is inadequate for predicting miner behaviour because it possibly omits important side effects or (less likely imo) makes false assumptions about miner motivation / decision making premises.

Well, it is a prisoner's dilemma, but in scenarios different from the ones I was discussing. Most of what I wrote here on the centralization issue refers to the "static hashrate distribution and difficulty" case, which is not very realistic but is the baseline scenario; without agreeing on it, there's little hope to agree on anything else. Which is why the discussion with DumbFruit was frustrating - he kept disagreeing, but he never clarified if he thought the results for this case are incorrect (with which I strongly disagree) or just ultimately irrelevant (with which I agree, and have agreed from the very start - see next-to-last paragraph here)

There are two cases where this becomes a prisoner's dilemma:

1. Miners aren't satisfied with just supersized blocks, they want to make hyper blocks - blocks even bigger than what optimizes (tx fees - penalty * (1-hashrate)). This is not a Nash equilibrium and only profitable if others follow their lead. I've mentioned this scenario to demarcate the discussion (See last paragraph here) but it's simply not what I was talking about. I was talking about selfish supersized blocks.

2. Miners consider the long-term effects on difficulty and hashrate distribution. Then the Nash equilibrium is probably creating normal blocks. If they want to band up in cartels and create supersized blocks even in this scenario, sure, they can go ahead, but... I'm not sure it's profitable even with a strong cartel (since it's the small miners who benefit the most), and again, I was never trying to argue miners should create supersized blocks in this scenario.

In other words, in all cases I am advocating going with the Nash equilibrium. I was never even considering strategies that would make this into a prisoner's dilemma.