Re: SatoshiDice, lack of remedies, and poor ISP options are pushing me toward "Lite"
A limit on the data size of a block isn't the only or even the most efficient way to keep demand for transactions high. The marginal cost of handling the tx size is expected to be much lower than the amortized cost of hashing to secure it, so artificial scarcity in the former to sponsor the latter creates perverse incentives.
I agree here: Limiting a block to 1MB feels strange and arbitrary. More so given that 1MB is pretty much nothing for today's computers, and many times this transaction rate could be supported with no real problems other than removing the block size limit.
This leaves the problem of sponsoring hashing. If the marginal cost of a transaction is C, including a transaction with fee C+epsilon is pure profit. There is no reason for a small miner not to include it. This means epsilon will tend to 0 and total revenue from txs will be equal to the resource cost needed to handle them, leaving no revenue to sponsor the very expensive hashing.
So if I understand what you're saying here, it's that any self-interested solo miner (not a cartel) will include transactions as long as it's profitable for him / her to do so. Or rather, not unprofitable / loss making. We see this now; miners include transactions with no fees, with no direct benefit to themselves. Assuming no block size limit, the negative feedback loop would simply be processing cost to the miner vs. transaction fee, which would tend to make for very cheap transactions.
This is basically how it works now. C+epsilon for each transaction included, with both C and epsilon equal to 0 in most transactions right now. Right now what's determining effort into block publishing is the block reward, which overwhelms transaction fees, essentially subsidizing them.
The block reward will become negligible, but that's many years ahead of us. Long before that, within a year or two, we're likely to start hitting block size limits somewhat regularly, and after that, perhaps constantly.
I'm not certain an unconstrained block size can work. But I think it's highly likely it can, and I've not read anything to persuade me otherwise.
If the market wants something (here, more hashing power) it will pay for it, like anything else.
So why not give it a go? If it's a disaster, there will be no problem getting the 50% consensus to put one back, right?
If the market wants something (here, more hashing power) it will pay for it, like anything else.
So why not give it a go? If it's a disaster, there will be no problem getting the 50% consensus to put one back, right?
Yeah, why not!
Seriously though I'm inclined to agree here as well -- I bet removing the size limit wouldn't kill bitcoin. But here's the thing-- while we're debating these issues on bitcointalk.org (and sorry if this is an old / tired debate -- it certainly isn't to me however) people are building new bitcoin businesses and investments and all sorts of stuff. And the blockchain is growing, and miners are mining, and the average transactions / sec and block size are going up. If we all came to a unanimous decision about a protocol change, it would still be a big pain to switch / fork. But since we can't even agree, and developers are saying basically "we'll see what happens", to me that means the 1MB limit is going to be with us for quite a while, for good or bad.
So I'm still trying to figure out myself if "artificially" constrained block sizes is "good" or "bad" for bitcoin. My feeling is that either with the 1MB limit, or without a hard limit, the system will work, but it will work for somewhat different purposes.
But would you all agree that regardless of desirability, we will see blocks really hitting that limit hard, and stuff really affected by it, before any protocol change occurs? (If it ever does.)