Quote from: Troll Buster on July 22, 2017, 11:23:45 AM

If anyone wants to know why Blockstream over played their hand, this reddit post sums it up:

Quote

https://np.reddit.com/r/Buttcoin/comments/6ndfut/buttcoin_is_decentralized_in_5_nodes/dk9c27f/
Core/Blockstream/Greg Maxwell explained. Great post by JStfolfi (np.reddit.com)
submitted 6 days ago by jonald_fyookball

jstolfi 160 points 6 days ago*

In my understanding, allowing Luke to run his node is not the reason, but only an excuse that Blockstream has been using to deny any actual block size limit increase.

The actual reason, I guess, is that Greg wants to see his "fee market" working. It all started on Feb/2013. Greg posted to bitcointalk his conclusion that Satoshi's design with unlimited blocks was fatally flawed, because, when the block reward dwindled, miners would undercut each other's transaction fees until they all went bakrupt. But he had a solution: a "layer 2" network that would carry the actual bitcoin payments, with Satoshi's network being only used for large sporadic settlements between elements of that "layer 2".

==> this is in fact a fundamental thinking error. The fact of splitting up the system in 2 layers that can accomplish transactions changes a priori ZILCH to the market pressure, which is fundamentally the "demand for transaction" and the "artificial or resource-limited scarcity" in front of it.

Greg is absolutely right that bitcoin's economical model is *fundamentally* flawed if its intend is to become a decentralized and fluid payment system (but maybe it is not flawed to become something else, like a speculative vehicle for financial institutions, or a reserve currency for sleazy business or the like). I outlined this obvious flaw already several times, and most probably Greg with all his math knowledge, saw that easily too. The very fact that bitcoin's security and consensus decision power depends on Proof of Work (which is in fact a proxy of "proof of wasted economic value") means that the bitcoin system, if it becomes valuable, has to waste a lot of value. So, essentially, as a whole, bitcoin is a "zero sum game with a big value leak" at first sight: there's net value flowing out of bitcoin's into wasted heat. That's not necessarily negative: in as much as bitcoin's system also *produces* economical value (for instance, by fluidizing economical interaction that wouldn't have taken place without it), the value creation of bitcoin can overcome its wasting. For the moment, this is maybe only the case in dark markets where bitcoin did open economical opportunities that weren't possible in the classical fiat system, but right at this moment, my guess is that bitcoin is net wasting a lot of value.

This has to come from somewhere. There are two sources of "taxes" that finance the wasting of resources:
- inflationary pressure
- fees

Up to now, and most probably in the coming decade, the main financing of the wasting in bitcoin has come from inflationary pressure: coin creation. That's a pretty obvious and stable system. But one of the cornerstones in the bitcoin belief system is that at a certain point, inflationary pressure should stop. This is a fundamental problem in the system but it is so deeply grounded in bitcoin's belief system that it cannot be altered.

So the problem is: once there's no inflationary tax any more, who's going to pay for the waste ?

Answer: the transactions.

==> and this is where Greg's 2 layer model doesn't make any sense: the waste tax is going to be paid by all transactions. Those on layer 1 and those on layer 2. And in order for this tax to be sufficiently high, these transactions have to be sufficiently scarce. If those on layer 2 are too cheap, then everybody will run to layer 2, and layer 1 will be left without "market pressure" and hence without fees.

It doesn't matter what mechanism you use to build layer 2 on top of layer 1. In the end, transactions, whether they are on layer 2 or on layer 1, have to become scarce enough that people will be willing to pay fees to get them.

If layer 2 has a natural dependency on layer 1, layer 2 will just be a "block chain magnifier" of some sort. If layer 2 is unlimited and can live on a very small layer 1, then you get EXACTLY THE SAME effect as unlimited blocks.

There's no difference whether the transaction happens on layer 1 or layer 2: in the end, you need a transaction to be scarce enough so that people pay fees for it, that end up being wasted with proof of work.

Imagine that the LN works out such, that you can do 100 transactions on average on LN for one transaction on the block chain. Well, in that case, economically, that LN system is equivalent to a block chain with 100 MB blocks and no second layer. The fees will be the same, the total mining income (to be wasted on PoW) will be the same. There's no difference.

Most probably, Greg realized this. 1 layer or 2 layers, it doesn't matter. The problems are the same. In the end, transactions need to pay for the waste in proof of work, which is the ultimate security of the bitcoin system (and THAT is the other fundamental flaw in bitcoin). And you need scarcity of these transactions to establish a fee market, whether that market is essentially on layer 1 or layer 2 doesn't matter. If transactions are too fluid and cheap, the system will crumble in any case. So you CANNOT allow cheap and fluid transactions, even if they are only cheap and fluid on layer 2. Because they would crash the market on layer 1, unless you make that technically not so, which means the scarcity on layer 1 folds over to layer 2, and we're back to square one.

So what could Greg still say after realizing that the fundamental problem in bitcoin he discovered (correctly), was in fact not solved at all with a 2 tier network ? Well, he could mumble something that doesn't matter in all this: the very small RESOURCE waste of the block chain. Yes, next to the HUGE on purpose waste on proof of waste, there's a small but real resource waste on hard disks networks and so on. This is why he leveraged this importance of Joe's node in his basement. While Joe cannot afford $2000,- for his useless node in his basement, bitcoin is wasting a billion dollars or so on proof of waste by a centralized cartel of miners (also due to a fundamental flaw in bitcoin: remunerated proof of waste with economies of scale), but it is Joe's waste that is going to be the culprit, and the need for a second layer. That's how he can save his face.

This whole circus is in fact the result of a failed solution to a fundamental problem of bitcoin, and the fact that the proponent most probably realized that his solution wasn't a solution to that problem, and hence needed another argument.