JayJuanGee
Legendary
*
Offline Offline

Activity: 1932
Merit: 1825


How much alt coin diversification is needed? 0%?


View Profile Personal Message (Offline)

Ignore
September 30, 2016, 12:23:39 AM


The theory breaks down in a certain point.

Given low fees, tx demand can tend to infinite.
He argues that this is not the case due to miners not being incentivized to produce bigger blocks.

It also seems that any criticism that miners are not adequately incentivized to continue to mine bitcoin is not playing out in actuality, even after the reward halvening.  The hashrate continues to go up fairly steadily - sure there are periods of ups and downs, but the inclination remains upwards which tends to show that there continue to be a lot of resources put into bitcoin mining.

Now there are two components in the game theory of bitcoin. One is internal, the other is external.

The internal is the game theory that surrounds how the internal ecosystem works. For example 51% issues. Attacks of 51% do not make sense in the internal context (the 51% attacker devalues his coins because he attacked the system he is living in).

They do however make sense in the external context (ie, external actors to the bitcoin ecosystem, employing means to disrupt it - like attacking pools, renting hashpower etc). The external context has to do with threats to bitcoin from banks, governments, payment companies etc, all those who want to see bitcoin harmed.

In order to have a system that is resilient, you must be able to have a game theory that is both internally and externally robust. External robustness is an ideal... a dream (due to the resources external actors have at their disposal)... but at least you don't have to make it easy for them.

In this case, if you allow miners the liberty to include as large blocks as they like, an external actor that hates bitcoin can just say to a miner "you know what? I'll pay you more fees than what the others are making, and if your block is orphaned, I'll pay that too - just make sure to put in there as many txs as you like".

At that point, the enemy of bitcoin who has employed "bad miners" for very little money (compared to the multi-billion dollar interests of banks/payment companies/governments), can bloat bitcoin to death for extremely small costs.

This is the element that is lacking in the above analysis, overlooking the fact that it's not only the internal game theory, but also the external. The external enemies are far more dangerous. By giving them the tools to bloat bitcoin, they can centralize it and then make it even easier to attack - or even shut down.

Thanks for that framing AlexGR.  Even though I remain uncertain whether your framing captures all of the incentives or the security vulnerabilities, any of us who continue to study bitcoin and aspire towards its ultimate success need to recognize that any attempts at quick and ill thought out solutions, such as radically increasing the blocksize limit, when such blocksize limit increase is not needed, put bitcoin in a place of vulnerability.  

Therefore in the end, many proponents of bitcoin, already recognize that bitcoin had been fairly robustly designed from the start, and ANY kind of change to its fundamentals should be made only after thorough vetting, testing and assurance that such changes fall into the realm of non-controversial, otherwise, we may end up in a position kind of like that other unnamed coin that is mysteriously still being pumped almost as if it were bitcoin 2.0  (when many quasi-informed bitcoiners recognize that the other unnamed coin remains too centralized, too mutable, and accordingly not secure enough from either of the internal or external attacks that you outline).