Author: Gregory Maxwell 2013-02-14 00:28:41
Published on: 2013-02-14T00:28:41+00:00
The discussion revolves around the cost of validating blocks in Bitcoin and whether it should be used to impose scarcity or if the costs associated with the validation and propagation of transactions should bear the cost. The concern is raised about the cost borne by all participants in Bitcoin for validating blocks and how even a small cost becomes significant with an increasing number of users. It is emphasized that Bitcoin was created to have a decentralized trustless system based on mathematical law instead of politics and human law. Thus, introducing any cost structure would undermine Bitcoin's fundamental purpose. However, this leads to the problem of double-spending, which requires agreement among participants on the authoritative payment. Bitcoin solved this problem using hashcash to vote, assuming that everyone can see the results of the vote.The author discusses the issue of validating blocks in the Bitcoin system and the consequences of not validating a block. If a block constitutes the longest history but is not validated, then one would lose money as transactions would be reversed. The idea of cartel behavior external to the rules of the system is explored, where a large mass of participants agree to reject blocks according to 'extrajudicial rules'. However, this embeds another hard consensus problem inside the current solution to a hard consensus problem. Politically stipulated regulation or industry cartels could solve this consensus problem, but Bitcoin would lose its transparency and determinism.The author proposes that for a great number of people to perform validation, keeping the system honest and decentralized requires almost unnoticeable costs. Otherwise, a small number of the most vested parties will do all the validation, leading to manipulation like today's central banks. The author is skeptical about the system internally self-regulating the size because the cost goes up, causing some people to cross their "hey, I'm better off if I externalize the cost of keeping Bitcoin secure by not participating" boundary and lose their voice.There may be an equilibrium point where Bitcoin is compromised frequently enough that more validators spin up and ignore past rule violations which cannot be undone without economic Armageddon, and eat the costs even though there is an insane amount of freeloading going on. The author argues that our current anti-spam mechanism prioritizes transactions based on fee per KB in scarce blocks or priority. However, various parties are engaging in transaction patterns with near pessimal efficiency, creating externalized costs on all future Bitcoin users.No one has come up with any reparametrizations that seem likely to achieve the desired incentive alignment in the near term. Of all the elements of the anti-spam policy, the least economic (the minimum output size) is actually the most effective, especially as we move to focusing on the UTXO set size. The minimum output value requirement discourages the creation of UTXOs which will never be economically rational to redeem.
Updated on: 2023-05-19T16:30:02.993346+00:00