block size - pay with difficulty

Summary:

In an email thread dated September 3, 2015, Jeff Garzik expressed concerns about the implementation of pay-with-diff for Bitcoin. He pointed out that users and miners would face difficulty in creating a stable block size and fee environment with this model. This would lead to unpredictability and chaos which are not good for markets and systems. The conclusion was either "not get used" or "volatility." Garzik also explained that paying with difficulty requires some amount of collusion if there is no idle hash power. Any miner paying with a higher difficulty would have to either self-increase their own difficulty at the possible opportunity cost of losing an entire block's income to another miner who doesn't care about changing the block size. The potential loss does not economically compensate for size increase gains in most cases when considering the variability of blocks and the associated fee income. The proposed scheme suggests increasing block size fast with difficulty over a narrow window. While the odds of producing a block are slightly reduced, the block produced if successful is more profitable, but only if there is a good supply of transactions that pay real fees comparable to those already taken. This trade-off exists currently with respect to orphaning risk, and miners still produce large blocks, with producing a larger block meaning greater utility despite the greater chance of not being successful due to orphaning. The risk from orphaning can be traded off for centralization advantage or by miners bypassing validation, issues which at least so far, we have no reason to believe exist for size-mediated schemes.Garzik noted that mining is not a race, and increasing difficulty does not put a miner at an expected return disadvantage compared to others as long as the income increases proportionally. Pay-for-size schemes have been successfully used in some altcoins without the effects that were suggested.

Updated on: 2023-05-19T21:52:00.071618+00:00