Blockchain President Peter Smith: Why I don’t like artificial limits on block capacity

There has been a lot of discussion in recent months about the fee market, block capacity, and future growth. I’ve written about this before .

Today, I want to focus on the concept of the “fee market”, or what is known as the artificial limit on block capacity .

On the one hand, some people think that a bidding market for transaction fees will emerge sooner or later, so why not do it now? In fact, core programmers are trying to promote this plan, and we have seen its effect in practice .

On the other hand, others believe that a fee market is not needed at present, and charging high fees for transactions too early will affect the increase of new users. The discussion on both sides is quite theoretical and scientific. But theory is one thing, and in the real world, theory does not always lead to its expected results .

In this article, I want to focus on the fee market that we have seen in practice over the past few months, and analyze why practice shows that this fee market will not only reduce user adoption, but also lead to a more closed Bitcoin network. It is this real evidence in practice that makes me think that artificially limiting the block size is a bad idea .

Why?

1) It makes dust attacks easier

It is much easier to fill a glass that is 80% full than a glass that is 20% full. Fuller blocks are more susceptible to prolonged attacks because they are cheap to attack. These attacks result in higher costs for node miners and users .

2) “Dynamic Fees” Are Not a Solution

I often hear that the way to deal with full blocks is to get dynamic fees from the core software. Unfortunately, this is not a complete solution. Currently, dynamic fees are calculated based on historical data and cannot predict the future .

Improving predictive power is important, but unfortunately, the required data is in the hands of a few large companies and is not public. In addition, the fee market is not a real-time trading market, and there is no auction process .

3) The fee market is not real-time

Reliability is the most important thing for enterprises, and it is the most important thing for users. Users expect a reliable experience. If you are a large Bitcoin company, in addition to bidding for transaction fees every few seconds, you can sign an agreement with a large mining pool. In simple terms, the company prepays funds to the mining pool to purchase transaction processing capacity to ensure that the company's transactions are processed first regardless of the market .

This is completely rational behavior - companies get the predictability they need, and mining pools get predictable revenue. As the network gets more and more crowded, we will see more and more of these deals. In fact, Huobi and BTCC have recently announced their contract deals with mining pools (see links at the bottom). I believe there are many similar contracts signed privately. This will lead to a vicious race to the bottom, and companies will either sign these agreements or provide poor quality of service. Over time, almost all block space will be pre-booked, making it even more impossible to predict transaction fees in the network .

4) Block capacity limit is not conducive to the openness of the network

The fact is that large companies will likely solve these problems. Small companies and people running personal nodes will not be so lucky. Historically, there has been little barrier to entry to join the Bitcoin network, but the early establishment of a fee market will raise the barrier to entry many times over. Small businesses and individuals will be priced out of the network .

I’ve expressed before why Bitcoin’s value will be affected when the network is congested, but these facts make me even more worried. The prospect of a more closed and centralized Bitcoin is a very big problem .