Blockchain CEO: The premature development of a Bitcoin fee market is deeply troubling

Translator's note: The original author of this article, Peter Smith, is the CEO of blockchain.info. The views expressed in the article are solely those of the author.

Why I don’t like artificial blockspace scarcity

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

Today, I want to focus on the “fee market”, or more accurately, what is known as artificial block space scarcity.

On the one hand, some people feel that since we may eventually need to develop a fee market, we should start now. Essentially, Bitcoin Core has already embarked on this plan, and we are seeing it in practice.

On the other hand, others feel that there is little demand for a fee market in Bitcoin at present, and that it is premature to try to develop one, which will lead to the restriction of Bitcoin's growth. The debate between the two sides has always been quite theoretical, and the discussion is academic in nature. Theory is great, but in the real world, the actual results of applying theory are often not as successful as on paper.

In this post, I’m going to focus on the reality of the fee market over the past few months, and where it’s headed. In my opinion, it’s making Bitcoin less useful to users, and it’s making the Bitcoin network less open. It’s these realities that make me dislike the current scarcity, or “develop a fee market now” approach.

So, why do I dislike artificial blockspace scarcity?

1. It makes sustained spam attacks easier

If a glass is 80% full, it is easier to fill it up than if it is 20% full. While we can debate the exact math, it is certain that less used space makes attacks cheaper, and therefore easier to sustain for a long time.

2. ‘Dynamic fees’ are not the solution

I often hear suggestions that the solution to preventing blockspace scarcity is as easy as enabling dynamic fees in Bitcoin Core! Unfortunately, this is a half-baked measure at best. Dynamic fees currently look backwards and the predictability of this approach is poor.

It is certainly possible to improve the accuracy of fee predictions compared to the fee prediction feature in Bitcoin-Core .0.12, but unfortunately, most of the data required to do so is held by a few companies, one of which is us (blockchain.info), and is not publicly available on the network. Putting these issues aside, the most obvious problem is that the fee market is not a real-time market, or a public auction market.

3. The fee market is not a real-time market

Predictability is perhaps one of the most important things in a customer service business. Customers want to have a reliable experience. If you are a large Bitcoin company, an alternative is to use a dynamic fee to promote block space (partnering with a large miner to get priority access to blocks). In short, a company will pay for block space in advance and work with miners or mining pools to ensure that miners will confirm the company's transactions first.

This is completely rational behavior, companies gain predictability for their products and users, and miners receive more predictable revenue. As the network becomes more and more congested, we will see more and more of these transactions. In fact, Huobi and BTCC are already doing this. I'm sure there will be more of these transactions in private. In fact, this may lead to a dilemma where companies either enter similar protocols or their products will suffer. As time goes on, most of the block space will be bought up in advance, which will make it impossible to predict the next fee, and it will be difficult to say which price is the real-time market fee.

4. Scarcity of block space is not conducive to the openness of the network

The simple fact is that larger startups are likely to solve these problems. It won’t be easy, and new product development may slow, but smaller companies are more likely to suffer. Historically, the barrier to entry to the Bitcoin network has been very low, but the premature development of a fee market could raise the barrier by several orders of magnitude. Smaller projects and individuals will likely choose to leave.

I’ve written before about how, in my opinion, the network would be less valuable to users if it became congested, but the issues raised in this article have me more concerned. The prospect of a Bitcoin that lacks openness, innovation, and is more centralized is deeply disturbing.

Original article: https://medium.com/@OneMorePeter/why-i-don-t-like-artificial-block-space-scarcity-5b3f508e90a5#.8dfidtn57
By Peter Smith
Compilation: Overnight porridge
Source (translation): Babbitt Information (http://www.8btc.com/fee-market)