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What is the Ideal Block Size and Fee Cost?

Written by:
Aaron Goldstein
Published on:
Jan/24/2020

Markets are better at deciding what block sizes and fee costs should be.  Leave it up to the miners and users, not development committees.

Price fixing simply does not work according to Deryk Makgill in an opt-ed for Bitcoin.com.

Bitcoin developers imposing production quotas on block space in order to maintain an ideal block size in Bitcoin and ensure miner profitability and network security “breaks Bitcoin for the same reason any form of price-fixing doesn’t work”.

He writes:

It distorts the local information economic actors have that would allow them to properly allocate their own capital and energy. This often leads to an overproduction of a particular economic good and an underproduction of another, or, bloat and shortages.

In Bitcoin, the result of this central planning of block space are externalities like the mempool congestion of 2017 that effectively plunged BTC into a two-year dark age of stagnating prices and regressing merchant adoption.

It was the predictable outcome of a tiny developer committee overprioritizing ‘security’ instead of letting the whole market work out exactly how much security is really needed to protect the network while allowing fees to remain low enough for users and merchants to continue using Bitcoin as peer-to-peer electronic cash.

Makgill notes that this is how Bitcoin was designed, markets, "not developer cartels making decisions for everyone on the network. And it is the reason Bitcoin Cash originally forked from BTC."

Somewhere in between the needs of the miner and the user, there is an answer to the ideal transaction fee and the ideal block size.  If the fees are too small, miners won't make money.  If the fees are too high, miners won't make money.  The reason for the later is that users will simply stop transacting.

There may be some problems here and there, and the planner’s temptation is to try to predict those problems and stop them in advance, but this is the only way these questions can be decided if we want the network to scale globally. They cannot be decided by committees, Telegram chats, Reddit threads, Twitter arguments, or community polls, and attempts to centrally plan answers can lead to unintended consequences because they cannot possibly coordinate all of the local information independent economic actors in Bitcoin have.

In BTC, for example, we can’t know the answer because the limits imposed by Core developers prevent this discovery process from happening. Until they are removed, BTC will continue to struggle growing, because artificial limits on scaling create artificial limits on demand potential.

Leave it to the market. It knows better than us.

- Aaron Goldstein, Gambling911.com

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