Note on the block size limit

A production quota is defined as a limit on production, set by someone other than those purchasing the good in question – a government, a cartel, etc. In the case of Bitcoin, miners produce “transaction entries in the Bitcoin ledger” and those wishing to make those entries must pay miners to do so. The question is if this good is subject to quota.

(First things first: this is a response to a year old article which has recently gained wider attention. Emotions run higher now than they did then.)

Suppose that the block size limit is a production quota. Then by definition, miners, or “the developers”, or USG, or some entity can impose a quota on entry of transactions in the Bitcoin ledger. What does this imply? That the consumers, those wishing to enter those transactions – of necessity, Bitcoin holders – must accept the blocks they’re given, as opposed to accepting blocks with more space. But if this is the case, then they would have to accept blocks with reward > 25BTC as well. So the miners (or developers etc.) would control the supply of bitcoins as well as of space in the ledger, and so the 21 million cap would also be a “production quota”.

In fact I hold that the miners have no real ability to set a quota on transaction entries. Bitcoin holders can set a hardfork date, change the PoW algorithm and thereafter accept larger blocks. Miners and developers would have nothing to do about it. Equally, holders could do the same for the 21 million bitcoin cap. But they won’t raise the cap because they know that it would destroy the value of their holdings. (More accurately, whatever few morons do will be forked off the network and the coins on their big cap fork will be valueless.)

As Bitcoin holders determine what blocks they accept as part of the Bitcoin ledger, miners don’t determine the block size limit. Miners are, of course, free to mine smaller blocks, but they are in competition with each other, and the costs of defecting against a cartel agreement are very low. In any case, they have an equal ability to set a genuine production quota whether the protocol-based limit is high or low.

If I belabour the point that miners do not really control the block size limit, it is only to drive home that calling the block size limit a production quota is propaganda. The propagandistic syllogism is as follows:

Production quotas are bad
The block size limit is a production quota
therefore
The block size limit should be abolished.

But the true syllogism is:

Bitcoin holders determine which blocks they accept as valid
The block size limit is a property of blocks
therefore
Bitcoin holders determine the block size limit they accept as valid.

The question of what block size is actually “good for Bitcoin” – that is, good for people who hold bitcoins – is perfectly acceptable. But there is such a size, and it is certainly not “infinity”. The attempt to buffalo the less informed holders of bitcoins into surrendering this key instrument of control over the asset they hold, by calling that very instrument a tool of “economic central planning”*, must be countered.

As for a “blacklist”? An “ultimate” “blacklist”?

Fuggedaboutit!

 

*Note also the equivocation between the imposition of a quota by a state (which state?) and by a cartel. The point being that although it’s imaginable that miners could form a cartel, Bitcoin is designed specifically to give them incentives to defect. So talking about miner cartels is already bringing the debate into the sphere of reality, rather than hurf-durf ultimate blacklist USSR nonsense.

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