The competition for blockspace will always be a source of tension between users of the Bitcoin protocol. In the end, there are just two limitations on its use: the technical and consent layer that determines the actual protocol and what it allows, and the economical layer which is what people will pay for the blockspace.
It is an unavoidable and fundamental reality about how the system works. Bitcoin uses a market-driven distributed system. The market will ultimately decide whether something is done or not. Markets are also responsible for enabling things which were not previously possible.
To assess whether different uses of blockspace might interact, it’s important that market participants have a thorough understanding of their dynamics.
Blockspace as a Common Resource
The Blockspace system is basically a public commons. No one has ownership of it. Although it’s not a classic tragedy of commons, the use of this resource is similar. Each use case that consumes blockspace imposes an externality on all other uses that have a requirement for the blockspace. At some level, the consumption of blockspace is a game that has a negative sum. A space-consuming entity pushes another space-consuming entity out of the way.
People would be conscious of their surroundings in any normal social setting. work Avoid conflicts. When a new application is introduced that takes up large areas of land, the people will be forced to find a solution. work In order to keep a certain balance, you can either increase the efficiency of that use or reduce its impact. In worst cases, the destructive use that is detrimental to many others will be restricted or limited. Bitcoin is anachronistic, and there’s no central authority or point of control to manage the system.
We have only the market.
Usually, blockspace and its market dynamics are conceptualized with a lot of oversimplification. They can use it however they wish within the rules of consensus. Although this is the fundamental element of the dynamic, it’s certainly not the sole one. What is consensus, exactly? What is the process of consensus? The dynamic is a key component.
Consensus Rules are a natural thing that is enforced from the ground up by economic agents. They govern what you can and cannot do with blockspace. The market dynamics that determine its usage go beyond the basic economics of why people purchase blockspace.
The system’s operation and the way users use blockspace are critical aspects of it. If they want to keep their particular blockspace application viable, then this is how they must think about the system. Each participant must understand they have the power to influence market action by deciding what rules to implement, and not only what price they pay to consume blockspace.
What is Block Space?
When examining different uses of blockspace and their impact on the availability of space, it is important to take into account many different factors. What is the amount used, what is its frequency, is there an inelasticity in demand due to price fluctuations, etc. Everybody designing a system on top of Bitcoin should consider how the system uses blockspace, and how it compares to other systems.
Consider the system’s specific qualities. own The blockchain’s internal interaction with its other systems is important. In a vacuum one system could work very well, but it would be put under stress or even fail when operating in a mixed environment.
This is the most important category of properties that you should consider when analyzing these dynamics.
The Space Available
How much bytes of space is taken up by a particular use in a given block? It is the introduction of the concept of scarcity to the blockspace resource. A system built using Bitcoin should minimize space requirements to maximize functionality without sacrificing security or utility.
Consider it a ratio: you’re trying to maximize the security and utility of the system while using the minimum amount of space. This can sometimes be achieved in a deterministic way, that is. In some cases, the space needed is constant and predictable. This is dependent on system design as well as the current state of the system when blockspace usage is required. Other times, the exact blockspace requirement of a particular system is not known. When space requirements are indeterminable, an upper and lower bound can be set depending on how the system is designed and the current state.
Some systems have constant space requirements that don’t vary with the state of the system. Others may be proportional and relatively constant to their level of use. Some systems may have variable space requirements that are not proportional to the level of usage. When designing a system, it is important to consider whether or not the space requirements of a protocol are constant or variable.
Frequency
You can also find out more about the following: next How often do you need to use blockspace? What is the cost per transaction?
Other systems will only require a limited use of blockspace. Some systems only need to use blockspace infrequently. Others may require almost no blockspace at all, except for entering or leaving the system.
As minimizing space requirements for one use of blockspace, minimizing how often a system consumes blockspace would be an ideal goal. A properly designed system should not require blockspace to be used except for the worst-case failure scenario or entering and exiting a given system.
You can design your system with either a constant frequency or a variable frequency. In a system with a constant rate, every time the system takes an action or progresses, it must use blockspace to move the system along. In a system with variable frequencies, state may progress or an action taken without the need to use blockspace.
The blockspace market and these two systems work in different ways.
The use of blockspace by constant frequency systems is predictable, and can be easily analyzed based on volume. Engineering focus for such a system is to minimize the footprint on chain, since the frequency at which the blockspace will be used is predictable and deterministic, depending on how much it is being used. Not fundamentally alterable.
The blockspace usage of variable frequency systems is difficult to predict and analyze. It is not only about reducing the footprint of the blockchain, but also about balancing incentives. The need for more block space is a common reason why variable frequency systems have to be flexible. It is the source Engineering focuses on the balancing of incentives in order to achieve cooperation.
Tempo Sensitivity
What is the time-sensitive nature of a system’s need to use blockspace? Do you need an immediate update, or is it possible to wait until later? Does it have a deadline or is this an update which has to happen eventually but doesn’t?
Constant frequency systems will not have a real time-sensitivity, other than when a state shift is required from an unconfirmed system to confirming. State progression may have a time-sensitive component in some instances, but the overall system progresses state either way.
A cache of state progressions off-chain are being disputed by variable frequency systems. The use of blockspace has a high time-sensitivity, because it’s not about maintaining the current state and progressing it. It’s a challenge in which an incorrect state can resolve on chain.
There are very distinct dynamics when it comes to time and price, as well as the need for blockspace. Prices can vary widely between systems that are more time sensitive and those who are less so, simply because the latter can take longer to complete a transaction on-chain. Conversely, time-sensitive systems will pay more to confirm their operation quickly, since they are paying the current market price.
Interacting Systems
The constant systems and the variable ones need to be able to communicate with one another, or, rather, with the externalities they create for all parties, in order to work with the blockchain. Each is an entirely different beast. They are not adaptable nor dynamic. The system must progress using blockspace. The operation of variable frequency systems is more dynamic and fluid. In terms of incentives or design, they can come up with creative ways to reduce the need for blockspace.
The adaptability of systems that share the same resource, blockspace, with other systems is greatly affected by whether these systems have constant or variable space requirements. The cost of operating each system is affected by the global saturation in blockspace usage and the resulting price increase. What is the frequency and amount of blockspace consumption?
The aggregate number of Bitcoin-based systems determines the level of general saturation, and thus the fees. It is basically a feedback system, where the type of systems that are operating will determine how saturated the blockspace is and the fees. The viability of different systems and their operating costs are affected by this.
A large number of systems with constant frequencies will generate a predictable and consistent demand. Once a saturation level is reached, the fees will increase constantly. The only way constant systems can adapt is to reduce their footprint on the chain, pay more or wait longer for system updates.
Many systems with variable frequencies will experience a less predictable and consistent demand for blockspacing. Blockspace demand will not be a constant result of system progression. It is more likely to come from entry and exit events, severe disruptions, or user disobedience.
The constant-variable systems are fundamentally different when it comes to adapting themselves to high fee environments, which cause systems based on Bitcoins to cost more.
Constant Systems is able to compress data to use in transactions on the chain that are used to move the system forward. They can either wait or pay more.
Variable Systems allow for the scaling of coordination to larger groups, while still maintaining incentive compatibility. The architecture can be adjusted to eliminate or minimize incentive misalignments and attack vectors which could cause systems to become unstable or force them to use blockspace in order to resolve a dispute.
Lightning is the perfect example of an variable system. This applies to both frequency and size of data. Rollups will be an excellent example of a system with a fixed frequency and constant size. Understanding how these two things interact will be important in watching the fee market mature for Bitcoin.
What is gained?
What are the benefits of comparing various system architectures? By choosing one system over another, what type of security can a user expect? What are the costs of this security model in a particular architecture? Costs are borne either by one user or a group of users.
Costs and benefits of both constant systems and variables need to be considered. Users will realize more value if the security model is stronger and fewer assumptions or parties are trusted.
In this respect, there are going to be numerous tradeoffs. Different architectures come at different prices, with different frequency of blockspace usage, and will have different benefits. The costs and benefits for each of these systems are affected by the others.
A centralizing of pressures should also be considered. The flexibility of variable systems allows for many participants in one system to coexist. Users can also adapt to the presence of each other in the context that they need to periodically consume blockspace in order to ensure the system functions. The constant systems are likely to have a more centralizing dynamic due to their rigid space consumption and upper limits for the other systems.
Market Options
It is ultimately up to the users to decide which systems they want to have and how these will interact. The users should be aware of the advantages and disadvantages that come with different systems. They also need to know the impact on the ecosystem and network.
Many people raise ridiculous concerns whenever new Bitcoin features come out, including government blacklists and arbitrary data. They also make other absurd rationalizations about what the public should be able or not to do when they purchase blockspace. They are, in my view, red herrings.
When discussing new features for Bitcoin, the real issue is how they interact with constant or variable system architectures. Which one adds more utility? When analyzing the new features for Bitcoin, this must be taken into consideration.
The way in which these systems are addressed in the Bitcoin base protocol has a profound impact on the future of Bitcoin’s fee market and the viability of the different systems.
The constant systems are limited in how large they can be, due to the need they have for blockspace. They will also put a lot of pressure on fees if there is too much of them running at once.
It is possible that variable systems will drive fee pressure when mass events such as on-boardings or off-boardings are taking place, or disruptions of system functionality, but they won’t likely drive predictable and consistent fee pressure until they have reached a saturation point much greater than the constant systems. They may never reach a saturation point if they are able to achieve designs that come close.
Markets will eventually decide but they should do so in an informed manner.
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Source: bitcoinmagazine.com