Because I’ve used an analogy of how gold miners add resources to circulation isn’t the same as saying this is a gold economy.
The transaction fee can be very low in Bitcoin. Now, if transaction fees are low and its simple and easy to transact, the more people will start using it. This isn’t the Bitcoin Core concept where you need high fees and all the rest. It’s exactly the opposite. They have the economics wrong.
– Craig S. Wright
It’s critical for everyone to understand that it’s not just about the block reward when it comes to mining Bitcoin; the real focus should be on transaction fees because the block reward will eventually go to zero. Big blocks mean lots of transactions which means substantial transaction fees for miners.
Charles and Dr. Wright dive into miner incentives and more throughout the episode, here are my key takeaways from their discussion.
Bitcoin is a small world network
According to the BitcoinSV wiki, “A small world network is a network in which most nodes are not directly connected, but where the neighbors of any given node are likely to be neighbors of each other, and most nodes can be reached from every other node by a small number of hops or steps.”
You can also use the term “Mandala network” to describe the same concept, as Dr. Wright and Charles do earlier in this series and as Jerry Chan does in his “Future of Bitcoin ecosystem” editorial piece for CoinGeek.
When asked about the significance of Bitcoin being a small world network, Dr. Wright says “it’s moving away from the idea that everything has to do everything. It’s the typical rule of specialization.”
Being a small world network, in Bitcoin there’s a clump of full nodes in the middle that receive everything simultaneously. All transactions do not have to reach every single node on the network and this is to enable scaling. The incentives of the network have been designed so nodes are encouraged to get the transactions that they need and nodes that do not have the transactions they need (or the block info) can ask other nodes for the information.
Full nodes are incentivized to have all the transactions because they need them in order to win the next block. Nodes are missing opportunities if they have to request a block after missing one, it’s a waste of CPU to try and solve a block that’s already been solved and all other nodes have already accepted it.
The significance of incentives
According to Dr. Wright, there are many incentives that power the Bitcoin system and we’ll start with the node operation.
“[Incentives] guide behavior. So if we want to keep nodes honest, that’s really what the system’s about. Then we have to give them some reason to be honest,” Dr. Wright says.
Dr. Wright goes on to explain…