Re: [bitcoin-dev] Segregated Witness in the context of Scaling Bitcoin

[Pieter Wuille <pieter.wuille@gmail.com>]

On Wed, Dec 16, 2015 at 10:27 PM, Jeff Garzik <jgarzik@gmail.com> wrote:
>> Not correct. I propose defining the virtual_block_size as base_size +
>> witness_size * 0.25, and limiting virtual_block_size to 1M. This
>> creates a single variable to optimize for. If accepted, miners are
>> incentived to maximize fee per virtual_block_size instead of per size.
>
>
> It is correct.  There are two separate sets of economic actors and levels of
> contention for each set of space.
>
> That is true regardless of the proposed miner selection algorithm.

Maybe I haven't explained this properly, so consider this example:

A miner receives sets of 200 byte transactions with all identical
fees. Non-witness ones (whose virtual size is thus 200 bytes) and a
witness one (where 120 of the 200 bytes are witness data, so its
virtual size is 80 + 120*0.25 = 110 bytes).

The consensus rules would limit 1) the base size to 1000000 bytes 2)
the virtual size to 1000000 bytes. However, as the virtual size is
defined as the sum of the base size plus a non-negative number,
satisfying (2) always implies satisfying (1).

Thus, the miners' best strategy is to accept the witness transactions,
as it allows 1000000/110=9090 transactions rather than
1000000/200=5000.

In fact, the optimal fee maximizing strategy is always to maximize fee
per virtual size.

-- 
Pieter