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  BIP: 106
  Title: Dynamically Controlled Bitcoin Block Size Max Cap
  Author: Upal Chakraborty <bitcoin@upalc.com>
  Status: Draft
  Type: Standards Track
  Created: 2015-08-24

Table of Contents

Abstract

This BIP proposes replacing the fixed one megabyte maximum block size with a dynamically controlled maximum block size that may increase or decrease with difficulty change depending on various network factors. I have two proposals regarding this...

i. Depending only on previous block size calculation.

ii. Depending on previous block size calculation and previous Tx fee collected by miners.

Motivation

With increased adoption, transaction volume on bitcoin network is bound to grow. If the one megabyte max cap is not changed to a flexible one which changes itself with changing network demand, then adoption will hamper and bitcoin's growth may choke up. Following graph shows the change in average block size since inception...

https://blockchain.info/charts/avg-block-size?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=

Specification

Proposal 1 : Depending only on previous block size calculation

  If more than 50% of block's size, found in the first 2000 of the last difficulty period, is more than 90% MaxBlockSize
      Double MaxBlockSize
  Else if more than 90% of block's size, found in the first 2000 of the last difficulty period, is less than 50% MaxBlockSize
      Half MaxBlockSize
  Else
      Keep the same MaxBlockSize

Proposal 2 : Depending on previous block size calculation and previous Tx fee collected by miners

  TotalBlockSizeInLastButOneDifficulty = Sum of all Block size of first 2008 blocks in last 2 difficulty period
  TotalBlockSizeInLastDifficulty = Sum of all Block size of second 2008 blocks in last 2 difficulty period (This actually includes 8 blocks from last but one difficulty)
  
  TotalTxFeeInLastButOneDifficulty = Sum of all Tx fees of first 2008 blocks in last 2 difficulty period
  TotalTxFeeInLastDifficulty = Sum of all Tx fees of second 2008 blocks in last 2 difficulty period (This actually includes 8 blocks from last but one difficulty)
  
  If ( ( (Sum of first 4016 block size in last 2 difficulty period)/4016 > 50% MaxBlockSize) AND (TotalTxFeeInLastDifficulty > TotalTxFeeInLastButOneDifficulty) AND (TotalBlockSizeInLastDifficulty > TotalBlockSizeInLastButOneDifficulty) )
      MaxBlockSize = TotalBlockSizeInLastDifficulty * MaxBlockSize / TotalBlockSizeInLastButOneDifficulty
  Else If ( ( (Sum of first 4016 block size in last 2 difficulty period)/4016 < 50% MaxBlockSize) AND (TotalTxFeeInLastDifficulty < TotalTxFeeInLastButOneDifficulty) AND (TotalBlockSizeInLastDifficulty < TotalBlockSizeInLastButOneDifficulty) )
      MaxBlockSize = TotalBlockSizeInLastDifficulty * MaxBlockSize / TotalBlockSizeInLastButOneDifficulty
  Else
      Keep the same MaxBlockSize

Rationale

These two proposals have been derived after discussion on BitcoinTalk and bitcoin-dev mailing list. The original idea and its evolution in the light of various arguements can be found here.

Proposal 1 : Depending only on previous block size calculation

This solution is derived directly from the indication of the problem. If transaction volume increases, then we will naturally see bigger blocks. On the contrary, if there are not enough transaction volume, but maximum block size is high, then only few blocks may sweep the mempool. Hence, if block size is itself taken into consideration, then maximum block size can most rationally be derived. Moreover, this solution not only increases, but also decreases the maximum block size, just like difficulty.

Proposal 2 : Depending on previous block size calculation and previous Tx fee collected by miners

This solution takes care of stable mining subsidy. It will not increase maximum block size, if Tx fee collection is not increasing and thereby creating a Tx fee pressure on the market. On the other hand, though the block size max cap is dynamically controlled, it is very difficult to game by any party because the increase or decrease of block size max cap will take place in the same ratio of average block size increase or decrease.

Compatibility

This is a hard-forking change to the Bitcoin protocol; anybody running code that fully validates blocks must upgrade before the activation time or they will risk rejecting a chain containing larger-than-one-megabyte blocks.

Other solutions considered

Making Decentralized Economic Policy - by Jeff Garzik

Elastic block cap with rollover penalties - by Meni Rosenfeld

Increase maximum block size - by Gavin Andresen

Block size following technological growth - by Pieter Wuille

The Bitcoin Lightning Network: Scalable Off-Chain Instant Payments - by Joseph Poon & Thaddeus Dryja

Deployment

If consensus is achieved, deployment can be made at a future block number at which difficulty will change.