Bitcoin Forum

Disclaimer: my solution is based on my understanding of economics, not my understanding of computer science (of which i have very little) but please dont let that frighten you off, im quite confident that economics is even more relevant here.

So lets suppose for the sake of discussion that this is the near future. 75% of the worlds population of 7.5 billion people uses bitcoin and there is demand for approximately 10 transactions per person per day. even increasing the max block size to something that pushes the technical capabilities of the fastest isps in the world (even while generously adjusting for the fact that this is the future) transaction fees would end up being hundreds or thousands of dollars a piece. What this means is that increasing the max block size is not a solution and never will be. We will either need to fundamentally alter the bitcoin protocol or embrace multiple blockchains.

Now it is possible that bitcoin devs could attempt to shoe horn in some way of creating multiple non-competative blockchains and maybe this could be a viable but it isnt the point of this post.

Now this argument could apply to truly alternative cryptocurrencies but lets say for the sake of simplicity that everyone decides "hey bitcoin works, it started at 0 dollars per coin and now its 500 dollars per coin, why mess with a good thing? lets just use testcoins to avoid high tx fees". So this makes testcoins valuable and this makes them not very good for testing and so someone invents testcoins2 and testcoin2 becomes the new testcoin1. Then this process can continue at infinitum any time tx fees become too high.

ok so the first criticism: "but this would be way too confusing for lay people, no one would want to deal with 100 or 1000 different bitcoins." In the future this could be made into a non issue with seamless exchanges (possibly decentralized anonymous and censorship resistant also?). this is because it is so incredibly easy to trade one crypto-currency against another. All prices could be denominated in bitcoin1 (the one that we are all using right now) and the exchange would automatically figure out how many bicoin7's you need to pay the retailer inorder to pay him the equivalent of x bitcoin1's. The bitcoin7s would be sent to the retailer and he would use a service like bitpay to instantly convert them into the asset of his choosing.

2nd criticism: "but we were promised that there would be only 21 million bitcoins, what you are proposing functionally eliminates any limit on the total number that can be produced meaning they have a value of 0 because they are non scarce." There is some legitimacy to this criticism. it would prevent bitcoins from rising in value past a certain threshold but i would argue that price stability is actually desirable for a medium of exchange. Bitcoin should not be thought of as a get rich quick scheme anyway, if you want to save your wealth in something deflationary than buy silver or gold, bitcoins are for spending! Also you couldn't just start a 100 new chains and say mowa ha ha i have a billion bitcoins as these coins would only have value if the market adopted them and the market would only ever adopt them if there was a legitimate need. This need would arise periodically and naturally when the existing chains fill up with too much capital.  Despite the fact that bitcoins would have a cap on their maximum value this system wouldn't be inherently inflationary either since it wouldn't make any sense for market actors to lend any value to new chains unless there was a legitimate need. And if bitcoin over all began to lose value this wouldnt even cause a loss in purchassing power for lay users since lay users would tend to use more established chains and capital would tend to be sucked from less established more speculative chains first before even touching older chains. (it would be a lot like traunches in a cdo). The net effect would be an amazingly stable purchasing power.

3rd criticism: "but what about the strength of the network? Splitting all this hashing power over multiple networks would weaken bitcoin over all, since each chain would be more susceptible to attack." Any successful attack on any chain would cause capital to naturally flee to other chains which would increase the transaction fees on those chains and increase their security proportionately. And since the only way to kill bitcoin would be to kill every chain, and even in the worst case scenario all the capital would flow into one chain, it would end up being functionally equivalent to having only 1 chain. So the total strength of bitcoin is still a function of the aggregation of hashing power on all chains. My proposal does nothing to hinder the strength of the bitcoin network but it does help to insure that we are not dedicating too many resources to securing any one chain (which is technically possible).

4th criticism: "even lay users would be forced to speculate on a fairly esoteric subject of which bitcoin chain best suited their needs." I think this is actually a very legitimate criticism but not enough to outweigh the aforementioned advantages. These people would probably be well advised to simply diversify among the established chains with higher tx fees and leave the lower tx fees for people who are slightly more involved.

notice that the only people who would ever get burned with reversed transactions would be people who were willing to trade too much in the way of security in favor of low tx fees. The people who prospered most in this market would be people who struck just the proper balance between security and tx fees and these people would accumulate more capital while those who failed to strike the proper balance would tend to lose capital. This would cause the market to be able to discover the correct trade off between low tx fees and security in a process very analogous to how competition and bidding in a free market causes capital to flow from entrepreneurs who are able able to utilize capital less effectively to entrepreneurs who are able to utilize the capital more effectively.

There is a lot of merit to this concept. It is robust and highly scalable.

My question is: do there really need to be multiple variations of bitcoins with multiple fx rates between them all?
Preserving the integrity of the 21m issue limit is important, so TierNolan's alternate proposal needs to be made known here:

Bitcoin alt chains which have no block reward and the mining is funded just by fees. Also, the alt-chains are funded with bitcoins from the primary chain. Miners could mine any chain they wanted to, but any alt-chain which had a 51% attack would be locked out of being able to send back to the main chain.

TierNolan's proposal in more detail:
https://bitcointalk.org/index.php?topic=144895.msg1549816#msg1549816

While these solutions might work well in the long-term, bitcoin would still need an adaptive block size limit to progress in the short-term.

actually i independently came up with a very similar idea that lead me directly to this line of reasoning =) The reason i didnt discuss it here is because this seems artifical. What i described in this post seems more likely to be the way that things would organically evolve all on their own if we simply accepted that there wasnt a max block size problem and left it at that. Tiers idea and my original idea both seem a bit like searching for a complex solution to a problem that doesn't exist. The one nice thing about tiers idea is it keeps alive the idea that maybe i could "buy a house for 1btc someday". I really like that thought

You know what, let's not assume this. 75% of the population doesn't even have an connection, what in the world is "near future" and how can you know what 10 or 20 years from today ISP will be able to handle if that is the time frame you hand in mind with "near future"?

This is stupid.

irrelevant. I could say 25% of the worlds population and this would still be more than enough for my point to be perfectly valid. Also you should support this, i am arguing that we should just leave bitcoin alone and not mess with the protocol.

Why would I support that? If you followed my ramblings they were about keeping Bitcoin decentralized.. not keeping the block size limit as it is. I'm perfectly willing to support and even advocate for any change that would solve scalability while keeping Bitcoin decentralized what ever that may be.

Your right, i wasnt remembering correctly

Even if we do assume it, you forgot to include the percent who want to be able to screw the merchant by reversing the payment; a lot are likely to prefer "wallet" services that don't actually move coins on the blockchain, just credit the user's account with X number of coins. Given that the masses are used to 180 days to charge back, no coins need move on the chain until six months after the user "made a payment", and even then only for the amounts in aggregate that were not charged back from that six-months-ago business-week.

-MarkM-

All I'm saying that making any assumption about the future is futile. We don't know the future, not near, mid or long term. Thinking otherwise is stupid.


The only thing we can know are relationships, relationships between different aspects of Bitcoin. No matter what will happen to Bitcoin, these are likely to always stay the same such as if block space gets scarce, fees are likely to rise. No matter how many people use Bitcoin, no matter how many transactions fit into a block, this relationship is highly likely to remain true. And so they are the only thing we have to go on when talking about solving problems.

p.s.: I now see I might have come off a bit harsh, that wasn't my intention and I apologize if I offended you OP

i dont even know how to get offended. i just want you to examine the merits of my (admittedly poorly articulated) argument =).

You know at some point we will be forced to accept multiple blockchains, there is no way around this. We will never be able to make the block size large enough to accommodate any sizable portion of the human population. So maybe there really wasnt any point in me writing this post, what it talks about is probably already inevitable =P.

You know at some point we will be forced to accept multiple Internets, there is no way around this. We will never be able to make the network large enough to accommodate any sizable portion of the human population. So maybe there really wasnt any point in me writing this post, what it talks about is probably already inevitable =P.

I skimmed through, so excuse me if I missed it, but:
By introducing additional blockchains, you have in effect increased processing power of the overall system. Might as well increase (or dynamically adjust) the block size limit to achieve the same.

except it cant be done by only increasing the block size. Atleast not without being willing to accept massive levels of centralization (i.e. bitcoin nodes with their own physical infrastructure connecting them). If you allow the blocks to become too large than people with regular internet connections begin to become unable to participate because they can not download the blockchain as quickly as is necessary to keep up with real time. This limit is reached way before any sizable portion of the population become active participants in the market.

since we must inevitably accept alternative blockchains why trade any level of centralization at all in favor of a higher number of transactions being possible on the main chain, lets just accept it with out increasing the level of centralization at all. Someone go make bitcoin2 with 2mb blocks or 10mb blocks w/e. Why shake anyone faith in the promise that the fundamental rules of bitcoin will not be changed, sure i understand that some would not feel this way but many also would.

I find it strange why this has become such a big issue recently (is all the fuss just because of SD?) - the software has survived with the "mining" part of it basically being removed (was there the same amount of fuss when that occurred?) and I don't see why the large tx issues can't also be handled by other external means (whether it is done through other chains or through Ripple or off chain tx's or a combination of various methods).

Maybe I am wrong but I really think that the main point of Bitcoin is it being a decentralised *store of wealth* rather being a transaction system designed to replace all others (i.e. does "digital gold" really *need* to be transacted hundreds of times per second and if so then why have 10 minute confirmation times?).

Actually the real value in Bitcoin arises from its use as a transaction system. If I just wanted to store wealth precious metals do this very well and will likely continue to do so regardless of whether  Bitcoin succeeds or fails.

i just want to set the important precident if you dont like it you should create your own and fix it there and never undermine the promises made by the protocol of a crypto currency. Those promises are sacred to some people, those people will flee to silver and gold if they start seeing rule changes occurring, even for the noblest of intentions.

Whilst I do agree that tx's are important (without it the hashing power protecting the network would eventually disappear) I don't think it is really so easy to store precious metals in your own home (and I don't trust anyone else to store them for me).

Also I have seen various *fake gold bars* in recent press releases that came from extremely reputable sellers (whereas I know I can *trust* the value of a Bitcoin).

you underestimate bitcoins utility as a store of value. silver can not be stored inside of ones brain.

Am not sure who you are addressing with this as I was not advocating *changing* anything at all (the promises are surely what the source code *is* at the moment and nothing more).

Bitcoin will never be a viable store of value in the long term if it's not first and foremost a medium of exchange. Trying to make it work the other way around is pushing on the string.

it was not my intention to insinuate such.

Sure - but how is it *worse* than gold right now (I think that gold is still considered about the best store of value and it is not at all an easy medium of exchange compared to Bitcoin as of today)?

No worries - I think we are actually reading from the same page. :)

Gold is also hoarded by central banks, and traded by firms that get to borrow play money from the Fed at negative real interest rates. How well would it do as a store of value without the support of government intervention?

I don't think it would be worthless, but metals like copper are actually used to build useful things much more so than gold.

Understood (although I think gold is an important metal in creating a lot of quality equipment) - I just think that if the *main* point of Bitcoin was just tx's then the *main reason* to be a miner would be to earn fees (and quite likely that will be how things come to pass down the track) so if we are going to wish for more and more tx's to be processed then I would not surprised to see the fees becoming >= Paypal's (in which case Bitcoin is *dead*).

We're in the bootstrapping phase right now so the incentives for mining are distorted by the block subsidy.

In the future I think mining will be done by organizations that have a lot of transactions to process, and the incentive to mine will be the commerce those transactions enable. Whether they do it themselves, or in pools, or outsource it to dedicated mining companies is impossible to predict.

It's a package deal for me. I have 0 use for Bitcoin if it can't maintain its monetary rules and its no central authority feature.

Yes - this is exactly what I think too (so changing the software to allow increased #s of tx's isn't as important to me as keeping the system as decentralised as possible and keeping the 21M limit in place).

Bitcoin *needs* transactions to survive - but does it really need to compete with Paypal or the like?

Could you elaborate on this? A few examples, maybe.

Right now Silk Road and Satoshi Dice are the most obvious examples. Their businesses can not exist without the features Bitcoin provides so if other people stopped mining for some they would have an economic incentive to step in and mine so that their businesses can continue operating.

Soon we might be able add a growing list of web businesses who deliver products and services to customers who can not access the legacy financial system. Any of that that commerce can't take place without Bitcoin creates an economic incentive for those businesses to mine (directly or otherwise).

If Bitcoin grows to the point at which huge companies like Walmart and McDonalds are depending on it they would spend money to keep the network operating, because it would be necessary to protect their revenue.

Good post, and I think there is no need for alt chain at all

Just like someone pointed out, gold still works as a store of value and it seldom get moved once a year, bitcoin will work the same

People will abuse more and more transaction capacity, they will get wise and plan their transactions accordingly if the transaction becomes expensive. Today, Credit Card companies always charge you a fixed amount of dollar for cash withdraw, but that won't stop people from doing withdraw, they just withdraw as much as possible to reduce the fee. So does bitcoin, if the transaction becomes expensive, people will plan their transaction with bigger amount and reduce the frequency of transaction, problem solved

And due to the fact that fiat currency are still 99.9% mainstream, to replace fiat currency is totally impractical and unnecessary, they suit much better for daily small transaction, they are created to be spent

Bitcoin should function as the saving heaven for average people (retirement saving now get eaten by government and inflation), in current debt based monetary system, there is no other better alternative, even gold can not compete