Bitcoin Forum

Hello,
I'm a new member here, although I've been following bitcoin and this forum for a while.  Something has been bothering me for quite some time and I've finally joined to ask you guys about it.   Specifically: it fascinates me that people don't seem to discuss what appears to me to be a most obvious fatal flaw in bitcoin.

ie: The transaction fee model will not support the cost of block creation.  Bitcoin will lose hashing power in the future when block reward coin generation drops off faster than the increase in bitcoin price.

The transaction fee model will not work because you can potentially exchange bitcoins outside the system which doesn't generate any fees for the miners.  For example, you can do this at the moment by physically  printing out the public and private keys to a wallet and physically passing these around in a tamper proof way instead of transferring the coins by way of a transaction within the system-- this is how Casascius coin works.   At the moment these off-chain transfers cannot be done electronically and require that you trust the person that creates the item that is exchanged.  However, soon transferring coins outside the system will be very easy to do since we are currently entering a new era of secure computing where everyday desktop computers and phones will allow you to exchange these key pairs in a secure, non-exploitable way.  This technology is the same that the media companies are demanding that all computers must have to prevent illegal copying of content.  Once someone creates the software to exchange coins this way it will become the most popular way to exchange coins since it is  totally free and instant-- at this point, hardly any coins will be exchanged on the network and hence no transactions fees will be collected by the miners and hence no-one will mine anymore and ultimately bitcoin FAILS.
 
There are various solutions to this problem, but most require hard forks:  listed below are just some
1) Infinite coin supply-- don't 1/2 the block reward every 4 years- instead at some point (say 12 years in the future stop the block halvings).   Note: If you have a constant reward eventually the coin supply will more or less balance out the rate of coin loss so you won't actually end up with an inifinite number of coins.
2) Satoshi Dice and similar services which use the block chain, requiring people to make transactions in the chain (eg: introduce namecoin domain name service, voting services, registration services, proof-that-something-has-happened services)
3) Demurrage where the miners get a fixed amount of the total supply every year, like freicoin.
4) Other schemes similar to demurrage where the miners get rewarded directly from people's wallets without them having to make transactions--eg: long term non-active wallets trigger an expiry date that allows miners to collect its contents.  

Please explain to be why this is not considered the major problem with bitcoin and why it is not discussed on this forum.

(PS:   I personally like the idea of expiry-dates for non-active wallets since it froces people to make a transaction before the expiry or they lose the money (or maybe just a percentage of it)- so the miners can make money by transaction fees and reclaiming dead coin. Am thinking of creating a new coin system based on it-- does one like this already exist though?)

Great. So instead of sending transactions you want to exchange wallets off the grid.

One question though. How are you gonna fill that wallet with the needed amount of btc?

No.  Do some more research on this topic first.  I assure you, that you are not some economic genius that has found the 'great Bitcoin flaw' (tm) and no one before you has had the same thoughts.


Yes.

Now use the search function and don't ask crazy questions before you are out of newbie hell, or the next time I'll nuke your little account out of spite.

You only need fill the wallet *once* for it to be exchanged an infinite number of times.  eg: look at a casasius coin-- once it is bought by somone there it no stopping how many times it can be physically exchanged between different people before someone puts it back into a different wallet with new transaction on the network.

Also, you only need of regular totals of the wallets to be transferred off-chain to make any amount you wish to exchanged: eg- you can have .... 0.001, 0.002,  0.005 0.1, 0.2 0.5, 1, 2, 5, 10, 20, 50, 100BTC,.... totals in the wallets and you exchange the  key-pairs of the required numbers of wallets to make up the any amount you wish (ie: similar to how regular denomination coins/notes work in real like currency)

Oops, sorry, this was meant to be a reply to greyhawk.  I'm new here and didn't see the quote function.

You could also create a paper note with a private key inside.  Like printing a QR code on the outside of a sealed envelope.  So how do you get someone else to trust it?  You would have to get the vendor to 1) trust you, which would likely require identifcation; 2) trust that the currency is legitimate, i.e. not counterfit; and 3) trust that the mint that created it was trustworthy.

Casasius is a well trusted community member, but even his coins are not universally well regarded.  If he can make one, someone else can fake it.  Eventually this is going to happen.

Furthermore, loading your wallet to exchange still requires on-network transactions.  It's impossible to always avoid that, no matter how many off-network trades you can do.

I see how what I've written may be taken as demanding.  Sorry, I should have put a "could" in there--ie:  "Could you please explain..."

So you want to establish denominations again? In a digital currency where we finally have a chance to get rid of this absurd kludge? Why? Why add all that completely unneccessary complexity just to get out of a miniscule tax dedicated to keeping the system running?

beeblebrox, your idea rests on two fatal flaws itself:
- One would have to trust the new system, either as a central authority or as a whole new meta-crypto currency that contains Bitcoins.
- That Bitcoin ever would progress so far that somebody would find value in such a service (i.e. that it would survive in any meaningful way after bottom falls out of the mining rush).

Yes, you need to trust someone when you exchange *physically*, but when you exchange electronically you only need to trust a computer (and of course whoever wrote the program-- but with open source with is not such an issue).
Such electronic transfers in the real world already exist, but currently require special hardware-- eg: smart transport cards for public transport where you load money onto the card.  This technology is becoming available on desktop computers-- it is being installed on the desktop to prevent piracy: eg, remote attestation, secure booting, etc..

As regards the fact that it still needs an on-network transaction to load the wallet-- it only needs to be done *once*.  Once it is off-network, it can stay off-network forever and still be exchanged.

It also presumes that, even with world changing success for Bitcoin, another greater cryptocurrency doesn't come along and eat Bitcoin's lunch before the block subsidy is gone.  Since that won't be until 2130 or so, I think that it's not a pressing problem.  I think that I'll continue to use it in the meantime.

Not forever.  No rational vendor is going to continue to accumulate bitcoin private keys without flushing those values on occasion, because no matter what technology that is used, there is no way (outside of the blockchain) to be certain that those private keys have not been copied by some talented hacker somewhere along the way.  The blockchain is the very novel use of technology that makes digital currencies work without a centralized authority.  Any use of off network transactions (and I have no doubt that such transactions will become commonplace, but never universal) would require some degree of trust, most likely in the institution that created the off-blockchain processing network.  We call such institutions "banks", and sometimes they fail.

If off-network exchange become the most common way to exchange coins, it doesn't take till 2130 (when the block subsidy reduces to zero) for it to negatively affect the hash rate.  Think about it and you'll see why. (think about especially why miners mine-- ie: to make a profit).

Negatively, sure.  But catastrophicly so?  Tell me this, why would anyone bother to develop and off-network method of transacting in Bitcoin unless the transaction fees for the main blockchain were high enough to justify that?  How does the fee get high enough to justify such an off-network transaction method, unless there are fee paying transactions?  The fee for inclusion into a block is market based, when the space is tight the fee to get included will increase.  When the blocks are regularlly full, an off network transaction method will be economicly justifiable.  Not until.

This also, has been long considered.

....


The reason why someone whould do it is because:
1) instead of being cheap, transactions are now totally free
2) instead of taking 10min-1hr to verify, transactions are now instant
3) hackers personally enjoy coding stuff like this
4) a bitcoin business can use it as a selling point
and if I spent a bit more time thinking about it could probably find more reasons...


Also, where has it been long considered.   I've been reading this forum (lightly, and not all boards/topic streams) for over a year and have never seen it mentioned.

Ok, I just spend a minute thinking about it and here are some more

5) transaction can now be totally anonymous
6) it prevents block chain data growing wildly since less transaction processed on net (someone might implement with this good intention without thinking about its long term consequence)
7) storing a wallet such that is interlinks with a computer's TPM is more secure then storing it on normally on the harddrive
8.) someone might actually do this off-network exchange using a smart cards (there have been various proposals already about bitcoin on smart cards) making it easier to carry the wallets around on your person (a lot easier that carrying around your computer)

Why would anyone make a new cryptocurrency backed by Bitcoin?

If they get highly desireable, and somehow the developers fail to gain acceptance for a fork with more divisibility, or if transaction costs become too high, that might happen some time in the future. This has already been considered, and it's more likely that a fork will be made, IMO.

Oh yeah, I just spent a few more minutes thinking and here are some more..

9) smartcard storages make it easier to store the wallet in a physically secure place (such as a bank vault)
10) electronic off-net exhange means people without internet but local connectivity (eg: blue-tooth/NFC) can transact
11) phsyical off-network exchange, like casasius coin, allows people without even a  computer
12) it could be overall easier for people new to bitcoin to learn to use-- since technology like smartcards  and there useage are quite common (such as bus-passes) and the fact that smart card bitcoin would be very similar is use.

Can you please stop quoting your whole posts?

Also many of the ideas and points you've made have already been discussed many times before, and you're correct about many of them in terms of ease of use etc. but wrong about others.

1: No, it won't be free. The new service will need to get paid somehow. But if doing transactions on the main blockchain is too expensive, then the service will indeed present itself as probably many vendors of intermediate transactions - Bitcoin banks if you will - who will compete on fees, reliability and speed.

2: True. But just like for a bank processing credit card payments, though the payments appear instantly as a reservation in your account, the actual moving of money between the banks will happen on a slower time scale, like over night. Again, just like in banking.

3: Yes, but somebody actually has to run it, maintain it, deal with customer service, legal issues, security vulnerabilites, etc.

4: What you're talking about here is more like gift cards. Sure, my Bitcoin-taking tatami mat store could offer transfers between users, but if my gift cards are being used for de facto banking, I want to charge some fees for that.

5: Total anonymity? I don't think so. Maybe more anonymous than the blockchain until you're raided, broken into, or compelled to give away transaction logs.

6: It would indeed offload some load on the main blockchain. Again, this has been discussed before.

7: Maybe, but that only deals with keeping the private key safe. That is only part of the system.

8: Offline smart card transactions with Bitcoin are just as difficult as to do them with USD or other currency. Not a trivial thing, and if you solve it you're better served selling your solution to Visa or something than to bitcoiners.

9: A paper wallet is just as good, IMO. Or regular memory card. If you trust the safe deposit box anyway..

10: Sure, but see point 8.

11: Sure.

12: Definitely. Bringing Bitcoins from the mining nerd to the cash register is something that many entrepeneurs are working hard at right now, and not being terribly successful.

I don't quite understand why you are talking about new currency backed by Bitcoin-- I've never mentioned this.

Aren't you? If you're going to do off-chain transactions, you can't actually give away coins by giving people the private key to a wallet. You'll be trading tokens that say "this token is worth 1 BTC" and "this token is worth 0.5 BTC". Even if you can do that securely, at some point you have to trust somebody to hold that coin and cash it in for you. So it's much like one of those countries who have a currency with a fixed parity with a base currency. Or you could call it scrip, gift cards or "barter Bitcoins". In any case you'd have a central (or de-centralized) issuer of these tokens, and you trust them not to empty the tokens of bitcoins (if the token refers to a particular wallet) or you trust them to have reserves of Bitcoin in cold storage to pay you if you want to "cash in" your token.

Edit: Alternatively, you might have some form of DRM/TPM system that makes it possible to trade active bitcoin wallets in a tamper-proof way, so that you know that nobody looked at the private key yet. In that case, sure you could do offline Bitcoin transfer that way, but that's a more advanced system than what we have now. As I said, it might be more fruitful to use it to transfer actual USD if you have such a good system.

The problem with what you're suggesting is that once anyone gets a look at the private key, that key becomes worthless to other people. The only way around it is to have a centralized system (a bank), or a peer to peer system for exchanging private keys securely (something like Bitcoin²?). Both of these would be subject to transaction fees of some sort, to pay for the network.

"1) instead of being cheap, transactions are now totally free" - Would the smartcards be free? I didn't have to purchase anything to start using bitcoins (unless you count the BTC itself).

"2) instead of taking 10min-1hr to verify, transactions are now instant" - It's only instant because you're not verifying anything!

"3) hackers personally enjoy coding stuff like this" - I'm sure Satoshi, Gavin, and other developers enjoy what they're doing.

"4) a bitcoin business can use it as a selling point" - Businesses could use the opposite as a selling point as well. So far, no one has joined this thread in support of your idea which tells me that there would be customers not interested in it.

"5) transaction can now be totally anonymous" - They can be anonymous now.

"6) it prevents block chain data growing wildly since less transaction processed on net (someone might implement with this good intention without thinking about its long term consequence)" - Not sure I understand this. How would this help anyone play SatoshiDice?

"7) storing a wallet such that is interlinks with a computer's TPM is more secure then storing it on normally on the harddrive" - Many security conscious bitcoiners already avoid storing their BTC on their harddrive.

"8.) someone might actually do this off-network exchange using a smart cards (there have been various proposals already about bitcoin on smart cards) making it easier to carry the wallets around on your person (a lot easier that carrying around your computer)" - Easier than carrying around my phone?

"9) smartcard storages make it easier to store the wallet in a physically secure place (such as a bank vault)" - Easier than a paper wallet which I can do now?

"10) electronic off-net exhange means people without internet but local connectivity (eg: blue-tooth/NFC) can transaction business" - I admit this would be an advantage in those ever-shrinking locations without internet access. Personally, I avoid those like the plague.

"11) phsyical off-network exchange, like casasius coin, allows people without even a  computer" - My phone is often my computer. It seems to me the percentage of the population without near continuous access to sufficient computing power and the internet is rapidly shrinking.

"12) it could be overall easier for people new to bitcoin to learn to use-- since technology like smartcards  and there useage are quite common (such as bus-passes) and the fact that smart card bitcoin would be very similar is use." - Many bitcoiners are working very hard on the issue of making BTC more attractive to the average person. While your idea of a bitcoin smartcard might come to fruition, I don't see more than a few people willing to sacrifice the security and decentralization of the blockchain for something that may be slightly more convenient under certain circumstances.

On that last point search for "Woolong device" on these forums. It was a miserable failure. See also http://www.woolong.com/

That is exactly what I'm talking about..  No, we aren't quite there yet (I never said we were, I said in the future), but we are getting very close.  The majority of new computers have quite advanced DRM systems-- I believe the new windows actually mandates it.  Very soon the technology will be commonplace and used by default (the media content companies are pushing really hard for it since it will drastically reduce copyright infringement).  Once it is common, then I'm willing to bet that someone will use it to exchange bitcoins.

I'll grant you point 9, but nothing else.  (By-the-way: these points weren't though out in depth they were on-the-spot thinking. So, the fact that I got one wrong is not surprising)

Bitcoin has a lot of major problems, but a lot of Bitcointalk users own bitcoins and want to earn a lot of money with its help. The only way to do so is to sell the coins to newbies at the highest price. So they avoid discussions that could scare newbies away or make the price to go down.

Of coz, they are still nice ppl. They tell u "Do not invest anything in Bitcoin you can not afford to lose" for conscience sake and this lets them to sleep well.

Why won't you grant anything but point 9?  How were my rebuttals insufficient?

I see your point more clearly now. Call it "Offline tamper resistant exchange of Bitcoin wallets using trusted computing: A system that guarantees nobody before you has looked at the private key." or something like that.
Unfortunately, I think it either might have to be built into the protocol itself, or we're back to a central issuer again. Since the bitcoin client lets you know the private key when you generate your wallet, you'd need some trusted third party to generate the exchangable wallets for you, and provide you with some system that guarantees that nobody else looked at the private key before you "break the seal" and spend it.

So we're back to trusting a third party (some kind of bank) or rewriting the current protocol. It might be feasible in the future, but I think the people who are working on electronic cash (denominated in actual USD) will get there before Bitcoin does....

OP raises an interesting point. Why pay mining fees, when you can perform off-chain transactions?  One way to answer this is: because off-chain transactions inevitably involve some cost and some risk. Paying a transaction fee to the miner may be cheaper, faster, and more secure than performing an off-chain transaction. This "may be" is what will create a competitive market that defines the fees depending on particular payer's needs.

Hello, beeblebrox, I am also new here.


Why wouldn't the tx fee model work? Surely this is a market forces thing. Miners won't operate (for extended periods of time) at a loss, so they will only accept tx's with sufficiently high fees attached. Tx fees will therefore be dictated by the efficiency with which miners can operate. Miners (or more likely mining farms) with low overheads will be more competitive and can therefore accept lower fees, stealing market share from their competitors.

You don't require a trusted third party.  Remote attestion takes care of that.  With remote attestion, I can be guaranteed that your computer is running a particular piece of software.  That software in this case would be the wallet generating one-- if it is open source then I can review the code to make sure that it nevers gives out the key, but only puts it in the wallet which gets passed around.  If this wallet is tampered with to reveal the key then the DRM software reveals to the next person receiving the wallet that it has been tampered with.

It dosen't require any change to the bitcoin protocol to do this.

It doesn't work because off-chain transaction happen independant of the miners.  There are physical coins call casascius coins that have a bitcoin stored in them. (you can buy them off the internet, search for casascius coin)-- you can phyiscally give these coins to someone who can then give to someone else who can then give them to someone else,   etc......  none of the transactions are being recorded in the block chain and hence there is no fee involved.

That doesn't answer the question. Casascius coins exist and transaction fees are still being paid. There are advantages and disadvantages to using off-chain transactions. You have yet to demonstrate how the advantages outweigh the disadvantages to anyone's satisfaction.

Yes, a fee gets paid.  However, it ONLY gets paid ONCE (at the time when casasuis loads the coin) all other subsequent transactions that involve the physical exchange of coins are *completely* free!

No, you misunderstood. I'm saying, Casacius Coins exist yet they haven't supplanted the current system.

On chain transactions won't be cheaper.  It definitely won't be faster (some transaction currently take upto an hour to complete)- electronic off-chain transactions would be instant. It *just* might be more secure,  however, the vast number of transactions involve small amounts of money (ie: <$20) so who really cares about it being super,super,duper secure compared to super,duper secure when the amount it small?  

Let's be realistic here.  Nobody, is going to wait around for 10mins+ to confirm a transaction for a cup of coffee and a donut that is 99.999999% secure when you have the option for an instant exchange that is 99.999%.

Where can I donate to make this feature a reality? Make it a max donation of BTC0.01 per donator, but when the donation for a particular offender hits BTC1.0, KABOOOOOOOOM.  Could be a good way to generate some income for the board. :-)

I do accept the existence of off-chain tx but IMO off-chain tx will always represent a small minority of all tx, for risk reasons. If I were to become the lucky recipient of 50,000BTC one day, I would certainly want that to be recorded within the block chain. If I were given a physical coin worth 50,000BTC what assurance would I have that the other party doesn't have an identical coin in his pocket? He can then potentially claim the funds within the network before me.

They haven't supplanted the current system becuase they are physical.  A physical coin at the current adoption rates of bitcoin is pretty useless- you can't use it anywhere because nobody physically located near you accepts them (bitcoin is almost exclusively used the moment because it can be used over the internet to transact with remote entities).  Also they require extra expense (you pay a premium to get them).

What I'm talking about it in 2,3,4+ years time when some bright spark invents an electronic version of casascius coin.

Source?

really?  Do you not believe this without a source?  How about this for a source--- ME!!

(If you're not happy with that read one of the many 100's of articles extolling the use of bitcoin as an INTERNET currency and how it can be used to do things like an internet shopping (ie: non-physical, non-local), or foreign money transfer etc.)

You are making a claim as to why bitcoin is being used, not how. I happen to believe it is due to its decentralized nature and I'm asking you to provide evidence to support your claim.

BTW, you still haven't addressed some of my other questions.

Aha. This might actually work.
While it's true that the mining fee only gets paid when the wallet "leaves" the blockchain and when it's cashed in again, there is still an associated cost with doing the transactions in the new Bitcoin² system. Actually processing the transactions. And this would only happen once Bitcoin v.1 transaction processing gets overly expensive, thus attracting more miners due to the payouts, and then making the offline transactions less of a cost-saver.

So you believe the the majority of all the bitcoin transactions (about 60000/day currently) are happening between people in the same room?  really??  Well the blockchain tells me otherwise-- the largest single source of transactions is Satashosi Dice and I'm rather confident in believing that all the people placeing bets on it are NOT in the same room.  Also another large source is the money flowing in and out of MtGox-- likewise I'm sure that these people are not all in a room in a Japan somewhere.

The sad part is that I've had to explain this to you!!!  This is why I haven't bothered with your other questions-- why should I waste my time answering and explaining things which are blatantly obvious!!!

I've presented my case and have defended it against all criticism leveled at it.  Simply put, the transaction fee model will not generate enough fees to secure the system once off-chain transactions become the predominate method to exchange coins.

It's 4:00 in the morning here, I've been up all night.  I'm going to bed.  Goodnight/day to you whereever you are.

The board gets plenty of income from donations.  It's ran by those 'early adopters' and we aren't exactly hurting.

I think I've had enough of this BS.  I warned the OP early that there was much to be learned on this topic by simply reading the forum and using the search function.  Apparently no one bothered to attempt it, because I keep seeing tired arguments that have long been settled. 

This thread shall be locked.

Beeblebrox, learn to do some research before you start spouting crap about a complex subject for which you do not understand.  If, after some effort on your part, you still do not understand why you are wrong; ask again politely in the Bitcoin Discussion section, and I have no doubt you will get the clear answers you seek.  Too many of the old salts here are not going to bother to post in the newbie section, or even read your complaints, to expect that the best responses are going to be found here.