Bitcoin Forum

Video: http://www.youtube.com/watch?v=cZp7UGgBR0I

Website: http://keepbitcoinfree.org/

Pretty simple right now, but this is the beginning. For those of you at the 2013 conference, I'll be giving a presentation about off-chain transactions on Saturday as part of the tech stream.

Reminds me of those movies where they start out with all this proven science .. Then suddenly go off on a batshit crazy tangent

Ah yes it was called what the bleep do we know

The video is really well done. I'm not sure where the tipping point is for the block size to push the little guy out of running a node, but surely it's a lot more than 1MB.

I love the idea of off chain transactions. Is it anything more than an idea at this point though?

Really nice site!

I though that too until I thought more deeply about how important privacy is.


Yes and no.

Off-chain is how the majority of transactions are probably performed on Bitcoin today: all the exchanges are off-chain for internal activity, The Silk Road and every site like it is totally off-chain, and then there's stuff like the recent Russian payment processor now supporting Bitcoin denominated accounts, again, off-chain.

However, the technology to do anything other than simply trust the payment processors is all stuff on paper right now. Some of the tech, like processors signing to prove they actually own the Bitcoins they say they do, is dead obvious that it'll work. The other extreme is stuff like fidelity bonded banks where we don't really know yet. Then you have in-between stuff like trusted hardware that has been used very successfully outside of Bitcoin, think smartcards, but whether that'll actually be seen on Bitcoin is an open question.

Of course, from the FinCEN guidance we've seen they're very against off-chain transactions and will consider it highly regulated. That's a tough hurdle for stuff like BitPay, although for anything underground they don't care one bit.

"Bitcoin is off the chain!"

Had to say it.

Peter, that is a fantastic video. I especially like the emphasis on off-chain transactions.

I would however add one thing at the end...

"And by the way, Litecoin (or other alt-coins like Novacoin) can ALSO be cryptocurrencies with smaller fixed limit blocks, allowing Bitcoin to raise the limit and the free market to appreciate which works best."

i think developing off-chain transaction technology is very important to bitcoin in the long run. however, until that is done, increasing the block size limit is still the only way to move forward. current consumer hardware can handle a lot more than just 1mb.
so encouraging users to support a 1mb limit is imho the wrong way. if we should go beyond 5, 10 or 20mb in the next few years is up to discussion. but staying at 1mb is just not an option. it will massively hamper short-term growth and thats too high a price to pay just to have every c64 be able to run a full node.

A testnet mega workout would be helpful.   I'm running a testnet node on consumer level (but decent) hardware on a decent (but home based) internet connection.  Perhaps we could all offer our computers to the devs to run a stress test on testnet?  We could try block sizes of 1-100 mb and see how it goes.

The important point of this is recognizing there is a set of engineering tradeoffs here.

Too big and everyone can transact but the transactions are worthless because no one can validate— basically that gives us what we have with the dollar.

Too small and everyone can validate but the validation is worthless because no one can transact— this is what you have when you try to use real physical gold online or similar.

The definition of too big / too small is a subtle trade-off that depends on a lot of things like the current capability of technology.  Retep added to my thinking on this by pointing out that anonymization technology lags the already slow bandwidth scaling we see in the broader thinking, and the ability to potentially anonymize all Bitcoin activity is protective against certain failure scenarios.

My general preference is to error towards being more decentralized. There are three reasons for this:

(1) We can build a multitude of systems of different kinds— decentralized and centralized ones— on top of a strongly decenteralized system but we can't really build something more decentralized on top of something which is less decentralized.  The core of Bitcoin sets the maximum amount of decentralization possible in our ecosystem.

(2) Decentralization is what makes what we're doing unique and valuable compared to the alternatives. If decentralization is not very important to you... you'd likely already be much happier with the USD and paypal.

(3) Regardless of the block size we need to have robust alternatives for transacting in BTC in order to improve privacy, instant confirmation, lower costs for low value transactions, permit very tiny femtopayments, and to (optionally!) better support reversible transactions. ... and once we do the global blockchain throughput rate is less of an issue: Instead of a limit of how many transactions can be done it becomes a factor that controls how costly the alternatives are allowed to be at worst, and a factor in how often people need to depend on external (usually less secure) systems.

...and also because I think it's easier to fix if you've gone too small and need to increase it, vs gone too large and shut out the general public from the validation process and handed it over to large entities.

All that said, I do cringe just a little at the over-simplification of the video...  and worry a bit that in a couple years it will be clear that 2mb or 10mb or whatever is totally safe relative to all concerns— perhaps even mobile devices with tor could be full nodes with 10mb blocks on the internet of 2023, and by then there may be plenty of transaction volume to keep fees high enough to support security—  and maybe some people will be dogmatically promoting a 1MB limit because they walked away from the video thinking that 1MB is a magic number rather than today's conservative trade-off.  200,000 - 500,000 transactions per day is a good start, indeed, but I'd certainly like to see Bitcoin doing more in the future.  ... But I suppose the community can work on educating people about that them with concrete demonstrations.  Thing like bg002h's suggestion of a maxed out testnet would be interesting in establishing exactly what the scaling limits of current technology are.

If you're concerned about anonymity, then above all you want as many people using Bitcoin for as many transactions as possible.  The weak link in maintaining anonymity will always be the person you are sending Bitcoins to.  If you're the only person who sent him Bitcoins this week, or this month, or if you're the only person who uses Bitcoin in your neighborhood, then you're not remotely anonymous.

I think you're mistaking the kind of anonymity being talked about here.  Say some random authority wants to force miners to only mine transactions that the authority approves of and not mine any that match some kind of blacklist, and to not extend any chains that contain violations of these rules.  If successful this would substantially undermine the purpose and goals of Bitcoin.

If it is easy to mine with relatively high anonymity— if you can validate on a single high performance server with a commodity consumer grade broadband connection and announce over tor or some other anonymity network— it would be difficult to impose such a criteria: too many miners would disappear into the mists if you tried, and so there would be no reason to try. If, instead, running a _validating_ node (much less a miner) requires a rack of expensive equipment and a multi-gigabit network connection that is far less clearly the case.

gmaxwell, it is always a relief to read your level-headed analysis of a problem after a serious amount of arm-waving and hyperbole.

The video is completely dishonest from the point where data-centers is mentioned. It makes the false case that up to 1MB blocks allow for decentralization and anything larger needs PayPal-like server farms for each node. It may be that the network would hum along fine with 2MB or 5MB blocks right now. We just don't know.

If Peter Todd had run NASA's Apollo space program no astronauts would ever have landed on the moon because they would still be doing Earth orbit missions, tinkering with the technology.

What is desperately needed is software that scans the Bitcoin network and provides metrics of exactly how much decentralization exists (by what ever measurement is sensible, such as propagating node-hours up-time) and plot this against average block size. Blocks are now about 0.18 MB each, so there is still time to gather stats and project how much fall-off (if any) occurs at values above 1.

retep, with your design, no more then 5 payment processors will have 80% share of all bitcoin transactions because this is how things work, you can take the clue practically from any other global market consolidation. So what is the point of having decentralized validation system if a user has to choose between 5 centralized solutions to make a transaction?

EDIT: just realized that some people may not understand the consequences. It will be super easy to regulate those payment processors and enforce arbitrary rules about what people can or can't do with their money.

At the same time, it's a video made in an environment where some people are saying that it would be totally fine to _completely_ uncap it or leave it up to some hash-power majority— some even going so far as arguing that people who urge caution have dishonest motivations.  It's outright toxic at times.
(I'd provide some citations— they're easy enough to find... but I think it might be a little unfair because in places where the debate has become heated some people have made arguments that I don't think they would have made outside of the heat of the argument, and I don't think they ought to be held personally accountable for them... the fact that the discussion goes acrimonious so easily is problematic, not the people)

I'm personally suffering some conflict over the "controversy" making needless drama and the fear that the video exaggerates some points while at the same time feeling thankfulness that someone has taken an extreme position that moves the middle and maybe makes thoughtful dialog _easier_  because careful discussion about the very real tradeoffs might suffer less from people blowing it off saying its a non-issue.  If you want to argue it's a non-issue, first you must duke it out with the one-meggers. In the mean time, people who want to think instead of fight are free to find the middle path.  I was also happy to see that the website linked from the video seemed to have a more even handed presentation.

I certainly think the nuance here is far more easily explained as a tension between two completely legitimate engineering objectives which we— as a community— have to carefully compromise over, rather than just some right vs wrong binary question of "is a bigger blocksize bad".

From one perspective— bitcoin as an unstoppable, unregulatable, absolutely trustworthy egold—  practically any block size is bad... smaller is pretty much always better. People are already using SPV wallets in large numbers because of the current cost of validating the chain, people are choosing centeralized pools over P2pool because of the cost of dealing with the chain. There is no doubt in my mind that this is already hurting the decentralization of the system to an unacceptable degree: Hacking or kidnapping just _two_ people (or hacking one and DOS attacking one or two others) is enough to do enormous chain rewrites right now. For untrusted high value transaction people should be waiting 10-20 confirmations now— or more: ASIC miner claims plans to have a signficant multiple of the whole network's hash rate in a few months: What if they already have it now?   Centralization creeps in easily, and it really undermines our security model... but at least being fully decenteralized is still _possible_, the centralization we see now is an artifact of the path of least resistance rather than a requirement at our scaling level.

And at the same time— from another perspective— Bitcoin as practical unit for common every days payment cheaply available to as many people as possible— practically any block size restriction is bad. It's also completely clear to me that transaction costs— even insubstantial ones— have already turned some people off from using Bitcoin. A tiny sub-bitcent fee is _infinitely_ worse than zero by some metrics. If we can first just accept that each of these views are valid conclusions from different objectives for the system... then after that we can have a polite discussion about where on the compromise spectrum the system will delivers the best value to the most people.

An interesting question that this begs is how do we measure the decentralization impact. Right now the best I have is basically a "gmaxwell-test"— what is my personal willingness to run a node given a certain set of requirements? Given that I'm an exceptional sample in many regards— including having hundreds of cores and tens of terabytes of storage— at home, if some scale level would dissuade me it's probably a problem.  Whatever qualities or flaws that criteria might have as an engineering objective, though, one way that it completely fails is that its not persuasive for other people. It doesn't form arguments that can act as a consensus mechanism, excepting insofar is that other people might apply their personal version of it and get the same results that I do.

I hear you, and agree completely. There are different visions for Bitcoin, some people are happy with a niche off-grid currency/payments system, some (more?) people are keen to see Bitcoin achieve greater goals, a global system which makes existing fiat currencies and card companies all but obsolete. Leaving those visions aside however there is indeed a middle ground on the block size issue between no-change and infinite blocks. I have always considered an algorithmic increase keeping ahead of demand as the conservative option.


Anecdotal evidence like this is helpful, but surely we can do better. This is the nub of the argument about Peter's video. He makes no attempt whatsoever to provide a numerical measurement of decentralization before and after 1MB average block sizes occur. Perhaps nodes should be able to issue query responses which contain information about their transaction handling capacity.


In Peter's vision of the future those centralized solutions will all be Fidelity-bonded (Chaum-trusted) banks.
https://bitcointalk.org/index.php?topic=146307.0

While I think the idea of them is very good, they must take market share of transactions on their own merits, not because Bitcoin is deliberately crippled.

I'm a bit puzzled why the people behind this video think that the _blocksize_ of all things is going to be the thing that pushes small miners out of business. Bitcoin mining is a simple, commodity business with serious economies of scale. Specifically:

* Buying 10,000 ASICs will cost you substantially less than 10,000x the price of buying 1 ASIC.
* A commercial customer buying a lot of electricity in volume will pay substantially less per kWh than a domestic customer buying a little bit.
* Setting up, monitoring and maintaining 10,000 identically-configured boxes will cost you orders of magnitude less than 10,000x the cost of setting up and running 1 box.

Bitcoin is designed to make mining a competitive market, so as more efficient miners show up, less efficient miners will constantly be finding that they can't operate at a profit and forced to close. The network connection for transmitting the blocks is a completely trivial factor compared to the raw economics involved in buying hardware and operating it to turn electricity into hash power more cheaply than anyone else.

Centralization of mining power may turn out to be a serious problem, but if it is, it's a fundamental problem with the Bitcoin design, not something that you can prevent by throttling the network to 7 transactions per second. The only way throttling the network might help would be if it kills Bitcoin's growth and makes mining so unprofitable that only hobbyists bother with it.

I read the thread but didn't find an answer to the question, was it posted somewhere else e.g. dev mailing list?

If the discrepancy was really that huge than surely some enterprising entrepreneur would capitalize on this opportunity by purchasing in bulk and redistributing individual units for a small mark up.


i think this is the opposite of the truth. many small scale miners have free electricity for mining as in land lords or parents dont notice a few extra watts.


This also is wrong i think. The heat given off by a single unit is an asset to many people in helping to heat their house, with 1000 units that same heat that used to be an asset becomes a huge liability. A single unit costs you nothing in storage if you happen to have a little free space in your room, storing 1000 units would be extremely costly.

That "small markup" has to cover delivery, support, returns and the cost and risk of holding stock, because sales won't be predictable, plus the distributor's profit margin. Someone paying wholesale prices has a huge competitive advantage over someone paying retail.


What proportion of people currently running ASICs do you think are running on somebody else's "free" electricity? Realistically, Bitcoin mining is now becoming capital-intensive, so the network isn't going to be mainly powered by people using it as a roundabout way to steal money from their parents.


There are some datacenter designs that trap the heat and use it for something useful - the classic one is colocating a datacenter and a swimming pool. In practice these have tended to have the same problem as doing this at home, namely that the logistics of putting everything in the right place and getting it running at the right time tend to outweigh the saving. This is particularly true if, like most of the places where humans live, your house is sometimes too hot instead of too cold, because you have to either idle your (expensive, fast-depreciating) hardware or eat the opposite cost of cooling, which will be much worse than a datacenter because your house was designed for living in, not getting rid of server heat.

Before we had GPU mining, then ASICs, this was sort-of feasible: You just need to run software on hardware that you already have, and since there's no capital cost it doesn't matter if you only run it some of the time. But once the hardware started becoming specialized and capital-intensive, as it inevitably did, mining was always going to move out of people's bedrooms and move towards getting done by professionals.

Edit to add:

Some people have made alt-coins that try to come up with proof-of-work schemes that are more resistant to capital-intensive, specialized hardware, and therefore resist the economic tendency to industrialization -> centralization (oligopolization?). IMHO if the OP's that worried about centralization he'd be better off working on one of those, and making clear from the start that _that_ will have a limited block size, probably smaller than 1MB. But it needs doing from the ground up, starting with the proof-of-work scheme - if it still uses proof-of-work.

Right now he's trying to stop people putting petrol in the car for fear of making it too heavy to fly, but his efforts are wrongly directed because there are much more serious problems in getting this particular car to fly, starting with the fact that it doesn't have any wings.

I see.  So you think such a blacklist is technically feasible?  How often would it need to be updated, in order to be effective?  How could it be enforced, unless the authority in question controls 51% of the network?

And, in the other case, all it takes to evade such regulation is access to a single miner somewhere in a region that is friendly to Bitcoin.  We can pretty much assume that will always exist, in one form or another, for the few who need it.

Yes, it's technically feasible. The thought is that the attacker (presumably a large government, or group of governments) would make laws forcing miners in their jurisdiction to follow their rules, not Satoshi's. The idea is then that if miners are able to operate anonymously we'd have a defence, because they'd all just hide behind Tor and the government couldn't get them because it wouldn't know who they were.

The problems with the defence are:

1) It's not enough for the miners to be _able_ to duck behind Tor and hide under the radar rather than comply they also need to be _incentivized_ to go off the radar. There would still be a chance that they'd get found out. ("With an electricity bill like that you're either mining bitcoins or growing weed, let's search your house and find out which...") Better to comply rather than risk going to prison.

2) Small-scale anonymous miners still have to out-compete miners who are working out in the open, which they can't do any more because Bitcoin mining is too capital-intensive, regardless of what you do with the block size. (See my previous post.)

3) The attacker wouldn't have to use coercion. They could use bribery instead. Anonymity doesn't help with that, because thanks to Bitcoin, you can bribe people anonymously. Decentralization doesn't really help either; If anything it makes it worse, because smaller miners have less to lose if their actions reduce the value of Bitcoin compared to the amount they stand to gain.

4) If all that failed, the attacker could just set up the mining infrastructure themselves. It's expensive to set up, but you make up for it in mining revenue. They have access to cheaper capital than the private sector, so they could probably just out-compete the non-compliant miners and drive them out of business. If they weren't able to operate as efficiently they'd need a subsidy, but only enough to cover the difference between their inefficient operation and the efficient private-sector operations, plus a little bit extra to make sure they wiped out their competitors' profit margins.

All this makes me think that the chances of the Tor defence being both necessary and sufficient are pretty minimal. On the other side of the equation, throttling the network and forcing transaction costs up takes away one really effective defence Bitcoin has against hostile government activity, which is the ability to take the world's payment systems hostage so that the government can't shoot it without hitting something it cares about. This is done by getting loads of businesses and non-profits using Bitcoin, right on the block-chain, so that everybody depends on Bitcoin and will stop their donations to any politician who messes with it.

In fact, if you were a representative of a hostile government or somebody trying to protect the legacy banking system, I think the most effective move you could make right now would be to make a video trying to persuade the Bitcoin community to cripple their own currency by throttling it at 7 transactions per second...

Videos argument is irrelevant because ASICS and the ever growing size of the block-chain, indeed the very nature of PoW will inevitably centralize all mining regardless of block-size.  Fundamental nature of BTC implementation lead to centralization and simply demanding that nothing change will not prevent that, the rules of the protocol constitute an unstoppable force or 'invisible hand' so to speak.

+1

Ding, ding, ding.  Hobbling Bitcoin transactions and mining over Tor is such a ridiculous solution that only those working for the "good guys" could suggest it with a straight face.

Like I've said before, a healthy and active solution of off-chain activity would provide the necessary user numbers to give the protection you (supposedly) seek.  Any regulatory attacks are going to be a broad enough brushes to impact all such economic activity.  You seemed to have no answer for that.

I also said back in 2011 that a viable way to attack Bitcoin might actually be to either leave it alone or foster it's growth and let it burn itself out (or mutate away it's peer2peer nature) due to uncontrolled growth.  The relative lack of molestation and surprisingly positive media attention that allowed/facilitated growth over the last few years makes me wonder if that was not a course of action chosen.  The likes of Chuck Schumer have been interestingly mum since their initial burst of verbal diarrhea.

Again, I see a light and highly distributed core value system with a myriad of off-chain solutions of different postures as being a pretty hard whack-a-mole problem to attack on a sustained basis.  Which is why it appeals to me.


I don't see it as crippling in the least.  Nor do I see a lack of room to grow at our current settings.  On the other hand, the fantasies of a one-world currency that are everything to everyone are almost certain to end in tears as I see it.

Very nice video, and another point did not mentioned in the video, if you change the block size limit, you will split the blockchain into two fork and cause lots of confusion

I always prefer speed over functionality when it comes to software, the functionality can always be done at user level with many local adaptation, good for scalability, good for a robust infrastructure

The video is too extreme for my taste. Obviously, a 2MB or 4MB block size limit will not kill bitcoin. I still applaud the author for pointing out the problem!

The basic idea is extremely sound: the block size limit needs to always be kept relatively small and increased only when there is actual transaction demand (not SatoshiDice). Running a full network node should not be too expensive and should stay available to hobbyists. This would keep bitcoin free and open, which is what we all want!

What "healthy and active solution of off-chain activity"? All off-chain activity occurs on centralized third party payment processors that you have to trust your coins with.

People seem to be convincing themselves that there is some awesome off-chain solution that doesn't exist. The only secure decentralized off-the-chain solution I know of is payment channels between two parties using lock-time that allow for fee-free micropayments, but this is only useful in a small percentage of transactions, where you have an ongoing financial relationship with someone, and since it still requires the creation of one on-chain transaction to set up the secure payment channel, with $20 fees, it would be almost useless.

This leaves relying on third party payment processors. With $20 fees for on-chain transaction, it would be expensive to get your coins out once you have transferred them to a third party off-chain processor. It's not like it is now, where you can easily get your coins out once you've deposited them at some website.

To avoid high fees, the coins will have to stay within a network of payment processors that have trust-based relationship with each other. They might settle the debts they have with each other at the end of each business day with large on-chain transfers, much like modern banks that use CHIPS (https://en.wikipedia.org/wiki/Clearing_House_Interbank_Payments_System).

It would be MUCH EASIER for a government to attack a large payment processor than a high bandwidth/hash-rate node. A node is mobile: it simply needs to connect to the internet to be active. A payment processor needs to rebuild those trust-based relationships with other major payment processors to be useful, so once it's shut down, it would take BTC a long time to repair.

The shut-down would be especially damaging to BTC because it would cost the many account holders $20 each to get their coins out. It's more likely that payment processors will transform into banks, in which case BTC will be just another type of bank credit, that's expensive to transfer and is closed in by all types of bureaucratic walls.

A solution that leads to a limit of 7 peer-to-peer transactions per second and $20 transaction fees is not a good one.

Just saying this doesn't make it true.  Can you actually answer any of my questions?

This regulation FUD is a complete canard, being pushed by investors with obvious agendas.  Quite frankly, I'm shocked that some of you are naive enough to fall for it.  Entangling Bitcoin with the existing financial system, and all the baggage that entails, would be the beginning of the end.

Perhaps Bitcoin can be shutdown within a country.  If so, it's their loss.  Perhaps Bitcoin could be completely destroyed by a motivated attacker that doesn't care about the costs.  This is widely recognized.  But regulated and micromanaged at such a level?  Give me a break.  They can't even keep banks from laundering billions in drug money.

Could the government shutdown your "off-chain solution"?

If yes, forget it.

If no, why?

There do exist such off-chain solutions that the government can't shutdown; keep in mind the Silk Road is a very simple off-chain transaction system and it has high resistance to government shutdown. With good auditing and punishment for fraud you can make off-chain systems where the operators can be totally anonymous, yet you can still trust them to hold some Bitcoins on your behalf. It's similar to how miners are anonymous to you, yet the incentives in the Bitcoin system are such that a 51% majority of them will not attack Bitcoin.

Don't forget that moving a lot of tx volume to off-chain systems makes it much harder for governments, indeed anyone, to track where money is flowing in the blockchain simply because that information is only available from a whole host of third-parties, or doesn't exist at all in the case of provably anonymous chuam tokens. Unless the people you are up against are arguing that Bitcoin needs to be shutdown because they can't track transactions, having less public information about where money is flowing gives fewer examples of dodgy transactions to point too. For instance right now due to how SatoshiDice bets are completely public it's easy for anyone to say the majority of Bitcoin tx volume is gambling, if SatoshiDice was using off-chain it'd be much harder to prove that even if you could get a list of addresses they were using.

I finally got a chance to see your new video. It's solid professional work, you have done a great job. You'll soon get another 2.5BTC from me by the same method I used before. (https://bitcointalk.org/index.php?topic=189792.msg1968200#msg1968200)

Nice to see that big 10BTC donation you got, and from an address with 125BTC! It really says something how many of the donations you have been getting all come from addresses with large balances of Bitcoins, about 250BTC and counting right now. It just goes to show how the people most heavily invested in Bitcoins are the ones with the most to lose from centralization and regulation.

Keep up the fight.

Thx for the reminder JD.  I sent a few more.

I was going to donate around .3 to someone, but I cannot for the life of me remember who.

I made a slight contribution to Jon Matonis while I was at it.  Not enough to warrant a dick sucking though...at least not enough to get a solid.

Ah...right.  Armory!  I don't actually use it, but they gave me a shirt at the 2013 conference.

Wrong.

It leaves a solution where my 'savings' are widely distributed all over the world on a system which is trustable because it is tight enough to be operated by a myriad of small players and enthusiasts.  (That would be Bitcoin.)

I would distribute out my spending money to various off-chain solutions which seemed the most promising to me.  Some might be attacked successfully and buried, and I might mis-judge some and they might rip me off.  Even if all of them failed, I would still have the bulk of my value in BTC.  I would probably only make several Bitcoin transactions per year.

This contrasts sharply with the vision of Bitcoin as a monolithic one-world currency solution which only large and well connected entities can profitably operate.  In that case a failure means the loss of all of my value*.

(*) Actually, my value is still in the block-chain and that, huge though it may be, would very possibly form the basis for value follow-on solutions, but the interim period would be protracted, stressful, and fraught with questions.  I'd rather not have to see it.

I keep hearing this statement, but never any numbers with it to back it up.  Would you mind sharing how you estimated this operating cost?

Focusing on the operating cost is wrong. The issue is the availability of anonymous bandwidth and that does not scale with technology. Unless you can mine anonymously the government has control over you, and therefor Bitcoin, and Bitcoin is not really decentralized.

But some people are happy with Bitcoin being ultimately under government control. That is why this is a political issue rather than a technical one, as Peter Todd keeps on pointing out.

I just did a quick calc and if 1/2 the people in the world did 1 transaction per day with a single solution, I get around 50,000 operations per second.

Someone at the conference (I heard, but did not see) mentioned that the number of cell phones vs. the number of bank accounts is about 5/1.  So, if Bitcoin became popular, and the movement toward more capable phones proceeds, it would likely result in a pretty large deluge of traffic.

I became concerned about scalability when reading the document on the main Bitcoin.org wiki.  Later (recently) I heard Dan Kaminsky refer to it as "the funniest document in the history of software engineering."  Which I consider one of the funniest comments in the history of software engineering.  And one of the saddest.

Now, I don't doubt that large corporations (who I can now name but will refrain from doing so anyway) can process that kind of data and much more.  And the intelligence information they could obtain in doing so would vastly exceed the cost of operating the system.  But it's not the Bitcoin which attracted me several years ago.  It is, in fact, the exact opposite.

So we wouldn't have to fear that it'd require an expensive data center to run a node?

Do you think some of these folks might just disagree with the claim that larger blocks would result in Bitcoin being ultimately under government control?  Which ones do you believe really are happy with this outcome?

It seems like you got a bit distracted while explaining your estimate of the operating cost...

Your savings would be locked in a p2p network that can't be withdrawn from without a $20 transaction fee. They would be safe from governments but not from competition that threatens to take over BTC's role as currency used for trade because of a myriad of reasons: lower transaction fees, status as 'coin of the realm' of a country in the case of fiat currencies, more merchants accepting the currency, etc.


This is just my opinion, but I think the vast majority of people would prefer a fully automated p2p network that's made up of thousands of nodes operated by enterprises, than a fully automated p2p network with hundreds of thousands of nodes operated by hobbyists, but with the disadvantage that you need to trust third party payment processors for any kind of real world use of currency.

If we're going to use proprietary networks (and they have to be networks to avoid expensive on-chain transactions) to transfer bitcoin credit, instead of bitcoin itself around, we can just use banks, or some successor to e-gold or something.

A bitcoin economy where you are reliant on using bitcoin-credit controlled by third parties is very similar to modern banking, and would probably have almost all of the same shortcomings.


Your vision requires large payment processors that are connected, in the classical banking sense of having trust-based credit relationships amongst each other, to form a proprietary network that allows you to actually use bitcoin in every day trade.

Bitcoin as a global scale network allowing millions of on-chain transactions per day, or as you put it, a 'monolithic one-world currency solution', was in fact the goal Satoshi Nakamoto set out for it:

http://www.mail-archive.com/cryptography@metzdowd.com/msg09964.html


Limiting Bitcoin to 7 tps in my opinion virtually guarantees it will never have significant impact, because I believe people will opt for government-regulated networks, or alternative blockchains, if Bitcoin, as a p2p network, loses its transaction fee advantage.

The 1 MB cap was put in place as a temporary measure, until a better way to control transaction spam was found. Trying to make the limit permanent is trying to change the vision of Bitcoin as originally conceived.

If I already had the backbone network, hardware, and certain proprietary technology, I think such a system would be a few $10M's to develop and maybe $10M per year to operate in conjunction with other services.  Plus legal and regulatory costs which could dwarf the technical ones.  Chump-change for a corporation who was positioned to leverage the solution's underlying value.  Starting from scratch, much more than that of course.  I'll bet that VISA has much much more into their system, but they started from a different time and have a tougher row to hoe.  Probably.  Wild guesses to be honest.

I'm interested in following how you arrived at these numbers.  E.g. what are your monthly CPU, RAM, and bandwidth costs to process, say VISA levels of traffic.  We can worry about legal costs after we figure out the technical ones.

Edit: I just noticed the last sentence where you admitted your numbers to be wild guesses.  Why are you making such bold claims based on admitted wild guesses?  This is a pretty important issue, after all.

The blockchain would also appear to me in this case to be relatively easily jammed.  What I mean is, say $20 is the upper limit on what people are willing to pay to transact over the blockchain.  With a 1MB block size limit, that's roughly 2000 transactions per block, or 288,000 transactions per day.  So it would cost roughly $5.76M to jam the blockchain for a day.  How many days could Bitcoin withstand such an attack before confidence is lost?  Also keep in mind that this number is fixed with the block size, so this can quickly become a cheap attack relative to the benefit of its success as the number of Bitcoin users grows.

Edit: In fact, I'm betting even just a credible threat to do this at random times would suffice to make Bitcoin appear too unreliable to more than a few businesses.

$20/transaction would be worth every penny to me for a system I could trust.  I pay more and get a lot less for bank wires.

It would also produce about $80,000 revenue for finding a block which should be sufficient to keep a _LOT_ of people in the game if they could do so with inexpensive gear that they could afford to lose.  That is the kind of network I could trust (unlike Cyprus's banking system, for example.)


I guess we'll see.  Right now I can and do trust a de-centralized bunch of commoners with GPU's poking out of milk crates with more value than I trust to Wells Fargo.  And for specific and distinct reasons.  The ad-hoc nature of the Bitcoin network does not bother me in the least.  Quite the opposite.  I consider it a great strength (in conjunction with the redundant nature of the design of the system of course.)

BTW, we do have a 'fully automated p2p solution'.  It's called the modern banking system.  The peers are the banks.  The clients are the plastic wielding public.  I fail to see much difference in a system you seem to envision where your vaunted 'enterprises' are the peers and the SPV users are the clients.  You think any 'enterprise' is going to stand up to the regulators or walk away from their investment?  Dream on.


Not hardly.  I see the off-chain solutions as being every bit as ad-hoc as the transfer nodes and miners (if need be.)  Every time one gets a mallet on the head, three more pop up out of a gopher-hole somewhere else in the world.  That, my friend, is resilience.


You simply could not be more wrong about this.


Well, he/they also have some half-baked privacy and internal auction stuff floating around in the code.  It's not like the guy was Jesus or something.  Ultimately the user's will decide although the actual developers will have a big influence in assisting those decisions.

Where do you live? In Europe you can use SEPA transfer across borders for just 1 euro (money next day). In my country I can get transfers between banks within country for free (money same/next day) or instant for 1 euro. How $20/tx bitcoin is going to compete with that? It's fantasy.

Fast-tracked, one might get the system going in a year.

15 primary engineers,$300k/year = $4-5M
30 secondary engineers, pm, marketing, etc = $7-8M
Dev/test infrastructure, $3M

Throw in a 2x safety factor and we're getting close.

For ongoing operations one will need not only their own backbone (if they have one) but an expanded presence near the edge (particularly if there is competition.)  So that factors in.  Probably it would not be possible to do without support for a monetary system, so $10M might actually be a low-ball.

And I've left out legal in both efforts (and lobbying) which will add significantly.

I paid $25 to get money to Tradehill when I was buying BTC.  And it took days sometimes for the transfer to go through.

Like I mentioned, I would go to my reserve like I go to my safe deposit box.  Irregularly.  So if I am paying less than $100/yr for something with the convenience of sub 1-hr transfers and the robustness of physical gold, that's and absolute fucking gift to me.

Lol, clearly I'm being trolled.  Nicely done :P

If bitcoin could be only useful for safe deposit it will not be used at all and have no value.

Oh, you mean like gold?

Not like gold. Bitcoin doesn't have value other than being good transaction system while gold does.
Moreover bitcoin security is directly proportional to miners revenue and revenue is proportional to transaction volume (after subsidy ends) so you cannot store to much value in it in relation to transaction volume.

But would it be worth it for the rest of the world? Again, just my opinion, but I think losing the ability to make a global transaction, that every other node in the world accepts, with transaction fees of 1 cent, would be more costly in terms of loss of Bitcoin's appeal to the average person than losing the ability to run a full node on an average PC.


I agree that block rewards are important, but there can be other ways of ensuring there are a lot of transaction fees other than having a 1 MB block size limit.


Fair enough. I personally am willing to see Bitcoin lose some of its ad-hocness in exchange for being able to use it any where in the world, which I think becomes much less likely if transactions are limited to 7 per second.




To explain why I think relying on third party payment processors is what would end up making the BTC-economy look like the modern banking system, and why I think it would be very un-adhoc-like if these third party payment processors were to handle global-scale transaction volume, I'll explain how I imagine it will work:

You have a merchant who wants to accept BTC payments. He can't accept them through the Bitcoin network, because transaction fees are $20, so he needs a payment processor. This isn't a removed payment processor like BitPay that simply receives BTC payments from customers and converts it to fiat for the merchant the same day.

The payment processor would need to accept BTC-credit from a customer, and then hold it in an account on behalf of the merchant or sell it to a party that would be willing to buy that BTC-credit, and deposit fiat in the merchant's bank account.

Accepting BTC-credit is not a simple thing. It means having to be able to trust the BTC-bank that the customer has BTC-credit with. The payment processor won't just trust any fly-by-night BTC-bank, since it hasn't proven itself trustworthy.

More likely, there will be a network of trusted BTC-banks, that have trust-based relationships with each other, and use a centralized clearing house, like modern banks do, to settle their debts at the end of each day with on-chain transactions.

Parties who can't join this centralized clearing house, because of their size, or regulations, or any number of reasons that people are currently locked out of the modern banking system, are effectively locked out of the BTC-economy.

Merchants can't accept their credit, because the payment processor they use doesn't accept the credit of any BTC-bank that doesn't participate in the same payment clearing network as them.

The competitive advantage of the parties that have large user bases, or are members of networks with a large number of members, would be too great for outside competitors to overcome, leading to a very centralized and static BTC-economy. It would be just like Visa/Mastercard, or the bank payment systems, like CHIPS.

Regarding the current banking system being a "fully automated p2p solution", this is not true at all. The current banking system is based on contractual relationships that require trust and regulatory access. A fully automated p2p solution has no contracts and every thing is done through protocol.

If a node in a p2p network goes down, no one loses their money, because it's a distributed p2p network where there are thousands of other nodes that store the same information. They communicate through the internet, and form a global network. Setting up a node is only a technical process, with no trust-based relationships required. As long as you have the bandwidth and hard drive space, you are equal in standing to every other node.


True enough. We should not assume Nakamoto was omniscient, and we should be able to change plans that he put in place.

I'm bringing this up though because we're talking about the vision for Bitcoin, since you said removing the 1 MB block size would go against your vision for Bitcoin. I think if we're going to have to decide between which vision to accept, those who want to keep the original vision start out with a stronger say than those who want to change it. Making what was planned to be a temporary block size limit into a permanent one should only be accepted if there is a strong consensus for it, not the other way around.


Very good point.

Bitcoin can't really drop block size limit. If it does you can easily dos blockchain by mining extremely large block with lots of small bogus transactions. How about 1 GB block or more? If miner succeeds network must transfer it and keep his work in blockchain forever. Minimum fees won't really work because miner will collect all fees from his block anyway.

Miners can prevent these kinds of attacks with soft limits, i.e. collectively refusing to build upon blocks that are "too large".

We either drop max size and then such block is valid or don't drop it so every miner refuses to accept such blocks. Can't have both.

Gold has about the same usefulness to people as does lead.  Yet it has a vastly higher value.  Why?  Because people have confidence in it.  It is distinctly NOT because it is good for transactions and it is very rarely used for doing so these days.

And Bitcoin is actually kind of a crappy transactional currency IMO.  It's got a lot of latency, some real questions about scalability, and some enormous privacy issues.  I'm almost certain that we'll be seeing solutions which eclipse Bitcoin in term of ability to support exchange functions for low-value transactions.  If that is the niche which Bitcoin targets I have very limited confidence that it will ultimately be competitive in that role.

I think you're misunderstanding the difference between the current hard limit, and the proposed soft limit.  A hard limit is where every node, mining or not, rejects a block for being oversized.  A soft limit is where miners converge on an appropriate limit amongst themselves, and non-mining nodes are fine with it being broken.  A soft limit is relatively easily changed, only requiring a large fraction of miners be on board, but a hard limit requires the entire network to switch in unison.  Much more difficult.

I don't think such consensus will be reached. Any rational miner would want to extend previous block, even if bigger than soft limit, because clients already accepted it and by mining it he gets less probability of being orphaned. And rouge miner could event put some bribe in his block to further encourage to mine on it.

I don't believe that things would play out as you imagine as long as the barrier to entry for being a payment processor is low (which, of course, facilitates both competition and the ability for a processor to take bigger risks as they have less to lose.)

The OP has a conception of payment processors being able to demonstrate proof of stake in backing store ownership.  I like this, but also things could work well with 'off chain' meaning being more completely de-coupled or trust-based.

I seem to have a little more confidence in the potential for crypto-currencies to de-couple themselves from fiat than do you.  In this case, the lubricity is high enough that exchanges can operate with very low overhead.

I actually have no huge problem with 'trust based' relationships at some levels in a system.  These tend to increase efficiency and work well for long enough durations that they are plenty useful for exchange functions.  Where they bother me is when I am thinking about a need for stored value decades out.

An off-chain processor who is more transparent and who devises mechanisms which preclude fraud and theft will be more competitive so I fully expect to see those who do the best job of this thrive and those who fail, perish.  And I expect that end-users will be able to make informed decisions about who to rely on here.

---

To me, Bitcoin is just the right size when off-chain processors can use it as a rock solid system for periodically squaring accounts, and most users can use it for a 'retirement' value store.

Bitcoin could have been designed better for this role, and could have had a life history which resulted in less cruft, but my read is that it is 'good enough' in this capacity and also that the 'being first' advantage may give it the power it needs to sustain.

Whether it's expected to be short-term profitable to enforce the soft limit, or try to break it depends on the fraction of total mining power enforcing the limit, the extra fees earned by breaking it, and the amount of external subsidies and which side these subsidies favor.  But the long-term interests of miners are also very important, and they clearly favor miners on the side of enforcing the soft limit in order to protect against bloat and to prevent any race to the bottom in fees, both of which lower future profitability.

So if the soft limit is set too low, then miners will have a strong short-term incentive to "break the cartel" in order to earn some extra money, and if it's too high, their longer-term interests will kick in in order to raise future profitability.  A balance would almost certainly be struck between these competing interests.

I just got around to having a peek at the web site now that it has some content.  Cool!

I implore you to 's/stenography/steganography/g' on both the site and in IRC ;)

  http://en.wikipedia.org/wiki/Steganography

---

I might clarify that my interest in Bitcoin and my interest in this aspect of Bitcoin is NOT really a reflection of my dis-satisfaction with our mainstream economic systems today.  Unlike many here, I think these are actually working surprisingly well.  My concerns are very much focused on what the landscape looks like tomorrow (figuratively speaking.)  And it is highly political to me.

Distributed crypto-currencies have a very real potential to be disruptive to mainsteam economic systems, and these systems are of extreme value politically.  We're not playing tiddly-winks here.  To be dismissive of the potential for a very significant backlash is unbelievably naive to me.  I would be completely amazed if 'the powers that be' rolled over and played dead as distributed crypto-currency technologies advance unless they have simply no other realistic alternative.  In other word, I expect every chink in the armor to be mercilessly explored.

idk if i like the idea of having to store bitcoin in centralized payment processors aka bitcoin BANK

music very repetitive gets annoying

hang on why does it become un profitable for miners when say the block size is doubled?

Also as BTC goes up by more usage, then fees become a smaller as a fraction of the BTC and so stay the same in buying power for power and hardware.

what am I missing here?

i guess, your already doing that when you send BTC to a website like https://www.havelockinvestments.com/ and buy and sell their bitcoin stocks....

their theory is that mining will require too much bandwidth if the block size is too high.

pretty soon you'll need a direct connection to the backbone to be able to download the blockchain fast enough, to be able mine. ( or somthing like that? )

this is make it impossible to be an anonymous miner in the network, very few people will be able to be miners, b4 you know it only a handful of miners have control over the network.


their idea is in the right direction, it would be cool if these payment processors could be built in such a way that they do not require trust.

some kind of automated bitcoin payment processing system that is open source and secure.
 not sure if possible... If not you'll need to trust your coins to a central entity to do these off chain TX

these seem like technical limitations that should be overcome given time and moores law, eg a120 GB a month internet account is not that much these days...and the speed is pretty good...many times faster than it used to be

there may be some innovations in the software that help as well

I am unconvinced about the central premise

the central premise is true, 1MB is the just about the limit for mining bitcoin under TOR.
not sure why we need to have minners run under TOR tho... its not like mining bitcoin is illegal

in any case their idea of a central processor is good for another reason, it would solve the need to wait for 6 confirmations problem.

Someday people are going to look at 1 MB like they do a 1 KB. Keeping it at that arbitrary size doesn't help anybody. I'm sure there is a decent algorithm that will allow for an increasing sized block without it ruining bitcoin's decentralization.

Furthermore, I still don't understand why full nodes don't receive some compensation? Why only miners?

The barrier to become a payment processor that has trust-based relationships with other BTC-banks would be much higher than the barrier to become a Node.

We see in the real world that financial systems built on trust become highly centralized, for reasons independent of regulations, like, well, payment processors, and the way people rely only on the largest networks (Visa/Mastercard/ACH).

This is because trust takes time to build. Centralized BTC-banks are also much more attractive to government as targets for regulatory action, because a takedown of one causes a disruption to the activity it's involved in and is not easily repaired (trust takes time to build).

Nodes on the other hand, because they are only one of thousands of nodes storing and propagating the same data, can be taken down without any disruption to the bitcoin economy. A node can also easily pop up to replace any that is taken down. It's only a matter of mustering the technical resources because no one has to be able to trust a node operator for the node to be immediately plugged into the p2p network. Hashes and digital signatures don't lie.


I'm not quite sure what you mean here. In which way have I shown little faith in de-coupling from fiat?


I don't have a problem with trust-based relationships in the BTC-economy as long as transaction fees are low enough so that people can very easily use the p2p network instead of third party BTC-banks, so that they have an alternative to trust-based networks.


We we can agree to disagree here. I think it's quite important to not have to rely exclusively on trust-based relationships for the main payment channels of bitcoin.


Again, we can agree to disagree. I think the value of bitcoin will be threatened by competition if its network transaction fees are high, which would threaten its role as a retirement value store.

jdillon, tbvconf and others: Thank you!

FWIW As it stands at I've gotten about $5750 worth of donations for the video, including the initial $3000 committed prior to making it, so I'm only about $1250 away from breaking even. I knew going into the project that I was taking a big risk, but in the end it's all worked out.

Again, thank you!

Despite my disagreements with the video I thought it was really well done. I hope somebody does something as equally good for the opposition.

I like this but I do not see where you fix the transaction fee problem. The video states that transaction fees will continuously rise due to small block size and increased adoption. So, you are basically advocating transaction fees in order to keep Bitcoin decentralized? This is where Ripple shines - no mining necessary. We need to reexamine other protocols as a community and stop trashing technological progress.

Wow i learned a whole lot reading this whole thread!

If anyone's interested in the anonymous mining issue, here's an informative exchange found in this thread: https://bitcointalk.org/index.php?topic=157141.0 (https://bitcointalk.org/index.php?topic=157141.0)

Personally, I'm fine with a situation where miners anonymously connect to pools that migrate to friendly jurisdictions, but that's just me.  And that's only the worst case scenario if the assumption that Tor can't scale is correct, which I've seen no argument for.  Perhaps retep or jdillon could explain this assumption here?

< I apologize, but I must trim a little for brevity. >


I do NOT believe that this is why we see centralization in mainstream banking institutions (to the extent that we do.)  The entire mainstream monetary system is built on a system of trusting the power of governments (and having the capitalization to influence them.)  To me, the centralization at the institutional level is most a reflection of the propensity for capital itself to centralize.

A system backed by Bitcoin (and thus, mathematics) will not be prone to the same innate pressures to centralize.  To me, the struggle to keep Bitcoin free of the pernicious effects of monopolization via the necessity for capital intensive systems.


You are basically making my argument for me here.  That is why it is critically important to me that the system remains lite enough such that the barrier to entry is minimal AND that the communication protocol is conduce to reliable function even under coordinated attack by network carriers.  Or at least the kernel of the system (i.e., Bitcoin) because if that remains functional, auxiliary systems can be re-born overnight if they are somehow killed off.

And as the OP points out and is in the process of demonstrating, it is perfectly possible for off-chain providers to provide as much proof (and as little 'trust') as they need in order to attract the users they want.

Lastly, with a very solid core (like Bitcoin of today) the trust between off-chain providers themselves needs to be minimal.  At most they need to trust one another only until the square up, and it would be foolish to put one's solvency at risk by extending this interval.

That was mostly a mistaken interpretation on my part of what you wrote.

A lot of arguments could be made about the causes of centralization, so I'll try to give a more specific example: Visa/Mastercard dominate credit card payments, and would dominate even with no regulations. Networks like this have a network effect. Whoever controls the network then becomes the central power in payment processing.

Merchants have to use their services if they hope to have access to the majority of consumers, and consumers prefer to use their network over those of smaller competitors, even if the smaller competitors offer significant advantages, because whatever those advantages are, they can't make up for the disadvantage of having a smaller network.

It's a snowball effect that's going to lead to a few large networks dominating. Unlike the bitcoin network, a BTC-bank network will require some combination of regulatory approval, trust-building, and fees to the party controlling the network for a participant to join.

This makes it very likely in my opinion to become something similar to the modern payments system, notwithstanding the absence of central bank control over the base currency.



With all due respect, you're missing my point. I'm comparing a few thousand nodes, requiring enterprise-grade hardware to operate, to a large trust-based network of payment processors, that need to stay online and undisturbed for their BTC-credit to maintain its value.

With the latter, there is serious disruption when payment processors within the major network(s) go offline: the BTC-credit they hold can become worthless. And it's not easily repaired (trust-based relationships take time to build).

The former is safe as long as the majority of nodes are operating. If one node goes down, there is no disruption at all to BTC transactions.

Given you need to have one or the other (a network of large nodes or a large trust-based network of payment processors), I would much rather have the former.


I need MUCH more convincing demonstrations that off chain providers can provide "as much proof" as nodes in the bitcoin network can.

My video was made by stonecanoe (http://stonecanoe.ca) - give them a shout.


You know, if you are happy with just assuming pools and nodes in general migrate to friendly jurisdictions you do have a lot of options. But Liberty Reserve just showed how seemingly friendly jurisdictions don't always stay friendly.

Any form of encrypted data transmission, including Tor, has problems in jurisdictions like China which simply throttle encrypted data. The cost to banning encrypted data entirely is just too much, let alone when you include stuff like steganography, (thanks tvbcof) P2P radio links and other exotics. A small blocksize, and off-chain transactions, gives you options.

After all, I've seen people argue that with tx hashes we could easily have a blocksize 5-10x bigger and still mine over anonymous data connections efficiently. That argument is based on taking the average tx size, (160 to 320 bytes) and just passing around tx hashes (32 bytes) instead when you create a block. (this assumes mempools are fairly well synchronized, a problematic assumption, let alone under attack) Well, that's great, but it just gives you 5x-10x better scaling. That doesn't buy you much exponential growth, let alone abusive uses of Bitcoin for things like timestamping that we just can't stop.

What do you do next if 10MB isn't enough? I firmly believe I don't really know what the future of Bitcoin is. I know I don't have a magic crystal ball, but I do believe in having options: http://www.youtube.com/watch?v=2Z902nIOvL0

I can't see why it matters if an evil miner fills his blocks with transactions that he hasn't relayed.  It doesn't put the Tor miner at any relative disadvantage, as he's still safe receiving the block data without Tor, correct?  Am I missing something here, retep?

That's only true if Tor miners are the majority. If they are the minority, and >50% of hashing power has fast connections, doing so puts that Tor miner at a big disadvantage, and is good for the miners with the fast connection by reducing competition. Keep in mind that it's likely that large well-connected miners will offer SPV node connection services in return for you not giving the competition a chance at mining those transactions and collecting the fees: https://bitcointalk.org/index.php?topic=197169.0

Natural monopolies are...well...natural in some environment.  Namely one's where the barrier to entry is high.  They are also artificially created when possible.  Visa/MC are probably a little bit of both.

I conjecture that efforts based on a freely accessible Bitcoin network will have a very low barrier to entry and can arrange an endless array of unique incentives so I very much doubt that they would fall victim to the natural monopoly effect.

We may have to agree to dis-agree on this, but it is pretty clear to me that we are both handwaving to some extent.


OK, even if Bitcoin growth happened to stop at a point when a few thousand entities could still operate it...

As I've mentioned on previous threads, there is much more value in having a broad footprint in the network and using it to harvest business intelligence information than there would be in collecting penny-ante fees.  So, entities who have a realistic ability to tap into this source of value will be able to subsidize the services they offer.  This will drive out competition and create a vicious circle of centralization. 

For an example of this, consider how e-mail has evolved over the past 10 years ago.  Relatedly, look at how much more centralized the e-mail solutions most of us use have become.  You think that this happens just because some CEO felt like giving something back to the community?  Think again.


I'm looking forward to his work along these lines.

I certainly don't assume they would.  But mining pools are a dime a dozen, and it's not really a big deal if a jurisdiction turns unfriendly and takes one or two out, as miners can seamlessly migrate to another pool in a friendly jurisdiction.  Engineering for the scenario that all jurisdictions across the planet have become unfriendly toward Bitcoin is kind of silly IMHO.

I'm not following why Tor is an issue at all in this proposed attack, since they're receiving all incoming data without Tor, at the same speed as non-Tor miners.  I'm really sorry if I'm just being thick here.

The miner on bandwidth limited anonymous connections will always receive an incoming block slower than someone located in a non-anonymous datacenter.

this is what I thought as well
...

need is the mother of invention

Actually it seems pretty clear already how this can be done.  Some of us have been thinking ahead :)  Here's a good summary of it by gmaxwell: https://bitcointalk.org/index.php?topic=137933.msg1596626#msg1596626 (https://bitcointalk.org/index.php?topic=137933.msg1596626#msg1596626)  Follow the thread/links back for more details.

One further improvement on this proposal is for nodes to partially verify blocks in order to make the block auditing more decentralized.

Um...  These attack blocks would be received on non-anonymous connections, as this behavior is indistinguishable from a non-mining node's.  Only sending has to be done via an anonymous connection, and as you mentioned earlier, this can be done quite efficiently (I thought transactions were more like 500 bytes, giving a 15x boost to scalability, but whatever.  Actually, as Mike Hearn mentioned somewhere on the forum before, only the first few bytes of transaction hashes actually need to be sent, so this boost can actually be quite a lot larger.).

Unless you mean the anonymous miner's non-anonymized bandwidth is likely smaller than a non-anonymous miner's, since the latter can use an efficient data center.  In which case, how much extra on-demand bandwidth beyond the usual steady transaction flow are you estimating is necessary to thwart these attack blocks?  Is this amount of bandwidth really only available to people who are willing to give up physical control of their machines?  Don't you think that any extra cost due to lowered economic efficiency might be externally funded by parties interested in preventing censorship?

You haven't explained why the tendency for a few dominant networks to arise, which we see in Visa/MC, would not exist with payment processors handling BTC-credit. BTC-credit is not BTC. BTC's decentralization doesn't make credit held by centralized BTC-banks less centralized. The handling of credit happens through traditional off-the-chain channels, where BTC's decentralization has no benefit.

Again with all due respect, it seems like the 'offchain' crew is making assumptions that are not supported by any real substance. The safer assumption, in my opinion, is that centralized parties handling BTC-credit will act like banks that handle other types of credit now, and will be vulnerable to the same type of pressure.


Ultimately, yes.


A 1 MB block size limit is not a solution to that. Whatever the risks are of having high-bandwidth requirements for nodes, they are nothing compared to the risks that would face unregulated high throughput payment processors.


Good luck. If you succeed, then you would have no reason to be concerned about a lifting of the 1 MB cap, as off-chain solutions that are as provably secure as the Bitcoin network would be the preferred payment mechanism of users, and most activity will take place off the chain.

And as I say, with all due respect, you seem to also.  I reject (fairly vociferously) that there would be a mechanism to promote significant centralization while you assume it would be the case.  I am certain that we won't see the kind of regulatory capture and verndor strong-arming that has put VISA and MC where they are.

Now, it may well be the case that people choose, en-mass, to use one payment processor for the other services they offer (authentication, convenient wallet access, whatever.)  That's lamentable, but it would remain a free choice since any number of alternatives would exist.

I actually think that a very likely outcome would be that people would choose a payment processor who was affiliated with causes they believe in for one reason or another.  Jesuscoin.org, greenpeacecoin.org, nracoin.org, etc.  (The latter will be for sale someday, BTW :) )

I'll be using some combination of native Bitcoin, some off-chain processor who respects privacy, one who is jurisdictional secure, and probably several who are associated with causes I believe in.  I expect to have a simple UI to effortlessly and inexpensively transfer value between the various off-chain solutions I use.


Soon.  As soon as we can find it in our hearts to stop stawman-ing one another.


Going full circle, the 1MB (or reasonable) limit is simply to keep the kernel of the distributed crypto-currency ecosystem widely distributed and having a realistic chance of survival under the most significant and coordinated of attacks.

I cannot say that I don't care about the 'spending money' second-tier organs (or 'off-chain processors') but they are in my mind very secondary and very dispensable relative to the actual value core.  They need to compete and offer more options to end-users which I see as a good thing and a much more safe outlet for the urge that everyone feels to have things grow and improve.

Bitcoin is not free, it's about $129 /BTC at the moment. The block size limit won't keep it free but it will surely keep it from rising much above $400, since as we hit the 7tps limit with actual useful (non-SD) transactions the limit will cap the adoption at that level.

Bitcoin is not THAT useful as a technology. Never was, never will be. If we artificially cap the transactions to some level (as opposed to letting the market decide) it will certainly make bitcoin even less useful.

I believe there would be a mechanism that promotes centralization, because there is a mechanism in traditional payment markets that promotes centralization, and traditional payment processors handle fiat-credit, which has almost exactly the same properties as BTC-credit.

You haven't explained why this mechanism, which we see in fiat payment processing, wouldn't be seen in BTC-credit payment processing, even though they both use the same type of trust-based credit relationships.


It's not a free choice though, because blocks are capped at 1 MB. If there were no block size limit, and they chose to use a centralized payment processor instead of the network, that would be a free choice.


This belief rests on the assumption that BTC credit markets would behave differently than fiat credit markets, which you have given no explanation for holding.


Which is no different, from what I can see, in believing that a jurisdictionally secure fiat bank can keep your money secure, and that there would be ubiquitous acceptance of credit from this fiat-bank among merchants. It doesn't happen now, which is why I see no reason it will happen with banks holding BTC-credit.


The way I see, you might as well expect a simple UI to effortlessly transfer fiat-value between various off-chain solutions. That hundreds of billions of dollars in investment in financial technology has failed to make that a reality thus far, makes me as certain as I could be, that it won't happen with BTC-credit either, because all credit works fundamentally the same way, regardless of the underlying asset that it's based on.


There is very little to attack if there's a 1 MB block size limit. BTC won't be a major player. It'll be centralized banks that handle credit redeemable in BTC that dominate the BTC economy, if indeed BTC becomes widely accepted, which I don't believe it will if transaction fees need to reach $20 to handle global scale traffic.

I'll grant that in the unlikely event that bitcoin succeeded under a 1 MB block cap, and this kind of economy came to be, at least the currency wouldn't be inflated by governments, but everything else will be like the modern financial system, as far as I can see.


Which I can't understand. Being able to spend BTC is what gives it value. Low transaction fees give it a competitive advantage. In my opinion, that is what attracts people most to bitcoin.


That's exactly how I see it.

Excellent work on the site and video! I don't fully understand the off-chain solution yet (will read some more on it) but you're doing great work!

snip - we are going around in circles on the likely look and feel of BTC-backed second tier processors.  We're not likley to reach a useful conclusion on this so we'll just have to wait and see.


There is no limit to the amount of value which could be moved around at 7 transactions per second.

If one could have the same confidence in Bitcoin as they have in gold, it seems likely to me that Bitcoin would end up acting a lot like gold does today on a global level.  While it is downplayed in the West, behind the scenes there huge stockpiles and large (often 'virtual') transfers of it.

In certain societies where there is a cultural affinity (e.g., India), it is common that gold his held as a individual or family store of value.  In other cultures it is not common to do so, but perfectly possible...and has worked out quite well for some.

Two huge advantages that Bitcoin (or something like it) have over gold is that it is inherently auditable and globally fluid.  The latter being important since the barrier to entry for anyone to own it is low.

If real Bitcoin grows to the point where only a relatively small number of highly capitalized entities can operate the system, Bitcoin loses it's value proposition as a reliable store of value.  At least to me and some fraction of the potential user-base.  And if it becomes even mildly popular (by my definition of popular) globally for raw native use, it WILL reach that condition.  In fact, if I were tasked with coming up with a strategy to destroy Bitcoin, this very well may be the approach I would take.

First off, I'm not a coder.

As I understand it, the block size limit can only be increased via hard forks which in the future with a much larger userbase and more diverse clients could become infeasible as it would take too long. If the limit is not increased regularly to catch up with increased demand, Bitcoin the block chain will essentially become a system for fat cats who can afford to pay hundreds of today's USD for a single transaction. There would be a divide between the 99% who have no choice but to trust a third party and the 1% who can make use of the block chain's properties. Mainly, no counterparty risk.

Therefore, the solution would have to ensure that the value of a typical transaction's fee stays fairly constant as Bitcoin progresses. Now if there was a way to do it like difficulty, measuring the average fees within a certain amount of blocks and retargeting the block size limit based upon a targeted fee, it would be ideal, but since we will become more reliant on fees given that the block subsidy for miners decreases, I have no idea if this could even be done on paper since that needs to be accounted for, and probably the valuation of Bitcoin would need to be measured too, which is impossible.

I heard about off-chain transactions, but I don't see how it provides non-chain users with 0 counterparty risk. Could users demand some form of bitcoin chain based contract that will release coins eventually if not paid out or withdrawn by the user on a certain date? I doubt it.

Seems like the future will be the lords with the chain and the chained peasants.

Bitcoin is, by design, a finite resource like gold.

I see no reason why cheap transaction fees will change the reality that the wealthy eventually obtain a fair fraction of the wealth.

In actual fact, it would probably be a lot easier for those with the financial resources to do so, to reach out and grab the BTC if they are flying around at high velocities as Joe Sixpack buys his morning coffee.

Keeping 'native Bitcoin' lite and accessible is mostly a mechanism to keep the actual 'lords with the chain' being pretty much any geek of any nationality situated in any jurisdiction.  Or even floating in the ether between jurisdictions if need be.

No, naturally Bitcoin changes nothing about inequality of wealth, but that's not what I'm aiming at. The vision of Bitcoin is to introduce digital cash-like transactions to the people rather than having them at risk for confiscated/lost/stolen funds, denied transactions etc.

How ironic would it be if today's "bankster elite" would be some of the only ones to enjoy the properties of Bitcoin all the while serving the 99% via coinbase and bitpay which they control?

I'm not really interested in debating the issue, since to me it's not an issue. Raising the blocksize limit is the obvious right move since none of the potential concerns (which are not significant) of less centralization due to raising it are worth the limitations it puts on the use of bitcoins, which would in fact make Bitcoin significantly less usable than it is now.

Of all the issues that have been on the table since I started using Bitcoin, I'm most strongly against keeping the blocksize limit as it is. I do understand the issues related to it, all of them, and I'm happy that we're not in a hurry to change it. There is plenty of time to think of the best way to change it. The limit is nowhere near problem zone right now. Eventually however, it will need to be changed.

I hope a super majority of the core Bitcoin community understands this and does not fall to this idiotic idea. The potential advantage of having a maximally decentralized core network only comes into play in extreme situations, while the potential disadvantage of limiting the usability of Bitcoin will come into play immediately, and basically will start making Bitcoin far less useful than it is and thus many users will move on to more scalable networks.

What we need is a scalable and usable payment network, which can be done with Bitcoin. Perhaps not for every microtransaction, but certainly for a lot of things. We do need decentralization as well, but I don't see a problem there either. The concerns over that are highly overrated. Mining and running nodes is already a very specialized operation, and it isn't a problem if it becomes a more specialized task. The network will simply be less decentralized, but that is not the same as centralized.

Very.  That is exactly what I see happening as the ability to operate the system progressively squeezes out all but the more well capitalized participants.

One big take-away from the 2013 conference is that most of the devs seem to have very few qualms about introducing 'taint' or 'tarnish' into the system as a means to deter crime.

If this happens at a time when the system is operated almost exclusively by entities who cannot walk away from the investment they have in infrastructure (because they are bound by corporate law if nothing else), I predict that it will be the end of core Bitcoin in anything like what we know it today.  This because the infrastructure operators will be under pressure to leverage the tarnishing system to achieve political goals and will have no choice but to comply.

End users who by necessity, are relying on SPV will have not much say in the matter if there are no SPV servers which they can attach to so they will mutter, but continue to upgrade to software which actually allows them to access their BTC value.

My first comment was based on the previous discussions over the issue. I decided to check the video, and as usual it has the same fallacies as the previous discussions.

First of all, hardware scaling. I agree that we shouldn't aim for a situation where only large datacenters mine and run nodes, certainly not. That is not what is going to happen though. Even with a 10MB limit and with current hardware, running Bitcoin either as a miner or a full node is not an issue in most places where Bitcoin is popular right now. I for one would have no problem running it with that limit.

A 100MB limit or higher? That's a different story, we can worry about that in the future, when the hardware will most likely be much better, and transferring the blocks optimized etc. Even with today's hardware limiting it to 1MB simply because of centralization fears is absolutely ridiculous. Not that it makes sense to change it right now, it doesn't, but once we hit the limit there is no good reason for not changing it.

The second fallacy is the whole concept of using payment processors for off chain transactions. If we do that, we end up with exactly the same thing as we have now with PayPal etc. I liked the part in the video which explained auditing off chain transactions using cryptography, well that is a great idea.

If that can be viable then I like the idea a lot more, since to me the main reason for using Bitcoin blockchain directly is that it doesn't need to be audited in any way, everything is right there for everyone to verify. I have great distaste for solutions where third party trust is required.

Also I didn't like the fact that people should lobby against any attempts at raising the limit. Not smart. Most people here are not for blindly raising it, instead a well thought of long term plan must be realized. I will lobby against stupid solutions but in general at this time there is no valid reason for raising it up to 10MB.

Higher than 10MB, I agree that there could be an issue with that. Higher than that is not required in a good while though. When a higher than 10MB limit is actually necessary, it's quite possible that the hardware needed to run the current implementation at the time is actually available for more people than those that have large datacenters.

I would suggest that we can support at least 50x the current block size with existing technology and easily keep the ability to run a full node in the hands of many consumers let alone computer enthusiasts. Hard drives in the 3TB are well with the reach of consumers and so are Internet connections that allow 500 GB of data per month. The more important point is that the price of storage, bandwith and computing power is falling faster than any reasonable growth of the Bitcoin network, so while in a few years we could have a block size that approached say 1GB a typical consumer and most certainly an enthusiast would have the computing power, storage and bandwith to be able to handle it.

Let us not forget that 100 years ago sending 1MB of data over the telegraph network would have cost about 50,000 USD in 1913 dollars. Well out of the reach of the average person, but something that J. P. Morgan, the individual, would have been able to afford. Should we limit future generations of Bitcoin users with a hard limit based on today's technology and cost, on the argument that only J. P. Morgan, the corporation, would be able to afford today what in the future would be easily accessible to large numbers of people?

When it comes to the block limit we need a dynamic solution that responds to network demand, difficulty and the real cost of bandwith, digital storage and computing power. If developed correctly this will allow the network to grow while at the same time ensuring that mining and the running of full nodes remains possible for consumers and computer enthusiasts.

By the way transactions outside of the blockchain are not the answer. To understand why one can read http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html (http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html).

Excellent post ArticMine. That is exactly what I'm talking about. In Finland there is most certainly no issue for mining or running a full node even at much higher blocksize limits. It will get tough for individuals after a certain point, but the point is nowhere near 1MB. When we need a number that's nowhere near 1MB, it's likely that the specs of our computers and network connections are nowhere near where we are now either.

So what we are talking about here is likely a complete non-issue. Mining incentive on the other hand is another issue but I think we'll get adequate hashing power with the current tx fees alone. Add assurance contracts or something like that in the future if it isn't secure enough.

Nobody is arguing that going much higher than 1MB is not possible as things stand today.

Some people are arguing that it is patently absurd that governments, when they feel threatened, will induce network carriers to attack solutions which threaten them.  I think these people are short sighted, and very probably fatally wrong.

It is also worth note that anyone who mentions HDD size either misses the danger issue, or expects that their audience will.

Bitcoin adoption is likely to be driven mostly by failures of alternate solutions.  It won't be at all associated with Moore's law (or Gate's law.)  So it is probable that adoption rates will be very spiky and not correlated with the steady (and imho unimpressive) increases in computer/network capabilities available to consumers.

Lastly, nobody in their right mind thinks that home users(*) are going to be running VISA+ scale systems.  So the use of native Bitcoin will increase until it stops increasing where-upon use will be off-chain in some form of another.  The only real question is do we stop when an ordinary geek could still operate the infrastructure?  When 'a few thousand enterprises' can?  When '6 large entities' own the blockchain?

I argue that the end result will always be off-chain transactions (hopefully of the variety ~retep talks about where the possibility of counter-party fraud is minimized) so we might as well stop growth when the actual core blockchain is as nearly universally accessible as possible.  Because, again, in that state the core system is nearly impossible to successfully attack.

Edit: (*) home users other than ~ArticMine.  See following post.

Actually some of us actually believe that this will happen in the near future. https://en.bitcoin.it/wiki/Scalability (https://en.bitcoin.it/wiki/Scalability). Take for example bandwidth. It would take 2.2TB a month for Bitcoin to handle the transaction load of VISA with a block size of say 0.5 GB. Well I can now purchase a consumer internet connection with 1TB of bandwith a month. So it is very reasonable to assume that in a few years 2.2TB of bandwith a month will be readily available to consumers. As for storage and CPU power this is even less of a concern.
 
By the way the amount of computing power available to consumers has been growing at an exponential rate. What has also happened is that the typical consumer computer running Windows comes with so much marketing bloatware and DRM that the perception is that there is no increase in computing power. Replace Windows with GNU/Linux and watch some really old hardware shine. By the way I currently run a full Bitcoin node on a laptop that is over 10 years old and has a Windows 2000 logo. The OS is GNU/Linux.

And this is where your hitherto reasonable arguments depart from reality.

Yes, you can stop Bitcoin growth, but you can't stop cryptocurrency growth in the worldwide market which is now well aware of the exciting potential future of currency and payments.

Leaving a 1MB concrete block on the track may derail the Bitcoin train, but what about Litecoin and others? As soon as Bitcoin fails to scale, another alt-coin will embrace a flexible or unlimited block size and probably seize all the momentum from Bitcoin's first-mover status which it will have just thrown away.

3rd-party, off-chain solutions MUST take loading off the Bitcoin blockchain organically, on their own merits, not because Bitcoin has been derailed in a high-stakes gamble that the market can be forced to behave a centrally-planned way.

I'd call it a much more high-stakes gamble to design around an assumption of a friendly and compliment operating environment and prostrate oneself to the tender mercies of the regulatory authorities and network carriers.  I'm doubtful that Bitcoiners will be getting the 'seven strikes' or whatever afforded to media pirates.

And if that is the path chosen, I hope that the stakeholders have saved up some significant lobbying funds.  Enough to get close to matching those of the financial industry.  I'll likely not be around to chip in.

I understand what you are saying, and agree with your response. Decentralization is the best protection against the risk of prostration before authorities which would have Bitcoin as subservient as Paypal/Mastercard.

It is just that inflexibility about the 1MB also introduces major risks. I really don't understand why some flexibility on this is impossible when one likely scenario is that block sizes may not even be 3MB when fidelity-bonded banks are up and running, and decentralization still healthy, enabling a smooth transition.

Glad to hear it.  I actually hold a fair amount of BTC (and no other crypto-currencies currently) so, in addition to believing that it is the right thing for humanity, I also believe that my argument is the right thing for my own pocketbook.  It is defiantly not BS that Bitcoin is valuable to me in direct proportion to it's resistance to regulatory pressures and other like attacks.


I think you will find that most people who think along the lines that I do are not glued to the 1MB number.  We simply want to be very careful about this aspect of the system as it is one of the more critical avenues of attack and points of failure.  Opening up the data rate it is what pilots might refer to as a 'box canyon' meaning one won't be able to turn around once it is entered.

I think that even some of those who are not as adamant on the point as I (and to be honest, not many people are) still wish to push into the limit a little to find out empirically what the economics are.  That will give more input into how to structure the engineering tradeoffs.

I would like to think that we have some time, but I do fear the potential for a external factor (such as the Cypress thing) to produce a flood of traffic.  I hope that people working both on the core Bitcoin and possible off-chain solutions of one form or another are at least considering this as a possibility.

For my part I mostly hope that as many people as possible are considering as many of the issues as possible once this thing comes to a point where it absolutely must be addressed.  We are yet in the almost embryonic stages of Bitcoin's lifecycle, and my confidence in this assertion waxes and wanes but tends to grow stronger by the month.

There are legitimate concerns with an unlimited blocksize limit that does not address the incentives for miners once the new coin subsidy is eliminated in a ballpark time frame of 100 years. This is the reason why a dynamically changing maximum blocksize must take into account the impact on difficulty. The other important consideration is that an increase in the blocksize must be driven by genuine transaction demand and not be the result of artificial manipulation. This is critical to ensure a decentralized network. While I do not believe that genuine transaction demand will lead to centralized control of the blockchain, for the reasons I have stated above, artificial manipulation can. For example if one were to allow the artificial expansion of the maxblock size to say that needed to accommodate 10x the current VISA transaction volume over say a 6 month period one will drive the little guy out, on the other hand a similar expansion over say a 10 - 20 year period will not.

I do not see transactions outside of the blockchain as the solution here simply because such transactions become replacing Bitcoin with either a regulated PayPal, bank transfer, Western Union, Credit Card etc option or an unregulated and illegal e-gold, Liberty Reserve etc., option. If one reads the Fincen guidance carefully one can understand why. Blockchain transactions can be unregulated and legal like fiat cash transactions, while outside of the blockchain transactions must be either be regulated and subject to centralized control or illegal.

One another note what exactly is the advantage of using Bitcoin with say a 40 USD transaction fee when I can send a bank wire transfer for less?

The only way to find out is to wait and see, but I think if you are going to promote maintaining an artificial limit on the number of on-network transactions, in opposition to the plans that had been in place since the 1 MB limit was first created as a temporary solution, you owe people a response to the points they raise, so that we can get to the nitty gritty of it.

We might not be able to convince each other, but at least others who are following along can examine our rationale in more detail.


I understand that, but my point is that a large part of the BTC transaction activity will be taking place in traditional credit networks if there's a 1 MB block limit and BTC becomes a global success, so while there will be a secure decentralized kernel/backbone, it won't be able to keep most BTC activity secure.

It's giving up decentralized payments as a solution for everyday transactions, to guarantee that decentralized large value transactions are secure from theoretical government attacks.


I think low-cost decentralized transactions > theoretical security advantages from having smaller blocks.



+1

I have.  Many times.  I believe I am more right than wrong about the nature of the off-chain solutions which are likely to appear under a truly free Bitcoin, and that you are more wrong than right.


Again, the point is that a second tier player is dispensable.  It will not be game-over if they fail, and they may fail for one of any number of reasons.

This is very much like the Bitcoin vs. Instalwallet issue.  I had a small fraction of my BTC with Instawallet and they lost them.  Bummer, but it was nothing at all like loss of access to the Bitcoin network would be.


And I thing that at some point there will need to be a choice between 'low cost' and 'decentralization'.  It is not right this moment, but neither are we even hitting the 1MB limit, and certainly not hitting it hard enough to understand the economics.


While you bring up the subject of risk again, let me point out one other thing.

Bitcoin used in it's native form has some severe dis-advantages.

 1)  It has proven rather difficult for individuals to secure their BTC value against loss or theft.  You can hand-wave about how this could be addressed, but ultimately you are betting that it will be, and given the state of computer systems and user mentality, I'm dubious.

 2) Bitcoin in it's native form has a fair amount of latency which introduces a huge inconvenience for purchases of things which are to big to walk away from.  Other current and theoretical systems lack this.

 3) Bitcoin in it's native form has some half-baked anonymity features which don't really work well (except for marketing the system to newbies.)

So, if you throw all of your (our) eggs into the 'best exchange solution ever' basket, you risk being overtaken by systems which are so demonstrably better that you fail.  You might have the fasted camel in the Gobi, but if you show up at the Kentucky Derby you are going to get slaughtered.  Even with a head start.

The funny thing is that a solution to all of the three, and probably the solution which will be chosen (by you), is, in fact...wait for it...off-chain transactions (and/or third-party assisted ones.)

Right, but I've given reasons for why I think you're wrong. You've responded to some of them, but for quite a few, you've simply said "I don't think that's how it will be" without giving reasons for why you think my reasoning is wrong, which doesn't showcase your rationale.


I understand, and this part is solely my opinion: I think it's better to swing for 95% (having a decentralized/low-cost option for everyday payments as an alternative to centralized payment processors) than guarantee 10% (decentralized large value transfers). The 95%/10% I'm just pulling out of the air to underscore the difference in the extent of success I see these two states as representing.


It's possible that you're wrong about larger blocks leading to the end of Bitcoin's decentralization/its-shutdown. I'd rather gamble on it, and risk Bitcoin failure, than guarantee a future where low-cost decentralized transactions on the Bitcoin network are not possible.

This is because I perceive the risk as much lower, and the benefit of low-cost decentralized transactions as much larger, than you do.


Having a financially viable option of using Bitcoin for your everyday transactions, instead of centralized solutions, I think has HUGE value. Even if most people end up using payment processors and transferring BTC-credit around on private networks, I think just having the alternative is useful.

Also, with low cost network transactions, a person can easily move their BTC from one private credit network to another. With $20 transaction fees, you're quite locked in once you've committed to trusting one private network with your currency.

You've conveniently ignored (and snipped) the salient part.  By focusing on the the 'buying your morning coffee' role for Bitcoin, you are betting that Bitcoin's head-start will be a sufficient advantage to compete with systems which do all of these things much better.  And compete in perpetuity.  That is, to me, a huge gamble (and almost a certain loser.)

Bitcoin has the realistic potential to shine as a trusted reserve currency if it retains a highly distributed profile and the security which comes along with it.  And it is a very high value (and much needed) role to fill.  I don't wish to seen that tossed out the window in pursuit of an untenable pipe-dream of the one-world currency for everyone.


As I've said, moving between different off-chain solutions should be frictionless and nearly cost free.  This is because the aggregate their transactions and perform them periodically.   If it's costing you something more than a trivial amount then stop using the ones which are screwing you and choose one of the many which are not.

The easy and free Bitcoin transactions did not save me from Instawallet folding because I would have had to have a time machine also.

Anyway, it would not be impossible to create obstacles to off-chain processors absconding with funds or using opaque and covert fractional schemes.  This was much less the case several years ago when Instawallet was developed.  Off-chain processors who do not erect barriers to fraud in this day and age probably plan on being fraudulent.  So, just choose a different one.

There are many low-value transaction types other than point of sale, and Bitcoin will always be at least an option in these. There's even a possibility that Bitcoin transactions will be an option in point of sale, if merchants are willing to risk double spend attacks like they risk credit card chargebacks and counterfeit cash today. There are also certain ways to use third parties to mitigate the risk of 0-conf double spends while still not having the transaction go through an intermediary.

I'm suggesting that maintaining the option of making decentralized low-cost transactions is healthy for Bitcoin, even if centralized payment processors end up being better in general and most transactions end up going through them.


Fair enough. I won't respond any more to this, as I'd just be repeating myself.


Even if you/someone invents a method that allows this, there will still be private credit networks that are incompatible with each other, and can only have BTC moved between them through the network. That's not something you can control.

Bringing back up the explanation:

  This is because the aggregate their transactions and perform them periodically.

I fully expect off-chain processors will both denominate in BTC and be able to prove non-fractional operations.  If that is the customer base they cater to at least.

For certain of my spending money stash,  I'll be looking forward to using off-chain processors who ARE using fractional methods.  This because they can pass some of the benefits that they realize down to me.  Of course I'll be demanding visibility into their books or they'll not count me as a customer.

You see, a world with choices is a much more fertile field to play in.  If there is transparency in the core reserve solution, there can be transparency in the second tier.  If there is not, there cannot be.  That is a giant void in our current mainstream monetary solutions and one of the reasons Bitcoin appeals to me.  It offers the potential to remedy this problem.

Sure, a blocksize limit is needed, we can't have blocks 10GB big, but the current limit of 1MB is definitely too low.

Anyway, i am checking the latest blocks, they are nowhere near the limit, why? most are 100/200kb big. But there are 19813kb of unconfirmed transactions.

Using an aggregator is not always possible and will not always happen. There could be two networks that have few transactions occurring between them. How are you going to transfer your currency from one network to another without a $20 network transaction in that case? Use Ripple?

Ignoring the fact that $20 was pulled right out of someone's ass at some point (and is doubled when it does not sound like enough to make a point...)

I mean they aggregate their internal transactions and square periodically with other entities when they need to.  If at the end of the day they have only a $100 imbalance, they don't even bother to square that day.  They'll just cover something like that with their own buffer of working capital.  In any event, the user see's a UI and can drag-n-drop funds as they please.  Again, with minimal fees.

Nobody really knows why Satoshi set things at 1MB.  He didn't leave a comment.

But an interesting thing happened on the IRC channel a few days ago.  The high priests got to scratching their heads about things and noticed that 1MB just happens to put things right near the edge of what is practical to competitively mine off of Tor.  That's how I read the conversation.  Coincidence?  Who can say...

What if the two private networks have no credit relationship and aren't willing to extend credit to each other until the BTC network payment clears?

How are you going to avoid a $10/20/30/whatever fee in that case?

Probably that number was chosen considering the current technology level. As internet connections get faster, it can be happily increased.

Congratulations on the conclusions made. They are exactly as if reading directly my mind. I'm speaking about that for almost 2 years.

What you are describing is nothing more than the clearing of cheques between competitive banks at the national level and it has worked well within a single country for well over a century. The trouble is that this does not happen effectively at all between competitive propriety e-money providers on an international level. Try moving money between say Perfect Money. PayPal, WebMoney, OKPay, etc and see how much you will end up paying in fees. By the way if this were possible in a cost effective manner there would little use for Bitcoin in the first place.

The key advantage of Bitcoin blockchain transactions have is that the end users can move the Bticoins themselves across international and sub national borders thereby freeing the respective MSBs from having to be compliant in, and develop trust in, multiple jurisdictions. This places Bitcoin in a unique competitive advantage over other forms of money transmission ranging from Hawala, to PayPal to Credit Cards to Bank transfers to Western Union etc.

Intermediary processors can realistically be no more free than the medium they process.  The costs of doing business with fiat processors is directly related to the fact that it costs a lot to comply with the the various regulations which they are forced to comply with.  Also, and hardly by accident, the barrier to entry is high fostering end-user gouging and stifling competition.

Off-chain Bitcoin processors would have none of these problems.  If Bitcoin itself can remain free, off-chain processors can as well, or at least have that possibility.  It is inevitable that open-source reference software which defines best-practice transparency and security will also develop and become the base platform which off-chain processors would use.  This would make the barrier to entry very low and their reliability to end users quite high from the start.

Of course off-chain processors who also wish to have a foot in fiat-land are a different story.  At least some of their fees will be much higher, and their life expectancy will not be very good.  I don't see off-chain transactions as the magic bullet for Bitcoin<-->fiat transfers, but I am hopeful that the need to do such transactions will decline.

I might add that if Bitcoin becomes a size when 'a few thousand' entities have the capability to operate the infrastructure, said entities will be at least the size of Dwolla, OKPay, etc.  And as history has demonstrated, they are far from immune from being pressured into whatever compliance is demanded.  Even if based in Russia.  I will have lost confidence in Bitcoin before it gets baited into that trap.

That is not clear.  It depends a bit on the attack surface that Tor exposes and how threats to it will be mitigated.

But if you wish to propose basing the block size limit on what technologies are proven to be able to work around coordinated network level attacks, it would be a metric I would be very interested in.

That's exactly how I see it, and what I've been trying to articulate to tvbcof.



I'm genuinely trying to understand why you believe BTC banks and clearing houses would be any different than fiat ones, and struggling to understand your reasoning.

How does the medium they process being free prevent them from being subject to the same inefficiencies, over-regulation, and centralization you see in other industries? Gold is free, but trading gold through an exchange is not low cost.

To me, it seems obvious that it's their size and immobility, which comes from the requirement for trust-based relationships between the clearing house and its members, that makes them choke points in a market, not whether they deal in bitcoin, dollars, euros or gold.

Any type of credit-based market will naturally centralize, as a result of people and companies gravitating toward the party with the most already existent connections, and that central point then becomes a critical and easily disrupted point in the industry.


It's inevitable? That's a pretty confident statement, which again, I can't understand the basis for.

Whether there is quality open-source reference software for payment processors and clearing houses is not even that important to my critique of your vision, just an example of one of your claims that I see as pure conjecture.


If there's a major clearing house that tens of thousands of BTC-banks use, it will be subject to the same regulatory obligations as a clearing house that fiat-banks use.


The central clearing house that your free BTC-credit transfers require will be orders of magnitude larger than these entities, which by the way is an exaggeration, as parties much smaller than Dwolla would be able to operate a high-bandwidth node, will be much harder to replace if taken down, is a much more attractive target for governments to attack, and will have a much larger network effect advantage that leads to increasing centralization than those peer-to-peer nodes.

I just explained it to you in what I thought were very clear terms.

Processors who deal with fiat are encumbered by all of the baggage that fiat systems and their regulatory apparatus bring along.

Processors who deal directly with a free Bitcoin blockchain simply don't have these problems to pass along to their customers.


You can try to employ various annoying rhetorical devices like labeling off-chain processors 'BTC banks' or 'BTC-credit transfer', but in point of fact, it is technically feasible to enforce just about any model one likes.

Other than that, you statement is hard to parse.  As best I can tell, the most legitimate answer to your concern is that, again, the powers that be picking off a second-tier processor is whack-a-mole and does not threaten the entire Bitcoin economy.  This is particularly true if pretty much anyone can bootstrap to being an off-chain processor by running some freely available software which I see as highly probable.

It would be most common, I suspect, that off-chain processors are incapable of inflating or stealing customers funds by use of multiple signature mechanisms and the like.  This contrasts sharply with our current banking model under fiat systems which are forced by law to give customer's funds back on demand.  Until the law changes as we saw in Cyprus.

That said, other flavors of off-chain processors are perfectly viable including those which could be legitimately labeled 'banks' or 'credit transfer agents'.  As I said, under the right set of circumstances which protect my interests I'd be happy to patronize them myself since I don't believe that they are inherently evil or whatever.

From a customer's standpoint, the choice of which processors to make use of shifts from an economic decision to more of a political one.  I'll be looking for diversity in terms of operational jurisdiction, transparency, customer privacy, promotion of mutual interests, etc.

And least we forget, a vast bulk of my assets would be sitting undisturbed and gathering dust in plain old vanilla Bitcoin with a paper wallet in a very safe place.

And I explained why I am struggling to understand your reasoning:

If there's a major clearing house that tens of thousands of BTC-banks use, it will be subject to the same regulatory obligations as a clearing house that fiat-banks use. All credit has fundamentally the same technological properties and reliance on trust, regardless of what the underlying asset backing it is. Any credit redeemable in a major global currency, which is what we're hoping BTC becomes, will be seen as equivalent to money, and handling it subject to the same financial regulations fiat currency is.


It's annoying to you because it exposes the kind of centralized, traditional financial system you want to replace Bitcoin transactions with.


Which ignores every argument I made with a handwave. Second-tier processors (which in reality are BTC-banks) are not all going to have credit relationships with each other. They will use clearing houses to avoid $20 on-chain transaction fees. Clearing houses have a tendency toward centralization, for reasons I explained:

Any type of credit-based market will naturally centralize, as a result of people and companies gravitating toward the party with the most already existent connections, and that central point then becomes a critical and easily disrupted point in the industry.

They become a choke point in the market, that is very difficult to replace, and easy to disrupt.

Ah, you are legitimately confused then.  If off-chain processors wish to avoid BTC transactions themselves when practical, they can probably trade directly with other off-chain processors on an exchange or via individual relationships.  That's a little tangential, but it is not critical to their operations nor particularly visible to their customers other than that it will further reduce fees and increase performance and feature set.

An exchange or 'clearing house' formed to facilitate such interactions is tiny and vastly more conducive to operating smoothly than one who deals with fiat.  They can easily lurk in the shadows.

Customer's of the off-chain processor still enjoy the protection offered by the Bitcoin blockchain and mathematics.  Off-chain providers who leverage such a 'clearing house' risk only what they have on balance since the last time they squared on the block chain.

tl;dr, the Bitcoin block-chain is THE clearing house.  Other auxiliary ones are perfectly possible.

So am I. Especially after reading the FinCEN guidance http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html (http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html)


The FinCEN guidance above makes it abundantly clear that this is not the case. It does not matter if the underlying asset is gold, USD, Bitcoin or any other form of money. Set up a MSB and one is subject to regulation.

This does not address the critical question of multi jurisdictional regulatory compliance and the sky-rocketing costs for the processors involved. Ever wonder why M-Pesa does not work in the US or Dwolla in Canada or Interac in China?

Of course a responsible off-chain provider (or any entity) will be complying with all regulations which apply within their jurisdiction.

It is perfectly possible, however, that at some point regulations might be promulgated exclusively for the purposes of protecting one's benefactors in an an environment rife with cronyism.  I, and I think others, seek a solution which could realistically bow out of participating in the aspects of such an arrangement which serve no useful purpose for in protecting the market participants and general welfare of the citizenry.

This is my main point of dispute with you: as far as I can see, there is no reason to assume these clearing houses will be tiny and would lurk in the shadows.

Clearing houses almost by definition are central points in a trade network, which gain efficiency in aggregation with scale (more volume = larger aggregation and lower transaction fees), giving the largest clearing house a natural advantage over the others.

For this reason, I think a Bitcoin economy reliant on traditional payment aggregation to keep fees down will end up with a clearing house that is as critical for straight BTC transactions as MtGox is for BTC-fiat transactions.


The blockchain is merely the network where the transaction takes place. The clearing house has to aggregate payments before clearing them.

Nope.  Aggregation will happen largely within the off-chain processor itself.  That is indeed their primary function and why they are helpful to the Bitcoin network.

If/when it is desirable to clear between processors it could be either through messaging or interaction on one or more light-weight exchanges and squaring on the Bitcoin blockchain, or potentially squaring on some other agreed upon medium.  The exact nature of the solution(s) employed depend a lot on the type of attacks (if any) they need to deal with.

I'm referring to aggregation of payments between BTC-banks (off-chain processors), not within them. These will go through a large central clearing house.


Which goes back to my main point of dispute with you, which I've already detailed: I see no reason to assume these clearing houses will be "light-weight". Every comparable real world market instead suggests a few, or a single large clearing house, that will handle almost all payment aggregation between banks. A centralized point where all inter-BTC-bank transfers go through would be neither light weight nor "lurk in the shadows".

If they are attacked successfully, they will splinter.  Just as will happen if/when Mt. Gox get's shut down.

Unlike Mt. Gox who needs to assume the overhead of operating in fiat-land, such (mainly optional) clearing exchanges don't.  This makes them vastly less capital intensive to operate.

Secondly, off-chain processors operate with some reasonable buffer and, to the extent that they need to use such messaging systems at all, can do so at an irregular and relatively low frequency.

Remember that what we are talking about here is not a layout of all transactions in the economy, but rather an aggregation of them which occurred withing the off-chain processor's space.  Even if they find it necessary to comply with cumbersome regulations within their jurisdiction, the only 'customer' then need to 'know' is the off-chain processor.  They simply don't deal with individual users.

But there's no reason to assume it will be attacked. Instead the clearing house could turn into a traditional clearing house that operates under the auspices of the regulatory bodies of multiple jurisdictions, the same way as MtGox is turning into a traditional financial institution.


Any centralized party handling credit will be subject to the overhead of operating in fiat-land. Fiat-land suffers overhead because it is credit-based and happens on centralized, market critical conduits, as a large BTC-credit clearing house would. Fiat activity that is not credit-based and does not go through these central clearing houses, like cash transactions, doesn't have the same overhead.


We're talking about how users would move their BTC from one BTC-bank to another when network transactions cost $20. If the lowest cost option is for BTC-banks to use a large traditional financial institution for clearing BTC credit positions, then the BTC economy will look like the modern financial industry.

Not at all.

Firstly, it is somewhat rare to move value from one processor to another vs. buying one's morning Java.  It's common enough for a processor to wish to optimize however.

Secondly, all of the people who did such a transfer in, say, one day would be balanced against those who did the opposite transfer.  If there is a notable difference in value which the off-chain processor does not feel like carrying, he makes basically a single transaction on the block chain which covers all of the day's activity.  This one (supposed) 0.15 BTC cost is then split amongst all of the customers in that time-frame.

Customers win by sharing the fees of a blockchain transaction and Bitcoin wins by lowering the data-rate.

---

You may claim that because this is somewhat similar to how banks work, it means that the entities will be just like banks.  I reject that because I claim that the things we don't like about banks are more associated with their dealing with fiat in todays climate than they are with the properties which naturally fall out of the search for efficiency.

It's not a processor, it's a bank. A processor merely processes your transaction, not provides you with BTC-credit in exchange for your BTC.

In BTC-land, it's not that rare to move your BTC from one e-wallet to another. If network transaction fees are $20, then you can't do it cost effectively unless it's a huge sum. The other option is a clearing house. Any sufficiently efficient clearing house would have to be large.

In a scenario where BTC is a major global currency, I see almost zero possibility that a large BTC clearing house used by thousands of BTC-banks would not be a traditional financial institution. We're not talking a few thousand transactions a day. We're talking hundreds of millions of transactions, worth hundreds of billions of dollars.

This would make a BTC economy with $20 transaction fees very similar to the modern financial system, where the lowest cost option for transferring BTC is established credit relationships between established financial institutions.

Not true (nullifying the arguments I snipped.)  Just because the payment processor is using some of his own capital to make transactions efficient does not mean that there needs to be a credit relationship between he and his customers.  And he could eliminate any unwanted credit relationship between he and his peers with a bond if they like.  This still allows all of the functions I described.

Again, I personally am happy in some situations to patronize processors who DO have some credit component if that is how they choose to operate, but they would not likely be my primary store of even my spending money.

I'm having trouble understanding your explanations now. They seem to be more convoluted and vague than they need to be.

A credit relationship exists as soon as a customer deposits BTC with the bank, and is given demand deposits in exchange. The demand deposits are credit, that others accept as BTC, because they trust the bank to be good for them.


Again, having trouble understanding what you mean.

Not exactly.

When a person deposits money in any modern bank account, the money both legally and in practice belongs to the bank.  They have a debt to repay to you.  This is not a big deal...it fails catastrophically only once every few generations and is not a major beef I have with banks.  But anyway...

It is perfectly possible to give something to a payment processor which he cannot buy coke with.

Say you wish to make a payment to Bob.  You can tell the processor, "you know that blob I gave you the other day?  I want you to turn some of it into value and give it to Bob."  The payment processor looks around and say, "I found Bob.  Sign this note which will allow me to give some of it to Bob."  I say OK.  Moments later, Bob has some value in his account.

This is a substantively different relationship than I have with my bank, and made possible with advances in technology which the banking system has not caught up with.  And are probably in no hurry to as it would ruin a fair fraction of their revenue stream.  The big difference is that the payment processor has no real incentive to steal my blob because it won't do him any good unless I sign it over to him.

I believe this is the structure alluded to in the video with the "Imagine a plexi-glass bank.  We can use the same methods used to secure the Bitocoin blockchain, blah, blah, blah" but I am only dimply aware of the precise implementation methods.

---

Allow me to bring something back from an earlier post of yours because it is awfully confusing:


This is not a completely implausible scenario.

Seems to me that there are two choices.

 - You transact everything on the Bitcoin blockchain which is in now way suitable for that kind of load and creates a single point of catastrophic failure.

 - You utilize a expandable pool of solutions which attempt to meet whatever challenges which pop up and use the Bitcoin blockchain as a static and robust source of truth.

I cannot imagine anyone in their right mind not choosing the latter as the logical way to proceed.

I do not understand why a miner-voted blocksize limit would be a bad thing. We can even make it very conservative by requiring a high supermajority in order to adjust the limit. Also, this could be implemented as a semi-hardfork (as far as miners are considered; it is unfortunately always a hardfork regarding non-mining full nodes). Just consider not voting a "no change" vote.

Miners have an incentive to try to maximise their real revenue. Too high limit would mean lower fees, too low limit would mean less transactions and lower purchasing power of BTC. The voting process would find the equilibrum where the purchasing power of the miner revenue is as high as possible.

Of course miners wouldn't be voting manually, for the most part. They'd use algorithms that would decide for them, trying to find the ideal strategy for the individual miner.

Let me first clarify, as my terminology might be unclear/confusing. I'm referring to "bank credit" not as credit extended by the BTC-bank to the consumer, but in the context of credit as a 'claim on an asset', instead of the actual asset. In other words, these promises to pay BTC on demand is what I'm referring to as 'bank credit', and this trust the customer puts in the BTC-bank to pay them back in BTC when they demand it is the 'credit relationship' I'm referring to.

I see a Bitcoin economy reliant on these promissory notes, because a 1 MB block size limit pushed transaction fees to $20, as a perversion of the original promise of Bitcoin. I think relying on BTC-banks and clearing houses to transfer claims on BTC, rather than BTC itself, would take a sledgehammer to Bitcoin entrepreneurship.

My website btctip.com is a good example of an amateur startup that couldn't operate in this high-powered expensive BTC world. On a very active week, I have maybe $20 worth of transactions into/out-of my site. Without low-cost network transactions, these tiny deposits and withdrawals would not be possible.

Instead I would have to accept BTC-credit (promissory notes). In order for my users to deposit BTC-credit into my site, I would have to become a client of a BTC-bank, and my customers would have to have accounts with the same BTC-bank, or a BTC-bank with a credit relationship with my bank, allowing for migration of BTC-credit between accounts on the two banks. This would be difficult, and would probably only give me access to a small percentage of BTC users, rather than all of them, as I have now.

My ability to allow my users to withdraw would likewise be limited to the banks I can manage to connect with.

I would not develop a site in an economy like this, because there would be too many obstacles, my market would be too small, and my disadvantage relative to big players too big.


You're talking about advances in banking, not in Bitcoin. These same technologies could be used in fiat banking, since they're just transfers of claims, that could be for any asset.

To claim that you're going to develop the technology of modern banking so that a Bitcoin-economy reliant on banks is as easy and seamless as one reliant on nodes is pie in the sky idealism that should not be a factor in deciding what to do with the block size limit.

i concur

Good heavens!  You are already an off-chain processor.  This is great!  It's pretty much sinking in to most people by this time that micro-payments are unrealistic, and a lot of us (including myself) are disappointed...even if we saw it coming years ago.  That is indeed one of the driving forces behind wishing to have a robust 'off-chain' set of solutions.

Your case is a perfect example of a much needed niche to be filled.

If I, as a plain-jane user like someone's micro-blog and wishes to give a micro-transaction in appreciation, I would be happy to see a known entity like 'bittip' or one which I could easily verify as an entity who uses best-practice technology which precludes fraud/theft and produces some reasonable level of transparency.  Happy enough to vastly increase my deployment of 'tips'.

I do anticipate that the same methods which protect your customers from you will be accessible to protect you from any counter-parties you might do business with in an attempt to streamline your operations and reduce costs.

Bitcoin seems like some magic bullet which makes everything free and easy at this point, but that is mainly an artifact of it's being a tiny tiny spec in the global economy at this time.  It will become more expensive and complex as it grows.  We have entities chomping at the bit to subsidize the cost of this growth because they would like to capitalize on some of the value streams it offers.  The larger the entity, and the more they can monopolize the infrastructure, the more value they can realize from the solution.  I, and others, really don't want to see that become the future of Bitcoin.

So how exactly you are going to fund your bittip account? Will you be forced fund it $1000 at once just to get reasonable fee? Great user experience :)

In practice, there would probably be three options from the perspective of the micro-blogger.  (Using $ terms for simplicity.)

 - If the tips are, in the range of $0->$10 per month, just provide reference(s) to other processor(s) which are used.

 - If the tips are in the $10->$1000 range, count 'bittip' as one of the off-chain processors you use.

 - If the tips exceed $1000/mo, request native Bitcoin blockchain operations.

In no case would an up-front deposit be necessary for the micro-blogger.

As a person who wished to be the tip-er, I would anticipate choosing one of the off-chain providers I choose to patronize as the sender.  If I was really into giving tips I may go ahead and set up an account with 'bittip' for that reason alone, but I don't expect that that would be terribly common.

What one would really do facing such options? Use Paypal, dwolla or whatever ;]
You forgot one tiny thing: no one is forced to use bitcoins. If it sucks so much as you describe just don't use it until it is fixed.

Currently Bitcoin is fantastic (although not perfect.)  This is understandable because it has not yet been forced to deal with the engineering, market, and political challenges which will appear with significantly increased utilization.

The goal for me here is the try to help ensure that Bitcoin does not fall into the same category as Visa/PayPal, etc.

I've always said that I actually like and prefer Visa/PayPal for certain things at this time.  Most of the things I do in fact.  Bitcoin, however, offers so unique advantages which Visa and PayPal cannot match.  I use Bitcoin for these things (like storing wealth securely, making donations, etc)  and I very much do not wish to see these things vanish from the suite that Bitcoin offers.

The blockchain is not currently increasing in size linearly in a straight line, as you can see here:
http://blockchain.info/charts/blocks-size?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=

It is increasing exponentially because we are in the adoption stage where more users are added.  Once bitcoin reaches its potential market size, or once it hits a blocksize limit, the blockchain size will increase linearly.  We will never see sustained exponential growth in the number of monetary transactions that humans need to conduct.

Bitcoin merchant adoption and transaction fees have grown 1000% over last year, which is an extremely high rate that temporarily outpaces hard drive capacity growth, but this cannot be sustained very long.  Hard drive space and internet speed show no signs of slowing their exponential growth rates, so they will always outpace the bitcoin blockchain in the long run.  Exponential growth will always win out over linear growth.  People will be able to store the blockchain on their personal computers forever.  Removing the blocksize limit doesn't change that.

There was a recent article in Bitcoin Magazine that analysed the blockchain size, but most of their articles are not available online.  The article looked at some worst case scenarios, and even using really conservative estimates, 20 years from now people will easily be able to store the whole blockchain on their phone and download the whole thing in a few hours.

Hard drive capacity over time:
http://www.effortlessis.com/Hard_drive_capacity_over_time.png
http://3.bp.blogspot.com/-ZaDXjJGTBrI/TwG3zAN3NhI/AAAAAAAABcw/Cy_I3tdTHPU/s1600/Untitled.png

Bitcoin Magazine is assuming technological growth continues to grow exponentially. Unfortunately that's an extremely optimistic assumption at best. For instance, the width between the smallest features on transistors will be on the order of 10-20 atoms in just a few more years, and frankly no-one in the industry has any clue how we're going to do much better than that, or even if we can. (I work as an electronics designer) Additionally the cost of chip fabs is already to the point where the whole world economy can only support about 10 top-of-the-line fabs, and that number has historically gotten smaller for every technological iteration.

You remind me of the people who were predicting flying cars back in the 60's on the basis that airplane technology had been improving exponentially prior to the 60's. Everything looked great... until they hit the physical limits of the technology.

In any case, focusing on raw technology is missing the point: what matters is censorship-proof network bandwidth. Unfortunately that doesn't scale with technology improvements.

People have been calling for an end to moore's law for decades and been wrong.  Besides, the only important parts of moore's law here is hard drive capacity and internet bandwidth, not CPUs.  These are not going to slow down their exponential growth any time in the next decades.  Hard drive capacity in particular seems likely to have radical breakthroughs that smash the pace of moore's law.

Flying cars seems like an ironic example to choose.  We already have flying cars.  They will get popular once some infrastructure is built and the price comes down a bit.
http://www.youtube.com/watch?v=nnF2yua4KIw
http://www.youtube.com/watch?v=CajAq6ndJYE
http://www.youtube.com/watch?v=FY85eExk7Zo

Also, by 2030 we will be able to fly London>Sydney in 1 or 2 hours with hypersonic aircraft.

Why do you think censorship-proof network bandwidth doesn't scale with technology improvements?  You think TOR would be just as fast if we were all running 14.4k modems?  You think TOR will be the same speed when we all have 1gb internet connections?

We should only expand block size when there's a legitimate bottleneck. Satoshidice and other "on the chain" services does not count. Neither do small value transactions that can be settled by off the chain transaction providers. If you take away all of those, we have plenty of room to grow.

Only problem: moore's law doesn't apply to bandwidth capacity. Case in point: I'm still stuck with my ADSL 1 internet. My other option is VDSL or DOCIS 3.0 but they are only offered by incumbents and they have a cap of 80 GB/month.

Out of interest, what's the specific cost per transaction, in USD, that you think will price out Satoshi Dice while keeping things that are "legitimately" on the block-chain viable?

Don't be ridiculous.  Moore's law applies to bandwidth just fine.  In fact it seems to be speeding up.  The law does not fail just because when fiber is rolled out, it is not installed in your particular house.
http://www.cabletechtalk.com/broadband-internet/broadband/broadband-speed-and-moores-law-a-response-to-robb-topolski/

1980:  300 baud
1990: 14.4k
2000: 384k dsl
2013: 1000mb fiber

Nielsen reckons network growth is a bit slower, but still exponential. He has network speed increasing at 50% per year, while Moore's Law works out at about 60% per year.
http://www.nngroup.com/articles/law-of-bandwidth/

Now we have exponentially growing bandwidth capacity that WE CAN'T USE. nice! Tell me, how many locales in the americas can you get 1 Gb/s fiber?

You're not addressing my points here:


But I still need low cost transactions to allow users to deposit and withdraw, otherwise even the <$20 worth of deposit/withdrawal activity that happens per week wouldn't happen.


That's tangential and not an explanation for how I would run my site as it is now.

My site doesn't have professional security measures/best-practices in places. It's an experimental site I run on the side so users do not trust it with more than $20 worth of BTC deposits per week cumalatively. With a 1 MB block size limit and $20 transaction fees, my site would not be possible.


Transactions don't need to become more expensive as it grows. We can simply not have a 1 MB block size limit.


There's no evidence this is happening.


First of all, as I've mentioned before, it's not "other processor(s)" we're talking about, it's "other banks". If btctip were to provide a reference to a BTC-bank, it would cease to be dealing in BTC. Instead, it would be dealing with BTC-credit.

To explain further, let's say one of my users has BTC deposited with MtGox. He wants to deposit some BTC in my site, but doesn't want to pay a $20 transaction fee, so provides a "reference" to some of the BTC he has stored at MtGox.

I therefore receive some of the BTC-credit (promissory-notes), as opposed to actual BTC, that is backed by the full faith and credit of MtGox.

Overtime, the BTC-credit deposited at btctip would become an assortment of promissory notes from various BTC-banks, each with a different value depending on how much the backing bank is trusted.

If one of my users 'tips' another user, my site would have to try to determine which type of BTC-credit to transfer. Remember: I don't have any actual BTC deposited at my site, just promissory notes, issued by different BTC-banks. There would be no obvious way to do this. My site would not be possible.

In this economy, only the largest BTC-banks would have universally trusted BTC promissory notes, with most users opting to their credit. This would create a tendency to more centralization of the BTC-economy around a few large financial institutions, with small players like my website being completely dependent on them.

The power of the largest BTC-banks would be like the power large financial institutions have today. They would have the power to exclude anyone they wanted from using their services, and those excluded would be at a severe disadvantage relative to those approved by the large BTC financial institutions.

This is why I see a permanent 1 MB block size, that forces transaction fees to $20, as going against everything that makes BTC useful.

Are you ******* serious dude?  You obviously don't have a clue what moore's law is.  Hardly anyone had 384k DSL at the turn of the century either.  Change it to 2013: 20mb.  It still follows moore's law.  Did you even see the freaking graph I posted?  World internet bandwidth has gone from less than 1,000 Gb/s in 2001 to 80,000 Gb/s in 2011.  It's too bad they missed your house, but stfu about it.

I anticipate that what will develop will be a selection of turn-key engines which will gaurentee to people like me that people like you are running a service which is highly likely to be legitimate and will achieve the result I want.  As a bonus, it will be free to you.  You can then focus on value-adds which are important to your customers.

Everyone wants a free ride on the blockchain.  If it's offered I'll hop right on (as outlined in my sig.)

At this point I still hold hope that Bitcoin proper can evolve to form the backbone of a solution that we, as citizens of Planet Earth, badly need.  If Bitcoin can move to that role without being 'PayPal-ified' by well capitalized corporate interests it will be better for everyone.  Or everyone I care about, at least, and that certainly includes efforts such as 'bittip'.

---

I'm sorry to snip the remaining, but I'm exasperated with this conversation and I don't believe that it is achieving much for anyone at this point.  Once some other material which explains the basic problems, principles, definitions, and possibilities makes it's way around, we can re-visit some of this stuff.  These were only touched on in the vid due to lack of time and lack of development.

I'm in the rural Western US.  The only hard-line I have is POTS which on a good day gets 19,200 bps.

Since mid-2012 I've been able to have a surprisingly usable satellite connection (Exede) but it goes down for long-ish periods quite regularly and for $80/mo I am capped at 15GB per month.  It also has typical satellite latency which impact certain software architectures.

---

I'm not suggesting that Bitcoin be designed around allowing me to be a peer (though it would be nice if I could be.)  The main reasons for this are that it would be to limiting to be realistic, and it would not offer the protection against system level attack to make it worthwhile.

  edit: bps, not kbps.

Right, I wouldn't be surprised if Grue's ADSL connection was hurting the ability to mine profitably even with the current block sizes. If you have to pay the same as your competitors for hardware and electricity, a competitive market should punish even a fairly small persistent disadvantage that your urban competitors don't have. In the same way, there will be large parts of the world (including here in Tokyo) where you can't mine profitably long-term in a seriously competitive market because electricity costs too much.

If we're thinking about system-level attacks, the relevant people to think about are the people who actually will be doing the mining, and we should assume that in a competitive market, everything about their setup will be reasonably well optimized. That makes high-end connections the relevant factor here, and they may even be growing _faster_ than Moore' Law.
http://www.sqw.co.uk/sqw-commentary/the-urban-rural-digital-dividewider-and-wider

(Overall bandwidth seems to be growing a bit slower than Moore's Law, presumably because the connections of unlucky people like tvbcof and grue in rural areas of countries with disfunctional telecom markets pull down the average...)

We are probably not.

The attacks which concern me the most have to do with deep packet inspection, near real-time network mesh analysis, and targeted packet filtering.  And relatedly, discrimination of encrypted traffic that was not encrypted in an 'authorized' manner.

I don't believe that "Moore's Law" is really very applicable to Bitcoin since Bitcoin is very much in it's infancy (among other reasons) but I won't overload this note with that topic other than to say that "Moore's Law" almost certainly helps the likely attackers of Bitcoin more than it helps the defenders.

Are you kidding me? You're anticipating turn-key engines that solve internet security once and for all and allow anyone to build a BTC-accepting site with minimal cost like that and have everyone trust it?

You also evaded my point about BTC-credit not being fungible:

To explain further, let's say one of my users has BTC deposited with MtGox. He wants to deposit some BTC in my site, but doesn't want to pay a $20 transaction fee, so provides a "reference" to some of the BTC he has stored at MtGox.

I therefore receive some of the BTC-credit (promissory-notes), as opposed to actual BTC, that is backed by the full faith and credit of MtGox.

Overtime, the BTC-credit deposited at btctip would become an assortment of promissory notes from various BTC-banks, each with a different value depending on how much the backing bank is trusted.

If one of my users 'tips' another user, my site would have to try to determine which type of BTC-credit to transfer. Remember: I don't have any actual BTC deposited at my site, just promissory notes, issued by different BTC-banks. There would be no obvious way to do this. My site would not be possible.

My friend, your solution would not work. We cannot have a 1 MB block size limit and $20 transaction fees and see a successful Bitcoin. If you can't use Bitcoin transactions, then it's not Bitcoin. All of the innovation and flexibility that one sees with BTC e-wallets springs from the low cost to deposit and withdraw BTC to/from those e-wallets. Take that away, and you have the modern financial system and all of its inefficiencies and limitations.

'satoshi' did it.  It's much easier when standing on the shoulders of giants.


Ya.  I explained/apologized in advance.

indeed.

I'm inclined to agree.  I like hosting a full node on my computer, but I've only had it for a couple months and I'm already seeing exponential growth in the size of the blockchain.  If the growth of the blockchain continues at the current rate, it'll be too big to host on most people's computers in a few years.

The blockchain will never be too big to store on desktop computers.  Moore's law applies to hard drives.  3tb drives are now under $100, and in two years, it will be 6tb.  The blockchain will only continue an exponential path while bitcoin is adding new users.  Once we reach target market size or a blocksize cap, the blockchain will increase in size linearly.  In 20 years, people will be able to store the blockchain on their phone and download the whole thing in a few hours.

Ultimately, I think there are two different issues with the blockchain.  I agree with you about Moore's law - I have a 250 GB hard drive and I'm not too concerned about the blockchain outgrowing my hard drive during the time while I'm still using this computer.  Although I'd be curious to see where you found an under $100 price for 3 TB hard drives, I looked on Amazon recently for hard drives in the 3 -4 TB range, and they were all $150 - $180.

The bigger issue isn't storing the blockchain but the initial download & verification process.  It took me three days to do this back when it was a 7 GB blockchain, it was in the 9 GB range last I checked.  People usually have much smaller bandwidth than they do hard drive space.

Very nice video, helped me grasp the matter quite fairly.
Funny that it was done prior Gavin's current testing and pushing such fork.