Of course those who dug out large amount of gold would never tell others, but they can not hide it: The boom of the west coast was largely due to those gold

Equipment maker on the other hand make some short term profit, when gold rush is over, their business is also over.  When you have a little bit gold, you would eventually exhaust them, but if you have large amount of gold, you could start a bank, and your gold will just get more and more

Take mining for example, I guess most of the equipment makers have went down following the skyrocket of difficulty, a few left either get large amount of credit from banks (like kncminer), or take extremely cheap design to cut cost (bitmain). On the other hand, those who had large amount of coins opened exchanges and are still happily profit from the trading business

And don't worry, in order to keep the gold rush everlasting, the transaction fee will be raised so that block reward will be bypassed by fee income in the near future

Your bitcoin in an exchange is not bitcoin, until you withdraw. Similarly, your money in your bank account is not money until you withdraw or spend it

The problem is that most of the people still believe in an illusion that their money is in the bank, because when they try to withdraw or spend it, it works fine

It's easy, you can ask any of your friends who are not living in USA to buy it for you, and sending bitcoin to you is just a few clicks

If the reserve ratio is 0 then indeed banks can create unlimited times of lending (but lending a money 1000 times does not creat 1000 times money, it just created 1000 times recorded numbers in banks' database, this is the common misconception, this video also does not get it right)

Another problem in this process which most of this kind of video does not explain well: No matter what kind of process, you must have the ownership of money BEFORE you lend it to someone

For example, the moment Barclays put a customer loan of £1000 on the asset side of his balance sheet, he start to owe the customer £1000 on his liability side. But this is only the first step. Then, in order to pay Lloyds £1000 when the customer do a purchase with his loan, Barclay's corresponding reserve account at Bank of England must be reduced by £1000. That means, if Barclay does not have enough money at his reserve account at Bank of England at the first place, he is not able to pay that £1000 to Lloyds

Otherwise, every large company will try to apply for a banking license and start to lend money to each other and create trillions and trillions of money in a couple of hours

So the most important part of money creation is what happened in the commercial bank's reserve account at central bank, the commercial bank loan is just the top level of the whole scheme, they do not create money, they just create lots of transactions

I can tie the solar system to my bitcoin address, but that does not mean that I own the solar system  

The key is to enforce this tie, bitcoin's tie with fiat money is enforced by the market force on exchanges, you put bitcoin on exchange and you will receive fiat money as return. But where should I put a string from the blockchain and receive the solar system as return?

It is kind of trade off, you can rely on third party services to get better day to day user experience, but you can not rely on them to do mission critical transactions. However, it is the day to day small casual spending that created most amount of transactions, so settlement based design will dramatically reduce those transactions on blockchain

There are many brilliant idea from traditional financial systems, not every thing is bad. If you avoid taking too much risk on them, they still can provide better service.

You only need to avoid two things from legacy financial system: fiat money and fractional reserve banking. In this case, centralized service platform indeed have the ability to do fractional reserve banking (like MTGOX), so it is important only put small amount of bitcoin there

A simple example of how the amount of transactions can be reduced by magnitudes by using daily settlement between large service providers on blockchain

Suppose that Bob is in US, he buy some bitcoin from an exchange Coinbase, and send those coins to a merchant in China to get a battery charger delivered to his home

In this process, there can be no bitcoin transactions on blockchain at all, because that chinese merchant's bitcoin receiving address is on a chinese bitcoin exchange OKCOIN, and OKCOIN have a daily settlement contract with Coinbase, e.g. combine all the bitcoin transactions between addresses on their platform and only settle the net difference at the end of the day. When Bob input the merchant bitcoin receiving address, he will get a prompt that this address belongs to one of coinbase's financial partner thus the fee is zero and the transaction will be instantly confirmed

If you are using bitcoin for casual daily spending, you are most likely to use a web wallet, due to several conveniences: You don't worry about loss and theft, you can always call their support to block or get your account back. The payment is instantly done without any confirmation time. And since both okcoin and coinbase only need to pay one transaction fee for thousands or even millions of transactions, the transaction itself is almost free. And for casual daily spending, you don't have too much bitcoin stored online, you don't worry about if coinbase or okcoin suddenly disappear

A research paper from Bank of England said, you don't really always need trust-less model. Sometimes a trusted third party will make life much easier

There is no leadership in a decentralized society, only the best effort to reach consensus. Luckily now we have internet and advanced communication tools like twitter/reddit/forum to quickly exchange ideas, it is possible to reach consensus without leadership

The difficulty in deciding block size just showed that consensus has not reached, without consensus, there will be no change. If every block is full and many people are complaining then there will be a consensus to raise the block size

A stress test on testnet is not going to give you the most important feedback from all the actors in the whole ecosystem. You can not anticipate what each users will do, each of them will come up with their own solution to deal with the transaction difficulty

The key is to prove the relationship between a blockchain object and a real world object

Bitcoin has no direct relationship to real world objects, but there are exchanges and payment processors who establish such relationship so that you can easily exchange bitcoin with real world objects. Or to say, exchanges guaranteed that your bitcoin will be able to exchange for similar value of any currencies any time

It is different to have a relationship between a string on blockchain and a real world objects like property. There is no one that can guarantee the owner of that string can claim that land without going through a lengthy process of ownership change. Unlike bitcoin, where the change of ownership of money is almost instant, you need some formal and legal process to claim the ownership of a land

Good point, it seems it is only possible to do a single vote on this forum

Of course it is good to have every possible function available, if we have TB level fiber network in each home and ZB level harddrive in each personal computer, but if technology does not allow that, we should focus on the mainstream usage. The purpose of this pool is to find out what majority of people want from bitcoin

In a perfect world this could work, however ID theft online is very common nowadays, a private key does not prove that you are the real owner of the private key. That's the reason when you register at an exchange you must submit both id documents and invoice to your permanent residence, in some case you have to hold your passport to take a photo, in order to prove that you are the owner of the passport

The paradox of smart contracts: To trust the smart contract, you must trust a centralized authority "Oracle" who provide the information that triggers the events in those contracts. But if you have to rely on centralized authority then there is no need for blockchain

It is an interesting idea that political enemies can delete the entries in land registry office. Who controls the land registry office?

It will be good that everyone accept the registration of property ownership on the block chain, but how to prove that some numbers on blockchain correspond to some land? I guess you would still need a registry office setup by some authorities to define the relationship between blockchain and land, and if that registration record is wiped out by your political enemy, you would lose the relationship between blockchain and the property

For example you can code in a set of GPS corrdinate of a piece of land in blockchain and name of its owner, but how can you prove that this person is the real owner of that land?

Thanks for mentioning more points

The current block size debate to its root need to have an estimation about what kind of transaction will be on the blockchain in future. If majority of users are going to use blockchain to do low value high speed transaction, then the block size must be scaled to several GB, which cause significant technical difficulties for the infrastructure. However, if most of the transactions are high value low speed transactions, then it becomes much easier to handle

An interesting comparison is Fedwire system, where Federal Reserve banks sending money between its member banks. Average value per transfer is 6.55 million dollars in 2014, and it made 135 million transactions during 2014, which translates into 4.28 transactions per second, similar to bitcoin right now

And the number of Fedwire transactions per day just increased 2.4x since 1988, so the annual growth is only a couple of percent

http://www.federalreserve.gov/paymentsystems/fedfunds_ann.htm


So if you want to build bitcoin to be a system similar to Fedwire, then current bitcoin is already fine, no big changes are needed for the foreseeable future


However, even Jeff Garzik don't think bitcoin development will take this approach, in his BIP 100 he said:

"In a minority view, bitcoin is a commodity to which an inconsequential payment network is attached. These users view bitcoin as purely as a commodity whose storage cost is far less than the equivalent value of storage. To these users, increasing transaction volume on the network, scaling to support millions of users is simply folly. As the system approaches the speed limit, transaction fees rise. This user base generates little transaction volume, and higher transaction fees are still offset by the value gained from the network’s protection of their commodity. These users likely feel inaction, keeping the speed limit intact, is the most rational step for their situation.

Conversely, a prevailing view is that this speed limit presents a severe constraint on growth and adoption. The speed limit, in the face of user base growth, will lead to higher fees, ultimately reaching an equilibrium when the system capacity of 7 transactions/second is reached. This will cause a ripple effect where blockchain-centered business plans are shelved, or never started in the first place, for lack of perceived scalability. Higher fees then drive a preference for centralized services which can aggregate those fees across multiple bitcoin users, or strike bulk rate deals. The use of bitcoin becomes a rather exclusive club"


So you see, his view is that the low value high frequency trading is important for user base growth. My observation is, for new users it is important to have a frictionless experience, but later on they would still treat bitcoin as commodity instead of daily transaction medium, because most of the people prefer to do those with inflative fiat money. Those people who constantly do small bitcoin transactions are either buying drugs or gambling, mostly illegal in every country's law

Added a mining option, I guess most of the transactions on blockchain today are pools paying miners 

Thanks for reminding me of those countries who do not have a good fiat money system, this makes the usage more complicated. If people don't have a reliable fiat money to use, then bitcoin's payment function suddenly becomes more important

Maybe the question should be about the blockchain instead of bitcoin, I changed it

There are basically two different view of bitcoin's future

1. Bitcoin becomes a popular payment system, everyone pick a smartphone with built-in bitcoin app, and they start to receive bitcoin salary. Its value is very stable so that people don't worry about losing 10% of their purchasing power overnight

2. Bitcoin become the world's most reliable digital currency and fastest international settlement network. Large financial institutions use it to quickly settle millions dollar worth of value transfer across the globe, many mutual/pension funds and even governments periodically invest in it, its value keeps changing every day, but the long term trend is up


The first vision has some difficulties:

First, bitcoin is deflative by design, its value will always rise against fiat money long term wise, thus people will always spend fiat money and save bitcoin if possible, resulting very little amount of bitcoin transactions being done for daily consumption

Typically, when people want to spend their bitcoin, they sell it on exchange during a rally, and slowly spend those fiat money they get from the sale


Second, besides Visa/Mastercard, some of the latest mobile payment network can already do instant transaction with almost zero fee. They use fiat money, thus have 100% domestic merchant support. Bitcoin does not have any fee/speed advantage against them, and the volatile exchange rate also makes it a bad currency for daily spending

So, low value real time transactions are best suited to use a centralized local fiat money payment network. Bitcoin generally can not handle high frequency transactions well due to its design: Every transaction on blockchain is a final settlement and must be written to thousands of databases around the world. On the contrary, a centralized local payment network writes only to its own databases

Due to above difficulties, driving bitcoin development towards first direction will consume large amount of resources and efforts but still get poor result. Being able to buy pizza using bitcoin does not mean that it is created to maily buy pizza. True, it has superior properties than fiat money, but just because it is so much better, people will use it for more advanced purposes than daily shopping. For daily shopping, fiat money is enough


On the other hand, the second vision of a long term saving medium and international payment network is more inline with the unique strength of bitcoin: Limited supply, censorship resistance and trustless transaction. No existing financial solutions can compete with bitcoin in these area, so it will quickly occupy the market where these properties are desired and become the leader

What is your opinion?

Blockchain is a settlement system, similar to Fedwire. Try to send $20 through Fedwire and see how much they charge you 

There are simple ways to filter out the spam transactions, but I'd rather not do it, just let the traffic fill the mempool and stress the nodes so that we can have a rough estimation what kind of load there will be if we use 8MB blocks (A total crash of almost every node maybe?)

The stress test is a good simulation of future when every block is full, we will see what kind of solution people will come up with when they experience delay in transaction

A typically reaction is to wait and combine several small transactions into a large one and send it with a higher fee (just like ATM cash withdraw in foreign country, you always do the maximum withdraw to reduce the impact of the fee since fee is fixed regardless of withdraw amount)

Then maybe rely on some online web wallet service since they typically combine lots of transactions into one thus can afford much larger fee

Anyway, currently the fee is really small, I guess most of the users will just raise the fee by 10x and be happy with it

Humans are forgiving