If 100% of transactions coming through are free you would be forced to include some, but realistically there are always enough paid transactions that you can meet the 25% quota easily.  If you only include 25% during an "all free transactions" hour, people will have an incentive to include a fee to get their transaction included sooner (4x sooner on average in this case).

25% is just an example; pick a value that will accommodate any reasonable miner's include/exclude policy.

You can't beat this by playing whack-a-mole.  Right now it's only a couple IPs but the problem should be solved generally.

I do think it needs to be solved.  While it's not significantly hurting the network now, it's a vulnerability and it should be fixed.  And ethically, I object to people making money when they're skipping out on their responsibilities.

I don't see the need for mandatory tx fees.  What's wrong with simply refusing to relay blocks that don't include at least ( ( n * 0.25 ) - 5 ) transactions, where n is the number of valid transactions broadcast since the last block?  Empty blocks would be allowed during slow times or when a block was recently sent (the -5), and the 0.25 would let you be reasonably selective about what you mine.

Bitcoin is the new religion:  everyone quoting what the founder said; no one agreeing on what he meant.

The reward drops are always cutting it in half.  It may cause sudden drops in block rate or changes in value.  This doesn't just apply to the first drop.



Please explain.  Why are 4-year drops so beneficial?

Keep in mind: this proposal does not eliminate the generation drops.  It just changes them so they are much more frequent, much smaller drops, but the end result will be the same.

It's been great for the initial bootstrap phase - no argument there; and I agree that it won't be a problem if/when Bitcoin becomes "huge".  The trouble is the uncomfortable early-middle phase where we are now entering.



Absolutely.  I'm not saying my proposal is a perfect solution - it's just a different set of tradeoffs.  The fixed supply model (and all the other design decisions in Bitcoin), may win out in the end.  For now, I consider them to be realistic concerns, and I sharply limit my calculated valuations to account for them.

I'd like to emphasize that I'm not even saying you're wrong - we might breeze through it and in retrospect my concerns will be clearly overblown.  I just prefer to consider all the potential ways things may unfold.

We have a great grass-roots marketing department!  Thousands of enthusiastic people who are telling everyone they know, and they have the best marketing hook ever - the only thing better than "it costs nothing to try" is "FREE* MONEY" (* with purchase of GPU), and they're sitting around here dreaming up ways to make Bitcoin more attractive to this group or that group, and setting up sites to cater to them whenever a viable one is found.

However:



The problem is that the "somebody who cares" - any stakeholder - has a massive financial incentive to push Bitcoin, and to omit or downplay any problems when making their pitch.  Those incentives are transparent to everyone, and it's very hard to be credible when we have such an obvious conflict of interest.



... and are glad that they didn't hold amidst volatility, or are disillusioned when their free money rig rapidly became unprofitable due to difficulty and exchange rates.  "No press is bad press", and yes, at least we have a large base of people who have gotten past the initial hurdles of getting an address and transferring some coins.  But we have to get them to come back after they've already lost interest.  Did we do ourselves harm by scooping up everyone in one frantic push last year, rather than having a system that could grow more slowly and sustainably?




My arguments are based on my personal experience.  I've mentioned that I'm involved in Bitcoin to basically everyone I know and without exception the response from anyone who'd heard of it has been a wide eyed "oh my god it's a scam get out".  It's only after reassuring them that I'm not selling off my investments and putting it all in BTC that they will settle down and talk about the non-speculative-investment aspects of Bitcoin.  This is among software developers, cryptographers and dot com veterans - the ones who should be naturally interested in it during the incubator stage we're in.

Outside that group and into non-tech people who have never heard of it, they usually want to know: what's it good for (easy pitch), then what can I use it for today, which is where it goes wrong - outside of vice, HYIP, and small international transfers, there aren't many things Bitcoin's doing well enough (yet) to keep their interest.

But there's one huge exception:



I wholeheartedly agree.  It's why I'm here, and I expect an ongoing continuous draw among others who can see this.  Unfortunately it's a niche, which is why I believe there's a significant opportunity for another currency to overtake Bitcoin with broader appeal.

We still are at the beginning.  I agree with your objection to many large changes to the protocol - undermining the trust that the currency can be trusted long-term would be very damaging - but in this case I don't see much harm.  It results in the same amount of currency in the end, just with a smoother distribution.

I like the way this proposal is written: let's see how big the disruptions are after the first reward drop and plan to switch to a better function if it looks worthwhile.

My concern with botnets isn't that they're botnets.

I'm concerned about two things:  they are both a) making money without doing the job they were paid to do (improve the network), and b) actually degrading the network while they do it.

I object to (a) not because it's a botnet (as you mention we don't even know if that's the case), but because they're not doing their job.  I object to (b) for obvious reasons.

We should fix the economic incentives so that miners have to do the job we're paying them to do instead of just collecting money for wasted work.

It increases the time-to-first-confirm - if the "null blocks" rate grows to 90%, the average time to first confirmation will be nearly two hours!

It may also make double spends easier.

I hadn't realized this problem had gotten so bad so quickly.  Clearly including transactions for fees isn't a great enough incentive.  I agree it should be addressed.

I've always thought relay nodes should take a greater role in security.  If they refuse to relay blocks that don't include at least 80% (measured by fees to prevent cheap transaction spam) of transactions they've seen since the last block it might solve it - no-transaction blocks would have very poor propagation and therefore would be highly-orphaned, giving a big economic incentive for them to play nice.

On the other hand I'm not sure how well this would behave in circumstances where there is a major network split with only a few nodes holding it together.  If the two halves of the net aren't seeing most of the other side's transactions and the couple relay nodes between are dropping both side's blocks (due to failures to include), could that worsen the problem?  The couple bridge-nodes would of course be relaying transactions across to both sides, but I'm concerned if it was compounded by other problems causing poor propagation.

Sorry, it's Grover's algorithm, not Shor's, that can be used to break AES.  With Grover's, breaking n-bit symmetric crypto takes 2^(n/2) operations, one "operation" being a full run of the algorithm.  In other words, your key length is halved.

If you are able to do 1 billion full-grover-runs per second it would take about 500 years to break AES-128.

Oh, as for breaking AES by non-brute force:  no, I don't think they can.  AES is pretty good - not the best (Serpent probably had the best overall security of the finalists, but it came in second for performance reasons), but it's still a top-tier algorithm, and it has held up for a decade with no significant full-rounds attacks.  The best so far lets you break AES-128 in 2^126.1 operations.

It's always possible the NSA has something they're not telling us, but in the past they have chosen security over being able to decrypt others' communications:  when DES was adopted they modified it a little to protect against differential cryptanalysis, which was not publicly known at the time.  There's too much to lose by blindly hoping that the Bad Guys won't find the bug - AES is certified to protect Top-Secret information.  I would expect them to start the process for a new algorithm if the existing standard was found insecure.

I'm 99.lotsofnines% certain that the NSA can't brute force even a 128-bit key.  Assuming they can try 1 trillion keys per second - that's 1 million machines each making 1 million tries per second which is probably a reasonable guess of their abilities - it would still take 2^128 / (1T * seconds_per_year) = 10^16 years.  Take a few zeroes off the end if you want to be really paranoid.

The only reason you need better than 128-bit is if quantum crypto becomes available, AND can perform Shor's Algorithm fast (like, 1 billion ops per second).  In that case it could crack 128-bit in a few hundred years.  If that scares you, use 256-bit which will simply never be brute-forced.

Most likely this new datacenter is for a) breaking weak keys (like if you seed your deterministic wallet from a short passphrase), which isn't really news - everyone already assumes they're able to do that; or b) data mining non-encrypted information, which shouldn't come as any surprise - I'd be shocked if this isn't just an expansion of an existing project, or c) other NSA stuff that doesn't involve brute-forcing 128+ bit keys.

Oh, I forgot to mention fractional reserve banking.  This is where actual deflation (instead of just increasing value) happens.

In most countries the majority of fiat is not issued directly.  Instead it is created through debt - as debt grows, the money supply grows, and the inverse.

During inflation (value loss) it is advantageous to borrow money (worth a lot now) and pay it back later (when it is worth less).  Generally interest rates are higher than the inflation rate, so it's not a free ride, but inflation partially subsidizes your loan.

During deflation your money is worth comparatively little now but it will be worth more in the future - so if you can you pay down your loans now (when money is easy to get), and have less debt load when money is more valuable (requires more work to get) in the future.

Since debt is money, everyone paying down their debt decreases the money supply - and thus causes self-reinforcing deflation.

If people perceive that the currency will be more valuable in the future they will tend to hoard it.  That reduces the amount in active circulation, thus increasing purchasing power and decreasing prices - IE, the currency's value goes up.  People see that and perceive that it will continue in the future, creating a feedback loop.  This cycle can be broken by carefully increasing the money supply but overdoing it can cause a crash, especially if it has been deflating for some time.

This is currently happening in cycles with Bitcoins (issuance cannot be increased), it was happening until recently with gold (issuance is limited by miners' ability to ramp up; I'm not in metals so I won't say if it's done or not), and it can easily happen to any fiat currency.

I'll leave the rest of your questions to the metals guys.

While true, string and array handling is very well-proven in Python/Ruby/etc.  You are far more likely to make an input bounds checking error in C than to discover an existing bug in Python's read().

It's not a silver bullet, but it helps.

I'm not arguing against speculation - I agree that it's crucial for a functioning market, and that attempting to control volatility directly would cause widespread damage.  I'm not one of the guys trying to control the market to peg it to the dollar.  I understand all the reasons that won't work.

The problem is Bitcoin has a fixed supply.  As everyone here knows, that makes for some impressive math: if it grows to the scale of a reserve currency each coin would be worth tens or perhaps hundreds of thousands of dollars.  With an upside like that and so many unknowns, net present value calculations can diverge by 4 or 5 orders of magnitude.

That lets speculation run unchecked.  Instead of volatility where the market reacts to present and future events then oscillates around a fair value, we have a market that is inherently unstable:  it's not going to discover a price; it's just fluctuating randomly between "buy as much as you can and hold on" and "waiting while all these people panic so I can buy a ton more", depending on how many giddy enthusiasts we have at the moment.

They're right here in this thread:  "hoped bitcoin would rise to $100000000+" ... "I think bitcoin goes to at least $10000/BTC (and I will wait 20 years)" ... "If Bitcoins were worth 20 cents a piece, I could buy them all for a couple million dollars" ... "The fools selling now will look like idiots in the future"  ... "I only part with it when I absolutely have to"  ... These are not the things people say about a healthy currency.  This is almost a caricature of speculative hype.

Fixed supply isn't the only way.  Instead of growing the value of each coin as the demand for stored value increases, you can gradually issue more to meet demand.  As fiat is issued by a central bank, I've been calling the concept of distributed monetary policy a "decentral bank".  The hardest part is coming up with a reliable method to quantify value.  I don't want to derail into the technical details, but in short: I propose a system based on currency exchange; GEM is based on energy cost; EnCoin is another take on energy cost.

All of them look like viable ways to eliminate the wild get-rich-quick bust/boom cycles.  There would still be volatility and room for speculation: if OPEC suggests that they're considering shifting to EnCoin for trade speculators would run it up; but it would be based on actual economic developments, and it would be over the course of weeks and years, not starry-eyed math of what would happen if Bitcoin became THE currency decades from now.

Think about how much easier it would be to sell people on the idea of Bitcoin if massive value growth was impossible:  no "early adopters", no dismissals as being a pyramid scheme or other scam; much lower volatility without the "rockets to the moon" speculation.  It would be a huge competitive advantage - and it's one that only a competing currency can adopt, because there is simply no way that the Bitcoin community would ever accept such changes.




I'm not talking about mining profit or expenses.  I'm saying that 7200 BTC are mined per day.  If they're all continuously sold at market value ($5), it will take (7200BTC/day) * ($5/BTC) = $36,000/day of NEW fiat investment (arbitrage fiat moving between exchanges doesn't count) to keep the price from falling.  That's an overly simplified example of course; in reality a fair bit of that is held instead of sold.  From a macroeconomic perspective, however, the cost still exists: instead of fiat influx, the costs are paid by Bitcoin holders in the form of inflation.  That's unsound economic policy when the underlying economy isn't growing to match; we have an inflation debt that we have to pay soon or it will eventually have to crash.




Greenbacks in the mail, while presenting other problems, leave a lot less paper trail.  But go on...



Anonymity isn't a drawback.  I actually think it's a huge benefit of Bitcoin.

I'm saying that there's a poor balance of anonymity - if we're going to take the PR hit for the big scams, we would be better off going all the way and getting stronger protections.



Right now it would cost about $10M to buy the hardware to make a successful 51% attack - about 20% of the market cap.  Five years from now when generation hits 12.5 it will be about 5%, regardless of where $/BTC is - $/MHps will fall, W/MHps will rise, BTC/MH will fall, multiply it out and the bottom line is that  the cost of a DOS measured in a % of market cap will roughly track the generation curve until transaction fees become significant, assuming we get that far.

How many entities would spend 5% of market cap to kill Bitcoin?  How about when it's 2.5%?  Figuring a 1-year hardware refresh, are we willing to stop generation drops and pay a fixed 5% inflation per year just for security?

We absolutely have to pay a mining tax.  The speculation is only how much.  The fact that Bitcoin has a significant and ongoing cost of security is a significant drawback and weighs heavily when you're considering its future speculative value, and it will put Bitcoin at an economic disadvantage compared to other cryptocurrencies.




The security is adequate, and getting better.  Unfortunately it also requires careful measures that cut into usability - keeping keys on paper, secure computers to perform transactions, and economic risks when you make reasonable compromises for convenience.




I think your arguments are good against the usual claims that Bitcoin is not viable and cannot stand on its own.  If Bitcoin was the sole cryptocurrency I think it would be a rough ride, but it would make it.

Some of the problems might be solved technically in ways with few drawbacks: anonymity may be improved; and as you mentioned we have an elegant potential solution to the confirmation delays, though I haven't seen any moves to actually implement it yet.  Others will be controversial: changing signing techniques may reduce mining costs, but it would be a massive change in the balance of power, and shouldn't be done lightly (if at all) at this point.

But others, like volatility, simply cannot be fixed in Bitcoin; the changes go completely against the way the currency was founded.

And it's not the sole cryptocurrency.  None are deployed yet that make truly radical changes, but they are being developed.

Don't get me wrong.  I'm a bear, not a hater, and I don't think it's doomed.  I just see problems that can't be handwaved away, and I think they are significant enough that I consider it overpriced, even now.  My assessment will change significantly if we either discover some significant technical solutions, or if we start seeing significant commerce - actual purchases, not just hoarding - and widespread adoption outside the small niche catering to the community.

Volatility.  Gaining and losing tens of percent in a day is great for speculators, but it's terrible for people who simply want to earn money and spend it on goods.  There are several possible ways to address this (eg, EnCoin, GEM, and my own proposals).  None are tested, but if they work out they could be very successful.  As a related benefit, they would eliminate the cries of "pyramid scheme" which have made Bitcoin a running joke among the people who should be it's strongest supporters.

Mining is very expensive, and all BTC holders pay for it - currently about $36,000 per day - as inflation / devaluation.  The effect is currently overwhelmed by speculation, but I don't think the speculators will pay for it forever.  Increasing exchange rates make this worse.  One possible alternative keeping with an overall Bitcoin-style network is proof of stake instead of proof of work.  Other more radical systems are possible as well.

Anonymity.  It's good enough to protect thieves who steal large amounts and are willing to spend time and money laundering their coins, but at the same time it's hard for the average user who simply wants privacy to get strong protection without effort and expense.  It's a poor balance; going in either direction would help.

Long-term viability.  It's not certain that transaction fees will be an adequate way to protect the network in the long-future.  Right now 51% attacks are very expensive relative to the size of the money supply.  When generation goes down significantly, we may have a problem.  It may be necessary to apply a new policy such as: high fees (limiting the utility as a currency); or reinstating generation / inflation (thus screwing all the people who are speculating that the limited supply will make them rich).  While double spend attacks can probably be defended at a reasonable price, it may be economically viable for a large entity with an interest in destroying Bitcoin (central banks, large commercial banks) to DOS the network by buying hash power.

Security.  Take a look at how hard it is to get something like P2SH accepted (which is looking increasingly likely but it's still not a done deal) - and despite people's hopes, it's not a silver bullet.  It will help people with very large accounts, but I expect it to be prohibitively difficult for the average user to use.

...  Just to name a few off the top of my head.  None of those are deal killers, but they're all significant drawbacks.  Making the fundamental changes to correct them may be too controversial to accomplish in Bitcoin, and an alternative coin may have to do it instead.

In Bitcoin's favor, it has jumped out well into the lead of cryptocurrencies.  I find the current market adoption disappointing (which is what I base my low valuations on), but there is significant infrastructure built up, good name recognition, and an enthusiastic core of community support.  That's a lot for a newcomer to overcome, but in a global market sense Bitcoin is still miniscule, so don't mistake it for an invincible force.

The full answer:  2^160; they are randomly generated; they are all shared by everyone, but 2^160 is an enormous number and everyone can use as many as they like with no concerns about running out or accidentally generating a duplicate address.