Then they don't use it.  In fact, "off-chain" is a perfect way to connect to exchanges.  LN is perfect with exchanges as central hubs, and exchange customers having their holdings in a channel with their exchange, which protects them from theft, and renders the exchanges trustless.  It would turn the current exchanges in the new banks.


It most probably won't, unless, of course, in the "exchanges as new banks" world ; bitcoin's main application is "greater fool game", and of course, we need a lot of greater fools, but on the other hand, I don't know how many of them will be gullible - though there's hope, given historical records of frenzy.  When "average Joe" gets into bitcoin, sell everything !


Actually, it may be simpler to get "new masses" to bitcoin by giving them a central authority (their exchange) and giving them classical banking with off-chain linking to their exchange.  It would be more secure too for them, they would feel much less at a loss, it would be standard banking.  There may even be a law that only off-chain transactions are officially allowed, and that you need a licence for on chain transactions. 


Bitcoin is broken beyond repair.  The first thing to fix in bitcoin, is the emission curve.  A decreasing coin emission renders every coin unstable and/or centralized.  The second thing to fix is proof of work consensus.  These are the two principal value propositions of bitcoin, and they render bitcoin unfixable if you don't modify them - which goes against bitcoin's belief system.
Only a temporary fix, that is changed regularly, can keep it afloat for a while, and this might very well be sufficient, because bitcoin doesn't maybe need to scale to very very large sizes.


Sure, but the LN could transform bitcoin into classical "banking" (but rather, classical clearing house transfers).  Bitcoin is not money, but is a speculative betting asset, and that betting is mainly done on clearing houses (exchanges).  Now, the number of players may become large, but has nothing to do with the size of payment networks.  Bitcoin being more like "complex derivatives for the people", the LN could be a way to tie yourself to your clearing house and render the relationship more trustless.

Yes, but that is not a currency usage.  People don't hodl bitcoin because they bought some stash of coins to spend them on the internet, buying stuff.  They hodl bitcoin because they want to see the price rise.  Actually, I must be one of the few who bought a modest stash of bitcoin to buy stuff on the internet (VPN and VPS services essentially) - but its value increases so much that I put them aside, and I'm not using them any more as a currency, but also as a greater-fool betting stash.

I mean: one could buy, say, 10 BTC at a certain point, because one has foreseen to spend about 10 BTC in the next few months on things on the internet: then we are in your case, of holding times of currency being long.  But one could also buy 10 BTC because it could rise in value, and one doesn't want to "miss the train to the moon".  Then one is speculating in a greater-fool game.  I think that most "long held coins" are of the last category, and are not "just a practical measure of buying a heap of coins to spend them over the next few months".


Almost all of these systems have fundamental problems, which make that they cannot go mainstream for the usage they claim ; on the other hand, they all have a clear, and unlimited, already active, usage: pure speculation.  I don't believe in any of the announced dreams of crypto, whether it is "replacing fiat", or "replacing justice/contracts", or whatever on a mainstream scale.  But they are ALREADY doing what they do best: being the BACKING of IOU on exchanges, to gamble on in a speculative game, like the entire financial market of derivatives.  THIS is the real invention of crypto: a new kind of speculative derivatives market.  The real trading is not on chain (nobody cares about that chain), but is with IOU on clearing houses (exchanges).  The chain only backs the IOU of the clearing houses, and allows the transfer between financial institutions, and clearing houses.  THAT's crypto.  The announced applications of the block chain don't matter (payments with bitcoin, contracts with eth, world computer with golem, ....).  Only big transfers between big financial players and clearing houses matters, and EVERY block chain can do that.

We are indeed witnessing a revolution, but one in the financial speculative sector.  Instead of betting on the production of rice or the sales of cars, one has now invented a totally new market of financial speculative products: crypto IOU on exchanges.  THAT is what has been invented.  Not "currencies", "smart contracts", "distributed storage", "pay-for social networks", or whatever these chains CLAIM.  Just tokens on which to speculate on exchanges.

There's about 10 times the world's economy in "speculative assets" (the derivatives market).  There's a great thirst for these things.  This is why crypto will catch on: it will be the unregulated gamblings' feast of the financial world.

That said, the crypto ecosystem is in full experimental mode, and maybe some day something useful comes out of it that can go mainstream.  This will most probably NOT be a "mainstream freedom thing", but some kind of authorities-endorsed stuff on one hand, and niche applications on the other.

Crypto is much more fragile than one thinks.  The naive "single block chain" flow with cryptographic protection is too naive a picture.  Hell, Satoshi didn't even think that alt coins would see the daylight.  As a state, one cannot allow the whole economy to depend on obscure cartels that can decide, and are under unknown influence.  Bitcoin can never be allowed to become a replacement for a national (or international) currency - first of all, bitcoin's design isn't made to do this, contrary to claims of the opposite by its creator - but it would put a country's economy at the whims of unknown entities under the unverifiable influence of foreign powers.  For instance, imagine that Europe would have a de facto replacement of the Euro by bitcoin.  Then Europe's economy would even be much more dependent on what happens in China.  There would be huge incentives on the Chinese side to control the mining cartels over there, and they wouldn't miss out on it.  Unless Europe would engage in a "mining war" with China, war it cannot win, and which would transform 3/4 of the economy in "mining producing assets", China would dictate the European monetary policy (by modifying of course bitcoin's emission protocol they would hold firmly in their hands).  The only solution for Europe would be to fork off bitcoin, and make a kind of proof of central bank coin, where blocks are signed off by a central authority or something.

*this* is the kind of crypto that may one day see the light: centralized transparent crypto.  Authorities would dream of being able to see all its citizens/victims transactions.  People would also see authorities' transactions, which would be the "democratic concession" in order to have total financial control over the people.

The sneaky thing in this argument is that it is tacitly assumed that a full node has something to do with 'decentralization'.  It hasn't.  One should distinguish "decentralization" (which is a notion of *decision power*) and "distribution" (which has to do with spread-out architecture of a system).  Facebook is entirely centralized (the power is with 1 entity, Mark Zuckerberg) but is very much distributed throughout the world.  

To measure the power of "decentralization" of a full node, one has to ask oneself what *decision power* it has in bitcoin.  What are the decisions in bitcoin ?  They are the block chain.  All decisions in bitcoin are in the block chain: the block chain contains all the data on which bitcoin's existence is based.  There's nothing in bitcoin of any significance that is not notified in the block chain.

So, how much can a full node take decisions ?

The block chain of bitcoin is supposed to be built according to a certain set of rules: the protocol.  Full node software checks the entire block chain to see whether this protocol has been followed or not.  The protocol rules are built into the software of the full node.  So at first sight, it could seem that full nodes can signal that the block chain one is giving to them, is not built according to the protocol.  That's true: it can SIGNAL it, to its owner.

Essentially, we can assume that a certain part of the block chain, since its beginning, is built according to the protocol in the software of the full node.  And at a certain point, say, block 515000, the block in the block chain is NOT according to the rules.  What does the full node do ? It refuses that block 515000, and it waits until it finds a "correct" successor to block 514 999, the last "good" block.

Now, who is MAKING the block chain ?  The only entities MAKING the block chain are the miners.  In order to make a block chain, one needs to prove HUGE amounts of work, so only miners can possibly propose blocks which contain this huge amount of work.  Nobody else can.  Miners validate previous blocks, by building their blocks on top of the block they validate.   That is the core of the consensus decision mechanism in bitcoin: a block is validated by other miners, because they build their blocks on top of it.
Given that only miners can validate blocks, and that, if they do, they build blocks on top of the valid blocks, it means that as long as they have consensus amongst them, there is only one block chain out there, and nobody can make another one.

So if your "validating node" somehow doesn't like block 515 000, the only unique block 515 000 out there on which miners built 515 001 and 515 002 etc..., then your validating node stops forever at 514 999, and that's it.  Now you know.  And you knowing is the only thing that happens.  Your node stopping at 514 999, or you switching off the computer on which it runs, has, from the outside, exactly the same effect.  You have no decision power that goes beyond "switching off your computer".

This is why full nodes have no decision power on the decisions in bitcoin, that is to say, on the construction of the block chain ; and nodes that have no decision power do not contribute to decentralization.

Bitcoin was made that way: the decision power is the consensus decision, which is made with proof of work (miners), not with nodes (because nodes can be Sybil attacked).  The decision is made by building on top of a block which the provider of proof of work deems valid ; to be, himself, validated by the next block built on top of him etc....

Full nodes can essentially do two things:

1) copy the unique block chain that is out there and serve as a proxy server for it
2) disagree and stop, waiting forever for something that will not come

This is why, even in 2010, Satoshi already said that "the only people needing to run full nodes are those wanting to make new coins" (mining).  The decentralization of bitcoin resides in those that make the block chain.  There are about 20 of them.  That's the real "decentralization" of bitcoin, not whether some guy in central Africa has a full node running in his basement.

Running out of greater fools.  There's still a lot of them around, so no crash imminent.

The non-existent "power of validating nodes" is one of the two weak excuses that pushers for off-chain transactions have propagated in order to push people off the chain ; the other one is that "only soft forks are allowed".  These two excuses serve to cripple bitcoin's chain with the blunder Satoshi committed with his 1 MB block limit ; blunder Satoshi thought was easy to adapt if the need was there, but which has been the opportunity to asphyxiate the on-chain transactions to push them to off-chain (or alt-coin) transactions.

Yes, of course, if it is absolutely necessary to have Joe run his node on his old PC with a 320 GB disk in his basement on his 56K modem, then bitcoin is crippled out of the box, true.  It wasn't even necessary to make a genesis block in that case, it was sure to fail.  Luckily, Satoshi crippled bitcoin, thinking one would be able to remove the limit if needed, not realizing that someone - that is to say, his heir -  would see an advantage in crippling bitcoin and keeping this limit, to push his own pet project.

Soft or hard fork have nothing to do with replay attack.  If there are two prongs on the chain, whether it is a bilateral hard fork split, or a minority soft fork split from the main chain, and you want users to "vote in the market", when two coins are listed on exchanges, users must be able to transact one version of the coin, and not transact the other version of the coin.  If there's no protection against replay, then every transaction they do on one prong, is also a valid transaction on the other one and will most probably be picked up and included, making the "economic voting" of the user moot: he will not be able to sell one version, and keep the other one.

In other words, without replay protection, there's no room AT ALL for the user in this "user" activated soft fork.  The only power the user had, was to vote in the market with his money when miners had already split off, and exchanges listed both coins.  But without any replay protection, this is going to be one hell of a fuck-up.

Well, looking at blockchain.info, one can see that the number of daily transactions has been rising slowly until about 300 000 transactions per day, and that the average estimated daily transaction VOLUME is about 250 000 BTC daily since quite a while.  So we see that the *average* bitcoin transaction transacts about 1 BTC.  I have no idea of its distribution, but apparently a transaction on chain is around 1 BTC : are there 240 000 transactions of micro-amounts, and 10 000 transactions of several tens of BTC, or are all of them turning around 1 BTC, I don't know.  But the average transaction doesn't seem to be a micro transaction.
Of course, the bitcoin block chain is also used as an immutable ledger for other applications than transactions ; these will not go away.

Well, the reason for that is essentially that most merchants convert almost directly received bitcoins into fiat.  If that would be the only difference between fiat behaviour and bitcoin behaviour, it would already multiply velocity by 2 (the "holding time to spend" of merchants being essentially zero, instead of being the usual delays between them receiving money, and paying their providers).  But also buyers of bitcoin are, if they only use bitcoin as a currency, usually only acquiring coins relatively quickly before spending them, which would make me think that there too, there's a speed-up as compared to people receiving fiat (their salary) and holding it until they spend it.  But I agree that this is just guess work.  The real conclusion is that the market cap and the price of bitcoin is essentially speculative, and that the value of it that comes from the demand to be used as a currency, is a negligible fraction of the market price.

Now, in how much this speculative value is only market's best guess at its *future* currency usage, or in how much this speculative value is essentially "purely speculative", unrelated to its "Fisher value" due to demand as a usage of a currency, is open ; however, my own guess is that indeed, it is essentially purely speculative. 

The reason for that is that we see that too with other crypto currencies (alt coins).  There, the relationship between market price and "Fisher utility price" is even much much more distorted.  Now, I know the statement of bitcoin maximalists that there is only one "real" crypto, that's bitcoin, and all the rest is shit, but that's not realistic.  Alt coins are just as well crypto as bitcoin is.  Given that alt coins are visibly entirely "purely speculative", there's no reason to assume that bitcoin's price is ALSO not "purely speculative".

This is why I think that the "real world economic value" (for a currency, that's exactly Fisher's price calculation) has really nothing to do with the market price.

Now, of course, both explanations meet in the "delusionally story about the future".  You can say that alts, just as well as bitcoin, have the potential to have one day a HUGE real-world economic value, if ever they "replace fiat", or "they replace contracts", or "they replace finance" or whatever delusional story ; so the market is only guessing at this huge potential.
If you see it that way, the market is making a rational guess about the future real-world value.  If you think these stories are delusional (which I think they are), then this is just a cheap justification of pure speculation without any fundamentals behind it.

Well, unless of course you see the actual price as a market prediction for the future "fundamental" value.  However, bitcoin is probably by far the most "useful" thing as a currency, and if we make a quick estimation, its coin value (its "fundamental" as a currency) should be of the order of a few tens of dollars.  How can we know ?

If we take bitpay as an indicator for "merchant currency usage", we are (end of 2016) at a volume of less than 300 million per month, which brings us to about 3 billion per year.  Let us say that bitpay has 1/5 of the market share of "merchant usage", that would bring us to a volume of 15 billion a year.  
Now, a normal fiat currency M1 has a velocity of the order of 10, but things like bitcoin circulate normally more quickly, because they are bought and sold more quickly.  So let us give it a velocity of 50.

The market cap of bitcoin should then be 15 billion / 50 = 300 million dollars.

That's the "fundamental" of bitcoin at this moment, as a "merchant currency".  It would put the price of a coin around $20-$30.
This is the true economic value of bitcoin, its true merchant value.

And that is exactly why bitcoin (or most other alts) cannot be a true currency.  One of the main functions of a true currency is to be a "unit of account" which has a *predictable* value (not necessarily a *stable* value).   This is why Nash defines ideal money as one that has stable value, and an asymptotic ideal money, as one that has a predictable inflation/deflation ; so even if it is not stable in itself, one can account (in time-dependent contracts such as a loan) for the change.

And the origin of that instability is that bitcoin (and most other alts) have a combination of two aspects:
- high initial seigniorage (that is, early adopters can get coins for low value)
- high inelasticity (falling debasement curve) or worse, a collectible (like bitcoin: maximum number of coins EVER).

That makes for a very, very speculative asset, and hence for a very, very bad currency (and even a bad store of value in the very long term, because it bubbles too much).

This is also why bitcoin and altcoins won't go away so easily: there's a lot of demand for speculative assets !   After all, that's what most of the financial world lives off.  But the problem is that pure speculation is actually economically a bad thing.  Speculation as a way to trade risk for gains is economically positive.  But *pure* speculation is a side effect that has only negative consequences, and the irony is that bitcoin was invented after the banking crash because of too much pure speculation by financial institutions (the banking crisis of 2007 had NOTHING to do with fiat but everything with uncontrolled speculation, blowing bubbles, and getting it blow in your face), and invented, itself, an even worse form of speculation that are PURE bubbles.  If ever big finance gets into crypto - and I don't see how they couldn't: if this stuff can multiply fortunes by serious factors, how could professional finance stay out of it ? - this will cause a far, far more severe financial crisis than we've ever seen before, simply because its bubble capacity is unlimited, and the floor is ZERO.  There's no economical "backing" of anything in crypto, so there is no floor.


True, but that's nothing else but a cryptographic invention.  Like "public key crypto", or like "hash functions".  It is not necessarily related to some "token".  It is a kind of cryptographically certified database.  One of its applications is "token transfers".

The former greater fools are now the early adopters, as long as there is fresh flesh flowing in.

While the opening post contains some interesting statements, I find the "accusation" of "capitalism" in bitcoin strange: bitcoin is pure anarcho-capitalism, and it is one of its value propositions, to be "pure capitalism".

I agree that Core has an agenda: the lightning network, and that they want bitcoin's brand ; and I also agree that it is *prefectly normal* for any entity to try to do so, after all, bitcoin is trustless and permissionless, so everything that can be done, is permitted to be done.  Trying to put one's hand on bitcoin is such a thing, so this is not only "part of the game", it is the "essence of the game".

Core is the de facto central authority of bitcoin because they are the software monopolist.  As visibly (even though totally incomprehensible), only one single crew of people "can write bitcoin code" or so they propagated their reputation, they can of course do anything they like with bitcoin, including giving themselves a huge stash, because they write the only code that visibly people run.  They are hence total masters of the protocol - unless a few other people start writing their own code and people "trust" them (in a trustless system, that's a funny statement).
Even though the real consensus power in bitcoin is hash rate, they've taken the providers of hash rate as dumb sheeple that just install their code ; when these dumb sheeple found out they were taken for dumb sheeple, things turned sour.

Indeed, Core wants to change fundamentally bitcoin, and its basic principles, because they have invested heavily in the development of an entirely different technology of doing transactions, the lightning network.  For that, they need to force people off the chain, because otherwise, their LN has no value.  For that, they have been inventing a lot of silly excuses of which the two most important are:
- the decentralization of the network depends on how many poor Joe's run a full node in their African basement with a 56K modem, to keep the Chinese sheeple in check
- only soft forks are acceptable.

These two stupid arguments which have no foundation at all lets them profit from a blunder Satoshi made, which was the introduction of the 1 MB block size limit.  These two false statements are the straw to which they hold themselves to be able to push people off the block chain.

After all changing the block size parameter, trivial as it is, is technically a hard fork (boooh !), and Joe cannot afford to download big blocks on his pentium 3 in his basement, so we need Joe to keep the vile Chinese in check.

Two entirely false statements that should keep bitcoin's on-chain transaction rate totally crippled, with the sole outlet the LN.

The irony is that the LN is actually only safe on an unlimited block chain, because the safety of the LN comes from the possiblity to settle: a huge LN that can only settle on a crippled block chain is entirely unsafe.  The LN makes sense only on chains where you have a guarantee that you can settle.  For instance, a chain with masternodes.

That said, they are entirely right to try to do this.  After all, bitcoin being a trustless, permissionless rip-one-another-off system, it is their good right to play the game too.

That sounds a lot like "we need fresh flesh, greater fools to come in (the minnows) to keep our early adopter wealth to grow".

In fact, not at all.  The fact that the value is decreasing slowly, but in a foreseeable way (slightly inflationary), is exactly what makes these currencies good currencies, close to "Ideal Money".  They are of course not good stores of value in the long term, but money is not supposed to be a store of value in the long term (investments are).  Money has to be such that it has a *predictable* value (stable in the short term, slightly inflationary or deflationary in the longer term).

Would you have dared to take a loan in bitcoin to buy a house ?

Hell, I know people who are in deep shit  because these idiots took a loan in Swiss Franc to buy a house and the Swiss Franc rose somewhat with respect to their income.  If they would have taken a loan in bitcoin in 2015, they would be entirely broke now and could never pay their loan back.

I don't know where you got that.
The bubble burst because at a public auction of tulips in Haarlem, nobody showed up.
The Dutch government would have been quite crazy to ban it, it was Holland's fourth largest export product.

Crypto has introduced the idea to have scarce tokens that are not that easily manipulable without a trusted central authority ; at least, at first sight.  On the other hand, this also means that everybody can invent a crypto ; and there's something that has not been tested a lot, but that seems to me to be unavoidable in the long run: successful crypto chains can be split, copied, copied with modifications, etc...  Crypto has power games to it, that can lead to a small cartel of people to decide about the modifications of the rules of a crypto.   

So contrary to what it seems, crypto is NOT a single chain with rules graved in stone ; but the way these are modified, copied, morphed .... are obscure games we are still in the process of discovering.  We don't know what the eco-system of many crypto, evolving, morphing, crossing over, being created, .... will look like (for the moment, we see what it looks like: a huge speculative market like the complex derivatives).   The only thing such eco system provides, more and more, is a rather opaque means to get value from one place to another that may not see the daylight.  As such, it is honouring somewhat its initial purpose of being an anarchist payment method where one can gain a form of economic freedom (for the better - dark markets, avoiding taxes and bribing deciders - or the worse - financing terrorism and ransoms), but the price to pay is that we have created a speculative bomb that will, like any speculative bomb, blow in our face. 

Will this complex eco system of different morphing crypto come to a kind of equilibrium that gives it a useful economic function apart from the economic freedom I mentioned above, or will it have brought a new form of economic instability one doesn't know how to master ?  I don't see how a morphing boiling sea of speculative crypto can bring much good in the long term apart from the side application, which is economic freedom.  But maybe this thing will find its own equilibrium and become something that moderates speculation but I don't see how.

I wouldn't touch LN with a stick on a hard-limited block chain where you have no guarantee of settlement.   The LN is an entirely different way of doing transactions that has never been experimented, nobody knows if *in practice* it will take off.  The step from on-chain transactions to LN is about as big as the change from, say, using a credit card to using a crypto.  Maybe it will be a success, maybe not at all.  It's something entirely different than what crypto was about until now.   The LN would be a great way to connect to one's exchange, that's true.  It would keep the exchanges honest, and at the same time, it would turn the exchanges into the banks of tomorrow.  But that would entirely change how people see crypto, namely essentially "back to banking". 
If an exchange has a serious problem, all its customers would need to settle immediately on chain ; if they can't, because the chain is too small, this is a way for the exchange to run with the money as usual.

I thought that was the basic principle of crypto

This chain split is acted when the first few bip148 blocks are making a prong from the legacy chain, in fact.  And these bit148 blocks with minority hash rate need to get listed as a separate coin on exchanges BEFORE users get in any way their (economic) say, by selling one type of coin, and buying the other type of coin. 

Now, it would seem logical that if two coins are listed on exchanges, that both chains become bilaterally protected so that everything that happens on one chain is not going to be gone in a puf of logic whenever the legacy chain would be overtaken by the forking chain, so as to keep the holdings that people have.  After all, for those *selling* legacy coins, to buy bip148 coins, they couldn't care much ; but for those buying legacy coins, they may want these transactions to be made immutable and would not like to be reorganized away.  So most probably, if the two coins are listed on exchanges, the legacy chain will propose a hard fork to protect itself from re-organisation (the simplest hard fork would be a check point after the split).

Yes, but what does that mean, the block gets rejected ?  Does that mean that the node will wait for another block, that does satisfy the criteria, *and is a direct successor* of the last valid block ?  Or does it mean that these block headers are still accepted, but not "counted" or something ?  Because someone told me that even if there continued to be a single chain with signalling and non-signalling blocks, it would only pick the signalling ones from the chain.

However, if a non-signalling block is truly rejected in full, then the node will wait for a DIRECT SUCCESSOR to the last valid block, and hence, will stop unless there is a true fork in the bitcoin chain, with two prongs: the "legacy" one, and a "pure signalling" one.  Someone told me that that was NOT the case.