Almost anything's value was crashed around the world during Friday, stock market, oil, etc... this is just anticipation of more rate hike from FED, not because of Hearn  

I understand that the thinking behind 2MB is following the initial trajectory, and as long as technology allow, the block size can be increased at a controlled pace. But as a software, the blockchain database is already too big. Nothing grows at exponential rate forever, and network bandwidth and CPU speed have not increased significantly during the latest decade. So if you sooner or later will hit a technical limit, then why don't limit it at an early phase when you still can keep the database growth small?

Artificial limit typically is used to provide better user experience. All modern cars have artificial limit for its torque output, so the torque is a constant level regardless of engine RPM, thus the driver can experience smooth acceleration of the car. Cars can all provide larger output than their stock performance through chip upgrade to remove this limit, but in that case the car output will vary a lot at different RPM, gives worse user experience and reduce the engine life

The fundamental question is, will cheap transactions increase bitcoin's value? This is the same as: What is the reason that people come to bitcoin? I don't think they come to bitcoin to do cheap transactions, anyway there are many 0 fee instant confirmed mobile payment solutions out there already, why bother using bitcoin when you need to exchange and pay a lot of fee along the way to spend

I don't see any direct relationship between price and Hearn, it is just time to make some consolidation after we had so strong run during past 2 months, the resistance at 450 is so strong that now whales need to wash the market for a while to shake out the weak hands

Of course keeping the block size at 1MB will make the transaction more and more expensive, but then people will ask: What makes this system more and more expensive to do transaction? Then after a little research they will understand that this is due to a designed limited transaction capacity to ensure the agility and decentralization of the system. However, a rising fee is a good indicator of increased transaction demand. So when they see the fee is rising, they will understand the usage is higher and the demand is higher, they will foresee a rise in price due to higher demand and buy more bitcoins, so the bitcoin price rises. This is similar to: When the miners see the mining difficulty has gone up, they don't quit mining but invest in new generation miners instead

My observation is: There is almost nothing in this world becomes more valuable because it is cheaper and cheaper to use. Going the cheap route usually result in the decrease in value

Just look at those capital goods that have a high transaction cost: Gold, Stocks, Real estate ... They are never meant to be cheap to transact but still gained higher and higher value over time. On the other hand, those things that have cheaper and cheaper running cost, like car, tv, pc, mobile phone etc... they all goes down in value over time

I always think that low fee is a marketing trick from early adopters to attract those who don't really understand bitcoin and dump the coins on them. But to get true believers on board, they should be attracted to bitcoin by their own research and understanding, not by some marketing campaign. The hype caused by such campaign is always short lived. I'm quite sure the bitcoin hardcore supporter did not come to bitcoin because of its low fee

If someone can show an example that something's value goes up with lower and lower usage cost, please share it

The most interesting thing is to watch the transactions and see if many people start to complain about the fees. I think any fee below $1 can be accepted but if the capacity have reached limitation then the fee will shoot up quickly

However, if the fee shoot up quickly, it indicated that the bitcoin is super hot, then maybe the price will also shoot up quickly. Imagine that you are rushing to buy some stocks and the broker tell you that now you have to pay a premium in fee to get this stock delivered to your portfolio, would this prevent you from purchasing it? Quite opposite, people will think that this stock must be super hot, the frenzy will be higher 

Of course only the reality will tell

If they have to download some thing from the internet, then it means they have to trust the function and security of that app, so they need some trustworthy large company/bank behind it (They don't have the ability to inspect the source code). From majority of people's of view, trust an app is more dangerous than trust a bank, similar to people do not store large amount of gold at home, they put them into a security box in the bank instead.

I really see there is a need for a bitcoin storage service similar to a bank vault, but unless it is protected by law enforcement, it will not work. I guess bitcoin is only suitable for IT experts, and they in turn handle the security for their friends/family members

Paranoid atmosphere here is healthy, better than risk taken gamblers 

I'm sure you are one of those IT experts that does not belong to majority. For majority of the people I taught to use bitcoin, some of them even have doctor degree or working as professor, none of them are IT illiterate enough to use somthing more complex than an iphone. A private key? It will take them years if not decades to get to that  

A more detailed explanation here:
https://medium.com/@octskyward/the-resolution-of-the-bitcoin-experiment-dabb30201f7#.1o1e6hhgt

I like the way that he always speaks clearly, but his vision of bitcoin being a payment network is wrong, because people are not lacking of payment methods, and will never be in a world full of new mobile payment methods popping up every day. Bitcoin should focus on those areas that fiat money can not do. And he is a little bit impatient, the network will reach consesus when there are really measurable disruption, not some threat out of imagination

Since mining decide the lowest possible cost to acquire bitcoin, if the mining cost goes up due to reduced coin generation, then the cost of bitcoin will go up. In that case, those capitals who are using mining to acquire bitcoin today will switch to using exchanges, thus push the exchange rate up until it get close to mining cost, then fall back to mining again. The reason that the mining difficulty continuously shoot up means capitals are still entering mining industry every month, demand is still rising

The effect of reward halving is similar to a sudden 100% jump in difficulty, thus the mining income of all miners are cut by half in one day. Hobby miners and miners with electricity included in rent will not be affected since they don't have any operational cost, but industry miner will be more heavily impacted. Bitfury once stopped their mining operation when the value went below $300. But typically, when they push out a new generation of chips, the mining efficiency can increase 4-8x, so a 2x increase in difficulty is well under their future profit ability

Market wise we will see reduced coin sell pressure every day, but since majority of the coins are hold by the miners, e.g. they sell only hundreds of coins per day, so a reward halving will reduce the sell pressure by a couple of hundred coins, not a lot

Trying to profit from price movement is just like gambling, sometimes you win, sometimes you lose, overall you are not better than just buy and hold, because fiat money is destined to become more and more and bitcoin has limited total amount. I have seen some people here don't even count the profit in fiat money, only in bitcoin

I think who made the most out of bitcoin are those early FPGA/ASIC miner producers, mining pools operators, exchange operators etc... In one word, operating certain kind of bitcoin service, so that you have a steady inflow of bitcoin income regardless of exchange rate

Less hash power will make the system more vulnerable to attack, especially when there are many retired old generation mining rigs which can be bought cheaply to assemble an attack

I think it will be best that the hash rate continuously climb without stop, similar to bitcoin's supply continuously shrink without stop, thus the security of the network is forever increasing. However, that will depend on two variables: Exchange rate and Miner's fee income

Suppose that exchange rate doubles every 4 years, then the income of miners will remain the same after reward halving. Notice that reward halving is a cut-off event while exchange rate won't jump 100% over night, so basically when the reward halving happens, hash rate is always following the exchange rate, and some kind of shock would still be observed: Halving will reduce the hash rate for a while similar to a difficulty jump of 100%, until new generation chips are manufactured

However, if exchange rate do not change a lot during a 4+ years' period, then the miner's income will really become less, but due to the same reason as above, the hash rate will always self-adjust to the most stable status where majority of the miners can make a small profit

But diminishing mining COIN income is a bad thing. The success of bitcoin is mostly based on the fact that people can through mining get lots of bitcoins. If you can not get enough coins through mining, then it is like a centrally planned economy where early adopters already sitting tight on majority of the coins and preventing future people to get enough coins, kind of market manipulation similar to central banks holding large amount of gold reserve but never use them

So it is better to slowly raise the fee and keep the future mining income per block above 10 bitcoin at least, so that miner act as a money redistributor, constantly receive money from existing users against the transaction service to avoid wealth concentration

When Buffet's share has lost half of its value during financial crisis, it was helicopter Ben saved him, so he will dedicate his life to fiat money in return  

Bitcoin is the only digital asset which have limited and scheduled supply, so it can be used for long term saving. This unique property is not replaceable by any other thing including gold and silver (their supply can increase or decrease a lot depends on the market price). The inflative monetary policy of today's central bank leaves a market vacuum for a deflative currency to thrive. And since it is deflative, it is exclusive, e.g. no other competing deflative currency will be adopted at the same time since that will be inflation

Unless at money creation level, it is not necessary to exaggerate the importance of 100% trust-less

For example, majority of the miners join a mining pool, which is a centralized organization. These organizations are not trust-less (I had 1 bitcoin lost during the sudden disappear of 50BTC mining pool, and even more litecoin loss at some other disappeared mining pools), but miners still use their service, why? Because they reduce lots of operational cost, and the risk involved can be limited by doing daily withdraw. If they went down suddenly, then maybe a few day's mining loss, but it's much easier to use their service in stead of running solo mine at home or setup a P2Pool mining with extensive amount of setup and maintenance of a full node

Similarly, if users do not have enough IT expertise to handle bitcoin securely by themselves, they would prefer to use some service provider, with his own acceptable risk management strategy. I guess majority of the chinese users are using exchanges and web wallets since they just speculate on the price, like trading on FOREX margin trading, they never really hold any USD or EUR

In my opinion, all the solutions either on chain or off chain are equally working, because majority of the new users entering a bubble just for speculation, they are not aware of the fundamental difference between on chain transactions and off chain transactions. In fact majority of the transactions is already happen off chain at exchanges, just compare the daily transaction volume on exchanges and blockchain to see the difference

Based on this statistic from Federal Reserve, the number of low value transactions will decrease during a bubble, so a higher fee will not make a huge impact

I think people should have a clear understanding that a fork without major consensus will double the money supply thus break the fundamental promise of limited total money supply of bitcoin, it is just self destruction. Everyone should make sure to kill it immediately when it shows up

This is a quite good summary, and it is really a large combination of variables

From miner's perspective, there are several major variables for each block:
Exchange rate
Block reward
Difficulty
Fee per transaction
Transaction amount in a block

Let's dig further

1. If the exchange rate X2 and block reward /2, then the miner's income will not be affected fiat wise

2. If the exchange rate do not change and block reward /2, then miner's income will be cut by half, thus immediately cause lots of miners running under water, some of them will quit mining and the hash rate and difficulty will drop and eventually rest of the miners become profitable again

3. If fee per transaction rise to replace the block reward, then the miners would be able to maintain the same income. However this requires large amount of transaction, with a larger fee than today

If 4000 transaction per 1MB block want to give miners 25 bitcoin fee income, each transaction will cost 0.00625 bitcoin, which is 2.6875 USD at current exchange rate of $430. This fee is not very high from a investor point of view since they typically buy or sell more than 1 bitcoin, so it is around 0.5% for 1 btc purchase. And for large transactions it will be even cheaper

If in future we could run 8MB blocks, each block can contain 32000 transactions, this will put the fee back to 0.00078125 bitcoin if the fees in a block totals at 25 BTC, that is 0.336 USD per transaction, can satisfy majority of users that do purchase larger than $35

If in such situation the exchange rate already rose by 10x to $4300, then the fee will become 3.36 USD per transaction, again not practical for casual spending. But in this case the miners will get super income from those 25 bitcoins thus the incentive is extremely high. In fact the difficulty will quickly rise 10x due to mining competition in such a highly profitable market

So I think the decisive factor is still exchange rate, if the exchange rate continuously improve (at least doubles every 4 years), then any kind of reward halving or low transaction fee will not be a problem to affect miner's incentive


By the way, bitcoin fee structure is a one size fit all solution: the fee is based on transaction, not transaction value. This will unavoidably benefit large transactions while hinder small transactions. Suppose that I'm transacting 100 coins, 0.01 btc fee will be extremely small for me, but for those transacting 0.1 bitcoin, it is prohibitively high

Based on a research paper from FED researchers, the majority of the bitcoin transactions are larger than 0.2 bitcoin, or $80, so the fee should be targeting this threshold, around 0.002 bitcoin level to not hurt majority of users. The problem is, without a block size limit, the fee per block will always be a small fraction of the block reward (I have detailed analysis here), thus there is almost no way to reach such high level of fee. So if blocks are not full, the only hope to keep miner's incentive is a continuously rising exchange rate

In real world example it is like one party controls the senate and another party controls the house, so that majority of the proposal from either party will be vetoed by the other party. However this situation will just result in indecision, e.g. status quo. You can not split a country into two countries because the senate and house could not reach agreement

I have tried a couple of times spending bitcoin to purchase some electronic components, but the amount of work to purchase and refill the wallet with same amount of bitcoin is just too much hassle, it does not worth the effort. As long as there are exchanges providing conversion to local currency, I always exchange to local currency and spend, just like when I travel abroad

The appearance of bitcoin debit card make the spending all much easier