That is the correct way to take trade risk, to be fine with the worst case outcome.

I don't have time to respond point by point. I'll just say your perspective is just that, how you're viewing things from only your perspective. I'm talking about implications for the broader market. As I noted the market seems to agree with my view, which can be seen in the free market price of those two coins.

There are two coins that do: Litecoin and Novacoin. The primary value they provide over Bitcoin is they are not Bitcoin.

Just for argument's sake pretend for a moment the Bitcoin Foundation became highly corrupted and subject to selling out to the highest bidder, perhaps even the government. That organization, to date, is made up of some of the most influential and powerful individuals and businesses in the Bitcoin community. As Bitcoin grew so could the power and notoriety of the Bitcoin Foundation, and with this the potential for complete disaster if there was only Bitcoin in the marketplace.

Alternatively, look at the most recent uproar over the discussion for change of block size. Like the creation of the Bitcoin Foundation this had potentially major implications for Bitcoin, and accordingly threatened to divide the community into those for and against it. Unfortunately, by involving the protocol itself the large economic damage caused by a messy fork would be secondary to damage in confidence of block chain based currency working at all.

If Bitcoin is the only show in town then as Bitcoin goes so goes the idea of crypto-currency overall.

On the other hand having other coins that exist apart from Bitcoin give the marketplace something else to evaluate, and provide another avenue of choice to express discontent; that's always healthy.


I don't think you fully appreciate the differences.

First, being a clone is a compliment showing how valuable the original protocol implementation is. However, a key difference is time between blocks being reduced from 10 minutes to 4 minutes on average. This means network transactions confirm more than twice as fast on average for litecoins than bitcoins. If you don't think fast confirmation time is valuable to the marketplace, especially as it grows, I'm not sure how to explain to you that it is.

The other difference is there is roughly 4 times as many litecoins as bitcoins. Economically this is less significant, but not entirely without effect. In general, theoretically, the more currency in existence the more widely it is likely distributed, meaning a larger overall potential marketplace.

Last, Novacoin unlike Litecoin provides a very real intrinsically valuable aspect over Bitcoin, which is the inclusion of proof-of-stake in addition to proof-of-work to guard against 51% attacks.

This explains why these two coins, out of all the ones in existence past and present besides Bitcoin, have notable and increasing value. The free market seems to agree with this or something similar which is reflected in the litecoin and novacoin prices, now $0.14 and $0.50 respectively. Anyone remembering Bitcoin in the early days might recognize the similarity in early price point.

+1

You  might be interested in my post Solution to the Block Size where I describe how I see Bitcoin, the concept of crypto-currencies, taking shape globally.

Holding a currency simply means having access to a set of goods and services. This can be important geographically, virtually, and remotely. A good comparison to a global Bitcoin footprint is gold. People can exchange gold pretty much anywhere in the world for goods and services. This may be what the future holds for Bitcoin (what we call the value now on MtGox at 30+) too.

What is your definition of crooks? Some would say many politicians fit that category... What would a background check there yield? As Steve Gornick said in one thread anonymous businesses are not necessarily the most dishonest, as he lost more dealing with people with open identity (Bitconica) than anonymous businesses.

Also, nobody is vital to Bitcoin. Everything about it is interchangeable. That would be like saying we should do checks on people vital to the Internet.

The Problem

The blocks size, now with a hard limit of 1MB, is enough for about 7 transactions per second, but Bitcoin has been believed to be available to the entire world. The amount of data recorded in the block chain for handling transactions for the world would exceed the ability for home computers to keep up. The main constraint would be network connection, even with pruning implemented. This is seen as problematic since Bitcoin is supposed to be decentralized and democratic--users running full nodes from home relaying and auditing transactions to ensure this. Scaling to meet world demand would mean full nodes leaving (for the most part) the home level and being done by companies and organized groups.
---------------------

The Solution

This solution shows how the above perceived problem will not be a problem. For one thing the Bitcoin block chain will never contain all transactions. It's highly likely that by the time Bitcoin reaches global scale many transactions will occur off-chain as I explored in this post. Off-chain transactions are instant (no awaiting confirmations), so they may even be the majority type.

That's not the only reason on-chain transactions will be limited... The explanation is the result of evolved thinking I've had. Let me explain my username. Long before I heard of Bitcoin I designed theoretical money systems which might work better than the current system. (interestingly, I explicitly had one idea of a person having their own money server; I swear) I knew nothing of cryptography so I could never have designed Bitcoin, but the fact I was thinking this way, as was Satoshi and probably numerous others, I think shows just how bad the current system is. After I discovered Bitcoin (and finally understood it) as a programmer and technologist the username seemed obvious.

I'll posit what I think the future looks like for Bitcoin. Please bear with me and I think you'll agree, but first I need to set some things up.

Consider a concept which I call information saturation. We all know of the stock market crash in 1929, but why did it happen when it did? The information that something was wrong reached sufficient saturation to cause a majority to sell. Notice the bubble ensuring the crash was always there, but it wasn't until sufficient info sat. that there was a catalyst. Since Bitcoin's value is only backed by people's thoughts about it info sat. is a key concept.

The next concept to consider is clubs. A surprisingly accurate way to think of Bitcoin is like a club. Right now we're all part of a club esentially started by Satoshi and now unofficially led by Gavin. Forget about the word Bitcoin for a second. The quantity now trading on MtGox at 30+? That's just the value of Satoshi's club. Viewed this way it's easy to see another club could fairly easily achieve similar value. This is something we've always known and have referred to as alternate crypto-currencies, but what's interesting here is I'm measuring value by club access; up to now people think of alt-coins as an either or proposition, one coin beating out another with superiority or market share.

The future will actually have many simultaneously successful crypto-currencies. The reason? There are existing clubs, ones economically important because of their geographic cohesion. They are known as cities, towns, and states, for example.

The word Bitcoin is arbitrary; it's really a do-it-yourself money system. People are free to do it as they please (and they will) regardless what Satoshi's club does. It makes sense. Barter is the purest way to exchange value, but it's woefully inefficient. The "Bitcoin" concept lets people essentially barter locally without inefficiency because an actual currency is used. Locals will not stay beholden to what happens (for better or worse) with Satoshi's club. After sufficient info sat. of the crypto-currency concept we'll see local versions crop up.

The ideal size I think will be U.S. state size. Smaller than that is probably inadequate mining protection, and while it's less protection than any global scale implementation I believe it's okay because attack value is lower. Also, combination proof of work, proof of stake coins like Novacoin, which help solve 51% attacks, will probably be used.

So what does all this mean? It means hazek, who echoes the anti-change sentiment well by saying simply "I want to be a sovereign user", has nothing to worry about. Wherever he is there will eventually be a local coin version usable with full nodes from home. Also, local block chains means far less transactions on any global chain, which incidentally I think should include more than Satoshi's club, because with financial matters it's wise to never put all your eggs in one basket; Litecoin and Novacoin seem leading candidates for strategic backup and protection from Satoshi Club mismanagement.

My advice is for Gavin to push ahead with his idea of how to implement change as it's least likely to cause a problematic fork, especially (I hope) in consideration of above.

Finally, of course there will be exchange options and price indexes for all crypto-currencies. I have more thoughts but reading time is of concern.

Okay now I see what you mean. Yes, that's another way which works

Instead of a private entity setting up a server and matching up transfers large entities network with each other to do it voluntarily. In order to encourage that maybe all we need is to propose a protocol and ask entities to maybe put a badge on their site saying they're open to the method.

Something like that especially works well now while the community is small. Like you say all you need is a couple major players, like MtGox and SilkRoad, and you've probably covered 25% or more of all transactions lol.

This doesn't sound like you are specifically talking about clearing houses, but rather questioning the stability of the Bitcoin concept overall due to part of the system using exchanges like MtGox.

The answer to that is the same as it has always been. One exchange (or incident), or what happens with it, doesn't equal Bitcoin in its entirety. MtGox and other exchanges have been hacked in the past. People have lost money to hacks, scams, and mistakes. Still Bitcoin continues. However, people (hopefully) learn and take precautions to guard coins better, which I think has happened.


I like this direction too although I'm not sure how to implement it. It sounds like decentralized accounting which I think would be great, but it seems to me more practical to set up private controlled servers.


Right, I agree that probably wouldn't work. Block chains are not ideal for transactions which is the subject of this thread. Using a block chain requires waiting for confirmations, and then the other considerations of dealing with security by adequate hash rate, etc.


Bingo. You're very close to a proposed solution for the block size issue I plan to write up this week.


Not true. I plan to detail why in the write up I mention above.


Yes, but 4 times more than 7 transactions per second is still not enough.


Bingo. I plan to describe this in the write up I mention above.


Yes, that's essentially all a Bitcoin Clearing House is - a way for one user to send bitcoins to another user while both of them have accounts somewhere that are linked in a way enabling the transfer to happen off-chain.

That's no different from MtGox now. MtGox and other exchanges are profitable points to attack, which is why they have been. However, that doesn't stop exchanges from continuing, with lessons learned and better security.


Note that adding BCH's on top of the network doesn't replace the network. The core network and coin options remain, so things are still decentralized and impossible to stop (without shutting down the Internet).



I too expect we'll see something similar to what I propose in the future. I think the advantages are too great not to. This thread is to see if we should be looking at setting such things up sooner than later, in light of the block size issue, and in order to determine the feasibility.


Correct. I agree totally. BTC-e is a great example of users exchanging crypto-currencies amongst each other without using the block chain. I believe that should be expanded.


I agree.


Yes, I agree. In fact I referred to that in response to someone's reply when I mentioned clearing houses:

I want to get dialogue going on off-chain transactions. I think I have helpful info on solving the block size issue which doesn't necessarily require off-chain transactions, but I want to discuss the concept.

I've said off-chain transactions should exist with Bitcoin. Primarily I had scalability in mind, but also think of the progression of money. People once traded physical gold. People then traded claim checks for the gold instead since that was more effective (easier to carry, not subject to shaving, etc.). Today we use credit cards, PayPal and other methods to trade digital claims on paper dollars since that's even more effective than trading the paper.

Why couldn't the same happen with Bitcoin? Why can't people trade digital claims on bitcoins instead of the actual bitcoins?

Member retep posted:
   
Fidelity-bonded banks: decentralized, auditable, private, off-chain payments.

While I'm still considering the viability of that model I've also had a far simpler transfer method in mind which I call Bitcoin Clearing Houses (BCH).

A BCH starts with an entity that can garner general trust, say MtGox, Blockchain.info, the Bitcoin Foundation, etc. The BCH sets up a server with website interface allowing users to register with email addresses and deposit or withdraw bitcoins. Those transfers take place on-chain. However, since the BCH is widely visible many other users and merchants could also have accounts there. Then coin transfers happen within the BCH, or between multiple ones. A BCH also provides an API so that eWallets like WalletBit or MtGox can pass on transfers from their members without the members having accounts at the BCH.

Using a BCH has obvious advantages. Transfer is instant, no waiting for confirmations. Transfer is free or very low cost (profit might come from ads or features). Finally, of course, is scalability is helped greatly. (people could also send to email addresses eschewing wallet addresses)

While I think this is a strong case people raised concerns that this tends to centralize things and provide a target for authorities, noting Bitcoin exchanges are probably the biggest weak point. However, I don't think that's a concern. A BCH centralizes things no more than exchanges do currently, that is, they can come and go anytime and anywhere. A BCH has even more flexibility because all info is digital whereas Bitcoin exchanges have to merge in part with the traditional regulated system. Also, a BCH has no ability to create bitcoins or prevent their transfer since users could revert to the old system.

The largest concern I see is security of coins held or possibly manipulation or dishonesty with claims of coins backing transfers. However, that can be mitigated by users storing minimum balances (usual amounts for transfer) and withdrawing their balance periodically, and maybe even using different BCHs.

Thoughts?

This.

Thank you! That's what I wanted to see, some explicit numbers and general conclusions, including compartmentalizing issues.


Yes, network connection is the one potential sticking point I see for home-based full nodes too.

Right, but couldn't companies do it and give people pay access? In other words, right now the issue is about ability to run full nodes from home. The argument is that would then need to be handled by larger external sources. My question is can't that still be called decentralized, as in distribution of hardware powering the currency?

Aha, can you walk me through what you think ten years ago would look like? Let's say the year 2000:

Quote:

I bought a new Gateway desktop in 2000 It had windows ME.
10 GB hard drive, 860 processor. Also at that time I was on dial up.
Boy, you talk about speed. I didn't have it.

I ask because I believe I have a solution to the block size issue, which I plan to post next week. However, the issue of large volume of transactions is still going to be interesting to structure.


I totally agree about addressing the issue now while the community is still relatively small so that friction and fractures are handled better.

I'm not trying to be argumentative, I think Fidelity banks might provide great functionality for privacy if I can wrap my head around it.

But what I was trying to say is Bitcoin is intentionally designed to keep fees either very low or no cost. Let's say there is no block size issue (pretend everyone has T1 lines and near supercomputers for desktops). If this were the case Bitcoin would always have low or zero fees because the coin subsidy pays for network security during years transaction count is small, and by the time that runs out you'll have enough transactions to pay for all the equipment/power costs. Right?

I thought that's how Bitcoin already works (the low fee, no humans/low barrier to entry part).

The mining subsidy of coins is to incentivize miners to participate thus securing the network. At the point the subsidy runs out there should be so many transactions on the system that even low fees would make mining worth while. Unless you're including the block size limit issue in the pricing?

Ah. I read the following too quickly and thought it mentioned zero fees:

It's also not just a blocksize issue: off-chain transactions can have a lot of advantages by themselves like instant payments and mathematically proven privacy. Regardless of what happens to the blocksize, alternatives to on-chain transactions are healthy and can provide capabilities that Bitcoin itself can't.

In my mind off-chain should mean zero fees, since it should be an improvement, and on-chain already means very low fees.

I'm glad to see people thinking of innovations!

I haven't wrapped my head around this, so I'm not sure if it's a great idea yet, but I'm also glad people are in favor of off-chain transaction options. I posted in one of the block size issue threads about Bitcoin Clearing Houses to facilitate such transfers.

The obvious benefits are instant transfers, zero or low fees (revenue could be ad or features supported), and of course awesome scalability.

I note this doesn't centralize things because there is no power to create coins or prevent their transfer as users could revert to the core network. Someone posted skeptically about creating a target for authorities, saying exchanges are a bit of a weak point, but that's not a worry as I see it. The reason Bitcoin exchanges are vulnerable is they convert traditional system currency into bitcoins. With a clearing house everything is digital, and clearing servers could be hosted anywhere in the world.

One question I have about the Fidelity-bonded banks is what is the profit model?

I agree. I call it free market forces check and balance.


Yes, that appears to be the case. I like Gavin's approach to upgrading:


This ensures consensus vote from the field.

It's fascinating to see the free market in action. However, the process can be messy too. This thread is an attempt at some organization to help people form opinions. I'm hoping this thread, as it lengthens, can contain generally agreed upon truths about the blocksize issue.

Please repost and edit with the following approx. format:

AGAINST Raising the Blocksize
__________________________________________

fact: Dynamic resizing of blocks leads toward centralization because ...

myth: ...



IN FAVOR of Raising the Blocksize
__________________________________________

fact: The current hard limit of 1MB means about 7 transactions per second. To put that into perspective about 220 million people could do 1 transaction per year.

myth:  ...