Say you limit rollback. Say about half the network watched chain X unfold and it's the longest chain. And say half the network is on chain Y and would need a rollback past the limit to get to chain X. Isn't it true that both chains are now equally correct by the rules? I'm not so sure it's such a good idea to introduce path dependence to a network that can't even remotely guarantee that all nodes take the same path.

I agree, if you ever need a rollback passed a sensible limit, you're kind of screwed. But it seems to me that you're screwed whether or not you limit the rollback. You can now have two perfectly functioning clients with the same information who disagree on the which set of blocks is valid.

I would say it makes sense to detect that a very large rollback would normally occur. But as for what you do in that case, I can't see not rolling back as being right. Perhaps prevent further operation until humans can decide what to do.

This is the worst food I've ever eaten and the portion sizes are way too small.

Or, if you prefer: This soup is awful. Can I have the recipe?

Think about the way banks settle. I write you a check for $50. You deposit it. Now, my bank owes me $50 less and your bank owes you $50 more. If you then write a $50 check to someone who uses my bank, our banks can just cancel them out and don't need to do any settlement. If there's a net imbalance, they can settle.

So you don't see the point of bank accounts, credit cards, checks, and Bitcoin exchanges? All of these are based on debt issuance, debt exchange, and settlement chains.

Nodes that wish to process transactions must have all current state information. They don't have to have a historical record of past transactions. You don't need to run a node that processes transactions to use the system.

It's very hard to both ban and regulate something at the same time.

I'm thinking you have absolutely no idea how big 2^160 is. If you had a botnet with a billion bots, each producing a billion addresses per second, in a billion years you could create one out of every 46 billion addresses.

Money transfer services, so long as they can confirm your identity, cannot keep your money. They can close your account, but they have to return your money to you. The amount of time they can hold your money varies, but it's usually either three months or six months.

That's not quite correct. In this scenario, people can just hold onto money for a few years and see a huge increase in its real value. So you would expect people to have and be paid more real value.

But, in any event, in this unrealistic scenario, she probably shouldn't have the car. The economy would be so productive, doubling its value in the time of the loan, that her having the car would be unproductive unless it too doubled the value she spent for it. (In which case should could still afford it.)

Essentially, for buying a car to make sense, the value you get out of the car has to exceed the value to everyone else of you not taking that car away from people who might put it, or the resources that made it, to more productive use.

I don't think I'm actually disagreeing with you. To be clear, I'm not saying that Bitcoins will experience predictable deflation. I'm saying that if that happens, it won't be a problem because it will affect everyone's assessment of the value of Bitcoins equally. I think we both agree the unpredictable deflation, like almost any significant unpredictable property of a currency, will reduce the usefulness of that currency.

Exactly. Also, the net present value of a Bitcoin next year can never be more than the value of a Bitcoin today because a Bitcoin today includes the ability to have a Bitcoin next year if you wish. It also has additional opportunity value because you can use the Bitcoin before then if you wish.

To get money from someone else, you need to know something they don't. Predictable markets tend to make prosperity more fair because there's less of a luck factor, and they tend to produce more prosperity generally because less is spent avoiding risk. But to make money without having to earn it, you have to predict the market in a way that others don't.

For example, you might think that if we know that oil is going to go up in price, we can buy some now and make a profit in the future. But if we all know the price of oil will be higher in the future, the price will already be higher today than it would otherwise be to account for this. It will already be too late to exploit it. (This is what people mean when they say speculation increases the price of oil.)

Now, if you were the only one who knew ...

Markets are quite predictable much of the time. I think you'll find near universal agreement that the more unpredictable a market is, the worse for all concerned. This gives everyone an incentive to keep markets as predictable as possible.

This is one of the reasons transactions that are technically zero sum can actually be win-win. For example, say someone has a great business idea, but it's impractical because the risk that the dollar will lose value is too high. And say someone else has a great business idea, but it's impractical because the risk that the dollar will gain value is too high. These two guys can make a deal where one pays the other if the dollar gains value and vice-versa if it loses value. Technically this is a zero-sum transaction, since each loses all and only what the other gains. But if it makes both business ideas practical, it's win-win.

That's not the problem with deflation, that's the problem with *unpredictable* deflation. Yes, unpredictable anything has negative economic consequences because it makes people less likely to make arrangements that would have benefited all participants.

There's no such problem with predictable deflation.

Okay, now let's run that with predictable deflation. Because of the deflation, maybe she'll need twice as many Bitcoins to pay off the loan in the future. That means that those Bitcoins also have nearly twice as much value today because she is also getting the present value of that very same future appreciation. Thus she would only need to borrow about 500 of them to buy the car instead of 1,000. Thus they'd be no more difficult to pay off in the future.

Every bit of deflationary value she paid for, she also has available to offer to the car dealer in exchange for the car. So she doesn't have to pay anything *extra*. She only has to pay back the very same value she borrowed -- the very same value she offers in exchange for the car.

My point is simply that no sane person would consider it a deal breaker if, in the event of a global economic catastrophe, one received a greater value but in a different currency. This is just worrying about the wrong thing. There is no reason to worry about runs or currency issues.

That's not to say there's nothing to worry about. For example, when the housing market collapsed, lots of mortgages went bad. Banks didn't have enough capitalization to cover the reduction in the equity in their loan portfolio. If not for the government picking up the tab, a lot of people whose money was held in a fractional reserve bank would have lost a lot of money. The real problems with fractional reserve systems are insufficient capitalization and equity collapse due to bad loans.

If you operate a fractional reserve bank, are well capitalized, not a bunch of crooks, and your loans don't go bad, it's almost impossible for your depositors to lose money. Improbable enough that it's still a very good deal.

Mt Gox is an exchange, but it also provides service beyond just allowing you to exchange currencies. It also serves as a wallet for many people, which is akin to a bank.

There could be a lot of reasons. One would be if you don't want to run the Bitcoin client to send Bitcoins, don't want to go through the hassle of having a paper wallet, and are concerned about security. Another would be if the bank could provide you with additional services, such as being able to exchange your bitcoins at any time without waiting an hour for confirmations.

But the reason I bring it up is to address an argument whose premises I don't agree with. If you think bitcoins are inevitably going to deflate and if you think that's going to present a problem, then the solution will be fractional reserve banking. In the event of some incredible global catastrophe, the bank can pay you back with other assets greater in value than the bitcoins they owe you. Boo hoo. If deflation is a crisis, then this miniscule "risk" is negligible if we can avert a crisis just by taking it.

If people would avoid a currency just because it had this kind of risk, nobody would use any national currencies. They have inflation risk.

This is silly. A crisis is, by definition, a rare event. In a crisis, you might get paid in gold rather than bitcoins, but you wouldn't lose a penny. Oh, that's awful! Forget this entire economic plan because it can't give me bitcoins in the event of nuclear war. Are you serious?

It's quite possible. You just deposit bitcoins at a "bank" and they tell you that you have a particular bitcoin balance, just like Mt Gox does. They then don't hold that number of bitcoins but instead back their holdings with some other currency or asset.

What kind of crisis are you talking about? A government wouldn't have to print bitcoins, all you have to do is reimburse depositors in any currency. If some bank holds 50,000 bitcoins for you, you have no legal basis to care whether they pay you back in bitcoins, dollars, or gold. So long as they have assets to equal the currency they hold, they can still make you whole.

If that's not what the market wants, and nobody passes any laws or uses any force, then that won't happen. Market substitutes for bitcoin will just be introduced to compensate.

You don't turn the steering wheel now because your car might be heading for a cliff in thirty years. Relax, if this is every a problem, the solution is well-understood.

If something is scarce, its value will increase. If there's a great demand for bitcoins relative to supply, the price will go up.

It's also important to understand that police have no legal obligation to protect you unless they choose to incur that obligation. Generally speaking, you have no right to government services -- the government can set its own priorities. So if the government has a monopoly on protection but chooses not to provide it to you, you have no right to protection nor can you provide it for yourself.

http://en.wikipedia.org/wiki/Warren_v._District_of_Columbia
http://en.wikipedia.org/wiki/DeShaney_v._Winnebago_County

What if the government makes it illegal to drink water?
It depends what government you mean. If you mean the United States, I don't think so.

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Address is in sig, if I made it. That was fun.