Lol, clearly I'm being trolled.  Nicely done

The blockchain would also appear to me in this case to be relatively easily jammed.  What I mean is, say $20 is the upper limit on what people are willing to pay to transact over the blockchain.  With a 1MB block size limit, that's roughly 2000 transactions per block, or 288,000 transactions per day.  So it would cost roughly $5.76M to jam the blockchain for a day.  How many days could Bitcoin withstand such an attack before confidence is lost?  Also keep in mind that this number is fixed with the block size, so this can quickly become a cheap attack relative to the benefit of its success as the number of Bitcoin users grows.

Edit: In fact, I'm betting even just a credible threat to do this at random times would suffice to make Bitcoin appear too unreliable to more than a few businesses.

I'm interested in following how you arrived at these numbers.  E.g. what are your monthly CPU, RAM, and bandwidth costs to process, say VISA levels of traffic.  We can worry about legal costs after we figure out the technical ones.

Edit: I just noticed the last sentence where you admitted your numbers to be wild guesses.  Why are you making such bold claims based on admitted wild guesses?  This is a pretty important issue, after all.

So we wouldn't have to fear that it'd require an expensive data center to run a node?

Do you think some of these folks might just disagree with the claim that larger blocks would result in Bitcoin being ultimately under government control?  Which ones do you believe really are happy with this outcome?

It seems like you got a bit distracted while explaining your estimate of the operating cost...

I keep hearing this statement, but never any numbers with it to back it up.  Would you mind sharing how you estimated this operating cost?

The big value of validation-without-the-blockchain seems to me to be when it's combined with the fraud proof/challenge idea, where an SPV node can reject invalid blocks upon receiving a short proof or challenge that proves the block was formed incorrectly (e.g. nonexistent txin, double spend, invalid coinbase).   It turns out all important cases of fraudulently formed blocks can be covered by these - including cheating on the block reward, after a simple change to the way the Merkle trees are constructed.  This would greatly increase the trust model of an SPV node, under the assumption that it's connected to at least one well-connected, honest peer.

The more honest nodes there are auditing blocks and forming these fraud proofs/challenges, the better chance SPV nodes will promptly and reliably receive them.  This is where the validation-without-the-blockchain idea really shines IMO, since it allows resource constrained nodes to contribute to overall network security, but without biting off more than they can chew - they only partially validate blocks.  I tend to think of this as the "correct" way to preserve decentralization while scaling up block sizes.

Businesses that accept zero-confirmation transactions are surely quite aware that they are not perfectly safe, but some (e.g. bitpay IIRC) still find it in their interest to accept them anyway, and incorporate the risk of loss into their prices.  Simply assuming they're stupid to do so in order to justify unintentionally harming their business model seems a bit... insensitive.

Wouldn't bitpay, for example, lose the universality of the Bitcoin payment network by switching to something like this?  Part of what makes them so convenient is that customers don't have to sign up for special accounts.

Right, that's my conclusion as well.

My point about >50% attacks being manageable by the "nuclear option" (swapping out the mining algorithm) - and likely completely deterred by its economics which I described - stands if ASICs are sufficiently more economical than general purpose hardware.  I'm only trying to point out that this is an effective recourse/deterrent to >50% attacks on ASIC-friendly mining algorithms.

Here's one of Dan Kaminsky's comments on his article:
He seems to think it's possible, and I'm just deferring my judgement on this to him.

Which one?

Mining algorithms can be designed such that specialized hardware offers relatively less advantage over generalized hardware.  My argument is that "ASIC-resistant" mining algorithms should be avoided.

I recently heard Dan Kaminsky mention in his recent article: http://www.wired.com/opinion/2013/05/lets-cut-through-the-bitcoin-hype/ that a mining algorithm friendly to general purpose hardware is superior because it is more inclusive to "the masses", as it wouldn't require specialized hardware to participate, and thus mining would be that much more decentralized.  I doubt this is much of an advantage though, as most people would have to buy high end general purpose hardware specifically to mine anyway in order to remain competitive and profitable, and the barrier to entry for running specialized hardware (ASICs) will soon be just as low.

Furthermore, having a mining algorithm require specialized hardware appears to be a great strength.  E.g. suppose an attacker amasses >50% of total hashing power.  Then the network could (as a last resort) swap out the mining algorithm, and render all of his equipment useless for attacking the new system and for resale. With general purpose equipment, he could keep attacking the new mining algorithm, or resell his equipment to recoup some of his costs.  While the honest miners would lose all of their investment (this should be considered an inherent risk of being in the mining business), they still collectively lose less than the attacker.  As long as there remains sufficient profit motive to mine - i.e. BTC remains valuable - then ASICs for the new algorithm should be quickly forthcoming to the market while CPUs/GPUs pick up the slack, and any attacker wishing to continue this attack will quickly go bankrupt as he's up against the capital stock of the whole world.

The damage the attacker does - e.g. the drop in BTC value - can be mitigated if such a response is understood by all to always be potentially necessary, and perfectly within the realm of manageability (it seems to me to be, unless I'm missing something).  "Fire drills" might even be done in advance, which would undoubtedly inspire confidence.

tldr; If the mining network relies on specialized rather than generalized hardware, then there is a "nuclear option" available to deal with and deter >50% attacks.

I recently read this very insightful article on money vs. bubbles:

http://unqualified-reservations.blogspot.ca/2013/04/bitcoin-is-money-bitcoin-is-bubble.html

Eh?  The cleanliness of the air they breathe and water they drink doesn't affect their bottom line.

(1) isn't true.  You need so much work burying your transaction for it to be "confirmed" - i.e. have a desired probability that it will not be reversed.  This isn't measured by number of blocks, but time and total network hash rate, and Bitcoin has a _much_ higher hash rate.

(2) clearly isn't true either, as there are _many_ more bitcoin users currently.

Regarding (3), there are advantages to requiring miners to use specialized, single-purpose machinery.  Dissuading botnet mining is one.  Another is that it makes miners have more "skin in the game", causing them to care about the health of the network that much more - their mining equipment becomes worthless in the event of failure of the mining algorithm.

Edit: by "failure of the mining algorithm" I mean an attacker obtaining a significant majority of the hashing power.

@BubbleBoy

So to recap, bitcoin mining will consume an amount of electricity non-negligible relative to overall world consumption if it completely supplants all the world's currencies in less than ~24 years (6 halvings of the inflation rate).  In this case it could run into conflict with national energy policies, and potentially create an existential political threat to Bitcoin.

Leaving aside how unrealistic this growth scenario is, if such a thing were to happen, then I suppose Bitcoin users would be given an ultimatum: hard fork to further limit the inflation rate, or be forced to take on governments.  It'd be a damn shame to bring the inflation schedule into question, but if the alternative is really so dire, then I'm sure the network would adapt.

Ah, whoops, I see what you were doing now.  Well then let's tack on an extra 15 years for Bitcoin to take over the world and call it even

Sorry, not sure what thread this is being discussed in now, but here is my response to BubbleBoy's (cross) post above:

@BubbleBoy,

With the US consuming around 20% of the world's electricity production, then in the wildly successful hypothetical scenario you described, bitcoin mining consumes 1-3% of the world's electricity (using your numbers).  With the natural incentive to make optimal use of the waste heat, a likely large majority of this energy would've been consumed for heat anyway, so bitcoin mining would really only be contributing an additional few tenths of a percent to world electricity consumption, and halving every four years.  Depending on how mining is distributed amongst nations, these numbers are likely irrelevant to most in terms of their national energy policies.  And of course this does not factor in the cost savings from the monetary systems Bitcoin has supplanted.

My apologies, I'm sick today and grumpy about it  Wasn't really addressed at you either...

One interesting quantity to look at regarding sustainability of this reward could be the miner reward to exchange volume ratio.  Here it is:


If we say it's exchange volume that sustains the block reward, then this graph suggests we're safe (w.r.t. inflationary downward pressure).  Safer than we've ever been, actually.  But the volume could be fleeting, so who knows.

Edit: cleaned up the graph