Bitcoin web services can dramatically reduce transaction on blockchain

[johnyj]

A simple example of how the amount of transactions can be reduced by magnitudes by using daily settlement between large service providers on blockchain

Suppose that Bob is in US, he buy some bitcoin from an exchange Coinbase, and send those coins to a merchant in China to get a battery charger delivered to his home

In this process, there can be no bitcoin transactions on blockchain at all, because that chinese merchant's bitcoin receiving address is on a chinese bitcoin exchange OKCOIN, and OKCOIN have a daily settlement contract with Coinbase, e.g. combine all the bitcoin transactions between addresses on their platform and only settle the net difference at the end of the day. When Bob input the merchant bitcoin receiving address, he will get a prompt that this address belongs to one of coinbase's financial partner thus the fee is zero and the transaction will be instantly confirmed

If you are using bitcoin for casual daily spending, you are most likely to use a web wallet, due to several conveniences: You don't worry about loss and theft, you can always call their support to block or get your account back. The payment is instantly done without any confirmation time. And since both okcoin and coinbase only need to pay one transaction fee for thousands or even millions of transactions, the transaction itself is almost free. And for casual daily spending, you don't have too much bitcoin stored online, you don't worry about if coinbase or okcoin suddenly disappear

A research paper from Bank of England said, you don't really always need trust-less model. Sometimes a trusted third party will make life much easier

[unamis76]

Interesting idea. Unfortunately it gives an incentive to depend more on third party services...

[johnyj]

Interesting idea. Unfortunately it gives an incentive to depend more on third party services...

It is kind of trade off, you can rely on third party services to get better day to day user experience, but you can not rely on them to do mission critical transactions. However, it is the day to day small casual spending that created most amount of transactions, so settlement based design will dramatically reduce those transactions on blockchain

There are many brilliant idea from traditional financial systems, not every thing is bad. If you avoid taking too much risk on them, they still can provide better service.

You only need to avoid two things from legacy financial system: fiat money and fractional reserve banking. In this case, centralized service platform indeed have the ability to do fractional reserve banking (like MTGOX), so it is important only put small amount of bitcoin there

[unamis76]

Interesting idea. Unfortunately it gives an incentive to depend more on third party services...

It is kind of trade off, you can rely on third party services to get better day to day user experience, but you can not rely on them to do mission critical transactions. However, it is the day to day small casual spending that created most amount of transactions, so settlement based design will dramatically reduce those transactions on blockchain

There are many brilliant idea from traditional financial systems, not every thing is bad. If you avoid taking too much risk on them, they still can provide better service.

You only need to avoid two things from legacy financial system: fiat money and fractional reserve banking. In this case, centralized service platform indeed have the ability to do fractional reserve banking (like MTGOX), so it is important only put small amount of bitcoin there

Why should I take this trade off? To unload the blockchain? I'm just a drop in the ocean... What guarantees others will also take this trade off?

Sorry being so skeptical. But although this is a good idea in theory I think it wouldn't work in practice. I don't see myself stop relying on my online wallets to start relying on third party services to hold my coins.

We can avoid taking risks... But the risk is still there. Even with small amounts. Small amounts from many of us make quite a big cake

what if another Mt. Gox comes on stage?

Everyone would be screwed. Again.

[brg444]

Interesting idea. Unfortunately it gives an incentive to depend more on third party services...

It is kind of trade off, you can rely on third party services to get better day to day user experience, but you can not rely on them to do mission critical transactions. However, it is the day to day small casual spending that created most amount of transactions, so settlement based design will dramatically reduce those transactions on blockchain

There are many brilliant idea from traditional financial systems, not every thing is bad. If you avoid taking too much risk on them, they still can provide better service.

You only need to avoid two things from legacy financial system: fiat money and fractional reserve banking. In this case, centralized service platform indeed have the ability to do fractional reserve banking (like MTGOX), so it is important only put small amount of bitcoin there

Why should I take this trade off? To unload the blockchain? I'm just a drop in the ocean... What guarantees others will also take this trade off?

Sorry being so skeptical. But although this is a good idea in theory I think it wouldn't work in practice. I don't see myself stop relying on my online wallets to start relying on third party services to hold my coins.

We can avoid taking risks... But the risk is still there. Even with small amounts. Small amounts from many of us make quite a big cake

what if another Mt. Gox comes on stage?

Everyone would be screwed. Again.

Coinbase offers multi-signature where you hold your keys but can transact using their platform.

We need to accept the idea that regular joes won't care about holding their key. Not everyone wants to "be their own bank".

[GermanGiant]

A research paper from Bank of England said, you don't really always need trust-less model. Sometimes a trusted third party will make life much easier

Dont trust them. They'll always tell this lie to you to have their upperhand in your wealth. For quick settlement and other advantages you are talking about here, centralized systems are doing fine. Bitcoin does not need to go that way.

[johnyj]

Interesting idea. Unfortunately it gives an incentive to depend more on third party services...

It is kind of trade off, you can rely on third party services to get better day to day user experience, but you can not rely on them to do mission critical transactions. However, it is the day to day small casual spending that created most amount of transactions, so settlement based design will dramatically reduce those transactions on blockchain

There are many brilliant idea from traditional financial systems, not every thing is bad. If you avoid taking too much risk on them, they still can provide better service.

You only need to avoid two things from legacy financial system: fiat money and fractional reserve banking. In this case, centralized service platform indeed have the ability to do fractional reserve banking (like MTGOX), so it is important only put small amount of bitcoin there

Why should I take this trade off? To unload the blockchain? I'm just a drop in the ocean... What guarantees others will also take this trade off?

Sorry being so skeptical. But although this is a good idea in theory I think it wouldn't work in practice. I don't see myself stop relying on my online wallets to start relying on third party services to hold my coins.

We can avoid taking risks... But the risk is still there. Even with small amounts. Small amounts from many of us make quite a big cake

Suppose that 95% of your coins are in cold storage and the rest 5% is in web wallets, that does not pose a too big risk if there is any. But those 5% coins might generate over 95% of your transactions, thus incur a huge fee on your end (In case that nodes can not handle large blocks very well, the transaction fee will become so high that micro transaction just become impractical)

The stress test is coming, we will have a good estimation about whether nodes can handle even a 2MB block at today's network infrastructure world wide. If that is not possible then we might be forced to use small blocks for years until the world wide internet infrastructure is upgraded, and the fee will rise to make microtransactions to be very expensive

If you pay $1 to send $10 on blockchain, while you pay 1 cent to send $10 on a web wallet, would you make the switch (especially when the web wallet's cold storage is secured by multi-sig)?

[johnyj]

A research paper from Bank of England said, you don't really always need trust-less model. Sometimes a trusted third party will make life much easier

Dont trust them. They'll always tell this lie to you to have their upperhand in your wealth. For quick settlement and other advantages you are talking about here, centralized systems are doing fine. Bitcoin does not need to go that way.

Does not hurt to trust them with some small amount of bitcoin. The moment you send your bitcoin/fiat to an exchange, you are using some centralized service

The design of the blockchain requires that every transaction has to be written into thousands of blockchains around the world in 10 minutes. The delay caused by the network relay makes it impossible to compete with those high frequency transaction solutions that all the transactions are recorded into the same database on the same server

Decentralized does not necessary mean fully distributed. I like the Bitfury CEO's vision that there will be a group of super nodes that have superior bandwidth and hardware to make sure a friction-less block transfer between major nodes like mining pools, payment processors, exchanges and web wallet providers. And those large actors could establish their internal clearing process to dramatically reduce the amount of transactions on blockchain