Bitcoin: Some Issues

[Zomdifros]

Thanks for the OP, it is very good to hear a contrarian point of view during these euphoric times. There are certainly some valid points raised.

Breaking the security isn't one of them. Although it would be somewhat harder for the Bitcoin community to upgrade the protocol in the event this is needed, compared to banks with a more centralized command structure, this bottom-down consensus-driven way of working ensures that every decision is thoroughly thought over. Compare this to large corporations who go bankrupt because their CEO happens to be a dinosaur and wants things to go his way no matter what.

The scalability issue is somewhat more complex as the obvious solution hasn't presented itself yet. We want to have a system which will remain decentralized enough to withstand any attack imaginable, yet large enough to be able to transfer as many transactions at the lowest cost possible while still giving miners enough monetary incentive for them to keep the network secure.

Seeing how talented the developers are and how well they are pioneering in this world-changing technology I am very confident they are able to work out any issue which may present itself. Bitcoin has the potential to become the most robust store of value ever created, if it isn't already.

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[Zomdifros]

Your requirement seems self-contradictory. If there are 3 options and you're only allowed to pick 2:
Fast,
Secure,
Cheap,
...then you can't pick all 3.

Without going into the whole never ending max blocksize debate, I do think we can pick all three. Bitcoin already does so, and I see no reason whatsoever why this should change in the future. I'm quite optimistic about this because the history of technology has shown that there are few problems it can't solve.

[xavier]

* Encryption. Yes its a long way off, but the SHA256 and other algorithms required for bitcoin will be broken at some time. If bitcoin ever survives this long, when any of these algorithms are broken it could cause irreversable problems.

These algorithms can be substituted for better algorithms in a hard fork.

We already have empirical evidence that bitcoin is able to survive a hard fork as long as there is broad consensus about it.

If these functions are broken, it's likely that they will be broken gradually and there will be enough time to react.

How long is your investment timescale? 30 years?

I did some quick calculations to obtain some data to illustrate the problem for those who think scalability is something that will only be affecting bitcoin in the far off future.

Source: https://blockchain.info/charts/n-transactions-excluding-popular

Extrapolating from the growth rate in transactions over the last 15 days which has been phenomenal (60%), I wanted to see how long it will be until the network reaches its 7 TS/Second limit.

The data here is just from reading the graph by sight so may be a little inaccurate, but should provide a good estimation. Also we are not at the end of March yet - if the growth continues as it has in the last 15 days, the 15-day growth rate will therefore be higher than estimated.

Daily Transactions	Date	Growth Rate	Transactions Per Second
19,224	3/15/2013		0.2
31,289	4/1/2013	63%	0.4
50,926	4/15/2013		0.6
82,887	5/1/2013		1.0
134,907	5/15/2013		1.6
219,575	6/1/2013		2.5
357,381	6/15/2013		4.1
581,673	7/1/2013		6.7
946,732	7/15/2013		11.0
1,540,902	8/1/2013		17.8
2,507,974	8/15/2013		29.0

As you can see, as I have calculated based on the recent high growth in transactions, if the current growth in transactions continue, by July of this year - unless there are changes in the protocol - there are going to be issues with the network , and real questions of whether a P2P distributed transaction payment system can be ever viable will be raised.

I invite further comments on this. I am a holder in bitcoins so I'd like to remain optimistic that a solution to this can be agreed upon by the community before then that is not to the detriment of private investors.

[justusranvier]

https://bitcoinfoundation.org/blog/?p=135

There is a non-voluntary, hard-to-change, 1,000,000-bytes-of-transactions-per-block limit that needs to be raised.

And there is… uhh, “vigorous”… debate over when and how to change it. There are always debates over changing things; after the huge kerfuffle last year over multisignature transactions I had to step back and take a break when it was all over, I was so burned out from trying to respond to all the fear, uncertainty, and doubt.

I think a consensus on what to do is starting to emerge; I expect by my next development update we’ll have a plan.

The good news is we all learned a lot from that experience, so I’m confident that raising the 1MB limit will be only slightly painful for most people– you’ll just have to upgrade old Bitcoin software (which you should be doing regularly anyway).

[willphase]

interesting points.  I personally don't think that we need to worry about the encryption.  If SHA1-256 was anything near being broken then more things would collapse than just bitcoin, and it's not.   And, as others have said, if there was any inkling that this was going to happen, then the hash algorithm could be swapped out with a hard fork, which we have shown works.

The 1Mb maximum block size is more worrying - I think how I see this developing is that mining will become more centralised - there will be fewer independent people doing it, and so fewer nodes have to host the whole blockchain, most nodes will be using SPV (Simplified Payment Verification).  I think part of the problem here is that the blockchain is being used as a messaging system as well as a distributed transaction ledger, some of the work being done by the core devs on separating the managing of payments from the blockchain itself (i.e. only sealing real transactions, rather than using it as a way to notify people that a transaction has occured) might help here.  We always have the option of increasing the limit (especially now the bitcoin client is using the far more scalable leveldb) and also the fallback option of letting the free market decide the fee structure to ensure that their transactions are included in the next block.  I must admit I used to be able to send 0 fee transactions (12-24 months ago) with no problem, but now I'm finding that a 0 fee transaction will not confirm for a few hours, potentially even a whole day - showing that the miners are certainly being more selective, which is exactly how the protocol was designed to work as the block reward drops.

My 2c; good to have a real discussion here about these issues.

Will