there is no max block size problem

Anon136 (OP)

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there is no max block size problem

February 23, 2013, 06:19:04 PM
Last edit: February 24, 2013, 02:24:29 PM by Anon136

Disclaimer: my solution is based on my understanding of economics, not my understanding of computer science (of which i have very little) but please dont let that frighten you off, im quite confident that economics is even more relevant here.

So lets suppose for the sake of discussion that this is the near future. 75% of the worlds population of 7.5 billion people uses bitcoin and there is demand for approximately 10 transactions per person per day. even increasing the max block size to something that pushes the technical capabilities of the fastest isps in the world (even while generously adjusting for the fact that this is the future) transaction fees would end up being hundreds or thousands of dollars a piece. What this means is that increasing the max block size is not a solution and never will be. We will either need to fundamentally alter the bitcoin protocol or embrace multiple blockchains.

Now it is possible that bitcoin devs could attempt to shoe horn in some way of creating multiple non-competative blockchains and maybe this could be a viable but it isnt the point of this post.

Now this argument could apply to truly alternative cryptocurrencies but lets say for the sake of simplicity that everyone decides "hey bitcoin works, it started at 0 dollars per coin and now its 500 dollars per coin, why mess with a good thing? lets just use testcoins to avoid high tx fees". So this makes testcoins valuable and this makes them not very good for testing and so someone invents testcoins2 and testcoin2 becomes the new testcoin1. Then this process can continue at infinitum any time tx fees become too high.

ok so the first criticism: "but this would be way too confusing for lay people, no one would want to deal with 100 or 1000 different bitcoins." In the future this could be made into a non issue with seamless exchanges (possibly decentralized anonymous and censorship resistant also?). this is because it is so incredibly easy to trade one crypto-currency against another. All prices could be denominated in bitcoin1 (the one that we are all using right now) and the exchange would automatically figure out how many bicoin7's you need to pay the retailer inorder to pay him the equivalent of x bitcoin1's. The bitcoin7s would be sent to the retailer and he would use a service like bitpay to instantly convert them into the asset of his choosing.

2nd criticism: "but we were promised that there would be only 21 million bitcoins, what you are proposing functionally eliminates any limit on the total number that can be produced meaning they have a value of 0 because they are non scarce." There is some legitimacy to this criticism. it would prevent bitcoins from rising in value past a certain threshold but i would argue that price stability is actually desirable for a medium of exchange. Bitcoin should not be thought of as a get rich quick scheme anyway, if you want to save your wealth in something deflationary than buy silver or gold, bitcoins are for spending! Also you couldn't just start a 100 new chains and say mowa ha ha i have a billion bitcoins as these coins would only have value if the market adopted them and the market would only ever adopt them if there was a legitimate need. This need would arise periodically and naturally when the existing chains fill up with too much capital. Despite the fact that bitcoins would have a cap on their maximum value this system wouldn't be inherently inflationary either since it wouldn't make any sense for market actors to lend any value to new chains unless there was a legitimate need. And if bitcoin over all began to lose value this wouldnt even cause a loss in purchassing power for lay users since lay users would tend to use more established chains and capital would tend to be sucked from less established more speculative chains first before even touching older chains. (it would be a lot like traunches in a cdo). The net effect would be an amazingly stable purchasing power.

3rd criticism: "but what about the strength of the network? Splitting all this hashing power over multiple networks would weaken bitcoin over all, since each chain would be more susceptible to attack." Any successful attack on any chain would cause capital to naturally flee to other chains which would increase the transaction fees on those chains and increase their security proportionately. And since the only way to kill bitcoin would be to kill every chain, and even in the worst case scenario all the capital would flow into one chain, it would end up being functionally equivalent to having only 1 chain. So the total strength of bitcoin is still a function of the aggregation of hashing power on all chains. My proposal does nothing to hinder the strength of the bitcoin network but it does help to insure that we are not dedicating too many resources to securing any one chain (which is technically possible).

4th criticism: "even lay users would be forced to speculate on a fairly esoteric subject of which bitcoin chain best suited their needs." I think this is actually a very legitimate criticism but not enough to outweigh the aforementioned advantages. These people would probably be well advised to simply diversify among the established chains with higher tx fees and leave the lower tx fees for people who are slightly more involved.

notice that the only people who would ever get burned with reversed transactions would be people who were willing to trade too much in the way of security in favor of low tx fees. The people who prospered most in this market would be people who struck just the proper balance between security and tx fees and these people would accumulate more capital while those who failed to strike the proper balance would tend to lose capital. This would cause the market to be able to discover the correct trade off between low tx fees and security in a process very analogous to how competition and bidding in a free market causes capital to flow from entrepreneurs who are able able to utilize capital less effectively to entrepreneurs who are able to utilize the capital more effectively.

Rep Thread: https://bitcointalk.org/index.php?topic=381041
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solex

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100 satoshis -> ISO code