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Author Topic: Solution to the Bitcoin Block Size  (Read 848 times)
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February 28, 2013, 06:30:06 PM

The Problem

The blocks size, now with a hard limit of 1MB, is enough for about 7 transactions per second, but Bitcoin has been believed to be available to the entire world. The amount of data recorded in the block chain for handling transactions for the world would exceed the ability for home computers to keep up. The main constraint would be network connection, even with pruning implemented. This is seen as problematic since Bitcoin is supposed to be decentralized and democratic--users running full nodes from home relaying and auditing transactions to ensure this. Scaling to meet world demand would mean full nodes leaving (for the most part) the home level and being done by companies and organized groups.

The Solution

This solution shows how the above perceived problem will not be a problem. For one thing the Bitcoin block chain will never contain all transactions. It's highly likely that by the time Bitcoin reaches global scale many transactions will occur off-chain as I explored in this post. Off-chain transactions are instant (no awaiting confirmations), so they may even be the majority type.

That's not the only reason on-chain transactions will be limited... The explanation is the result of evolved thinking I've had. Let me explain my username. Long before I heard of Bitcoin I designed theoretical money systems which might work better than the current system. (interestingly, I explicitly had one idea of a person having their own money server; I swear) I knew nothing of cryptography so I could never have designed Bitcoin, but the fact I was thinking this way, as was Satoshi and probably numerous others, I think shows just how bad the current system is. After I discovered Bitcoin (and finally understood it) as a programmer and technologist the username seemed obvious.

I'll posit what I think the future looks like for Bitcoin. Please bear with me and I think you'll agree, but first I need to set some things up.

Consider a concept which I call information saturation. We all know of the stock market crash in 1929, but why did it happen when it did? The information that something was wrong reached sufficient saturation to cause a majority to sell. Notice the bubble ensuring the crash was always there, but it wasn't until sufficient info sat. that there was a catalyst. Since Bitcoin's value is only backed by people's thoughts about it info sat. is a key concept.

The next concept to consider is clubs. A surprisingly accurate way to think of Bitcoin is like a club. Right now we're all part of a club esentially started by Satoshi and now unofficially led by Gavin. Forget about the word Bitcoin for a second. The quantity now trading on MtGox at 30+? That's just the value of Satoshi's club. Viewed this way it's easy to see another club could fairly easily achieve similar value. This is something we've always known and have referred to as alternate crypto-currencies, but what's interesting here is I'm measuring value by club access; up to now people think of alt-coins as an either or proposition, one coin beating out another with superiority or market share.

The future will actually have many simultaneously successful crypto-currencies. The reason? There are existing clubs, ones economically important because of their geographic cohesion. They are known as cities, towns, and states, for example.

The word Bitcoin is arbitrary; it's really a do-it-yourself money system. People are free to do it as they please (and they will) regardless what Satoshi's club does. It makes sense. Barter is the purest way to exchange value, but it's woefully inefficient. The "Bitcoin" concept lets people essentially barter locally without inefficiency because an actual currency is used. Locals will not stay beholden to what happens (for better or worse) with Satoshi's club. After sufficient info sat. of the crypto-currency concept we'll see local versions crop up.

The ideal size I think will be U.S. state size. Smaller than that is probably inadequate mining protection, and while it's less protection than any global scale implementation I believe it's okay because attack value is lower. Also, combination proof of work, proof of stake coins like Novacoin, which help solve 51% attacks, will probably be used.

So what does all this mean? It means hazek, who echoes the anti-change sentiment well by saying simply "I want to be a sovereign user", has nothing to worry about. Wherever he is there will eventually be a local coin version usable with full nodes from home. Also, local block chains means far less transactions on any global chain, which incidentally I think should include more than Satoshi's club, because with financial matters it's wise to never put all your eggs in one basket; Litecoin and Novacoin seem leading candidates for strategic backup and protection from Satoshi Club mismanagement.

My advice is for Gavin to push ahead with his idea of how to implement change as it's least likely to cause a problematic fork, especially (I hope) in consideration of above.

Finally, of course there will be exchange options and price indexes for all crypto-currencies. I have more thoughts but reading time is of concern.
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