What is the max rate of transactions that the Bitcoin protocol can handle?

[Shatosi Makanoto]

Question: Since blocks are limited to 1MB in size (https://en.bitcoin.it/wiki/Weaknesses#Denial_of_Service_.28DoS.29_attacks), and a typical transaction is, say, 282 bytes (https://en.bitcoin.it/wiki/Protocol_specification#tx), is a block limited to 1MB/282 ~= 3718 transactions? That would translate to 3718/600 ~= 6 transactions/second. Bitcoin transaction traffic is currently about 50K transactions per day, or 0.6 transactions per second. Does that mean that traffic can only increase by tenfold from its current rate? That seems pretty paltry!

[Birdy]

The 1 MB limit isn't written in stone, some time in the future 10 MB will be equivalent to 1 MB in relation to internet speed and memory space (-> usual speed/capacity is 10 times higher), I don't see a reason not to change this limit then.

[Shatosi Makanoto]

Still, 100X instead of 10X seems like it could not handle a global full implementation.

[Explodicle]

This scalability problem gets discussed a lot. IMHO the best solution is a combination of off-chain transactions and micropayment channels.

Off-chain transactions are done by third parties who issue a virtual currency backed with Bitcoins. For example, MtGox customers can send each other bitcoins entirely within the site, so the actual in-chain transaction only has to take place when withdrawing to your local Bitcoin-Qt wallet. These servers can be decentralized, for example using multisig and Open-Transactions. Ripple would work too.

Micropayment channels would allow two parties to compress any number of small payments into a single transaction. Right now Satoshi Dice is the biggest consumer of block size, and their business model would work well with micropayment channels. More info here: http://www.youtube.com/watch?v=mD4L7xDNCmA

The analogy I like to use is: Bitcoin doesn't need to replace VISA, it just needs to replace the Treasury and Federal Reserve.

[Shatosi Makanoto]

Thanks, explodicle, that helps a lot.

Maybe you know the answer to another question that's been bugging me: is there any way to know or estimate how many nodes are active on the network? I'm concerned because it seems as though the interconnection of nodes is quite random, and so the number of hops required for data to be distributed around the network could be very high. The probem is mitigated by the fact that there are super-nodes that have tens of thousands of connections (https://blockchain.info/hub-nodes), but that introduces another problem: single points of failure or possible government interference.

[Explodicle]

Sorry, I have no idea how many nodes there are. Anyone can relay anyone else's transactions.