What if all transactions go 'Off Chain'?

[edmundedgar]

With the limitation of 7 transactions/second, 10 minute confirmation times, hour long deposits, and sometimes, transactions that take days, there is a big incentive to create ways to transact off the chain. With inputs.io and soon Open Transactions, it seems there has already been some movement in this direction.

It has been claimed that the block size limit will be increased sometime in the future. But there is already movement to get around the block chain altogether. If a new method of securing transactions can be instant, then the block chain becomes less attractive.

So if enough transactions go off chain, will there still be enough incentive to mine and secure the block chain? or will it lead to fewer transaction fees, fewer miners, less security......

And if the answer is no, that wouldn't happen, I'd be interested in hearing some thought on why, and what would happen if the answer were yes.

The people who want to cap block sizes tend to see it the other way around, because if there's no competition for space in the block, transaction fees stay very low. So the thought is that by arbitrarily limiting the block size, you create artificial scarcity and push up transaction fees. The way they see it the off-chain processors still end up clearing transactions in the block-chain, but the transactions they clear are much bigger, so they don't mind the $1 or $10 or $100 transaction fee.

I'm not convinced that's really what would happen. There are a lot of problems with using off-chain solutions for some of the use-cases that Bitcoin currently covers, not least regulatory ones if you try to do this globally on any scale (even the massively-lawyered PayPal can't operate in a lot of countries, and they need very tedious identity validation procedures in others). Many of these problems are the ones Bitcoin was specifically designed to avoid.

I think what really happens when you try to artificially cap Bitcoin transactions is that everyone sods off to an alternate coin without that limitation, and your Bitcoins become a historical curiosity.

[🏰 TradeFortress 🏰]

If you don't cap it through, a rogue miner can publish a 1 TB block and kill the network.

If you say 'oh then have a limit', then you're back to capping it.

Transaction fees are needed to keep the network secure and provide an incentive against 51% attacking the network. The block size cap protects Bitcoin.

Is 1MB is the right limit? That's another question.

[🏰 TradeFortress 🏰]

It is also Satoshi who set the block size of 1MB, as well as a soft cap of 250 KB.

I think what really happens when you try to artificially cap Bitcoin transactions is that everyone sods off to an alternate coin without that limitation, and your Bitcoins become a historical curiosity.

Clearly that hasn't happened for the past 2 years.

[edmundedgar]

This can be fixed with an email -> Bitcoin address directory with a public API. I made one called Address Machine:
https://www.addressmachine.com/

This is no different than trusting a third party service.

From a regulatory point of view it's completely different to trusting a third-party service that actually handles the transaction. It's also much easier to distribute (other people can run mirrors of the directory) and validate (since you can check what addresses I'm giving out, and blow the whistle on me if I get cracked or start pulling shenanigans).

Do you seriously want to broadcast all of your transactions to the whole wide world and tie them to your email address?

I also do that if I stick a Bitcoin address on my website or in my signature. (OK, I don't necessarily put my email address on my website or my Bitcoin Talk signature, but anyone who can use Google can connect the two.)

If you don't want that you shouldn't use my public directory, but you could do it with a non-public directory that fed a new Bitcoin address to each user, while keeping the transactions on-chain. I guess one decentralized way to do that would be that you'd stick an "address server" URL in your DNS, which you could run yourself, and have that feed a new address to each person who shows up.

PS. I'm not saying there isn't value to off-chain systems for a lot of use-cases, just that off-chain isn't the only way to do it, and has a lot of downsides.

[🏰 TradeFortress 🏰]

I also do that if I stick a Bitcoin address on my website or in my signature.

Not if you mix it

But anyway, I definitely agree with this point:

PS. I'm not saying there isn't value to off-chain systems for a lot of use-cases, just that off-chain isn't the only way to do it, and has a lot of downsides.

[edmundedgar]

If you don't cap it through, a rogue miner can publish a 1 TB block and kill the network.

If you say 'oh then have a limit', then you're back to capping it.

Transaction fees are needed to keep the network secure and provide an incentive against 51% attacking the network. The block size cap protects Bitcoin.

Is 1MB is the right limit? That's another question.

Maybe we agree. To clarify, there are a couple of different questions about block sizes.

Q1) How big would it be helpful for blocks to get? Opinions being:
 a) 1MB is right for a long time, for reasons to do with mining on Tor or something.
 b) Ideally smaller than the amount of non-spam transactions people want to make, to raise transaction fees by creating artificial scarcity.
 c) Ideally bigger than the amount of non-spam transactions people want to make, to make Bitcoin as attractive as possible and create lots of transactions to get fees from, which should in turn raise the value of the block reward.
 
I take the OP to be talking about (a), when it becomes a case of (b). In other words, say loads of people want to make transactions, but the block size is stuck at 1MB. Long-term does that mean more fees for miners (higher per-transaction fees!) or less fees for miners (fewer transactions, less on-chain activity, possibility that everyone switches to another coin!). What's happened in the last two years doesn't really tell us anything about that, because we're at (a) and (c), not yet (a) and (b).

What hasn't really been discussed on this thread (which is fine, because it's been discussed on plenty of other threads...) is:

Q2) Who should decide how big blocks should go?
 a) The community, but in a way that's weighted to Gavin / Developers / Miners, by the current model where the core developers make a proposal, stick new defaults in the client, and it gets adopted if the miners will run it.
 b) The community, by some kind of voting mechanism - for example, some people were proposing a plan involving proof-of-stake voting with transactions, to reduce the freedom of the developers and miners to make changes. (The plan as stated also seemed to be designed to prevent any changes actually happening in practice, because it counted the "didn't vote" of people who don't follow Bitcoin politics as a vote for "no change"...)
 c) Miners, by a dynamic consensus process: You can mine whatever you like and broadcast it, but if it's too big to handle the other miners will ignore it.

[Minor edits for clarity]