A short tale of a world currency, and fees going UP and UP and UP

[blablahblah]

In a far, distant future, bitcoins are not only expensive, but also very expensive to transact. Over time, as the system evolved, things got tricky in the mining sector. Miners who tried to offer cheaper rates kept having their blocks 'orphaned' until they learned to comply with the club rules: do not swamp the blockchain with cheap transactions. No matter how these heroic, rebel miners tried to get around the problem, it just wasn't working. Cheap transactions -- big blocks. Expensive transactions -- small blocks. The group consensus was: small blocks are less costly in the data centres.

Meanwhile, various helpful investors saw some opportunities to tidy Bitcoin up a bit. Bitcoin, the clunky "digital gold" that it was, was just too bulky for the fast rough-and-ready infrastructure people wanted. So a whole new banking sector arose from the ashes of the old one. This new sector was of course very convenient and useful: each layer provided an extremely valuable service, such as lending out Bitcoin-backed credit, all for a tiny fee that was passed onto the customers. In turn, these customers also provided some extremely valuable services: accounts, ATMs, chip cards, and pleasant branches with helpful staff. The best part was the cost: extremely affordable! Only a few percent per year.

Others saw opportunities in the 'mining' sector. Spaces were limited for the actual mining of course, but figuring out the optimum fees and block sizes was a formidable task requiring an army of accountants and programmers. You see, any slight miscalculation could have catastrophic consequences in the wider economy downstream. For example: increase block size too quickly, fees drop, and a small revolution erupts as mushrooming non-bank lenders start competing with the old guard and drive them out of business. Scary stuff! In such complex, chaotic systems, it often seems that the best thing to do is just: never change anything, and then it will remain stable.

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[Anon136]

here is another story. transaction costs become too high, naturally, because distributed ledgers don't scale well. clever entrepreneurs come to the rescue. By building ontop of the existing infrastructure they leaver the advantages of bitcoin in order to create censorship resistant centralized ledger systems. to the end user consumer its virtually indistinguishable from bitcoin except that it has super low fees and instantaneous transactions. and everyone lives happily ever after, except for people who get cancer.

[blablahblah]

here is another story. transaction costs become too high, naturally, because distributed ledgers don't scale well. clever entrepreneurs come to the rescue. By building ontop of the existing infrastructure they leaver the advantages of bitcoin in order to create censorship resistant centralized ledger systems. to the end user consumer its virtually indistinguishable from bitcoin except that it has super low fees and instantaneous transactions. and everyone lives happily ever after, except for people who get cancer.

I'm shocked at your deus ex machina.

[Anon136]

here is another story. transaction costs become too high, naturally, because distributed ledgers don't scale well. clever entrepreneurs come to the rescue. By building ontop of the existing infrastructure they leaver the advantages of bitcoin in order to create censorship resistant centralized ledger systems. to the end user consumer its virtually indistinguishable from bitcoin except that it has super low fees and instantaneous transactions. and everyone lives happily ever after, except for people who get cancer.

To answer your post, though,

Wasn't the problem so hard that it forced the creators of Bitcoin to resort to decentralisation in the first place? If you want an alternative, why not something very simple: a benign leader who is simply has the people's best interests at heart and is smart enough to understand what's going on?

Would I be endorsing democratic values, if I said that I was sceptical whether such a person could be democratically elected? Maybe if there were many, smaller currencies...

Thats a really good point.  So i guess i should say pseudo centralized. basically these institutions would tread a happy middle ground between bitcoins level of decentralization, and a full on "one ledger to rule them all" scenario. Let me explain with an example.

Suppose that we have ledger operator a b and c. You want to make a bitcoin transaction with your buddy and you are using operator a and your buddy is using operator b. You broadcast your intention to operator a and b and a and b communicate with each other and agree that everything looks good and then the transaction is complete. A and B store up a balance of payments for all transactions with each other, and once per day, who ever is liable on net clears his obligation to the other using the blockchain. Notice that C never had to download any information relating to this transaction. Thats only a 30% savings in total network load, but suppose we have 100 operators, than it becomes a 98% savings. Using this framework, cryptobanks can pop up on the dark nets. Governments can take some of them down, but they would end up playing a never ending game of whackamole. That is the sense in which it is censorship resistant, and the sense in which it is centralized in that each actor is maintaining his own ledger.

There are other ways to make it more efficient also. Such as banks wouldnt need to actually communicate all transactions with each other either. Both banks could bundle their transactions relating to each other into blocks, then hash the blocks and compare hashes, and only explore the transactions in detail if the hashes dont match. Thats just one example, there is tons of creative stuff they could do to reduce network load.

and of course the blockchain would still be super great for many purposes. just not buying a soda or a sandwich.

[blablahblah]

Suppose that we have ledger operator a b and c. You want to make a bitcoin transaction with your buddy and you are using operator a and your buddy is using operator b. You broadcast your intention to operator a and b and a and b communicate with each other and agree that everything looks good and then the transaction is complete. A and B store up a balance of payments for all transactions with each other, and once per day, who ever is liable on net clears his obligation to the other using the blockchain. Notice that C never had to download any information relating to this transaction. Thats only a 30% savings in total network load, but suppose we have 100 operators, than it becomes a 98% savings. Using this framework, cryptobanks can pop up on the dark nets. Governments can take some of them down, but they would end up playing a never ending game of whackamole. That is the sense in which it is censorship resistant, and the sense in which it is centralized in that each actor is maintaining his own ledger.

Isn't that basically the current system where countries (or economic regions) can independently inflate their national currencies without any transparency? Sure, debasement is visible after the fact, but the international trade -- which causes relative exchange rates to drift -- has already occurred. That could get messy with everyone trying to game the business cycles in a kind of Mexican stand-off*.


*edit: or is it a normal stand-off because of a "first mover" advantage?

[Anon136]

Suppose that we have ledger operator a b and c. You want to make a bitcoin transaction with your buddy and you are using operator a and your buddy is using operator b. You broadcast your intention to operator a and b and a and b communicate with each other and agree that everything looks good and then the transaction is complete. A and B store up a balance of payments for all transactions with each other, and once per day, who ever is liable on net clears his obligation to the other using the blockchain. Notice that C never had to download any information relating to this transaction. Thats only a 30% savings in total network load, but suppose we have 100 operators, than it becomes a 98% savings. Using this framework, cryptobanks can pop up on the dark nets. Governments can take some of them down, but they would end up playing a never ending game of whackamole. That is the sense in which it is censorship resistant, and the sense in which it is centralized in that each actor is maintaining his own ledger.

Isn't that basically the current system where countries (or economic regions) can independently inflate their national currencies without any transparency? Sure, debasement is visible after the fact, but the international trade -- which causes relative exchange rates to drift -- has already occurred. That could get messy with everyone trying to game the business cycles in a kind of Mexican stand-off.

A free market in competitive private currency issuers is what we are talking about here. Bitcoin makes that possible in a way that it never was before. This is not particularly analogous to nation states competing with each other because look what happened to gaddafi when he tried to create the gold dinar, that is very very far from a free market when you get blown to smithereens for making your currency something other than what america endorses.

[blablahblah]

A free market in competitive private currency issuers is what we are talking about here. Bitcoin makes that possible in a way that it never was before. This is not particularly analogous to nation states competing with each other because look what happened to gaddafi when he tried to create the gold dinar, that is very very far from a free market when you get blown to smithereens for making your currency something other than what america endorses.

If it's a free market, then why am I somehow "not allowed" to blow others to smithereens when they're trying to brutally compete against me?

[Anon136]

A free market in competitive private currency issuers is what we are talking about here. Bitcoin makes that possible in a way that it never was before. This is not particularly analogous to nation states competing with each other because look what happened to gaddafi when he tried to create the gold dinar, that is very very far from a free market when you get blown to smithereens for making your currency something other than what america endorses.

If it's a free market, then why am I somehow "not allowed" to blow others to smithereens when they're trying to brutally compete against me?

ok ok now you are just playing symantic games. free market doesnt mean free to do anything you want. it means that people respect each others property, and exchanges generally only take place if both parties agree to them. this is what competing cryptobanks on the darkweb would be like. they wouldnt even know who each other were so they couldnt blow each other up even if they wanted.