Back in the beginning, I argued bitcoin would not scale.
The counter argument was that we could muddle our way through somehow with ad hoc solutions, which could be sort of true, in principle.
The scaling problems started to bite in 2013. They are now biting really hard.
The scaling problems are now well and truly here. Downloading the blockchain is slow and expensive. Doing transactions is slow, unpredictable, expensive, and unpredictably expensive.
Any solutions hurt, are partial, incomplete, unsatisfactory, and will disadvantage some people financially.  Civil war in the bitcoin community has ensued over which people it is to be.
That outcomes are determined by weight of computing power (the miners) rather than weight of bitcoins owned has led to problems. The miners don’t face the same incentives as the people trying to do bitcoin based businesses.
Bitcoin has grown to about as large as it can get. It is doing about as many transactions as it can do, arguably rather more transactions that it is really suited for doing. Any fixes are at best small tune ups to get a little bit more performance out of the system, are at worst just burden shifting and burden hiding – hence the civil war. I have been trying to design a coin that could scale, by having a dispersed blockchain, where no one entity has to keep all transactions.  You keep your own transactions, and summary information about entities you transact with, and summary aggregate information about all transactions, and the chain of hashes that links the ownership of your money and your transactions into the global hash, which chain would only grow as log of the total number of transaction, rather than grow with the total number of transactions. This means that parts of the blockchain will get lost temporarily or permanently, and the problem is to create a method for dealing with such losses that does not give anyone incentive to cause such losses, apart from the general deflation that such losses cause. Have been trying to design this for some time. Not making much progress these days.
Another solution, compatible with existing bitcoin is to have account based money built on top of bitcoin, bitcoin backed banks, analogous to gold backed banks. People are talking about this solution, but not actually implementing it, even though it seems a good deal easier than the solution that I proposed.
Cheer up. Blythe Masters and Wall Street to the Rescue.
http://www.bloomberg.com/news/features/2015-09-01/blythe-masters-tells-banks-the-blockchain-changes-everything
Here’s when you really, really don’t put your own money into it….
Sometimes the old ways are the best ways…
A.J.P.
I’ll believe there’s a crisis when the price crashes and doesn’t recover, Until then, coin on. One thing I’ve learned from following bitcoin over the past 3 years, everyone has their ‘theory’ for why it will fail, and all have been shown wrong.
(1) It will never be a reliable store of value. Only false if you think it will survive this and the next few years as well.
(2) It is not usable except for illegal purposes. Technically funding Andrew Anglin is not illegal, if you don’t live in much of Europe.
(3) It is not and will not be anonymous to governments. And it still won’t, but technically not living up to booster’s slogans isn’t a failure, or C++ would be a failure.
(4) The governments and financial institutions will replace it with a different system, using their governmental power and financial centrality to force people to switch. This hasn’t happened yet, but it will.
(5) Bitcoin will crash. I’d actually never heard that this is going to happen, but I’m not surprised that doing computations on O(n) other people’s data forever is breddy good 10/10 would use my GPU for and play DooM instead of CoD
Like everyone else, I wish I had bought in to Bitcoin in 2010 and sold out in 2014. Bitcoins are sort of like the 2010s version of beanie babies.
“Technically funding Andrew Anglin is not illegal, if you don’t live in much of Europe.”
I don’t think that it’s illegal anywhere in Europe, although I’m far from an authority on these matters.
Solutions known. Solutions to coordinate a bunch of high ego dumb fucks is unknown. Solutions to future Government overtake is also unknown.
Those are the two problems. Not a modifiable sound architecture.
Jim what you’re trying to do is already done. Did that shit back in 2010.
Doing it in a way that is going to work has not been done. What is the example of the shit done in 2010?
The scaling problem has been solved by Dash’s second tier of Masternodes. These are compensated by 45% of the blockreward, 45% going to miners, and 10% to fund development and the ecosytem.
Masternode owners must put up a stake of 1000 Dash (currently about $2500) and can then vote on the spending of the 10%. Not a democracy, but an aristocracy for those with technical knowledge, good hardware and bandwidth.
Development is now proceeding on the third Tier, dubbed Evolution, which aims at providing a “Paypal” type user interface.
Oh yes, and Coinjoin mixing is built in, and instant transactions. This isn’t spam, I’ve been reading this blog for a couple of years, and somehow missed the fact that you (Jim) were interested in Bitcoin. Buh buy!!!
[…] ADDED: Some Bitcoin thoughts from Jim. […]
While it probably wouldn’t solve the scaling problem, there are some optimizations that could be made.
1. Bitcoin has a built in measure of its own value in the amount of the transaction tips people are willing to pay.
2. Require account holders to consolidate bitdust on pain of forfeiture to the block reward. Bitdust being defined as accounts holding value that is less than some fraction of the running average of tips.
3. Periodically create totalization blocks so the block chain can be “staged” so all transactions prior to the last totalization block can be ignored. Any extant bitdust would be forfeited at these points.
(1) Raise the price of a transaction to the point where if you don’t have a giant server bank and millions of dollars to transact you’re not going to be transacting
(2) Totalization blocks to be determined by a cabal of large banks. Resetting the blockchain to be done by a cabal of large banks. Inflating the currency to be done by a cabal of large banks
(3) Donald Trump has his own wallet. You store yours on bank servers, pay the bank for insurance, and the bank gives you interest for your loan of indeterminate duration. You use bank scrip for all transactions, because it’s safer that way
(4) Rothschilds and Bilderbergers buy politicians and send your money to Israel
(5) Le Happy Merchant owns the world. What did you think democracy meant, goyim?
Reading through the comments, there’s a strong vibe of “please don’t rock the boat, I’ve invested a lot of money in Bitcoin”.
Like Occupy Wall Street, many are hoping to salvage a moral victory: that Bitcoin will inspire other blockchain-based currencies. As if the sheep who took a bath on Bitcoin will get in line for another fleecing.
Just like there’ll always be another Silk Road because, I suppose, there’s an endless supply of Silicon Valley nerds looking to make a few million bucks, then lose it all to the government and get life in prison.
Having a problem of scale because so many people want to do transactions in bitcoin is a pretty good problem to have.
Ultimately the value of a crypto currency reflects its prospects for replacing the US$. Because of scaling problems, Bitcoin cannot replace the US$.
I would massively invest in a currency that could replace the US$. If bitcoin could scale, it would have replaced the US$ by now. That is some incentive to construct a workable system.
There exists a plausible argument that bitcoin can never replace USD because a bank can’t lend bitcoins out of thin air.
Today’s Bitcoin price assumes its eventual replacement of the US$, so it is
vastly overvalued. When it falls below $2 it might be worth buying again.
Another problem is custody of wallet.dat. If you lose that file, your bitcoins become unspendable; if it falls into the wrong hands, your bitcoins quickly and irreversibly disappear into someone else’s wallet. This gets much worse if people start spending bitcoins from mobile devices that seldom if ever receive security updates (e.g. Android). You can’t trust banks either; several bitcoin-banks have already been robbed.
What about corporate accounts? If five different people hold the keys, and the account is suddenly found to be empty, who did it? What if you die and your family can’t find your wallet.dat?
Replacing the US$ is a worthwhile goal, for it would amputate both legs of the welfare state: income tax and money printing. The government could still try to guess your income based on your lifestyle, but then it would be not an income tax but a consumption tax, like the infamous Luxury Boat Tax of 1990.
and what about theft or loss of regular currency? happens all the time.
Stanley Mark Rifkin demonstrated that it’s very easy to steal ten million dollars from a bank, but very hard to get away with it. He traveled to Switzerland with a fake passport, bought 19 pounds of Russian diamonds, and returned to the USA to fence the loot.
He made one small sale for $12,000 before the FBI got him. The bank got the diamonds but was also unable to sell them. Jewelers are all locked into the DeBeers cartel; they won’t buy gems off the street for more than a tenth of their “appraised” value.
I once met a hacker who as a kid transferred $2 million from his bank’s advertising budget into his own account. He got off easy because his childish prank hurt no one, and the bank didn’t want any publicity.
I suspect the real problem with bitcoin is they’re not really analogous to coins.
You don’t have a bitcoin. The blockchain says you are entitled to X. This entitlement is very cleverly, impressively secure, but it’s ultimately abstract, not concrete. (Also not really as secure as it needs to be.) You own a ledger entry, more or less.
The above is why it doesn’t scale: to be secure, you need not only your own ledger entry, not only everyone’s ledger entry, but the full list of transactions with every ledger. Without the transactions, there’s no way to audit balances. If individual entries are allowed to be off the grid for a time, then they can be silently altered.
IANAP, but it seems it would be easier to track if it were some kind of concrete entity, like a 64-digit binary number. I own [0000….000101]. (The tradeoff being it’s easier to steal.) To give you binary 5, I only need to prove the provenance of that one number, not all 2^64 numbers. It also makes finding inconsistencies easier, since e.g. a specific number with a specific history will be double-spent.
Come to think that may also disrupt centralized mining. Could theoretically corner the market on some numbers in a small town, meaning the full-chain miners see little incentive to mine them, whereas the townsfolk have lots of incentive.
I am a programmer, and that is pretty much my plan – you will own particular segments of the number line within the range zero to less than one. You only need to keep the recent history of the segments of the number line that you own and adjacent segments, and for the rest of it, the hash chain that connects that history to the global hash, where the hash chain is structured so that it grows as the log of the number of transactions, rather than the number of transactions. What gets tricky is that we don’t want transient network failures to burn people, we don’t want people to be able to gain advantage by deliberately inducing network failures, and at the same time, want to solve the byzantine generals problem – that network failures, hardware crashes, and deliberate misconduct will result in several incompatible accounts of who owns what, forking the the data structure, and we want these forks to resolve into a one single global merge.
(1) DNSSec
(2) DNSSecCoin
(3) a45c7.f30.19b54.coin.cx
(4) ???
(5) hello.jpg
I’m skeptical of having the hash grow as the log of transactions. Necessarily some information is lost. Why not formalize the lost information instead? Use a statute of limitations – if, say, 1000 transactions have occurred with a particular coin, obviously nobody cares enough about the fraud 1001 transactions ago. Someone currently entering the market doesn’t care at all where coins came from – all they care about is that the ones they’re trying to buy will be considered legit, so they ask around, and if it seems legit, they go for it. Computerize tradition rather than trying to innovate. Ironically, this tends to end up being highly unique the way pure creation is.
I’m not sure I understand the network failure point, but I’m going to forge onward anyway. I’m skeptical of a global hash per se. It means somebody has to run the global hash, and what for? Speaking of apathy and indifference, if a small failure can misplace some coins, it means not many were hashing that particular coin, which implies few care enough to watch it. I think demanding some maturity of users is a feature twice over, not a bug. Accept your losses if you screw up; if you don’t want to screw up, do something that will prevent it.
From the social engineering side, there’s two basic ways this can go: you still have centralized miners who do all the hashing, or it gets thoroughly balkanized.
Central miners have issues, but misplacing and double-spending coins is not one of them.
Thing is, if it gets balkanized, the problem will still solve itself. You will get clearinghouses which idly track disparate coins, and provide a chain of trust between the various regions. Won’t be able to directly spend a coin outside the region, likely slowing international finance, but it will still work.
Balkancoin.
Makes me think about assigning trust levels == interest rates == discounting rates to particular coins. Average user will ignore it, but it’s another approach to misplaced/double-spent coins. Average users don’t need to use it. Instead of only being byzantine fault tolerant, be tolerant of byzantine fault tolerance faults. Meta-fault tolerance.
So, bitcoin seems to use torrent protocol. It sounds decentralized but that’s a fakeout. You need a tracker, which is some centralized meeting place. Introduction place, more precisely.
This means there’s a natural route to resolving global agreement issues, though I don’t know offhand which exploitation of this centrality is most natural.
One of the critical ideas behind the blockchain is having a totally trustless system. Even if everyone is untrustworthy, it works fine. Perhaps this is too ambitious, at least for now. Accept that reduction in prerequisite trust is highly valuable. If a small amount of trust can be traded for a large performance gain, it should be done. Especially distributed trust, such as all the balkancoin clients voting on the trustworthiness of various central trackers/introduction servers.
bitcoin may die probably ought to from what i can understand it wasnt ready for primetime that will hurt the next step adoption but one things sure the general idea ideas i should say are never going away. cc may never kill fiat may never need to its very existence sans bugs will dicipline fiat.could every participant have an account number whose ballance is checked and time stamped meaning transaction before the last are irrelevant and the entire blocj chain is unimportant only the accopunts blockchain. Obviously im a ludite but its my two BT
Every time I ask a bitcoin enthusiast what bitcoin is good for, they start gabbling about encryption.
I don’t fucking CARE about the technical aspects. Does it work as MONEY? Can I pay my taxes with it? Can I bribe a traffic cop with it? Can I pay a hooker with it? Can I buy gas with it if I left my cell phone at home?
Until the answer to all of those questions is YES, bitcoin is just a weird little finance LARP for nerds.
You are never going to pay your taxes with it, but you can definitely buy drugs with it, so I would guess if you can buy drugs with it, can probably pay hookers and bribe cops.
T.,
Even I know that the technical aspects are what enables B.C.’s anonymity and macro-jurisdictional qualities which are definitely its draws.
Also “L.A.R.P.”
Well meme’d, my friend.
Best regards,
A.J.P.
“Every time I ask a bitcoin enthusiast what bitcoin is good for…”
Bitcoin is good for sending money from anywhere in the world to anywhere in the world. It’s a cryptographic global ledger. Not a store of value and not a replacement for the US dollar.
Bitcoin-backed money may replace the US dollar, in theory. But it will not be a revolution, because little will change for the ordinary person.
>Another solution, compatible with existing bitcoin is to have account based money built on top of bitcoin
I believe this is what Ethereum bills itself as (and have been hearing noises to the effect that Ethereum is celestial ether.)
The fundamental problem of Bitcoin is that it is built on encryption/computation. If it is successful, by definition it threatens the US government. Which coincidentally happens to own the world’s biggest supply of computing power and cryptographers. Not only that, but USG has come into possession of the world’s largest supply of BC. And can also arbitrarily apply RICO to people trading in BC, many of whom live in the US or in countries with extradition treaties.
In other words, the very entity most threatened by BC is the one best positioned to attack BC from multiple angles. Hmmm.
A good attack would come in handy. Would favor the development of more resistant crypto currencies. The good enough is the enemy of the best.
More likely that a good attack would result in vast amounts of money being lost by BC holders, resulting in lots of caterwauling and a long time before normal people would touch cryptocurrency again.
Since most people do not have a programming background, and are not capable of understanding the cryptography or economics involved, right now most BC holders think of its functionality as a sort of magic. If you demonstrate that the magic can disappear once, most people will be really hesitant to trust a similar but different sort of magic.
In other words, the odds that I can get prosecuted under RICO for having some dollars I got in a legitimate transaction, or that the dollar can collapse in a week are very low (except in scenarios of civilizational collapse.) The odds of this happening with cryptocurrency are indeterminate. One demonstration is all it will take to burn the vast majority of people who’d be willing to store value in CC.
As for Bitcoin-backed-banks, of course there are legal issues with that, at least for US/EU citizens.
But what if Russia+China+Iran+friends went in on a new trading/reserve currency that could include Bitcoin (and also gold and oil, etc.) in its definition?
If Constantine could convert Rome to Christianity, then why couldn’t Vladimir, the Emperor of China and the Ayatollah convert to a hard digital currency?
Maybe that’s the Good Enough?
—-
Curious Alternative:
Maybe the Mexican Drug Cartels could set it up instead. I mean why the hell not.
Bram Cohen disagrees with Mike Hearn.
https://medium.com/@bramcohen/whiny-ragequitting-cab164b1e88#.yumh9ldyf
I can’t tell who is right.
Bram Cohen is right.
But neglects to mention that the limit on the number of transactions per minute is a huge problem.
The plan was to replace the US dollar. Cannot replace the US dollar with a limit on the number of transactions. Nonetheless, though this problem prevents Bitcoin from replacing the US dollar, it will not kill Bitcoin any more than a restaurant will go broke from overcrowding.
The Bitcoin community can continue to prosper and make money without solving this problem. They just cannot take over the world.
I want world conquest, so want a solution to this problem. Right now, no one has a solution to this problem other than muddling through.
If this is the main problem, the easiest solution is as mentioned, Bitcoin-backed banks. Transactions take place in BC-backed paper, ledgers get balanced and BC moved once a day. Just like gold.
And just like gold, you’re right back to the moral hazards of fractional reserve banking, government manipulation of banks, etc.
Fractional reserve is not the problem. The problem is lending without collateral enabled by the central bank backstop.
In theory, the central bank can’t print bitcoin, in practice, not much will change.
Banks seem to have figured it out as evidenced by the Blythe Masters article and the various bank-backed bitcoin or bitcoin-like startups, for one of which (R3) Mike Hearn works now.
Fractional reserve banking is the problem. Not only does it create money out of thin air and as debt but it results in inflation and malinvestment and other problems too:
https://mises.org/library/faults-fractional-reserve-banking
In a cashless economy, every credit automatically creates a matching deposit. There are no fractions and no multipliers. The deposit may move to another bank, but there’s an interbank deposit market for that. The whole bank system largely operates as one big bank with a credit:deposit ratio of approximately 1.0.
This is why when the Fed tried to “print money” nothing changed except the excess reserves. The money supply is the total credit, not something multiplied by something.
I honestly don’t see the problem with raising the block size.
Moves the burden to miners, resulting in increased monopolization. The transaction limit is a real problem. We need to incentivize people to economize on transactions.
Mike Hearn states that
“Why has the capacity limit not been raised? Because the block chain is controlled by Chinese miners, just two of whom control more than 50% of the hash power. At a recent conference over 95% of hashing power was controlled by a handful of guys sitting on a single stage. The miners are not allowing the block chain to grow.”
and
“And the final reason is that the Chinese internet is so broken by their government’s firewall that moving data across the border barely works at all, with speeds routinely worse than what mobile phones provide. Imagine an entire country connected to the rest of the world by cheap hotel wifi, and you’ve got the picture. Right now, the Chinese miners are able to — just about — maintain their connection to the global internet and claim the 25 BTC reward ($11,000) that each block they create gives them. But if the Bitcoin network got more popular, they fear taking part would get too difficult and they’d lose their income stream. This gives them a perverse financial incentive to actually try and stop Bitcoin becoming popular.”
This, if true, means the exact opposite – monopolization may actually decrease as the share of the Chinese miners will shrink if they can’t handle the increased traffic.
Mike Hearn states that
Then people doing transactions need to pay the miners to grow the block chain – thus discouraging people from doing transactions, and encouraging them to aggregate transactions. There are means, currently unused, for doing micro transactions in bitcoin without unduly burdening miners.
Surely no part of the blockchain would go missing permanently, some guy with a lot of NAS will keep the whole thing. Then if you find the wallet you abandoned for a few years, he’ll charge you a few bucks to find the new chains to a recent global hash. Doesn’t affect consensus, just ability to make new transactions, or am I misunderstanding?
Dear Jim:
Some advice please:
I’m quite keen on Bitcoin — and the greater concept of crypto-currency — as a “Who-Whom” means of helping to right the playing field and return financial authority to the genuinely productive. Central-bank money-printing has corroded many nations very deeply. More deeply than I can yet truly appreciate.
But dangit man. I’m nowhere smart enough to actually invent a solution to the issues that you’re addressing. I’ve met some of these math/computer geniuses before, and holy crap, I have a better shot in the NBA than running with those boys.
So, given my cognitive limitations, how could I help with this?
Very very smart people are struggling to find solutions. As Galileo observed, solving the problem needs a racehorse, not a wagon team.
Ha! OK got it. Maybe I can set up a crypto-currency development center rebel base in Central America or someplace… but somehow avoid a drone-strike along the way.
This is a very interesting subject that I’ve stumbled into here, obviously with your help.
No matter what my resources, if I’m not IQ-200 (or whatever) then not only am I unable to contribute to Bitcoin/crypto-currency development directly, but further, I’m unable to tell just who else IS actually able to do this, versus who’s just perpetrating that they are. That is, whether this is a great hemophilia doctor, and who’s just Rasputin attaining power/wealth/status from me my convincing me that he is. This is why government employee idiots powered to issue grant money usually get flashy dumbassery and little more.
So there’s a “social technology” question to ponder: How, historically, have Sovereigns with resources and super-difficult tech/math/scientific needs avoided getting played by crooks who aren’t smart enough to actually do work X, but are smart enough to appear that they’re smart enough to the Soveriegn?
Surely concepts like “status”, “cohesion” and “loyalty” have something to do with the answer.
If Kings appoint bureaucrats to hand out arts and science grants they will get the same crap as presidents who appoint bureaucrats to hand out arts and science grants.
If, however, an aristocrat appreciates great art, and hires a great artist to celebrate the greatness of the aristocrat’s family, he gets great art. And Prince Rupert and King Charles bestowed high status on real science.
On the other hand, plenty of kings who pissed it away on wine and women – but at least when they pissed it away on wine woman and song, they pissed it away on good songs.
Michelangelo was annoyed that the Pope told him to paint the #1 most recognizable painting of all time instead of sculpting more, and Mozart was annoyed with the Emperor’s commentary on his composition. But today, the market chooses sexy music, with a claim to being nigger-inspired. And your other choice is nigger-worshipping avant garde Judaism.
I’m sure you’re going to reply that the government and merchant-industrial complex distorts the market for highbrow art while prohibiting Trump from ordering fashy stuff
It’s easy to afford status only to those who build and hard to set up a system where sycophants get status. But the government can build Jewniversities.
I.e. go on Steam and look at the games there, notice how they all say “from the team behind ______”
Meanwhile, no one likes the music labels or trusts movie houses to produce good stuff, but musicians so far need access.
[…] Jim predicted, bitcoin would not scale. Always seemed a little implausible to me. I know my BTC client bogs down my machine. But I figured […]
Jim, I lack the technical competence for this domain. However, it seems to me that you face an insurmountable technical problem, as stated: How to seamlessly resolve every minor monetary transaction across the globe, integrating it instantly and globally without potential for fraud or excessive computation and bandwidth drain? This is too hard.
It is a problem of trust, like how banks clear checks. It can be solved by adding a layer of social technology atop the basic cryptocurrency implementation.
Add automatic and manual management of reputation / trust. Add the ability to designate a hierarchy of clearance authorities or nodes, like DNS servers. Add escrow pools to back transactional float. Add the ability to charge a tiny percentage or flat fee for endorsing and clearance services.
Social trust is a lossy system; cheating will occur. However game theory will guarantee the development of stable nodes and trustworthy pathways, and tremendous benefits will accrue to those controllers. This is right and proper.
I have no idea how such a system would reconcile disputes over bitcoin ownership, because I don’t understand the technical details.
Having read up to at least a superficial understanding of Bitcoin, it seems to me that just one change could have a major impact.
Miner incentive misalignment with owner incentives is a major problem. Miners just want to clear the technical hurdle to publish blockchains.
So permit owners to address their transaction fees to a preferred mining group. Then, no more China issue, or other miner shenanigans.
Furthermore, the incentive correction means that miners will compete to adopt the best software improvements, giving Bitcoin a future past its scaling issues.
To be clear, the preferred miner(s) still have to win the race to collect the fee. He’s just incentivized to do so.
Why would owners care enough to pick a miner, rather than leaving the fee for anyone to maximize speed of commit? Well that’s for miners to figure out and sell, I imagine in a manner similar to what banks do. The result would be the desired federalization, and maybe a hybrid of Jim’s two proposals – account drawers and partial info storage.
In fact, you can prevent fee poaching by sending the transaction request directly to the preferred provider, who will then not share that info with the network until it’s released in a block. Thus completing federalization, and creating a federalized network of regional blocks resolving with each other at a global level while providing excellent customer service to their respective bases.
I dub this system bankcoin, because it is not an individualist global cryptocurrency, but an evolving system of competition between banks.
Great job. This changes nothing, where the most reasonable promise of the original bitcoin was the elimination of currency exchange fees and manipulation between countries.
The name bankcoin is already in use. Alternative names are compcoin (competition coin), evocoin (evolution coin). But the one I like best is nexcoin (next nexus coin). One defunct twitter account used the name previously.
I don’t understand Peppermint’s objection, since federalization is a good thing and there’s still only one blockchain in my proposal. Nexcoin creates incentives for development and adoption of Jim’s dream of a more efficiently scaling blockchain as well. But if that proves impossible, a kludged together solution can also happen. Even forking happens by owner vote impetus and thus isn’t an existential threat. The current situation, where miner computation power overrules owner interests, is insane.
Individualism was the entire purpose of the exercise. If it’s based on a federated system of banks, they can do the currency manipulation thing by mutual agreement, and they don’t need crypto, what they have now works.
How about a new cryptocurrency called nukecoin, you need to have the consent of 51% of the nukecoins to launch nukes.
No, the purpose of the exercise was sound money.
The only change I’m proposing is making transaction fees addressable instead of up for grabs. Any argument that this eviscerates Bitcoin’s raison de’etre is ludicrous.
Just because the system CAN operate with zero trust, doesn’t mean it MUST or SHOULD. Flexible fees reincorporates the missing element – trust. This will obviously make the system vastly more efficient in the long run. It takes the future of development out of the hands of angry nerds and Chinese grinders, and puts it back in the hands of Bitcoin owners, where it belongs.
[…] Background: https://blog.reaction.la/economics/bitcoin-crisis/ […]
Very good suggestions, but for sure bitcoin its in the first stages, will be development and improvement in the next 2 years, its already started..
Lightning network and segregated witness largely address these problems and work roughly the way you describe.
Basically, SegWit relies on establishing a channel between you and another node. You can now spend the balance of coins in the channel freely with each other without outside witnesses, cheaply creating a backlog of stored transaction states approved by both users. This channel may be reconciled with the block chain at any time, using any of the historical stored transaction states, and freeing up the coins for other uses.
Early cutoff.
Each user gets a different copy of the transaction log, which when reconciled instantly gives the non-reconciling user their coins instantly, while the reconciling user has a waiting period of several days before they may use their coins – that way, if they are trying to use an outdated transaction state, they can’t make off with the cash, whereas the non reconciling user might actually be able to, then put up the latest transaction state and come out ahead for their troubles.
Lightning network builds on this by allowing nodes to negotiate chains of these segregated witness transactions to instantly settle off chain transactions through a small handful of intermediaries. We’ll get lots of n degrees of Bitcoin comments, I’m sure.
So, if I have an open channel with coinbase, they have one with PayPal, and you have one with PayPal, and your daughter has one with you, your daughter can pay me for her share of dinner instantly through the lightning network.
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