Topic: New video: Why the blocksize limit keeps Bitcoin free and decentralized - page 2. (Read 15218 times)

The blockchain is not currently increasing in size linearly in a straight line, as you can see here:
http://blockchain.info/charts/blocks-size?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=

It is increasing exponentially because we are in the adoption stage where more users are added.  Once bitcoin reaches its potential market size, or once it hits a blocksize limit, the blockchain size will increase linearly.  We will never see sustained exponential growth in the number of monetary transactions that humans need to conduct.

Bitcoin merchant adoption and transaction fees have grown 1000% over last year, which is an extremely high rate that temporarily outpaces hard drive capacity growth, but this cannot be sustained very long.  Hard drive space and internet speed show no signs of slowing their exponential growth rates, so they will always outpace the bitcoin blockchain in the long run.  Exponential growth will always win out over linear growth.  People will be able to store the blockchain on their personal computers forever.  Removing the blocksize limit doesn't change that.

There was a recent article in Bitcoin Magazine that analysed the blockchain size, but most of their articles are not available online.  The article looked at some worst case scenarios, and even using really conservative estimates, 20 years from now people will easily be able to store the whole blockchain on their phone and download the whole thing in a few hours.

Hard drive capacity over time:

Currently Bitcoin is fantastic (although not perfect.)  This is understandable because it has not yet been forced to deal with the engineering, market, and political challenges which will appear with significantly increased utilization.

The goal for me here is the try to help ensure that Bitcoin does not fall into the same category as Visa/PayPal, etc.

I've always said that I actually like and prefer Visa/PayPal for certain things at this time.  Most of the things I do in fact.  Bitcoin, however, offers so unique advantages which Visa and PayPal cannot match.  I use Bitcoin for these things (like storing wealth securely, making donations, etc)  and I very much do not wish to see these things vanish from the suite that Bitcoin offers.

What one would really do facing such options? Use Paypal, dwolla or whatever ;]
You forgot one tiny thing: no one is forced to use bitcoins. If it sucks so much as you describe just don't use it until it is fixed.

In practice, there would probably be three options from the perspective of the micro-blogger.  (Using $ terms for simplicity.)

 - If the tips are, in the range of $0->$10 per month, just provide reference(s) to other processor(s) which are used.

 - If the tips are in the $10->$1000 range, count 'bittip' as one of the off-chain processors you use.

 - If the tips exceed $1000/mo, request native Bitcoin blockchain operations.

In no case would an up-front deposit be necessary for the micro-blogger.

As a person who wished to be the tip-er, I would anticipate choosing one of the off-chain providers I choose to patronize as the sender.  If I was really into giving tips I may go ahead and set up an account with 'bittip' for that reason alone, but I don't expect that that would be terribly common.

So how exactly you are going to fund your bittip account? Will you be forced fund it $1000 at once just to get reasonable fee? Great user experience

Good heavens!  You are already an off-chain processor.  This is great!  It's pretty much sinking in to most people by this time that micro-payments are unrealistic, and a lot of us (including myself) are disappointed...even if we saw it coming years ago.  That is indeed one of the driving forces behind wishing to have a robust 'off-chain' set of solutions.

Your case is a perfect example of a much needed niche to be filled.

If I, as a plain-jane user like someone's micro-blog and wishes to give a micro-transaction in appreciation, I would be happy to see a known entity like 'bittip' or one which I could easily verify as an entity who uses best-practice technology which precludes fraud/theft and produces some reasonable level of transparency.  Happy enough to vastly increase my deployment of 'tips'.

I do anticipate that the same methods which protect your customers from you will be accessible to protect you from any counter-parties you might do business with in an attempt to streamline your operations and reduce costs.

Bitcoin seems like some magic bullet which makes everything free and easy at this point, but that is mainly an artifact of it's being a tiny tiny spec in the global economy at this time.  It will become more expensive and complex as it grows.  We have entities chomping at the bit to subsidize the cost of this growth because they would like to capitalize on some of the value streams it offers.  The larger the entity, and the more they can monopolize the infrastructure, the more value they can realize from the solution.  I, and others, really don't want to see that become the future of Bitcoin.

i concur

Let me first clarify, as my terminology might be unclear/confusing. I'm referring to "bank credit" not as credit extended by the BTC-bank to the consumer, but in the context of credit as a 'claim on an asset', instead of the actual asset. In other words, these promises to pay BTC on demand is what I'm referring to as 'bank credit', and this trust the customer puts in the BTC-bank to pay them back in BTC when they demand it is the 'credit relationship' I'm referring to.

I see a Bitcoin economy reliant on these promissory notes, because a 1 MB block size limit pushed transaction fees to $20, as a perversion of the original promise of Bitcoin. I think relying on BTC-banks and clearing houses to transfer claims on BTC, rather than BTC itself, would take a sledgehammer to Bitcoin entrepreneurship.

My website btctip.com is a good example of an amateur startup that couldn't operate in this high-powered expensive BTC world. On a very active week, I have maybe $20 worth of transactions into/out-of my site. Without low-cost network transactions, these tiny deposits and withdrawals would not be possible.

Instead I would have to accept BTC-credit (promissory notes). In order for my users to deposit BTC-credit into my site, I would have to become a client of a BTC-bank, and my customers would have to have accounts with the same BTC-bank, or a BTC-bank with a credit relationship with my bank, allowing for migration of BTC-credit between accounts on the two banks. This would be difficult, and would probably only give me access to a small percentage of BTC users, rather than all of them, as I have now.

My ability to allow my users to withdraw would likewise be limited to the banks I can manage to connect with.

I would not develop a site in an economy like this, because there would be too many obstacles, my market would be too small, and my disadvantage relative to big players too big.


You're talking about advances in banking, not in Bitcoin. These same technologies could be used in fiat banking, since they're just transfers of claims, that could be for any asset.

To claim that you're going to develop the technology of modern banking so that a Bitcoin-economy reliant on banks is as easy and seamless as one reliant on nodes is pie in the sky idealism that should not be a factor in deciding what to do with the block size limit.

I do not understand why a miner-voted blocksize limit would be a bad thing. We can even make it very conservative by requiring a high supermajority in order to adjust the limit. Also, this could be implemented as a semi-hardfork (as far as miners are considered; it is unfortunately always a hardfork regarding non-mining full nodes). Just consider not voting a "no change" vote.

Miners have an incentive to try to maximise their real revenue. Too high limit would mean lower fees, too low limit would mean less transactions and lower purchasing power of BTC. The voting process would find the equilibrum where the purchasing power of the miner revenue is as high as possible.

Of course miners wouldn't be voting manually, for the most part. They'd use algorithms that would decide for them, trying to find the ideal strategy for the individual miner.

Not exactly.

When a person deposits money in any modern bank account, the money both legally and in practice belongs to the bank.  They have a debt to repay to you.  This is not a big deal...it fails catastrophically only once every few generations and is not a major beef I have with banks.  But anyway...

It is perfectly possible to give something to a payment processor which he cannot buy coke with.

Say you wish to make a payment to Bob.  You can tell the processor, "you know that blob I gave you the other day?  I want you to turn some of it into value and give it to Bob."  The payment processor looks around and say, "I found Bob.  Sign this note which will allow me to give some of it to Bob."  I say OK.  Moments later, Bob has some value in his account.

This is a substantively different relationship than I have with my bank, and made possible with advances in technology which the banking system has not caught up with.  And are probably in no hurry to as it would ruin a fair fraction of their revenue stream.  The big difference is that the payment processor has no real incentive to steal my blob because it won't do him any good unless I sign it over to him.

I believe this is the structure alluded to in the video with the "Imagine a plexi-glass bank.  We can use the same methods used to secure the Bitocoin blockchain, blah, blah, blah" but I am only dimply aware of the precise implementation methods.

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Allow me to bring something back from an earlier post of yours because it is awfully confusing:


This is not a completely implausible scenario.

Seems to me that there are two choices.

 - You transact everything on the Bitcoin blockchain which is in now way suitable for that kind of load and creates a single point of catastrophic failure.

 - You utilize a expandable pool of solutions which attempt to meet whatever challenges which pop up and use the Bitcoin blockchain as a static and robust source of truth.

I cannot imagine anyone in their right mind not choosing the latter as the logical way to proceed.

I'm having trouble understanding your explanations now. They seem to be more convoluted and vague than they need to be.

A credit relationship exists as soon as a customer deposits BTC with the bank, and is given demand deposits in exchange. The demand deposits are credit, that others accept as BTC, because they trust the bank to be good for them.


Again, having trouble understanding what you mean.

Not true (nullifying the arguments I snipped.)  Just because the payment processor is using some of his own capital to make transactions efficient does not mean that there needs to be a credit relationship between he and his customers.  And he could eliminate any unwanted credit relationship between he and his peers with a bond if they like.  This still allows all of the functions I described.

Again, I personally am happy in some situations to patronize processors who DO have some credit component if that is how they choose to operate, but they would not likely be my primary store of even my spending money.

It's not a processor, it's a bank. A processor merely processes your transaction, not provides you with BTC-credit in exchange for your BTC.

In BTC-land, it's not that rare to move your BTC from one e-wallet to another. If network transaction fees are $20, then you can't do it cost effectively unless it's a huge sum. The other option is a clearing house. Any sufficiently efficient clearing house would have to be large.

In a scenario where BTC is a major global currency, I see almost zero possibility that a large BTC clearing house used by thousands of BTC-banks would not be a traditional financial institution. We're not talking a few thousand transactions a day. We're talking hundreds of millions of transactions, worth hundreds of billions of dollars.

This would make a BTC economy with $20 transaction fees very similar to the modern financial system, where the lowest cost option for transferring BTC is established credit relationships between established financial institutions.

Not at all.

Firstly, it is somewhat rare to move value from one processor to another vs. buying one's morning Java.  It's common enough for a processor to wish to optimize however.

Secondly, all of the people who did such a transfer in, say, one day would be balanced against those who did the opposite transfer.  If there is a notable difference in value which the off-chain processor does not feel like carrying, he makes basically a single transaction on the block chain which covers all of the day's activity.  This one (supposed) 0.15 BTC cost is then split amongst all of the customers in that time-frame.

Customers win by sharing the fees of a blockchain transaction and Bitcoin wins by lowering the data-rate.

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You may claim that because this is somewhat similar to how banks work, it means that the entities will be just like banks.  I reject that because I claim that the things we don't like about banks are more associated with their dealing with fiat in todays climate than they are with the properties which naturally fall out of the search for efficiency.

But there's no reason to assume it will be attacked. Instead the clearing house could turn into a traditional clearing house that operates under the auspices of the regulatory bodies of multiple jurisdictions, the same way as MtGox is turning into a traditional financial institution.


Any centralized party handling credit will be subject to the overhead of operating in fiat-land. Fiat-land suffers overhead because it is credit-based and happens on centralized, market critical conduits, as a large BTC-credit clearing house would. Fiat activity that is not credit-based and does not go through these central clearing houses, like cash transactions, doesn't have the same overhead.


We're talking about how users would move their BTC from one BTC-bank to another when network transactions cost $20. If the lowest cost option is for BTC-banks to use a large traditional financial institution for clearing BTC credit positions, then the BTC economy will look like the modern financial industry.

If they are attacked successfully, they will splinter.  Just as will happen if/when Mt. Gox get's shut down.

Unlike Mt. Gox who needs to assume the overhead of operating in fiat-land, such (mainly optional) clearing exchanges don't.  This makes them vastly less capital intensive to operate.

Secondly, off-chain processors operate with some reasonable buffer and, to the extent that they need to use such messaging systems at all, can do so at an irregular and relatively low frequency.

Remember that what we are talking about here is not a layout of all transactions in the economy, but rather an aggregation of them which occurred withing the off-chain processor's space.  Even if they find it necessary to comply with cumbersome regulations within their jurisdiction, the only 'customer' then need to 'know' is the off-chain processor.  They simply don't deal with individual users.

I'm referring to aggregation of payments between BTC-banks (off-chain processors), not within them. These will go through a large central clearing house.


Which goes back to my main point of dispute with you, which I've already detailed: I see no reason to assume these clearing houses will be "light-weight". Every comparable real world market instead suggests a few, or a single large clearing house, that will handle almost all payment aggregation between banks. A centralized point where all inter-BTC-bank transfers go through would be neither light weight nor "lurk in the shadows".

Nope.  Aggregation will happen largely within the off-chain processor itself.  That is indeed their primary function and why they are helpful to the Bitcoin network.

If/when it is desirable to clear between processors it could be either through messaging or interaction on one or more light-weight exchanges and squaring on the Bitcoin blockchain, or potentially squaring on some other agreed upon medium.  The exact nature of the solution(s) employed depend a lot on the type of attacks (if any) they need to deal with.

This is my main point of dispute with you: as far as I can see, there is no reason to assume these clearing houses will be tiny and would lurk in the shadows.

Clearing houses almost by definition are central points in a trade network, which gain efficiency in aggregation with scale (more volume = larger aggregation and lower transaction fees), giving the largest clearing house a natural advantage over the others.

For this reason, I think a Bitcoin economy reliant on traditional payment aggregation to keep fees down will end up with a clearing house that is as critical for straight BTC transactions as MtGox is for BTC-fiat transactions.


The blockchain is merely the network where the transaction takes place. The clearing house has to aggregate payments before clearing them.

Of course a responsible off-chain provider (or any entity) will be complying with all regulations which apply within their jurisdiction.

It is perfectly possible, however, that at some point regulations might be promulgated exclusively for the purposes of protecting one's benefactors in an an environment rife with cronyism.  I, and I think others, seek a solution which could realistically bow out of participating in the aspects of such an arrangement which serve no useful purpose for in protecting the market participants and general welfare of the citizenry.