On Thu, Sep 11, 2014 at 10:03:01AM +1000, Washington Sanchez wrote:
> Hey folks,
>
> It seems that there are two trade-offs to the block size-limit debate. I'll
> summarize what I understand so far and invite people to correct me or add
> anything I haven't considered.

I basically agree with what you've written.

> # If the block size-limit remains the same #
>
> ...
>
> However, the trade-off is:
>
> - Micropayments (now defined as any transaction less than the value of the
> typical transaction fee, but greater than the smallest value you would use
> to pay for something) will be pushed off-chain to third party payment
> protocols/services such as Open Transactions, Circle etc

The following is somewhat related, but essentially OT.

When I first read Satoshi's paper, one of my thoughts was "this shit
won't scale".

There is no reason, however, why the whole world would need to use a
single currency, or surrender to proxies (payment processors, banks, or
overlay protocols). That's what alts are for.

Here's an example I've posted on Reddit 9 months ago:

https://pay.reddit.com/r/Bitcoin/comments/1rjv6l/my_response_to_a_litecoin_advocate/cdo55o7

####################

What I would really like to see addressed is this misconception by the
OP, though:

    I know Litecoin fans like to say it's silver to Bitcoin's gold,
    and while it's a cute comparison, it doesn't really mean anything.
    Bitcoin's divisibility eliminates the need for a less valuable unit
    to partner with. In other words, the mBTC is the silver to BTC's
    gold.

No, it's not. Here's a real-world example.

Quite recently, someone wanted to send me the equivalent of 2.9 EUR
using cryptocurrency. At 640 EUR/XBT, it's 0.00453125 XBT, so the
minimum fee of 0.0001 would amount to a whopping 2.2%. At 14.5 EUR/LTC,
that would be 0.2 LTC, and a minimum fee of 0.001 amounts to 0.5%.

So if this wasn't a one-off exchange; if, for example, I was a merchant
selling small cheap items, I would have an incentive to accept Litecoin,
simply because the fees would be lower. On a larger scale, that is the
economic purpose of altcoins: to offload certain types of transactions
to a different blockchain.

The divisibility of Bitcoin is overrated: at a high enough price and
adoption percentage, it could only be used for high-value transactions,
such as real estate, long-term business contracts and the like.

Also, the carrying capacity of the network is about 4000 transactions
per 10 minutes, or 1.(6) tr./s (with a block size of 1 MiB and an
average transaction size of 250 bytes). Sure-sure, this can be improved,
but not to VISA-scale.

If adoption increases, transactions will have to be loaded off to a
different network. You don't buy a loaf of bread with a golden
coin. Litecoin is silver to Bitcoin's gold. Peercoin and Primecoin (or
whatever) are copper. End of story.

####################

"Certain types of transactions" above could be any property, such as:

* geographic location (national currency);
* what is being paid for (public transport, fair trade goods, company
shares, domain names);
* specific data requirements (name registration, shares again,
stealth-only blockchains);
* anything.

Sounds a lot like Ethereum, but this will hit the same block size issue
as Bitcoin eventually.

The main point here is not having one blockchain, but separating it.
Rigid separation as listed above is sub-optimal, since it requires human
sorting by arbitrary properties.

It can be done differently, by not requiring the entire blockchain to be
held by any one node, but by having a true distributed database, with
a guarantee that no part of it will ever be lost. Then we can have one
world currency, which will be slow.

> ...
>
> Ok, so what's right/wrong with my summary above? Are there any new
> solutions to this problem?

Not aware of any.