Because there’s a limited amount of space in each block, such that the entire worldwide Bitcoin network can only handle seven transactions each second, people can tag on an additional fee on their transactions to entice miners to put their transaction in the next available block and avoid possibly having to wait.
How in buggery are we going to have a global currency if it can only process 7 transactions a second?
Does look like a bit of a fatal flaw, doesn’t it?
The blocks can be made larger but at this point in time that’s not a good thing: a new miner has to download the entire blockchain to get started. That’s 12GB right now: a snip for those on a backbone network, rather a lot for an amateur on a DSL connection.
This will be self-correcting through the power of the mining market: the processing of a transaction is effectively a Dutch auction and the fees will rise to cover the overheads of miners (as the bounty from mining falls) including larger blocks using higher bandwidth as demand for transactions rises.
I wouldn’t worry about it.
There are lots of cunts out there who want Bitcoin to fail because of its potential to derail TPTB’s wagon.
Any propaganda that can be slung will be slung.
People should still be cautious tho’.
You also have to wait at up to 10 minutes before your transaction can be confirmed since the miners have to validate a new block of transactions every 10 minutes. However to be confident that the block is not fraudulent, it is best to wait for a few more blocks to be added thereby making it almost impossible for the block in which your transaction exists to be overwritten.
There are a lot of cool ideas in bitcoin. But it has a number of flaws and should be avoided until someone comes up with something that fixes these.
One other thing, the currency is deflationary as it will according to current rules only add 25BTC per block confirmation and this rate will drop by 50% every 4 years resulting in a total amount of 21 million BTC in 20 or so years. So if it gets used for more and more transactions, the $ value of each bitcoin will have to grow. This is not really a desirable feature. In my mind the number of bitcoins should be allowed to grow at 2-4% per year ad infinitum.
@Frederick
I don’t really understand the cryptography behind bitcoin, but I believe it would be possible for you to create your own version of bitcoin which allows an arbitrary amount of inflation.
You just need to get people to use it. I think Dogecoin is the most successful spinoff so far.
“I don’t really understand the cryptography behind bitcoin, but I believe it would be possible for you to create your own version of bitcoin which allows an arbitrary amount of inflation.”
There are other designs for cryptocurrencies that don’t have the same limits. But as Bob said above, they could easily make the blocks bigger.
They’re sized to the current speed of transactions. There’s no point in building in capacity to handle thousands of transactions when they’ve only got a handful, especially when the capacity would cost more money.
However, if people like the idea enough, and there’s a bigger market hungry for more, I’m sure other currencies will be developed that deliver the features people want from their currency. What’s so revolutionary is that people have invented electronic currencies – they don’t all *have* to be Bitcoins.
It’s like saying why we would all want one of these new-fangled “telephones” in their house when the manual switchboards can only handle one call at a time. The technology is only just getting off the ground.
I do find the deflationary aspect of a Bitcoin type currency as a drawback a bit hard to swallow.
Currently we have currencies that are inclined to inflate. In effect, one is better off spending money now because it’s worth less in the future. One is incentivised to either buy goods marginally before necessity of invest to produce a higher rate of return. With a Bitcoin, there’s going to have to be some sort of savings/lending market. For savings one would want a better return than just the natural appreciation of the currency. For borrowing, an interest rate, takes it into account. The two balance.And so one moves to a “just in time” goods buying pattern. So what? So consumers prefer to purchase to necessity & producers lose the advantage they get from inflation. But the point of production is consumption, not the other way round. What’s wrong with that?
I assume you can do a lot of stuff “off exchange”?
If the banks had to process every single transaction that happens in real currencies rather than one in every 10 or 100 or whatever the ratio is, I guess they would have trouble too. Still, 7 a second is a clear design fault.
“I assume you can do a lot of stuff “off exchange”?”
No. The way it works (roughly) is that every transaction is recorded on the common distributed network and every bitcoin’s history is traceable as it hops from address to address. Volunteers check each block of transactions to make sure nobody is cheating, and then certify the block using an expensive-to-calculate ‘digital lock’ that connects it to the last block. They get paid for this effort in bitcoins, since whoever publishes the certified block first gets to allocate the 25 new bitcoins generated per block to themselves.
The size of the blocks is set to match the number of transactions. Since there are around 4000 transactions every ten minutes, and it takes about 10 minutes to check and certify a block, that’s how big the blocks are. If traffic is momentarily a bit higher than usual, some people might have to wait until the next block for their transaction to go through.
But if traffic increases, all you need to do is make the blocks bigger. It means the data storage requirement grows faster, and slightly more processing is required, but if there’s more demand then the bitcoins will be worth more and the miners will be compensated for the expense. The designers reckon that computers will continue to speed up (all that Moore’s law stuff) fast enough to keep pace with the growth of the currency.
You can’t go ‘off exchange’ with Bitcoin, though. There are other designs for cryptocurrencies that can, and that indeed give better privacy and reliability guarantees, but it’s not the security or convenience that is Bitcoin’s unique selling point, but its mechanism for controlling the total amount of money in circulation. You can’t significantly inflate the currency without buying lots of faster processors, which would (currently) cost you more than you would gain. Fans of stable currencies like the idea of a currency that governments can’t tinker with for political reasons. (Not the Bitcoin is noticeably stable, but at least its not the government’s fault.)
The hard part of crypto-currencies is not the crypto, but all the human engineering of getting people in the mainstream to trust it. That Bitcoin have managed to get this side of things off the ground is significant. If the demand for electronic currencies grows, and Bitcoin’s limitations do eventually prove fatal, then I’m sure better rivals will soon appear. That’s how technological progress goes.
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Niv is correct. The size of the block is pretty much unlimited.
As for the algorithm that is solved, it is basically equivalent to the hitting the rand button* on your old FX 81 calculator repeatedly until you find that its value is less than 0.000000000001 (or something small like that). Obviously this will take a while.
In practice it is a bit more sophisticated because the random number is a function of the transactions in the block and an integer called the “nonce”. The miners are looking for the nonce which gives them the right random number.
*It gives a random draw between 0 and 1
Bis “I do find the deflationary aspect of a Bitcoin type currency as a drawback a bit hard to swallow”
As I understand, deflation has two main negative effects. The key one is to do with sticky wages (humans being irrational, if a currency doubles in value, they generally resent being paid half as much, even though the value of their wage has remained constant) and currently isn’t an issue as virtually nobody is paid wages in Bitcoins. If Bitcoins ever take off big time, it could become an issue.
The other problem is that it makes it very easy for debtors to get badly stung. Borrow on a 25 term, with repayment of 1 bitcoin a month – what sets off as pocket change a month will be a fair bit of money a month in 25years time.
Mild inflation on the other hand means that in 25 years time my mortgage repayments which are currently 1/4 of my income are likely to become more like a 1/10 of the same value of income. I’m paying for that now (in higher interest rates than would otherwise be the case), but that is a better arrangement than where I may find in 25 years time repayment has become impossible because deflation has reduced my earnings compared to my planned repayments…
@The Prole
The first argument is simply the current paradigm accustoms wage earners to constant loss in value of earnings, in real terms. In a constant devaluation scenario, the rate of devaluation is unlikely to exceed the rate of productivity increase, which is the other driver of wage increases. They do become wealthier in real terms & the value of savings is preserved.
Your second argument only needs the signs reversed.
It now reads “The other problem is that it makes it very easy for lenders to get badly stung”
So what exactly is the argument. the paradigm should benefit borrowers & the expense of savers? is this a law of nature or a moral imperative? Surely the highest risk should be with the one most capable of assessing the risk. The borrower.
In your mortgage example, you’re simply saying you expect your lender to assist with your borrowing to create an investment asset for yourself.. In a deflationary paradigm, the house is no longer a particularly good investment so the investment value of the purchase price should be considerably lower. Houses become what they should be. Depreciating assets, not investment vehicles. The price reflecting the utility value.
NiV,
> Volunteers check each block of transactions … They get paid for this effort in bitcoins
They’re not volunteers, then.
Bitcoin seems to be very clever in many ways, but it is certainly benefitting from “Oo! Internet!” PR. Can we just imagine for a moment that a bank decided to pay its workers by creating new currency to pay them with? It would be a scandal, and quite right too. But, when Bitcoin do it, oo! Internet!