Re: [cryptography] bitcoin scalability to high transaction rates

[lodewijk andré de la porte]

For a shipped product the ~5 minutes to a few hours delay isn't going to
matter much, since the product has to go through shipping first. Kinda like
buying an express shipment when you're not at home for the coming few weeks.

-Lewis

2011/7/22 Daniel Carosone 

> On Thu, Jul 21, 2011 at 08:47:35AM -0700, Nathan Loofbourrow wrote:
> > It's only when money is transferred
> > into our out of the exchange that a "real" transaction needs to be
> created,
> > whether though Bitcoin or through a bank. Private markets can help
> aggregate
> > small transactions.
>
> .. as well as help 'blind' these transactions to later log analysis
> (depending on what they do with their internal logs).
>
> > Of course, this presumes you trust the exchange, which is a different
> > matter.
>
> Indeed.  Note, however, an interesting convergence property here, for
> the practical user:
>
> Say I'm selling something on 'bitbay'.  Bitbay offers me two kinds of
> accounts: either immediate transactions to the bitcoin network, or an
> internal/affiliate 'Bitpal' account, with a running internal balance and
> aggregate external settlement transactions.
>
> I need to decide whether to trust the Bitpal exchange, both as a
> holder of credit and potentially also as a privacy-blinding service,
> presuming they claim to offer this value-add. Fine.
>
> However, in practice, both mean I need to wait some time for my money,
> even for the "immediate" transactions, until a sufficient consensus of
> conmation blocks comes in.  So on the face of it, there's little
> difference in my process for deciding when to ship my paid-for
> product.  The only way to make it go faster, where that matters, is to
> trust the exchange's internal accounts - that is the service they
> must offer.
>
> --
> Dan.
>
>
>
>
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Re: [cryptography] bitcoin scalability to high transaction rates

[Daniel Carosone]

On Thu, Jul 21, 2011 at 08:47:35AM -0700, Nathan Loofbourrow wrote:
> It's only when money is transferred
> into our out of the exchange that a "real" transaction needs to be created,
> whether though Bitcoin or through a bank. Private markets can help aggregate
> small transactions.

.. as well as help 'blind' these transactions to later log analysis
(depending on what they do with their internal logs).

> Of course, this presumes you trust the exchange, which is a different
> matter.

Indeed.  Note, however, an interesting convergence property here, for
the practical user:

Say I'm selling something on 'bitbay'.  Bitbay offers me two kinds of
accounts: either immediate transactions to the bitcoin network, or an
internal/affiliate 'Bitpal' account, with a running internal balance and
aggregate external settlement transactions. 

I need to decide whether to trust the Bitpal exchange, both as a
holder of credit and potentially also as a privacy-blinding service,
presuming they claim to offer this value-add. Fine.

However, in practice, both mean I need to wait some time for my money,
even for the "immediate" transactions, until a sufficient consensus of
conmation blocks comes in.  So on the face of it, there's little
difference in my process for deciding when to ship my paid-for
product.  The only way to make it go faster, where that matters, is to
trust the exchange's internal accounts - that is the service they
must offer. 

--
Dan.





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Re: [cryptography] bitcoin scalability to high transaction rates

[James A. Donald]

On 2011-07-22 8:22 AM, lodewijk andré de la porte wrote:

There's currently a limited amount of transactions per block, this limit can
be changed. There's certain stuff in place to give bigger transactions,
older transactions and transactions with higher fee's precedence. That
should kill the possibility to truly DoS the network, although it's possible
to get blocks filled all the time, possibly forever. It's also possible to
DoS certain nodes, although the network will not likely suffer from it.
After sifting through all of this stuff the network seems quite inherently
robust. The only thing I worry about is when the amount of transactions
become too great for any single PC to manage, since a large part of the work
is done everywhere. Then all those pc's'll have to sync up, it's a data
nightmare.


Back in the beginning I criticized the scalability of the bitcoin 
architecture.  Much, however, has changed since then.  I doubt that 
those particular criticisms are still applicable.


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Re: [cryptography] bitcoin scalability to high transaction rates

[lodewijk andré de la porte]

There's currently a limited amount of transactions per block, this limit can
be changed. There's certain stuff in place to give bigger transactions,
older transactions and transactions with higher fee's precedence. That
should kill the possibility to truly DoS the network, although it's possible
to get blocks filled all the time, possibly forever. It's also possible to
DoS certain nodes, although the network will not likely suffer from it.
After sifting through all of this stuff the network seems quite inherently
robust. The only thing I worry about is when the amount of transactions
become too great for any single PC to manage, since a large part of the work
is done everywhere. Then all those pc's'll have to sync up, it's a data
nightmare. The block chain('s) will likely split and merge continuously. To
mine effectively the pools[1] might be the biggest mergers.
The optimizations suggested in the original whitepaper will have to have
been implemented. Actually thinking about it it shouldn't be THAT big a
problem.

Seems that bitcoins are one of the few things that make the future seem cool
again. After my dreams of spaceflight were destroyed by understanding of
physics :P.

- Lewis

[1] - mining pools are miners (hashers/signers for the blocks) that work
together in hopes of getting a more reliable income.

2011/7/22 Marsh Ray 

> On 07/21/2011 10:41 AM, Sampo Syreeni wrote:
>
>> HST is just an example of a mechanism which creates prodigious
>> amounts of transaction data. There are others, starting simply with
>> wide enough adoption of Bitcoin. So if the amount of transaction data
>> being shipped around can become a bottleneck here, it could indicate
>> a scalability limit on Bitcoin in more realistic situations.
>>
>
> That implies you suspect there may be a DoS attack against the Bitcoin
> network. I've heard this sentiment stated more explicitly from others,
> but haven't looked into it deeply myself.
>
> More often than not, distributed protocols have to go through multiple
> iterations of vulnerability and mitigation before they're really robust.
> Bitcoin even seems to have the added challenge of nodes being actively
> adversarial.
>
> OK I can't resist a quick look at the protocol spec. Searching...
>
> Hmmm. The page that currently "looks" the most comprehensive for the
> protocol description (on en.bitcoin.it/wiki) appeals to the original
> source release for its authority. Not a great sign.
>
> The protocol has a built-in script interpreter which must run to verify
> any transaction. But opcodes are being retroactively disabled! Like when
> "it was found that some of the arithmetic ones could be exploited to
> crash all Bitcoin nodes"
> https://forum.bitcoin.org/**index.php?topic=4723.msg68823#**msg68823
>
> E.g., OP_2MUL (multiply by 2) was disabled for "security reasons". (Hope
> you didn't accept any coin requiring it!) But they didn't disable the
> ability to add a number to itself. Will this be the next Callas
> Highlander operation?
>
> What if an attacker simply did a zero-sum exchanges of coins all day
> long, seeding crafted opcodes into a percentage of the circulating
> supply? Later, he could roll over his supply to "clean" coins and then
> disclose the vulnerability for those now being held by everyone else.
>
> Note that the script language includes a SHA-256 primitive opcode. What
> would be even more clever would be use the parasitic computation in the
> verification network as a mining cluster. Perhaps the results could be
> propagated back hidden in the distributed block database.
>
> All-in-all, this is not atypical for the evolution of a piece of network
> software, but some Bitcoin proponents seem to be attaching utopian hopes
> and/or hard cash value to this thing.
>
> Are there examples of other untrusted-peer distributed protocols
> maturing to become unassailably resilient for use across the wide internet?
>
> - Marsh
>
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Re: [cryptography] bitcoin scalability to high transaction rates

[Marsh Ray]

On 07/21/2011 10:41 AM, Sampo Syreeni wrote:

HST is just an example of a mechanism which creates prodigious
amounts of transaction data. There are others, starting simply with
wide enough adoption of Bitcoin. So if the amount of transaction data
being shipped around can become a bottleneck here, it could indicate
a scalability limit on Bitcoin in more realistic situations.


That implies you suspect there may be a DoS attack against the Bitcoin
network. I've heard this sentiment stated more explicitly from others,
but haven't looked into it deeply myself.

More often than not, distributed protocols have to go through multiple
iterations of vulnerability and mitigation before they're really robust.
Bitcoin even seems to have the added challenge of nodes being actively
adversarial.

OK I can't resist a quick look at the protocol spec. Searching...

Hmmm. The page that currently "looks" the most comprehensive for the
protocol description (on en.bitcoin.it/wiki) appeals to the original
source release for its authority. Not a great sign.

The protocol has a built-in script interpreter which must run to verify
any transaction. But opcodes are being retroactively disabled! Like when
"it was found that some of the arithmetic ones could be exploited to
crash all Bitcoin nodes"
https://forum.bitcoin.org/index.php?topic=4723.msg68823#msg68823

E.g., OP_2MUL (multiply by 2) was disabled for "security reasons". (Hope
you didn't accept any coin requiring it!) But they didn't disable the
ability to add a number to itself. Will this be the next Callas
Highlander operation?

What if an attacker simply did a zero-sum exchanges of coins all day
long, seeding crafted opcodes into a percentage of the circulating
supply? Later, he could roll over his supply to "clean" coins and then
disclose the vulnerability for those now being held by everyone else.

Note that the script language includes a SHA-256 primitive opcode. What
would be even more clever would be use the parasitic computation in the
verification network as a mining cluster. Perhaps the results could be
propagated back hidden in the distributed block database.

All-in-all, this is not atypical for the evolution of a piece of network
software, but some Bitcoin proponents seem to be attaching utopian hopes
and/or hard cash value to this thing.

Are there examples of other untrusted-peer distributed protocols
maturing to become unassailably resilient for use across the wide internet?

- Marsh
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Re: [cryptography] bitcoin scalability to high transaction rates

[James A. Donald]

Those interested in what is on record may want to look at
http://blockexplorer.com/



I wrote:

This information, without IP numbers, is unlikely to be very useful in
tracing transactions,


Transactions are in a sense perfectly traceable, however bitcoin 
violates the "know your customer" rule to the maximum extent possible.

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Re: [cryptography] bitcoin scalability to high transaction rates

[Nathan Loofbourrow]

On Thu, Jul 21, 2011 at 8:41 AM, Sampo Syreeni  wrote:

> On 2011-07-21, Marsh Ray wrote:
>
>  I guess I don't see the need to do bitcoin crypto transactions at that
>> speed any more than the other high-speed exchanges need to rapidly move
>> stock certificates, hard cash, or perform ACH/EFTs.
>>
>
> That's probably true. But then, HST is just an example of a mechanism which
> creates prodigious amounts of transaction data. There are others, starting
> simply with wide enough adoption of Bitcoin. So if the amount of transaction
> data being shipped around can become a bottleneck here, it could indicate a
> scalability limit on Bitcoin in more realistic situations.


In practice, trades on Bitcoin exchanges don't create transactions in the
Bitcoin crypto log; you can even give Bitcoins to one another within an
exchange for the cost of an API call. It's only when money is transferred
into our out of the exchange that a "real" transaction needs to be created,
whether though Bitcoin or through a bank. Private markets can help aggregate
small transactions.

Of course, this presumes you trust the exchange, which is a different
matter.

n
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Re: [cryptography] bitcoin scalability to high transaction rates

[Sampo Syreeni]

On 2011-07-21, Marsh Ray wrote:

I guess I don't see the need to do bitcoin crypto transactions at that 
speed any more than the other high-speed exchanges need to rapidly 
move stock certificates, hard cash, or perform ACH/EFTs.


That's probably true. But then, HST is just an example of a mechanism 
which creates prodigious amounts of transaction data. There are others, 
starting simply with wide enough adoption of Bitcoin. So if the amount 
of transaction data being shipped around can become a bottleneck here, 
it could indicate a scalability limit on Bitcoin in more realistic 
situations.

--
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+358-50-5756111, 025E D175 ABE5 027C 9494 EEB0 E090 8BA9 0509 85C2
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Re: [cryptography] bitcoin scalability to high transaction rates

[James A. Donald]

On 2011-07-21 6:35 PM, Nicholas Bohm wrote:

On 21/07/2011 03:01, Daniel Carosone wrote:

 On Tue, Jul 19, 2011 at 08:25:40PM +0300, lodewijk andr? de la porte wrote:

 I personally still worry about how big the early bird bonus was, someone
 estimated the earliest of participators had a million of bitcoins.

 If/since bitcoin posessess the full history log and lacks the privacy
 characteristics discussed here, this should be readily verifiable.
 Conversely, if this can't be verified, perhaps the drawbacks aren't so
 great in practice as has been presumed?  It seems like an interesting
 test.


Those interested in what is on record may want to look at 
http://blockexplorer.com/


This information, without IP numbers, is unlikely to be very useful in 
tracing transactions, because a single individual has many Bitcoin 
addresses.  The state cannot trace the flow of money between two 
addresses located on the same computer, unless it knows it is the same 
computer


If, however, the state was to massively trace all or most bitcoin 
transactions to connect this data to IP numbers, it could do something 
with that information - except that all the transactions it was 
interested in would probably go onto tor.

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Re: [cryptography] bitcoin scalability to high transaction rates

[Nicholas Bohm]

  
  
On 21/07/2011 03:01, Daniel Carosone wrote:

  On Tue, Jul 19, 2011 at 08:25:40PM +0300, lodewijk andr? de la porte wrote:

  
I personally still worry about how big the early bird bonus was, someone
estimated the earliest of participators had a million of bitcoins.

  
  
If/since bitcoin posessess the full history log and lacks the privacy
characteristics discussed here, this should be readily verifiable.
Conversely, if this can't be verified, perhaps the drawbacks aren't so
great in practice as has been presumed?  It seems like an interesting
test.



Those interested in what is on record may want to look at
http://blockexplorer.com/

Nicholas Bohm
-- 
  Contact
  and PGP key here

  

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Re: [cryptography] bitcoin scalability to high transaction rates

[Eugen Leitl]

On Thu, Jul 21, 2011 at 09:52:27AM +1000, James A. Donald wrote:

> But a couple of hundred confirmations is a significant communication  
> overhead, and has an impact on privacy.

It doesn't have to be realtime, so onion routing/mix cascades
would work fine.

Already people are using BitCoin over Tor, or so I hear.

-- 
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Re: [cryptography] bitcoin scalability to high transaction rates

[Marsh Ray]

On 07/20/2011 08:24 AM, Ian G wrote:


Yes, sure, but:

1. we are talking about high frequency trading here, and speed is the
first, second and third rule. Each trade could be making 10k++ and up,
which buys you a lot of leaches.

Basically, you have to get the trade down to the cost of a packet, delay
and two secret key ops. Indeed, if you can measure the delay of the
secret key op, we might be encouraged to pre-calculate shared PRNG
streams so as to speed up the encrypt/decrypt cycle.


I once spoke with some engineers who built and run one of those 
high-speed electronic trading networks/exchanges. Their time to match 
trades was something like 50 microseconds. Their serious members 
colocated their trading systems in their datacenter because it was so 
critical to eliminate the propagation delay.


I guess I don't see the need to do bitcoin crypto transactions at that 
speed any more than the other high-speed exchanges need to rapidly move 
stock certificates, hard cash, or perform ACH/EFTs.



(Gee I wonder if I should file a patent on that idea :P )


Maybe you could be the next Certicom!   ^_^


This and other aspects of high frequency trading forces a credit
exposure to the trades, which requires someone to step in and control
that credit.


But the term "high speed electronic exchange" seems to mean exactly 
this, almost by definition.


- Marsh
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Re: [cryptography] bitcoin scalability to high transaction rates

[Daniel Carosone]

On Tue, Jul 19, 2011 at 08:25:40PM +0300, lodewijk andr? de la porte wrote:
> I personally still worry about how big the early bird bonus was, someone
> estimated the earliest of participators had a million of bitcoins.

If/since bitcoin posessess the full history log and lacks the privacy
characteristics discussed here, this should be readily verifiable.
Conversely, if this can't be verified, perhaps the drawbacks aren't so
great in practice as has been presumed?  It seems like an interesting
test.

Of course those early participants may have hidden themselves to a
degree with multiple keys, but so may others.

Then there is the question of motivation and economic benefit: in an
early adoption phase, more so than later, the value of these coins is
increased by spending them and thus growing the economy and
encouraging participation and the success of the currency.

As I understand it, those early coins are identifiable.  If the risk of
such hoarded coins being suddenly released becomes too great, can the
network effectively devalue them by not accepting them, or attributing
them lower exchange value?  This would obviously need to be a
consensus change by the majority of the market population, threatened
by someone with a majority of the early coins...

--
Dan.

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Re: [cryptography] bitcoin scalability to high transaction rates

[James A. Donald]

On 2011-07-20 11:24 PM, Ian G wrote:

Well, it's clearly inefficient, but that's a design feature :) Privacy
can't really be claimed as it has a public database, and it's a sucker
for datamining. Latency I gather has its issues too.


A distributed currency requires a consensus as to who owns what coins.

I transferred a few cents worth of bitcoins between one identity and 
another.  It took a very long time for the first confirmations to come 
in.  After a few days, there were a couple of hundred confirmations - a 
consensus so large as to be entirely irreversible.


But a couple of hundred confirmations is a significant communication 
overhead, and has an impact on privacy.



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Re: [cryptography] bitcoin scalability to high transaction rates

[James A. Donald]

On 2011-07-20 11:03 PM, Ian G wrote:

Only gold/silver has ever pulled off that trick, and emulating gold is
not what you'd call a winning strategy.


The world has always returned to a precious metal standard, and shows 
every sign of doing so again.


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Re: [cryptography] bitcoin scalability to high transaction rates

[Ian G]

On 20/07/11 8:02 AM, Sampo Syreeni wrote:

On 2011-07-20, Ian G wrote:


To answer OP, typically all trading is done on a delayed and netted
settlement. Which is to say the trade might be done real time but the
settlement is batched for later, typically after market closing. No
money changes hands until later. This is especially true as you get
closer to liquidity or speculative trading, because of the nature of
the parties having no skin in the game, and trading on credit.


Yes, and I should have touched this as well. The problem is, the biggest
thing driving Bitcoin adoption is that it cuts down on the middlemen,
and their cost. Government involvement, of course, but also the
financial establishment. If you then have to rely on trusted third
parties/marketplaces/settlement agency, even with Bitcoin, that
nullifies half of the promise the currency has in the first place.


Yes, sure, but:

1.  we are talking about high frequency trading here, and speed is the 
first, second and third rule.  Each trade could be making 10k++ and up, 
which buys you a lot of leaches.


Basically, you have to get the trade down to the cost of a packet, delay 
and two secret key ops.  Indeed, if you can measure the delay of the 
secret key op, we might be encouraged to pre-calculate shared PRNG 
streams so as to speed up the encrypt/decrypt cycle.  (Gee I wonder if I 
should file a patent on that idea :P )


This and other aspects of high frequency trading forces a credit 
exposure to the trades, which requires someone to step in and control 
that credit.  No payments allowed to interfere with the trade itself. 
In the financial cryptography exchange for real time trading that I 
built, payments were delivered up-front, but there was intra-order 
trading that was done on credit by the central exchange.  That is, a 
sell order of 100 could be fulfilled 10 at a time until closed out. 
This was necessary to improve the liquidity, and as liquidity makes the 
trade happen or not in many cases, it dominated the question of credit 
and associated leaching costs.


If we're talking anything else like retail payments, then there is 
leeway to insist on pure BitCoin settlement at its speed.


2.  The payoff to the stationary bandit also closes the loop on the 
criminals you peer with.  In BitCoin, there is no such closure, you 
don't get to select your criminal partners.  This raises your costs.



I also think the potential problem could be rectified rather simply:
just build a suitable hash tree of transactions and only subject the
root to the proof-of-work timestamping machinery, while offloading the
millisecond by millisecond processing and storage to auxiliary sites.
That way even high transaction densities would end up being a bona fide
part of the shared log, but only summaries/hashes would need to be
broadcast. Most of the hard, costly work of hashing and publicly storing
those more frequent transactions could be done in a decentralized and
less-trusted fashion, so that the middleman would be at least subjected
to full competition.


I suppose we might try a bit-commit style of bilateral exchange but it
would need to overcome the speed and cost advantages of the TTP.


The Bitcoin economy seems to work somewhere in between. Both in
efficiency, and as everybody knows, privacy as well. At least to me the
question then is, is Bitcoin really at the Pareto frontier with regard
to efficiency, privacy, latency and whathaveyou, at the same time. I'm
not too sure it is.


Well, it's clearly inefficient, but that's a design feature :)  Privacy 
can't really be claimed as it has a public database, and it's a sucker 
for datamining.  Latency I gather has its issues too.


If one were to speculate as to some sort of frontier of benefits, then 
I'd say when it came to trading, BitCoin would be a distance 10th.  A 
psuedonymous system is far more efficient and secure, and adding 
chaumian blinding adds a modicum of untraceability [0].


No centralised control of the issue is a benefit of BitCoin, but we 
would need multiple currencies, grounded in contracts.  (Distributed 
issuers in open issuance of contracts achieves 98% of the distributed 
bounty of BitCoin.)



It's not likely that the remaining of the population could appreciated
it, sure :)

...  And then, if
you can't spend willy-nilly, anything you just keep off the market is as
good in the medium run as something that never existed in the first
place; money really doesn't help you much unless you can spend it, which
for the most part makes the entitlement worries moot.


Exactly.  This is where hoarding meets Jon's Highlander constant meets 
Fort Knox.


iang



[0] Chaumian blinding is only untraceable on paper.  In practice, the 
untraceability depends on many implementation and economics factors.

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Re: [cryptography] bitcoin scalability to high transaction rates

[Alfonso De Gregorio]

On Wed, Jul 20, 2011 at 1:08 PM, Eugen Leitl  wrote:
> On Wed, Jul 20, 2011 at 11:56:06AM +0200, Alfonso De Gregorio wrote:
>
>> I'd better rephrase it in: expectation to have "money backed by
>> bitcoins" exhibiting all the desirable properties of a perfect
>> currency (ie, stable money) are greatly exaggerated.
>
> The question is not whether it's perfect, but whether it's good enough.

The acceptable distance from a stable currency, as the concept of good
enough, depends again on what you are trying to achieve.

As a digital currency, and distributed system, Bitcoin is nothing less
than truly ingenious. I'm enthusiast about it.

However, Bitcoin it's neither local nor should be confused with a
system ready to be a sound alternative to the gold standard. And in
the debate was rised a question about the eventual effect of having
money backed by BTCs instead of gold. My argument stems from there.

Btw, there's a nice article published few weeks ago by Nathan Lewis on Forbes:

  A Return To Basics: What Is Stable Money?
  http://www.forbes.com/2011/06/30/stable-money-gold.html

> --
> Eugen* Leitl http://leitl.org";>leitl http://leitl.org


alfonso
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Re: [cryptography] bitcoin scalability to high transaction rates

[Ian G]

On 20/07/11 9:08 PM, Eugen Leitl wrote:

On Wed, Jul 20, 2011 at 11:56:06AM +0200, Alfonso De Gregorio wrote:


I'd better rephrase it in: expectation to have "money backed by
bitcoins" exhibiting all the desirable properties of a perfect
currency (ie, stable money) are greatly exaggerated.


The question is not whether it's perfect, but whether it's good enough.


The question is whether it is even close.  It's pretty clear it can 
never be stable enough to be a currency.  Pretty much all currencies 
lean on some form of stability;  BitCoin does not, and suggests "when 
it's big enough, supply v. demand will stabilise it..."


Only gold/silver has ever pulled off that trick, and emulating gold is 
not what you'd call a winning strategy.  Actually there's a name for it: 
 alchemy.  BitCoin is cryptographic alchemy.




BTC is basically a global version of http://en.wikipedia.org/wiki/Local_currency
or http://en.wikipedia.org/wiki/Alternative_currency and hence
isn't something completely new.



Sure, and those things have rules too.  Local currency is local; 
BitCoin is not.  The difference is that in local currencies we can rely 
on the trust and reputation networks to stop people stealing.  In 
BitCoin, we can't.  In local currencies, when the currency moves outside 
the very tight trust circle where everyone knows each other, they fail, 
because someone moves into the currency who has no reputation to lose.


(Alternative currency is just a term used by the regulated currency 
people, it doesn't really tell us anything.)



It would be intesting to see whether BTC's successors
could improve the scheme, by allowing a (subexponential)
growth, built-in devaluation to encourage circulation and
discourage hoarding (this would be probably hard to
do), and so on.


Not really.  It's problem isn't its mathematics or its release rate, but 
that it has no ground to stand on.  Which is to say, if people want to 
bid it to the sky, they can.  If people want to dump it to the bottom of 
the ocean, they can too...


With a currency that is backed on something stable, the stable commodity 
forms an anchor around which value gyrates.  So, it is worth holding if 
the price goes up too low, because you can always use it for its stable 
thing.  E.g., in US of A, the american people are quite happy to hold 
$$$ because they can pay their taxes with it.  They really don't care 
that much what the exchange rate is doing, up or down.  This anchor 
means USD is a good currency.


Possibly what people don't realise is that it is very easy to corner a 
market.  However, the fundamental value of the unit (the commodity) will 
stabilise and punish the speculator who corners the market.  With 
BitCoin there is no underlying anchor to punish the person cornering the 
market, so the games will be excessive, and volatility will be too high 
to be "current."




iang

PS: having said all that negative stuff, I quite like BitCoin.  If it 
got the econ right, we'd be having different conversations :)

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Re: [cryptography] bitcoin scalability to high transaction rates

[Eugen Leitl]

On Wed, Jul 20, 2011 at 11:56:06AM +0200, Alfonso De Gregorio wrote:

> I'd better rephrase it in: expectation to have "money backed by
> bitcoins" exhibiting all the desirable properties of a perfect
> currency (ie, stable money) are greatly exaggerated.

The question is not whether it's perfect, but whether it's good enough.

BTC is basically a global version of http://en.wikipedia.org/wiki/Local_currency
or http://en.wikipedia.org/wiki/Alternative_currency and hence
isn't something completely new.

It would be intesting to see whether BTC's successors 
could improve the scheme, by allowing a (subexponential)
growth, built-in devaluation to encourage circulation and
discourage hoarding (this would be probably hard to 
do), and so on.

-- 
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Re: [cryptography] bitcoin scalability to high transaction rates

[Alfonso De Gregorio]

On Wed, Jul 20, 2011 at 11:29 AM, James A. Donald  wrote:
> On 2011-07-20 4:57 PM, a...@crypto.lo.gy wrote:
>>
>> At the current market depth and without a widespread adoption, Bitcoin
>> exhibits a high volatility.
>
> So you are telling us if bitcoin fails, it fails.
>
> Conversely, however, if it succeeds, it succeeds.


This was not my point.

I'd better rephrase it in: expectation to have "money backed by
bitcoins" exhibiting all the desirable properties of a perfect
currency (ie, stable money) are greatly exaggerated.


alfonso
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Re: [cryptography] bitcoin scalability to high transaction rates

[James A. Donald]

On 2011-07-20 4:57 PM, a...@crypto.lo.gy wrote:

At the current market depth and without a widespread adoption, Bitcoin exhibits 
a high volatility.


So you are telling us if bitcoin fails, it fails.

Conversely, however, if it succeeds, it succeeds.
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Re: [cryptography] bitcoin scalability to high transaction rates

[adg]

Sorry for top posting.

With regard to gold, gold standards, and currencies what follow is the most 
evident difference I can see between Bitcoin and gold. A difference so major on 
its own that makes us understand we are contrasting apples with oranges.

At the current market depth and without a widespread adoption, Bitcoin exhibits 
a high volatility. Conversely, gold's value is the most stable we observed, 
ever. This is why currencies has been pegged to (but not necessarily backed by) 
gold. As David Ricardo remarked in 1817, "A currency, to be perfect, should be 
absolutely invariable in value" -- something acknowledged in the motivation for 
the design of Bitcoin.  

So far, and AFAIK, nobody traded precious metals in Bitcoins. Such a market 
would provide us an effective mean to measure Bitcoin's depreciation and assess 
if a Bitcoin system can achieve a (somewhat) stable currency value.

At the same time and as long as we give it value, Bitcoin has value. Hence, I 
look with interest at its demand.

alfonso

Sent from my BlackBerry®

-Original Message-
From: "James A. Donald" 
Sender: cryptography-bounces@randombit.netDate: Wed, 20 Jul 2011 14:22:31 
To: lodewijk andré de la porte
Reply-To: jam...@echeque.com,
Crypto discussion list 
Cc: Crypto discussion list
Subject: Re: [cryptography] bitcoin scalability to high transaction rates

James A. Donald
 >> The obvious next step is to have chaumian money and
 >> account money which has rapid low cost transactions, which
 >> money is converted into bitcoins at leisure, analogous to
 >> having gold, and account money and banknotes backed by
 >> gold.

On 2011-07-20 3:25 AM, lodewijk andré de la porte wrote:
 > This would revive many of the things people have aspired to
 > kill with bitcoins. Among others the "creation" of money (I
 > can borrow and "store" more money than I have). It would
 > also mean moving the scalability problem to a centralized
 > system, a trusted party.

Not centralized if there are several entities issuing bitcoin
backed account money.  Nor is trust a big problem if value is
only stored in accounts and chaumian coins for a relatively
short period, with accounts being settled up in actual bitcoins
at the end of the day, or the end of the month.

 > In other words: wouldn't having money backed by bitcoins
 > instead of gold essentially improve nothing?

Right now we don't have money backed by gold.

If we did, it would improve a lot.

Bitcoins have an advantage over gold that they are inherently
electronically transferable, and disadvantage relative to gold
in that gold has been money for a very long time, and that gold
as non monetary value as well as monetary value.
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Re: [cryptography] bitcoin scalability to high transaction rates

[James A. Donald]

James A. Donald
>> The obvious next step is to have chaumian money and
>> account money which has rapid low cost transactions, which
>> money is converted into bitcoins at leisure, analogous to
>> having gold, and account money and banknotes backed by
>> gold.

On 2011-07-20 3:25 AM, lodewijk andré de la porte wrote:
> This would revive many of the things people have aspired to
> kill with bitcoins. Among others the "creation" of money (I
> can borrow and "store" more money than I have). It would
> also mean moving the scalability problem to a centralized
> system, a trusted party.

Not centralized if there are several entities issuing bitcoin
backed account money.  Nor is trust a big problem if value is
only stored in accounts and chaumian coins for a relatively
short period, with accounts being settled up in actual bitcoins
at the end of the day, or the end of the month.

> In other words: wouldn't having money backed by bitcoins
> instead of gold essentially improve nothing?

Right now we don't have money backed by gold.

If we did, it would improve a lot.

Bitcoins have an advantage over gold that they are inherently
electronically transferable, and disadvantage relative to gold
in that gold has been money for a very long time, and that gold
as non monetary value as well as monetary value.
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Re: [cryptography] bitcoin scalability to high transaction rates

[Sampo Syreeni]

On 2011-07-20, Ian G wrote:

To answer OP, typically all trading is done on a delayed and netted 
settlement. Which is to say the trade might be done real time but the 
settlement is batched for later, typically after market closing. No 
money changes hands until later. This is especially true as you get 
closer to liquidity or speculative trading, because of the nature of 
the parties having no skin in the game, and trading on credit.


Yes, and I should have touched this as well. The problem is, the biggest 
thing driving Bitcoin adoption is that it cuts down on the middlemen, 
and their cost. Government involvement, of course, but also the 
financial establishment. If you then have to rely on trusted third 
parties/marketplaces/settlement agency, even with Bitcoin, that 
nullifies half of the promise the currency has in the first place.


I also think the potential problem could be rectified rather simply: 
just build a suitable hash tree of transactions and only subject the 
root to the proof-of-work timestamping machinery, while offloading the 
millisecond by millisecond processing and storage to auxiliary sites. 
That way even high transaction densities would end up being a bona fide 
part of the shared log, but only summaries/hashes would need to be 
broadcast. Most of the hard, costly work of hashing and publicly storing 
those more frequent transactions could be done in a decentralized and 
less-trusted fashion, so that the middleman would be at least subjected 
to full competition.


I suppose we might try a bit-commit style of bilateral exchange but it 
would need to overcome the speed and cost advantages of the TTP.


The Bitcoin economy seems to work somewhere in between. Both in 
efficiency, and as everybody knows, privacy as well. At least to me the 
question then is, is Bitcoin really at the Pareto frontier with regard 
to efficiency, privacy, latency and whathaveyou, at the same time. I'm 
not too sure it is.


It's not likely that the remaining of the population could appreciated 
it, sure :)


Then on the other hand, would any sane Bitcoin user divulge hir 
ownership of 1/21th of the globe's wealth? If lottery winners with mere 
millions hesitate to do that, both via talk and action, why would 
somebody who's more likely to get the big picture go there either?


If so, it'd be phenomenally difficult to do anything more sensational 
than current billionaires do with their wealth. I mean, if you went and 
bought a midsized nation, that'd sort of leave a footprint. Then you'd 
cease to have a life because, let's say, your wallet file would suddenly 
be in rather high demand. Especially online, I think such considerations 
rule out extreme spending with nasty effects on the market. And then, if 
you can't spend willy-nilly, anything you just keep off the market is as 
good in the medium run as something that never existed in the first 
place; money really doesn't help you much unless you can spend it, which 
for the most part makes the entitlement worries moot.

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Re: [cryptography] bitcoin scalability to high transaction rates

[Ian G]

On 20/07/11 3:25 AM, lodewijk andré de la porte wrote:

This would revive many of the things people have aspired to kill with
bitcoins. Among others the "creation" of money (I can borrow and "store"
more money than I have). It would also mean moving the scalability
problem to a centralized system, a trusted party.


To answer OP, typically all trading is done on a delayed and netted 
settlement.  Which is to say the trade might be done real time but the 
settlement is batched for later, typically after market closing.  No 
money changes hands until later.  This is especially true as you get 
closer to liquidity or speculative trading, because of the nature of the 
parties having no skin in the game, and trading on credit.



In other words: wouldn't having money backed by bitcoins instead of gold
essentially improve nothing?


That depends on what you are trying to achieve.  Trading is typically 
done that way because trading is done backed by a single authority to 
ensure that both parties turn up with the settlement.  Hence, in a 
single place makes sense.  Even distributed interbank trading is done 
with the backing of the central bank as TTP providing the guarantee. 
And if you look at the trading and types of people in the BitCoin 
market, you'll likely come to the same conclusion.


I suppose we might try a bit-commit style of bilateral exchange but it 
would need to overcome the speed and cost advantages of the TTP.



I personally still worry about how big the early bird bonus was, someone
estimated the earliest of participators had a million of bitcoins. If
someone does then that'd grant him 1/21st of the worlds wealth (assuming
an insane surge in bitcoin usage), something I cannot quite believe
anyone to deserve. I mean it's possible, just not likely that anyone
could be responsible for 1/21 of the world's wealth.


It's not likely that the remaining of the population could appreciated 
it, sure :)



On 2011-06-17 4:35 AM, Sampo Syreeni wrote:

... What precisely would happen to
BitCoin if we had tens to tens of thousands of high frequency
traders
(thousands of transactions per second per trader) within the
network?




iang
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Re: [cryptography] bitcoin scalability to high transaction rates

[lodewijk andré de la porte]

This would revive many of the things people have aspired to kill with
bitcoins. Among others the "creation" of money (I can borrow and "store"
more money than I have). It would also mean moving the scalability problem
to a centralized system, a trusted party.

In other words: wouldn't having money backed by bitcoins instead of gold
essentially improve nothing?

I personally still worry about how big the early bird bonus was, someone
estimated the earliest of participators had a million of bitcoins. If
someone does then that'd grant him 1/21st of the worlds wealth (assuming an
insane surge in bitcoin usage), something I cannot quite believe anyone to
deserve. I mean it's possible, just not likely that anyone could be
responsible for 1/21 of the world's wealth.

Lewis

2011/6/17 James A. Donald 

> On 2011-06-17 4:35 AM, Sampo Syreeni wrote:
>
>> Since I've been forced to take yet another look into BitCoin and
>> algorithmic (high frequency) trading within a short timespan, I began to
>> wonder how they would work together. What precisely would happen to
>> BitCoin if we had tens to tens of thousands of high frequency traders
>> (thousands of transactions per second per trader) within the network?
>>
>
> The obvious next step is to have chaumian money and account money which has
> rapid low cost transactions, which money is converted into bitcoins at
> leisure, analogous to having gold, and account money and banknotes backed by
> gold.
>
> We should have accounts backed by bitcoins, and banknotes (chaumian money)
> backed by bitcoins.
>
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Re: [cryptography] bitcoin scalability to high transaction rates

[James A. Donald]

On 2011-06-17 4:35 AM, Sampo Syreeni wrote:

Since I've been forced to take yet another look into BitCoin and
algorithmic (high frequency) trading within a short timespan, I began to
wonder how they would work together. What precisely would happen to
BitCoin if we had tens to tens of thousands of high frequency traders
(thousands of transactions per second per trader) within the network?


The obvious next step is to have chaumian money and account money which 
has rapid low cost transactions, which money is converted into bitcoins 
at leisure, analogous to having gold, and account money and banknotes 
backed by gold.


We should have accounts backed by bitcoins, and banknotes (chaumian 
money) backed by bitcoins.

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[cryptography] bitcoin scalability to high transaction rates

[Sampo Syreeni]

Since I've been forced to take yet another look into BitCoin and 
algorithmic (high frequency) trading within a short timespan, I began to 
wonder how they would work together. What precisely would happen to 
BitCoin if we had tens to tens of thousands of high frequency traders 
(thousands of transactions per second per trader) within the network?


I haven't been able to come up with any substantive claim about what 
that would lead to, but it at least seems possible that we could hit 
some limits within the distributed log algorithm which could lead to 
significant economies of scale in producing new blocks. Even if we 
actively sparsify the history -- simply knowing about what to start the 
process with could be bandwidth heavy, and keeping up with all of the 
eventually false block chains given that bandwidth could necessitate 
very high end hardware with an unusual, mainframe-kind I/O-cycles 
balance. If that were to happen, it could centralize the verification 
activity to a degree that is amenable to takeover, for simple economic 
reasons. Alternatively, the distributed algorithm could simply become 
choked to a degree via bandwidth constraints (not processing cycles) 
that would lead to enough time inconsistency within the cloud to make it 
almost impossible for it "to prune the bush into a stalk".


Do you think something like this could happen? Is it a viable failure 
scenario? I fear this especially because the incentive payment for block 
creation isn't in any way divisible between those who tried, which means 
that winner takes all, and so that with very high rates of transactions, 
only highly centralized and massive scale processing plants can expect 
to reap a benefit from block processing which is statistically within 
usual financial timescales.


(That is, the reward from contributing processing power to the system 
isn't divisible, unlike BTC's themselves. I can't for example run a low 
power mining operation and expect to get .01 BTC in a reasonable 
time, whereas somebody with more power statistically will have it in a 
shorter time. That's a clear benefit to scale, because people do not 
have infinite liquidity, and aren't risk neutral.)


(And yeah, this is mostly about economics still. But since BitCoin is a 
cryptographic protocol, this stuff speaks to the threat model and the 
incentive design which is integral to why the protocol is designed the 
way it is. Thus, also to now the protocol should be developed to 
reincentivize better.)

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