When I saw the news that Valve had dropped support for Bitcoin, my first thought was, “Wait a minute, Valve accepts Bitcoin? How did I not know that? It’s at the intersection between the two of the three biggest areas of my life (the other being music–so yes, writing about gaming and cryptocurrency while listening to music puts me as close to Nirvana as I can get).”
Then it occurred to me that I haven’t bought a game since April anyway. In fact, the last game that I purchased was Rise of the Tomb Raider. I still love video games, but… Why would I buy The Witcher 3 when The Witcher 2 failed to impress me any more than The Witcher had? Why would I buy Civilization 6 when it realistically offered no more enjoyment than could be had from playing another few games of Civilization 5? Video games are increasingly samey as they move into a homogeneous, genre-less blob. But that’s another matter.
Valve cited as their reasons high transaction fees and the volatility of Bitcoin. The former is what I really want to discuss, and the latter is something I’ll only mention briefly.
If by “volatility” people mean “has an unmistakable trend toward increasing in value exponentially,” then sure. Technically, yes, the value of Bitcoin is volatile. It changes often. I fail to see this as a problem when that “change” is overwhelmingly toward the positive end of the spectrum, to the tune of increases from $650 this time last year to nearly $20,000 today. If that kind of “volatile” scares people away, I don’t know what to tell them. Yes, it dipped back to $8000 after it broke $10,000 the first time. Then, as I predicted, within a few days it had reached yet a new plateau of $15,000. Treating its volatility as a problem requires a strange sort of short-sightedness. Yes, if we zoom in on Bitcoin’s value graph to a specific one hour period, we would see a snapshot of “Oh, no, it lost 20% of its value in a few hours!” But if we zoom back a little, to two months, we’ll see an entirely different picture.
“I don’t want a currency that gains value” is essentially what people are saying when they criticize Bitcoin’s volatility.
What can we say to them?
Have fun with your Federal Reserve Notes, dumb ass.
High Transaction Fees
The more I’ve dug into cryptocurrencies–and I’ve really dug into them in the last few months–the more apparent it has become that Bitcoin exists for the miners. Earlier today, I paid more than $25 in Bitcoin transaction fees to move about twice that in Bitcoin. That’s right. To move 0.005 BTC, I paid a transaction fee of roughly 0.002 BTC. This makes Western Union look like a bargain. It makes sales tax look acceptable. My USD bank doesn’t charge me that much through an entire month, and they typically process hundreds of my transactions.
Yes, this is necessary. I’m sorry, but we have to keep this in perspective in-line with the ordinary person’s expectations. In a given month, my bank charges me $7.95, and that’s only if I have the account below a specific balance. If I’m above that balance, they charge me nothing. They provide me with a new debit card every two years, do all the back-end stuff, have security systems in place, and all that other crap, and they charge me roughly $2 a week for this service, while a typical week will see at least 15 transactions. So the typical transaction through my bank costs me about fifteen cents or so, if I’m being lazy, and that’s only if I keep my balance below a certain amount.
With cryptos, it’s slightly different, of course. Although they have the ledgers, miners do not have the wallets. In the U.S. banking system, banks basically have both. If Coinomi had Bitcoin miners that processed your transactions for really low fees as long as the transaction originated with a Coinomi wallet going to a Coinomi wallet, we would be somewhat closer to what the average person expects, but banking systems make their money by loaning out your money. We wouldn’t tolerate Coinomi doing that with our cryptocurrencies, and they can’t do that anyway, since they don’t have the private keys. This gets into the differences between cryptocurrencies and the banking system, though, and there’s no reason to get into all of that.
Proof of Work clearly has the problem that the algorithm, becoming progressively more difficult, requires ever more processing power, and therefore gets increasingly expensive. The end result is that fewer and fewer people can afford the overhead, transaction fees have to increase, and the power is concentrated into the hands of an ever smaller number of people. Inevitably, we will see 3 or 4 major mining companies, with everyone else having been eliminated from the game. Even Proof of Work proponents (I take neither side) see this as a problem, hence we now have Bitcoin Gold, which forked from Bitcoin with the intention of being ASIC-resistant, hopefully side-stepping this issue. We also have the attempt to create a shitcoin known as Bitcoin Platinum, where the guy who had the idea basically laid out Bitcoin Gold, but was too dense to realize what he wanted already existed. There is also Vertcoin, which shares a number of similarities to Bitcoin Gold, though it’s called “the poor man’s Bitcoin,” aiming to take similar measures to combat this inherent problem to Proof of Work.
The Simplest Solutions
Satoshi implemented block sizes in 2013 (I believe it was 2013–it was long after Bitcoin came into existence, at least) in order to make DDoS attacks on the network prohibitively expensive. Most DDoS attacks consist of sending unreal amounts of very small packets (such as the Dyn attack), clogging the network and grinding it to a halt. These packets are usually no greater than 1 KB in size–1/1024 the size of a Bitcoin block. This effectively makes attacking the Bitcoin network about 1024 times as expensive (in financial terms, processing power, and bandwidth requirements–one would need to generate hundreds of gigabytes a second to accomplish it). Sorry. I know this is getting kinda technical.
The irony is that a congressional official was criticized years ago for describing the Internet as “a series of tubes,” but the truth is that he wasn’t really wrong. And those tubes can get clogged. Let’s not get into that, either.
By requiring that any transmission on the Bitcoin network be at least 1 Megabyte in size, the problem was averted and Bitcoin was allowed to grow without fear of DDoS attacks, which would have undermined confidence and stability during critical periods of its lifespan. However, that time has passed. Today, DDoSing the Bitcoin network is prohibitively expensive, but block sizes have nothing to do it. It’s because the Bitcoin network has more processing power than the Tor network. It’s because the Bitcoin network is massive, and miners are already programmed to take the highest value blocks. So what’s the solution I’m getting at?
Remove the block definition entirely.
Let each miner define their own blocksize. If a miner attempts to take seventy transactions and cram them into a single block that is 80 MB, the incentive is certainly there. Grabbing seventy transaction fees all at once would be great, wouldn’t it?
Except oh no!
While that greedy idiot was trying to calculate that gargantuan block, someone less stupid will grab five of those transactions, crunch them into a block, do the calculations, and add them to the blockchain while the other one was still trying to sort out its mess. The greedy one’s efforts would be instantly curtailed, all of its calculations invalidated as it synced with the network and found that the transaction IDs it was trying to process already had been processed. Miners would be encouraged to grab as many transactions as they could, but not so many that they would run the risk of other miners beating them to it.
Are you seeing the problem?
Block size definitions have created a monopoly among miners, and they are using it to beat the ever loving shit out of us, and we are doing nothing about it, presumably because so few people understand the situation.
Miners don’t have to compete with one another, because blocks are pre-defined. There is obviously still some competition, because miners have to have rigs powerful enough to actually be quick enough to mine a block, but that’s not where the real competition lies. Where does the real competition lie?
Instead of miners competing with one another for transactions, the end users are competing with one another to get their transactions processed in a decent timeframe, and sometimes just to get them processed at all. The Bitcoin network already slows down during periods of high congestion, and transaction fees increase to absurd degrees. I’ve seen 1500 Satoshis per byte. So if the Bitcoin network is going to slow down either way, why are we paying these ridiculous fees?
Let’s be clear about something. Miners want higher fees. Of course they do! Why wouldn’t they?
But here’s the snag: higher fees encourage holding and strongly discourage spending or moving. This destroys Bitcoin’s viability as a currency. It has become an asset. It has become a stock, not just in the eyes of the masses who hungrily lick their lips at “all the money” they didn’t make, but to the Bitcoin miners as well, and, evidently, to most of the powers that be in the Bitcoin community. SegWit was a not-very-good idea on its own, but S2X had merit for the 2X part, but the whole thing crumbled. Why? Because miners began pulling out. Why did they pull out? Because the show was over, they could do so without losing face publicly, and they didn’t like the idea of doing twice the work for the same amount of money.
We have to be honest about this stuff and what’s actually happening in the Bitcoin world. The existence of the block definition has created a price floor and a bottleneck. Widening this bottleneck failed, but wasn’t ever going to work out in the long-run anyway. It has pitted you and me against one another to get our transactions processed, instead of pitting miners against one another to be the first to process our transactions. It has become entirely backward.
Bitcoin exists now for the miners, and only for the miners.
Well, and for the people who want it to be an asset instead of a currency.
But it doesn’t exist for you and me.
Valve, perhaps the most benign and progressive company that ever existed (seriously, Valve has quite a culture), has dropped support for Bitcoin at a time when Bitcoin needs to be getting more companies to support it. But it is going the opposite direction. Hint, hint, people.
Remove the blocksize definition from Bitcoin entirely. Let the miners fight over our transactions. Don’t let us fight over the miners. Bitcoin must exist for us, not for the miners. It’s already set on the wrong path. And there’s so much money at stake that I sincerely doubt it can be changed. But if Bitcoin is to survive, it has to change.
it cannot be stated too many times:
Miners should be competing with one another to get to our transactions first; we should not be competing with one another to get to the miners first.
The block size definition is what has created this bottlenecked mess.
This article not bought and paid for by Peter Ver. I dare people who parrot such nonsense to dispute anything I said.