[cryptography] bitcoin scalability to high transaction rates

Ian G iang at iang.org
Wed Jul 20 06:03:54 PDT 2011

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 


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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