[ahelwer]

I think it's an interesting example of people being too close to something, technically, to really see its totality. I'm a distributed systems person so I basically blew off Bitcoin two bubble-cycles ago because of the 3 tx/sec issue and the obvious deficiencies of the proposed lightning network workaround. I also took an in-depth look at a cryptocurrency with a supposed better protocol (Nano) and was very unimpressed - they didn't have a real solution to the network partition double-spend issue (a coin with a similar protocol, IOTA, solves this with a centralized "coordinator" node that they swear will be removed any time now... it won't). So I found myself in the interesting situation of knowing more about these things than 99% of people with money in them, but missing out on the large gains in value. There is a probabilistic protocol I legitimately find very interesting (Avalanche) that might succeed on a technical level, but analyzing these things at the technical level hasn't really meant much so far.

It's possible this is an enormous bubble that will all go to zero. Of note is that the entirety of Bitcoin's history fits within this larger bull market we've been in since 2008. It will be interesting to see how cryptocurrencies fare in the inevitable wider market downturn, whenever that happens. Regardless it's probably a good idea to hedge against your own ignorance by putting 1% of your money in or something like that.

[trident5000]

Just to be clear, 3 tx/sec is just incorrect and easily disproved by dividing the total transactions per day (readily available online) by the total seconds in a day.

Also the btc main layer is a major settlement layer. It doesnt even compare to ACH or wires in frequency. The fees going up if its tried to be used in that way will force it, and that is a good thing.

A chain cannot grow so fast with high tx so that it bloats and exceeds hard drive capabilities for distributed nodes or it becomes centralized. Its performing exactly the way it should. L2 solutions will take care of coffee transactions.

[ahelwer]

Okay, so it isn't 3 tx/sec. It's a bit more than that. Not an order of magnitude more, or two orders of magnitude, or the five orders of magnitude more to have the throughput required for everyone on earth to be able to transact once per day, say to buy lunch.

You talk about BTC as a settlement layer. A settlement layer for what? The lightning network? Laughable.

BTC might have a future as a store of value like gold, and it deserves credit for establishing cryptocurrencies as an entirely novel asset class. But I think other, better protocols will be used for those coffee transactions instead of hacking on a secondary layer to BTC.

[xur17]

> Okay, so it isn't 3 tx/sec. It's a bit more than that. Not an order of magnitude more, or two orders of magnitude, or the five orders of magnitude more to have the throughput required for everyone on earth to be able to transact once per day, say to buy lunch.

> You talk about BTC as a settlement layer. A settlement layer for what? The lightning network? Laughable.

Personal opinion: I think the part you are missing here is that lots of transactions shouldn't be occurring on the base layer. Remember that every transaction that occurs is stored in perpetuity on every node in the Bitcoin network. It should be expensive for a transaction like that to occur, and we should create incentives that limit the creation of these as much as possible.

Why is it "laughable" for the lightning network to use BTC as a settlement layer? I think it's perfectly reasonable to have second and third layer networks that sit on top of Bitcoin acting as transaction networks, while the main BTC chain is used for larger transactions or to settle large batches of transactions from other layers.

[grey-area]

It should be expensive for a transaction like that to occur

It should not. Current systems manage it fine, because they don't use an insane model which tries to distribute every transaction to everyone, a model you're saying Bitcoin should move away from, at which point, why does Bitcoin exist?

I think it's perfectly reasonable to have second and third layer networks that sit on top of Bitcoin acting as transaction networks, while the main BTC chain is used for larger transactions or to settle large batches of transactions from other layers.

Instead of think of what we can do for Bitcoin, why don't we think about what it can do for us?

I don't really need a globally distributed ledger and all the problems that brings.

[xur17]

> It should not. Current systems manage it fine, because they don't use an insane model which tries to distribute every transaction to everyone, a model you're saying Bitcoin should move away from, at which point, why does Bitcoin exist?

I think you missed my entire point.. I am saying that Bitcoin layer 1 should be a settlement layer for other "less distributed" state systems that sit on top of it.

> I don't really need a globally distributed ledger and all the problems that brings.

I'd be curious to hear your thoughts on how to solve this.

[grey-area]

It seems to me you have failed to answer why such a distributed blockchain settlement layer at the bottom is necessary at all? What payoff does it bring except to justify Bitcoin’s existence?

To solve ‘this’, i.e. global payments throw bitcoin away and start again.

Focus on the problems real people have with payments, identity, trust, fees, speed, reliability, reversibility, somewhere reliable to store their money.

Blockchains fix none of that and actively make some of it worse.

[lawn]

> Personal opinion: I think the part you are missing here is that lots of transactions shouldn't be occurring on the base layer.

What you're really saying is that you don't think BTC should help banking the unbanked (because they often live in poor countries where their weekly salary is your cup of coffee).

> Why is it "laughable" for the lightning network to use BTC as a settlement layer?

It's laughable because people will just use another crypto, so they don't have to pay the +2 large and expensive BTC on-chain fees.

[xur17]

> What you're really saying is that you don't think BTC should help banking the unbanked (because they often live in poor countries where their weekly salary is your cup of coffee).

That is not at all what I am saying. I'm saying that technically only a very small subset of transactions should be settling on the base BTC layer, and hence that is how incentives should be (and are) setup.

[bustin]

Why would people prefer to use a paypal that settles on the bitcoin network vs a paypal that is based around USD?

[KallDrexx]

> Personal opinion: I think the part you are missing here is that lots of transactions shouldn't be occurring on the base layer. Remember that every transaction that occurs is stored in perpetuity on every node in the Bitcoin network. It should be expensive for a transaction like that to occur, and we should create incentives that limit the creation of these as much as possible.

Serious question because this is something I have had trouble figuring out.

Why should transactions not be on the base layer? Isn't the whole point that the ledger is fully decentralized? How does pushing transactions into side channels (lightning, eth's layer 2) not end up centralizing transaction validation (they might not be completely centralized, but they seem by definition less centralized than the bitcoin base network)?

[xur17]

Because "every transaction that occurs is stored in perpetuity on every node in the Bitcoin network" means there is naturally a scaling cap. Bitcoin's lightning network doesn't really centralize transaction validation in the way I think you're thinking - it simply allows 2 counterparties to spend money between each other in a way that doesn't have to be finalized on the Bitcoin layer 1 network after every change, but can be if either party tries to cheat or steal from the other. And then the "network" part of lightning allows either party to spend funds to anyone else in the network with these same guarantees.

[pcthrowaway]

Why are we even talking about first-gen cryptos like bitcoin in regards to transaction processing. There's a whole ecosystem of 2nd and 3rd gen cryptos which address these issues and more (the environmental impact is the biggest issue posed by bitcoin in my opinion)

They're perhaps not on the general public radar yet, but Ethereum and Cardano both have a greater market cap than bitcoin had 4 years ago, and Cardano currently addresses lots of the other issues people talk about.

[rawtxapp]

> The lightning network? Laughable.

Why is it laughable?

The whole world doesn't need every little transaction to be permanently recorded on the public blockchain.

[yunohn]

Isn’t that the “advantage” purported by blockchain currencies?

[mr_woozy]

I don't see how sidechains isn't doing exactly this.

[trident5000]

Just pointing out that you dont know what you're talking about and/or blatantly lying for an underlying bias/goal.

[ahelwer]

According to this chart BTC oscillates between 3 and 5 transactions per second: https://blockchair.com/bitcoin/charts/transactions-per-secon...

What is my blatant lie?

[trident5000]

https://www.blockchain.com/charts/transactions-per-second

The maximum is about 8. But who cares at the end of the day. Settlement will be a rare event and needs to be for the reasons I just mentioned. Its the only system that works for decentralization and to deal with the bloating issue.

[bluecalm]

BTC supply is not flexible. It means it will never be usable as currency. Settlement layer, first layer, tenth layer. It can't work because by the nature of it it will go up when more people want to use it and thus rewarding rent seeking behavior of holding it. It's well understood basic economy. We had gold standard already, it wasn't workable. If the believers shove it down naive people throats we will just re-learn this lesson and it will be very costly.

[mastermojo]

Interesting. I found out about Bitcoin in 2012, took a distributed systems seminar in 2013 covering byzantine fault tolerance, paxos etc and at that point Bitcoin metaphorically blew my mind. I feel like anyone who understood how seminal Paxos was could easily draw parallels to Bitcoin.

Despite all of Bitcoin's shortcomings, I'm a strong believer in the technology and the protocol. If we compare it to the internet and TCP/IP it is pretty designed. In real life its not necessarily the perfect protocol that wins. Sometimes a "crappy" one gets a head start, but it's good enough, and people will patch it along the way. The network participants will also end up using the network in novel ways that were not designed for originally.

[tgraves83]

Since you are using an appeal from authority citing your distributed systems background, could you provide some actual detail of the "obvious deficiencies" of the lightning network?

[ahelwer]

Neglecting the DS component, it just requires a lot of weird behavior like parking money in channels in order to send/receive money, nodes having to be online in order to receive transactions, etc. Why go to all this trouble to build a second layer when you can just use a different protocol? It's the sort of thing that makes sense only if you're completely wedded to BTC.

[tgraves83]

As a systems person you don't see any benefit to having different layers? Currently you are getting to watch the issues of shoving everything into layer 1 play out on Ethereum. Bitcoin isn't just a distributed system, it's value is derived from being a decentralized one.

Almost every technical aspect of Bitcoin that people like to claim makes it "old technology" or inefficient were purposefully chosen trade offs with decentralization. It's obvious that a single centralized database would beat every cryptocurrency on transactions per second.

[mikkel]

Can you elaborate on the network partition issue that you found with nano? As far as I know nano has been live for years without a doublespend or downtime and thats pretty impressive.

[ahelwer]

Yeah this is kind of where distributed systems theory comes up against practice, and I think is very interesting. On a theoretical level Nano is just fundamentally flawed, as are all coins which use this "everyone has their own blockchain" eventual consistency concept. The problem is this, as far as I can recall (I looked at this three years ago): imagine a network partition occurs, where two different exchanges are in different partitions. For whatever reason Eve still has network access to both partitions. She broadcasts a different transaction to each partition, each transaction sending all of her Nano to a different exchange. Since Nano uses proof of stake, these transactions have to get a certain number of votes. I don't recall the exact threshold (I think 1/3 of all extant Nano has to vote?) but it is possible for both transactions to be confirmed as long as the partition stays in place. Possibly long enough for Eve to convert her Nano to a different cryptocurrency and transfer it out. Once the partition collapses one of the transactions is rolled back and the exchange is left holding the bag. IOTA solves this problem by just saying "the partition containing the coordinator is the real partition" lol. Humorously the more centralized Nano voting power is the less likely this scenario is to occur, too - although then you get the existential threat of those big-vote accounts getting hacked! They have to stay online with their private keys accessible, after all.

As you say, this has never happened (to my knowledge). So it's possible that even though the problem is real, it will never actually occur in practice. In the end the real measure of success is how well these systems perform in the real world, so we could say this analysis of the theoretical problems doesn't hold much water. On the other hand if something like this were to happen, it would probably tremendously undermine confidence in the currency & destroy it overnight. So this could be more of a thanksgiving turkey situation where each day seems better than the last until thanksgiving arrives.

[mikkel]

Thank you for your writeup. I understand the idea behind the network partition and I've been doing some digging. It looks like there are numerous commits attempting to address this edge case (they call it frontier cementing).

Here is a writeup I found on reddit that further elaborates this: """ There is a (currently hypothetical) edge-case where this could be reversed (not exactly the same as PoW chain reorganization due to forking, but similar.) In this edge-case:

We imagine the Internet has, right now, been carefully split by a malicious attacker into two exact halves

The Internet halves would be carefully contructed to each hold >60m online Nano votes. (This Internet fracture has never actually happened in Nano's lifetime. There are not 2 x 60m votes currently online.)

The attacker double-spends on a coffee (or house) in two of your stores worldwide just now

They then allow the Internet to heal

One of their transactions will be reversed by majority voting.

So while Nano transactions are fully-confirmed, they are not currently immutable.

Since there are not >120m votes currently online, it has not happened and cannot currently happen either. No previous-to-today Nano transactions will ever be reversed. """ -- throwawayLouisa https://www.reddit.com/r/nanocurrency/comments/bgdshq/what_i...

[piplikoc]

What do you think about Cardano/ADA? I am not an expert in the space, but to me it seems that they have a lot of research behind their blockchain and they solved the energy consumption problem with a proof of stake system, and their fees are pretty cheap compared to Bitcoin or Ethereum.

[basch]

HN might be sleeping on a fundamental world changing piece of software here. Interestingly enough, despite not having released the last pieces yet, a surprising amount of future value is already priced in.

The blanket dismissal of all cryptocompute/cryptocontracts, because people only see it as a currency, is going to leave a lot of people behind. This is more like the emergence of virtualization or time sharing or c++. Cardano is multiple different development platforms and languages and an entire ecosystem. It's a backbone, the kind of underlying infrastructure that will go unseen by the masses, but be underneath a many things.

[ahelwer]

Haven't looked into it. I don't really find proof-of-stake very interesting at a technical level, though. I don't know what all that "research" could be about if they are just going with proof-of-stake.

Edit: taking a peek, their proof-of-stake algorithm (called ouroboros) claims to have some formal security proof employing game theory. That would be interesting to look into as I am not familiar with that technique.

[jeanniesarah]

Have you looked into Hedera Hashgraph?

[ahelwer]

Looks like their consensus algorithm is proprietary: https://docs.hedera.com/guides/core-concepts/hashgraph-conse...

[Specie33]

I did the same thing. Following since before MT GOX. Never purchased because of that TPS issue which i felt killed the system. Was interested in SOL because they supposedly solved that problem, still havent purchased. Feel smuuckish now.. But there you go