When bitcoin was first proposed, I argued that the proposed algorithm failed to scale.
Well, when getting started, scaling does not matter. Now, however, a bitcoin wallet is starting to cost substantial bandwidth and processing power. There are plans to address this, but I am underwhelmed by those plans. The proposed plans will make bitcoin more centralized, and will still have scaling issues.
Seems to me that we need an algorithm where no one computer needs to keep a copy of all transactions, or even a complete listing of who owns what coins, so as to maintain scaling all the way to operating all of the world’s transactions, and full decentralization both.
Gold also has problems, in that transporting gold from one place to another is slow and risky. Easier to leave the gold in one place, and transfer ownership. This, however tempts the proprietor of that place to misconduct (fractional reserve and term transformation) and exposes the proprietor to attack. So the most trusted proprietor winds up being the most powerful state, which is to say, the USG. Banks around the world leave their gold with
Fort Knox the New York Fed, and simply move ownership of it. And that state then steals the gold. Banks that are owed gold by the USG have been asking for their gold back, asking for physical gold, and not getting it.
I recommend a system in which the private key that is the rightful owner of a bitcoin possesses data showing that he rightly acquired bitcoins from someone that was previously acknowledged as the rightful owner of those bitcoins by a previous leading hash of the state of bitcoin ownership, and a hash chain showing that his rightful ownership is acknowledged in the current leading hash of the state of bitcoin ownership, but not very many other people possess that data, not everyone in the system possesses that data, so not everyone in the system has to download that data and check it for internal consistency. When he spends the bitcoins, he proves ownership by showing that his ownership is in the most recent hash – but the recipient’s wallet would not have that information until supplied. This sounds easy, but the tricky bit doing it without risk of the network splitting into inconsistent states.
Instead of this, the proposed scaling fix for bitcoin is a very large blocksize, which would mean that only a small number of big wealthy institutions are full participants in the system – which brings us back to the problems we have been having with gold and fiat money.