24. Market Formed between Chain Payments, Secured by Minors and More Customary Off-chain Payments

Bitcoin trade is the system of fundable bits that are moving from one computer to another and no financial institution plays a role in this process. The initiative in the earliest days of bitcoin was to produce a digital currency that was independent of any kind of national authority or government and that would create electronic payments worldwide without the need for control, directly and in particular anonymous.

Among the key benefits of bitcoin is the reliability of transactions, whose safety is not conditioned by mutual agreement the seller and the buyer, but specific mathematical guarantees, cryptographic proof that the transaction was executed. Changes in demand of bitcoin cause the price change, but most owners do not see it as a limiting factor, because they except earnings target to achieve the right to bitcoin, counting on its future. All this indicates that the key component to successful trading this cryptocurrency is the optimism regarding its future and character that will soon have a smaller reference to media reports and statements of those thanks to whose policies and strategies gap between rich and poor today the largest since the creation of society.

This leads to an assumption that if one of the next versions of cores does not allow miners to create blocks larger than one megabyte, the development of bitcoin would be limited. Although the state of affairs is currently not in the nearer future, the rapidity of change in the geopolitical scenario and, above all, the impact of new digital technologies on game rules in the financial markets are greater than ever. On the other hand, the slowdown has at least two harmful effects on the system. The first one is that involved parties who convey very small amounts will face the most significant deadlines.

Transaction of zero nominal value apparently cannot pay large commissions, which goes for what creates the burning of the currency, for instance in time-stamping a document. For the monetary authorities, running the conversion between old and new organizational supervisory models is certainly not simple, especially for the growing mistrust between governments and confusion in international political relations. The second problem is that the system as such could be destabilized, which might make it very vulnerable under these conditions.

At this phase the blocks are only filled up to 40 percent approximately and half of the transactions are established in just less than 7 minutes, i.e. 90 percent of them in less than 23 minutes, 99 percent in less than 46 minutes and all of them in less than 85 minutes. In cases when the blocks are packed to 80 percent, yet one half of those transactions will still not be completed after 18 minutes. The extent of a block is defined by the number of transactions that the minor inserts, which is now limited to one megabyte. Any kind of elevating this limit would result in accepting a larger number of transactions per second and this increase can already be achieved by adjusting a parameter that is hard-coded in the client node.

Overabundance of these blocks means regard of risk taking for allowing awaiting transactions to build up in the knots of the network at the risk of flooding them, consequently maintaining for an inexact continuance the transactions with the lowest costs. Considering this strategy it is anticipated that bitcoin will remain very proficient for large amounts and the spam of proceedings of very low value will vanish altogether. Overcrowding of the network will also benefit miners who can charge high fees, which will pledge the future of mining and network security when premiums will not be big enough.

In this time period, the general cost of transaction was multiplied by 35. Taking into account the tripling of the transactions carried out during this period, the cost was multiplied by 12 so it does not represent just a growth, but an exponential increase. A common value of transactions is also accelerative and many companies from this sector have begun to make business to business payments and a growing number of them have a mining cost that is too low to be observed as a significant expense. High value-added on chain transactions could thus gradually crowd out small payments that will have to find other spaces.

This created an expectation that an altcoin will sooner or later appear from the lot and take over, but at this stage it is improbable. What is really happening is that a market is being formed between chain payments, secured by minors and more customary off-chain payments. Payments outside the blockchain could surely be made through altcoins, but decreased security, increased unpredictability and deficiency of liquidity, which do not always make this instrument very captivating.

Changing these settings, like any change of any importance, involves putting into circulation a new version of the software, which each user is free to install or not. The most important rivalry is not between bitcoin and an altcoin, but between on-chain and off-chain transactions. As soon as a user installs the new version, the user population splits into two and the blockchain is divided into two branches, one for each version, defining two different currencies, among which users can still choose. As users install a new version, the make communications protocol of the blockchain recurrently switches them from one division to another and thus from the old to the new form of money. They can consequently, by objective action and not a simple vote, preferred for the new rules of money management or stick to the old ones.

If some projects show up, offline payments will become safer than conventional payment methods. Online payments will always be the safest and most popular option, but adapted alternative offers will still cut down the pressure on this type of payment. It is good to have to develop real alternatives to on-chain transactions and allow a market to develop between fully trustless proceedings on the blockchain and offline transactions balancing partly or entirely on a third party.

As off-chain transactions, in one form or another, will develop, growth will sooner or later slow down for miners. With the appreciable investment involved and the regular division of the mining premium, they will be encouraged to increase the number of transactions to compete with “offline” payment solutions. We believe that bitcoin should multiply its turnout by 100 percent in order to be feasible as a store of value. At present, the bitcoin network allows about 300,000 transactions per day and its capacity is clearly inadequate for most financial applications, while the Visa network is known to manage hundreds of millions of transactions per day. Additionally, the bitcoin has for some time been quite concentrated with longer verification times, as seen on the charts that concern the last two years.

The idea is to make them discuss the parts of the protocol in order to define the perfect size according to a global agreement chosen by the users. This makes the storage of data in the blockchain more efficient by introducing the impression of references to transactions, the size of the blocks is eased and therefore the rate is increased. This problem seems to be conceptual and before validating a connection, each miner goes through and checks all the transactions that compose it in order to find a double-spend and an invalid transaction. The block is being rejected in case at least one of them is found, though the explanation of block rejection could be because it is being outsized.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018


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