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Mercy comments on General Bitcoin discussion thread (June 2011) - Less Wrong Discussion
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I've kind of stayed out of this discussion because I think one's interpretation of the product depends on more on your views about economics and politics than any disagreement about bitcoin's properties. And Tyler Cowen's skepticism makes me think that bitcoin proponents are deep enough into Rothbardville that our lines of engagement would get fruitlessly broad.
But I'm curious on one point - why do some people have this dramatic 'coins'll be worth thousands or nothing" attitude. I can see the zero, and I can get my head round the viewpoint where it's plausible that a large chunk of the economy gets covered by bitcoins and they're worth thousands. But what about it staying where it is now, as a complementary used for drug deals, money laundering and Konkin t-shirts? Is there some reason that wouldn't be stable?
Bitcoin has a number of practical advantages for ordinary e-commerce, such as no chargebacks and low transaction fees. I think that if (say) Bitcoin and Paypal were equally normal-seeming in the public consciousness, then most online vendors would prefer for their customers to pay with bitcoins. This suggests that one of the most important limiting factors for adoption is visibility, which is to say, adoption. The spread of Bitcoin is self-reinforcing.
That may be true, but it also has disadvantages such as scalability. AFAICT, every Bitcoin node must maintain an up-to-date ledger containing all transactions made to date: obviously, this is unsustainable in the long run.
The "fixed number of bitcoins" policy is also an issue. According to Bitcoin developers, having more miners makes the network more resilient to attack, in addition to speeding up transactions. Eventually, the subsidy to mining activity will become too low and agents will need to partially replicate its effect with transaction fees. This is sobering enough for a network which touts free transactions! as a selling point; however, what's more worrying, resiliency will also drop dramatically as mining activity slows. Paying a mining bonus would be more fitting, since the benefits of increased mining are shared by all holders of bitcoin.
The code can easily be modified to use only a partial ledger if necessary. It's not yet enough of a problem that anyone has bothered to do so.
"Free transactions" is more of a common misconception than a selling point, as SilasBarta discusses in the sibling.
Fair enough. The promoters of Bitcoin should not tout the "free transactions!" since this will only apply for the next twenty years or so and transactions thereafter will impose a fee orders of magnitude lower than most services if you want them confirmed quicker.
I do not think the transactions are free even now, it is just that they are spread out across the entire money supply rather than charged only to the participants in the transaction. The cost of the block are the 50 coins added to the money supply, which slightly decreases the value of every other coin.
In most contexts, that would be close enough to count as "free transactions".