Vitalik's Debate

Vitalik alleges many things about Bitcoin and metacoins in his more recent Ethereum papers. Namely, he alleges that a lack of SPV support is Counterparty’s fatal flaw.

The Bitcoin-based approach, on the other hand, has the flaw that it does not inherit the simplified payment verification features of Bitcoin. SPV works for Bitcoin because it can use blockchain depth as a proxy for validity; at some point, once the ancestors of a transaction go far enough back, it is safe to say that they were legitimately part of the state. Blockchain-based meta-protocols, on the other hand, cannot force the blockchain not to include transactions that are not valid within the context of their own protocols. Hence, a fully secure SPV meta-protocol implementation would need to backward scan all the way to the beginning of the Bitcoin blockchain to determine whether or not certain transactions are valid.

In addition, Vitalik alleges that Bitcoin full nodes are in the process of becoming too centralized:

One common concern about Ethereum is the issue of scalability. Like Bitcoin, Ethereum suffers from the flaw that every transaction needs to be processed by every node in the network. With Bitcoin, the size of the current blockchain rests at about 15 GB, growing by about 1 MB per hour. If the Bitcoin network were to process Visa’s 2000 transactions per second, it would grow by 1 MB per three second (1 GB per hour, 8 TB per year). Ethereum is likely to suffer a similar growth pattern, worsened by the fact that there will be many applications on top of the Ethereum blockchain instead of just a currency as is the case with Bitcoin, but ameliorated by the fact that Ethereum full nodes need to store just the state instead of the entire blockchain history.

The problem with such a large blockchain size is centralization risk. If the blockchain size increases to, say, 100 TB, then the likely scenario would be that only a very small number of large businesses would run full nodes, with all regular users using light SPV nodes. In such a situation, there arises the potential concern that the full nodes could band together and all agree to cheat in some profitable fashion (eg. change the block reward, give themselves BTC). Light nodes would have no way of detecting this immediately. Of course, at least one honest full node would likely exist, and after a few hours information about the fraud would trickle out through channels like Reddit, but at that point it would be too late

Now, Vitalik is very well-researched. He absolutely, positively knows Bitcoin thin clients exist and are popular. Examples of Bitcoin thin clients include, Electrum, and Coinbase. users for example can do everything important inside their Web browser without having to download the full blockchain. Then, and only when necessary, communicates with a full blockchain located on a server somewhere. Does that sound like it threatens the lifeblood of Bitcoin?

No. The thin client model has been instrumental in making the most popular Bitcoin wallet in the world. Thin clients like make Bitcoin a lot easier to use, which greatly benefits Bitcoin adoption.

But wait a second, I thought Vitalik implied centralization was bad, and that it would destroy Bitcoin if we ever hit VISA popularity?  The blockchain is far less than 100 TB today. So what gives? Why are so many people using thin clients?

The fact that users prefer thin clients has everything to do with what users want in the real world. We all want enjoyable software. We want software that just works, and Bitcoin-QT doesn’t provide that experience.  This makes for an environment where the full Bitcoin blockchain is increasingly housed on servers, and communicated with on demand. That is the market’s natural response.

But what is a server? That sounds scary to me.

A server is just a PC running Ubuntu. It’s like your Windows PC, except it doesn’t feature a start screen and tons of bloatware and viruses.

As you might guess, storing the Bitcoin blockchain on a computer without the Windows 8 start screen and without viruses on it isn’t the end of the world. On the contrary, it’s the right thing to do.

When you combine the Bitcoin thin client model with multiAPIConsensus as in Counterparty, you have the makings of a safe and scalable distributed system that is just as ready for mass-adoption as

By the time it becomes cost-prohibitive for you to run a Bitcoin server (e.g. if Bitcoin hits VISA popularity), BTC will likely be trading for $100,000 each. Everyone with 10,000 BTC or more will be a billionaire. I think we’ll be able to manage just fine under those circumstances regardless of whether the blockchain is growing at 8 TB per year.

One more thing to consider is that even if Bitcoin killed all spammers, which is impossible, and we went back in time and destroyed Satoshi Dice before it ever spammed the network, which is also impossible, and we also killed Counterparty and Mastercoin and everyone else utilizing home field advantage, none of it would have anything to do with when or why the Bitcoin blockchain moved to the server. That would be happening regardless, because users prefer enjoyable software to full nodes. There’s no way to stop market forces from heading in that direction. Thin clients are a viable solution to Bitcoin scalability, and Counterparty makes extensive use of the thin client model.

And remember too, the Ethereum team is raising Bitcoin! Why would they be trying to raise thousands upon thousands of BTC up front if they were so sure BTC is screwed?

I’ll tell you why. A Bitcoin is valued higher than a Litecoin is valued higher than an Ether. BTC dividends are worth more than LTC dividends are worth more than ETH dividends. BTC stocks are worth more than ETH stocks. A BTC stock market is worth more than any other stock market.

Well, they want to get rich with no risk, same as mastercoin ceo mindset. If they really believe in their good idea, implement and release it just like satoshi, linus, and of course counterpartyd team.