Bitcoin the Problem and Solution
Bitcoin is an incredible invention and with minor modifications to increase usage, it can be made one of the most valuable applications invented.
The problem with bitcoin is the need for applications that cause bitcoin to be used and circulated without blowing up the blockchain.
Money has NO value unless circulated. As example, if I create my own coin and mint $1 in my mind, and put it in a vault, what value does it have for you? That is the extreme case, but technically that is what the vast majority of bitcoin holders do, that is, horde their bitcoin.
Now if I take my imaginary $1 coin and you and I start trading our services, as example, you wash my windows for my coin. We have agreed the value of the coin is $1 as long as we both accept in the future you can use that coin to buy $1 of service from me such as cleaning your tub. We must “circulate” the coin between us to create trade value.
I am not going to go into a lot of detail about the value of the $1 coin but I will demonstrate the problem with a centralized coin. If all of a sudden I minted many, then when you returned to trade back, I did not want the coin because I already have many. This causes inflation to occur; because you need a lot more coins to get me to clean your tub. The concept of bitcoin decentralized limited creation is actually deflationary and eventually the coin will increase in value.
But once again, unless bitcoin is circulating, it cannot have value. The problem is, the current main circulation is between people as a curiosity and perceived value, but because of hording, there is questionable value, especially for outsiders looking at the trade.
The second problem is the purist idea that Bitcoin should only be a coin and they do not want others trying to create applications that store information in the blockchain. This information will bloat the blocks and make it unusable for the world because miners will not want to keep or be able to keep all the data of the blockchain on their computer.
The problem with the purist is the hope that people will circulate the coin as a coin only, and that has proven not to be true. The argument of bloat is true but only to a limited extent. This is why there is continued discussion on the block size. People want to store other things that make the blockchain a useful product but still using the escrow features of bitcoin.
Eventually miners need to have transactions for fees to keep them in the game. Once all the coins are created, only fees will keep miners going. The interesting point is, in the beginning the few miners have the power to earn bitcoins from mining but in the future miners will be many with lower processing power needed to mine the fees. Therefore, to make the miners work there must be MANY times more transactions than current today.
The solution to circulation is simple and already exists in the blockchain with minor modifications needed over time. The OP_RETURN is the solution because the data can be the hash for the asset. Because it is provable not spendable, it does not impact transactions and only adds 40-80 bytes to the block in the blockchain. Really it adds no more storage because it just replaces other needed data if it were a spendable transaction.
Because bitcoin addresses are technically infinite, the number of verified documents / assets that can be stored OFF the blockchain are infinite.
Now the blockchain has value, because it has an application that will cause circulation. The problem is the OP_RETURN bloats the blocks without adding value to the coin.
The solution is to make the creation of an OP_RETURN REQUIRE the creation of another new bitcoin transaction or change that exceeds a value say 0.001 BTC. Eventually, the amount could be say the current value of $1 or other value agreed by supply and demand. The satoshi number would have to go down in time, as the value of bitcoin goes up, or the OP_RETURN would become too expensive to create for the average person because of the eventual increase in miner fees.
Now we have the best of both worlds, an application that causes circulation without excessive blockchain bloat, and guaranteed money to the miner because funds would need to be transferred to create the provable not spendable OP_RETURN resulting in fees. If the change was less than 0.001 bitcoin (or agreed value for an OP_RETURN) the change would become a fee and the miners would eventually compete for fees.
There is a known cost for this because each transaction would include miner fees that would eventually spend value. Even if sending funds back as change, the change becomes smaller and smaller and new OP_RETURN’s could not be created without paying for new coins to do OP_RETURN’s or sacrificing the change for a fee. People would keep the wallet full to avoid losing the change.
As the cost of an OP_RETURN scales, you could associate the value of bitcoin based on what people are willing to pay in miner’s fees for the OP_RETURN and have sufficient bitcoin in the wallet to do the transaction such as 0.001 bitcoin.
If you read my original paper of HlyGrail at http://hlygrail.com you will see everything can be stored using the blockchain for pointers to the information. Interestingly the blockchain could be stored outside the blockchain and pointed to by the blockchain.
The algorithm for HlyGrail can work on any blockchain technology such as litecoin or other alt coins provided that digital currency has an OP_RETURN function, or similar, to Bitcoin.
Originally mentioned and covered by:
HlyGrail Patent / Copyright Number 18hsnexG7KGUBtKgYnCS2Zyg59V5CsBPAt
HlyGrail Patent / Copyright Number 187ckcgWJWfa82mD4nrNLxUChtX5QJCg12