I want BTC to be usable as a currency.

• The Currency app requires nearly instantaneous confirmation of each transaction.

• It is not the case that the existing Bitcoin system provides nearly instantaneous confirmation for each transaction.

• Therefore, the existing Bitcoin system is not the Currency app.

Fortunately, the existing Bitcoin system's capabilities are probably enough to allow for simulating the Currrency app to a nearly arbitrary degree of accuracy; the existing system forms a self-contained, coherent protocol for settlement on which another, higher-level protocol can be built to provide to BTC the properties of currency.

This is not a competing vision; this is not a re-imagining of Bitcoin.

BTC is a unit of account. Bitcoin is a settlement layer. The Lightning Network is a currency layer built on top of Bitcoin; the Lightning Network turns BTC into a currency.

Currency is but one app that can be developed on top of a settlement system; Bitcoin as a settlement layer has been discussed since the dawn of Bitcoin.

• Satoshi on 30 September 2010:

  As you figured out, the root problem is we shouldn't be counting or spending transactions until they have at least 1 confirmation. 0/unconfirmed transactions are very much second class citizens. At most, they are advice that something has been received, but counting them as balance or spending them is premature.

  That is, your transaction doesn't mean much until the Bitcoin network begins to settle it in the blockchain.

  Since early on, people were discussing all manner of ways to make confirmations faster, including changing the rate at which blocks are confirmed; people realized that waiting for settlement wasn't going to work well for using BTC as a currency.

• Hal Finney on 30 December 2010 (he was the first person to receive a transaction from Satoshi):

  Actually there is a very good reason for Bitcoin-backed banks to exist, issuing their own digital cash currency, redeemable for bitcoins. Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the block chain. There needs to be a secondary level of payment systems which is lighter weight and more efficient. Likewise, the time needed for Bitcoin transactions to finalize will be impractical for medium to large value purchases.

  Bitcoin backed banks will solve these problems. They can work like banks did before nationalization of currency. Different banks can have different policies, some more aggressive, some more conservative. Some would be fractional reserve while others may be 100% Bitcoin backed. Interest rates may vary. Cash from some banks may trade at a discount to that from others.

  George Selgin has worked out the theory of competitive free banking in detail, and he argues that such a system would be stable, inflation resistant and self-regulating.

  I believe this will be the ultimate fate of Bitcoin, to be the "high-powered money" that serves as a reserve currency for banks that issue their own digital cash. Most Bitcoin transactions will occur between banks, to settle net transfers. Bitcoin transactions by private individuals will be as rare as... well, as Bitcoin based purchases are today.

• hashcoin on 04 July 2011 described what became known as a 'payment channel', the fundamental protocol on which the Lightning Network is built:

  In general long-term business relationships can agree to just "settle it in the blockchain later", but still do it in a way that neither can screw the other.

  ...

  In this scheme, money is tied up, but still cannot be spent by the other party without authorization from you. On the other hand, you can provide that authorization to them instantly offline of the blockchain.

Whether or not you call the whole functioning ecosystem 'Bitcoin', the fact remains: There must be a settlement layer, and there must be a currency layer built on top of that settlement layer.

We've got the settlement layer working pretty damn well. Now, we're working on the layer that will provide cheap, high-volume, instantaneous confirmation for transactions that represent usage of BTC as a currency.

Submitted February 26, 2016 at 01:51AM by jensuth http://bit.ly/1S48VwJ