Why SatoshiDice, Bitcoin’s biggest success, will eventually kill Bitcoin.
For the uninitiated, SatoshiDice is a Bitcoin gambling site described as a ”blockchain-based betting game,” accused of being a DDoS against Bitcoin by Luke-jr (notable for his fanatical devotion to “Tonal Bitcoin,” which as far as anyone can tell is actually a joke.) Users send an amount of their bitcoins to a SatoshiDice address, the “service” then determines whether the “bet” wins or loses, then returns a transaction with winnings or a fraction of the house winnings, since they’re such great guys.
The “bets” on SatoshiDice generate a tremendous volume of microtransactions (each bet takes two transactions to complete,) which spam up the Bitcoin network, and those who play SatoshiDice pay elevated transaction fees (which are, for the most part, ignored or not paid by many users,) and as a result SatoshiDice transactions receive priority when processed, forcing other transactions to wait for the next block. SatoshiDice transactions account for most of the content of the blocks generated now and its transactions filling blocks helped contribute to the blockchain fork, which caused chaos and allowed someone to perform the infamous double-spend attack. This problem has been known for at least a year yet nothing was done to patch or prevent SatoshiDice from forking Bitcoin.
The chart below illustrates the damage SatoshiDice does to Bitcoin.
The vast majority of the blue markers are SatoshiDice and because they pay the transaction fee, they have priority over normal transactions and are effectively choking out the rest of the economy and causing long delays in confirmations.
SatoshiDice has an allegedly legitimate purpose (online gambling,) but it appears to be much more effective as a stress test for the Bitcoin network. It’s exposed a major fundamental flaw in the scalability of Bitcoin and instead of addressing this flaw, many Bitcoiners would rather continue using the version of their software that contains a bug and try to find a way to block or filter out SatoshiDice transactions. Of course moving to the new software would further bloat the blockchain, leading to users having to download gigabyte upon gigabyte of ultimately useless information to trade their ones and zeros.
Ultimately, the SatoshiDice situation and yesterday’s hilariously panicky fork prove that Bitcoin simply cannot function as a legitimately useful currency. If the system chokes on 1,700 transactions and has trouble processing more than 70,000 in a day, how can it compete with existing systems that handle hundreds of millions of payments each day?