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It seems that one of the strengths of Bitcoin is the ability to send tiny amounts across the globe. If we keep thinking in USD or EUR, we'll wipe out micro transactions altogether (less than 100 satoshi).

So will transaction fees eventually put a lower bound on how small of a transaction can be sent?

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    This is actually a subject of dispute. A lot of people (including myself) believe that the Bitcoin block chain is spectacularly bad for microtransactions -- largely because every server has to hold every transaction more or less forever. – David Schwartz May 16 '12 at 3:53
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    See also bitcointalk.org/index.php?topic=80435.0 – ripper234 May 16 '12 at 7:41
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A change to the 500KB per-block limit can be done with updating the client without causing a fork, but that only goes up to a 1M block size. To exceed that 1M limit would require a hard fork and thus it is possible when that limit approached, a larger limit might never happen.

Bitcoin could hit those limits before really even "taking off" even.

Bitcoin was never architected to be a microtransaction system. It works fine as one for now but eventually that use might no longer be feasible.

There are currently methods to use bitcoins for microtransactions without touching the blockchain. For example, Mt. Gox BTC redeemable codes have no fee (currently) and could be used, presumably, for microtransactions. Various approaches will solve the microtransactions problem better than Bitcoin does.

In the meantime, businesses that do use microtransactions can get off the ground by taking advantage of the fact that Bitcoin's is still well below the per-block capacity limit and thus microtransactions are nearly free.

Build a customer base in a market today, solve the technical problems tomorrow.

With Satoshi Dice's growth, for instance, there might soon be enough demand to launch a alternate blockchain for its microtransactions with properties that are useful for that special case.

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There is a tradeoff between how cheap it is to send a transaction, and how expensive it is to run a full network node. With the current 1MB per block limit transactions will eventually be expensive, if it is relaxed they can be made cheaper.

If transactions do end up expensive, a variety of layers on top of Bitcoin can be used to facilitate microtransaction, such as OpenTransactions and Ripple, and arguably Bitcoin will form a stronger foundation for those than traditional currencies.

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Because all transactions must be stored by clients, microtransactions will probably never be practical for Bitcoin, because this will cause the blockchain to take up too much space. It's hard for me to imagine a P2P cryptocurrency that could solve this problem, because it'll still be inherently limited by how many transactions can be stored by clients.

Probabilistic nanopayments are one way to solve this problem without modifications to the Bitcoin protocol.

  • It would make sense if the number of clients that needed to store a transaction was proportional to the value of the transaction. This way not all transactions would need to be stored by all clients. Admittedly, it would almost certainly require a change to the protocol; I don't know for sure if it could be workable... – Highly Irregular Aug 8 '13 at 8:42
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There is a limit on how many free transactions can be processed, and once (if) that limit is reached it's likely users will pay a relatively small transaction fee to get higher priority than micro transactions.

But how much value is there in processing micro transactions?

If demand for Bitcoin transactions gets that high, and someone sees enough value in processing micro-transactions, then my guess would be that either modifications would be made to the Bitcoin system (perhaps less likely) or an alternative crypto currency could be designed to meet the need (more likely).

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