So how would you fix the scalability issues of BTC?
I think Bitcoin is already perfectly capable of scaling up. Here's one half-baked idea for how to do it:http://gavintech.blogspot.com/2012/07/off-chain-transactions.html (pasted below to save you a click):
The problem: is there a safe and secure way to make Bitcoin transactions without relying on the block-chain but, instead, relying on some semi-trusted third-party?
If there is, then Bitcoin is more easily scalable; most transactions could happen off the block chain, with in-the-block-chain transactions happening every once in a while to "settle up" off-chain transactions.
So here is the half-baked idea:
Use multisignature transactions to split the ownership of some bitcoin value between a customer (lets call her Alice) and a transaction service (lets call it "Joe's UltraTransactions" -- Ultra for short).
Alice deposits 100 bitcoins into her Ultra wallet, and what actually happens behind the scenes is Alice's software generates a new keypair, gets a public key from Ultra, and coins are sent into a 2-of-2 transaction.
Alice withdrawing the bitcoins (getting them out of the UltraTransaction system) is the boring case-- she'd generate a transaction, sign her half, then ask Ultra to sign the other half (and there would be some sort of authentication check-- maybe Ultra sends Alice an SMS to approve the withdrawal).
Now Alice wants to pay Bob 10BTC, who also happens to be an UltraTransaction customer. This is where things could get interesting.
Instead of generating a block-chain transaction, Alice could just give Bob her private key. Both Alice and Bob would sign a message with the private key saying "Alice is sending 10 bitcoins to Bob; she's given him the private key that she generated." Bob would send the message to Ultra, which would send Alice an SMS to make sure she approves, and then any withdrawal involving those 10 bitcoins associated with that private key would require Bob's authorization instead of Alice's.
Alice would still know the private key, but won't be able to spend what is now Bob's money (Ultra would only let her send/withdraw 90 of the 100 bitcoin tied up with that private key).
Ultra is only semi-trusted; it never has the private key, so can't spend the coins without either Alice or Bob's aproval. Joe can't decide to run off with everybody's coins when the Ultra wallet is worth a few million dollars.
Alice and Bob do have to trust that Ultra keeps track of who owns what accurately, and that Ultra will be around to sign it's half of the transaction when they want to withdraw some coin. And Bob has to trust that Alice did generate the private key, didn't share it with Ultra, and isn't actually Joe trying to trick him.
That's quite a lot of trust required, but the ability to instantly transfer value between Ultra customers with zero Bitcoin-block-chain transaction fees might outweigh the risks. And there are probably variations on this idea that would minimize trust in Ultra (maybe there's a semi-trusted service that Ultra pays to keep offline, "use-only-if-we-go-out-of-business" backups of their private keys).
And it scales beautifully; one UltraTransaction server cluster could easily handle hundreds or thousands of transactions per second, and you could imagine companies popping up all over the world, handling most transactions outside the blockchain.