Bitcoin is a protocol which can be built on top of.
Bitcoin is not the end-all be-all to its own functionality.
Services can be created on top of the Bitcoin protocol which provide instant transactions necessary for different types of commerce.
We need to stop thinking of Bitcoin itself as the "whole package".
It is a foundational layer like TCP/IP. On top of that layer, you've got Ebay, Monster, Esurance, Napster (lol)...etc
On top of Bitcoin you've already got MasterCoin Foundation, Gyft, and even insurance services guaranteeing the security of your wallets.
Much more is coming.
-B-
Bitcoin is supposed to be a currency controlled by predefined algorithms, the rational behind using bitcoin is that traditional fiat currencies are getting devalued by governments and gold is hard to verify and transport.
if by services created over bitcoin to provide instant payment you mean a third party company that clears transactions then we might as well just use fiat money, because this clearing company can now print bitcoins out of thin air just like banks do today.
if the transaction is not processed and verified on the blockchain there is no point in using bitcoin
No. This would not require or imply "printing Bitcoins out of thin air".
Not only is that impossible, but that's not how the service would work.
They would more likely hold a stash of coins and enable immediate transaction within a system they've built.
if the transaction is not processed and verified on the blockchain there is no point in using bitcoin.
Coinbase operates outside the blockchain for many of their transactions.
They are not an exchange, but moreso a broker. They purchase in bulk ahead of time, and sell at their own prices.
This enables additional features like (surprise) immediate availability of BTC purchases, before they've even taken the money out of your bank account (a process that takes 3-5 business days).
If your point is that it "could have been coded better for microtransactions" ? I think everyone already agrees.
If your point is that Bitcoin is one big fail because it wasn't .. thats not rational.
"Might as well just use fiat"
That doesn't make any sense. Why would all of Bitcoins benefits be nullified simply because certain aspects work better with 3rd party services built on top?
In the future Bitcoin is going to be 1% Bitcoin Protocol 99% 3rd party services built on top of it / latched into it.
Even for the things it already does well. Just to add 100 more perks on top.
-B-