Comment by serverholic | Hacker News Reader

Comment by serverholic | Hacker News Reader

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I think most of those problems are being worked on and have a very real chance of being solved.

Right now, on layer 2, you can transact for a $0.01 fee no matter the size of the transaction. I’m not a Visa expert but from what I understand they take a percentage of the transaction. Visa could lower their fees but I see that as a win-win. They faced competition and either way consumers win.

Granted if Eth exploded in popularity the fees would go up potentially 10x. However there are upgrades on the way to lower fees even further. Namely danksharding (excuse the silly name).

Things like UX, and fraudulent transactions are much harder. However UX can get better and there are actually things we can do about fraudulent transactions. A Visa competitor could build their own smart wallet where the financial institution has keys to the wallet as well as users. This would allow them to administer the wallet for the user similarly to current bank accounts.

A competitors could also create their own layer 2 which would only confirm transactions on the main ethereum network after X amount of time. This would allow the company to revert fraudulent transactions within that time window.

> on layer 2, you can transact for a $0.01 fee no matter the size of the transaction. I’m not a Visa expert but from what I understand they take a percentage of the transaction. Visa could lower their fees but I see that as a win-win

The competition is P2P interbank transfers, which are being rolled out to be free in the U.S. (And are free in Europe.) Credit card transactions come with additional perks for the consumer, like anti-fraud and rewards, which bias the coin. Someone not caring for those protections can, again, use interbank transfer.

Now try sending that money overseas. Depending on the countries and currencies involved you may be in for a world of pain (personal experience). It's great if you don't have that problem, but once you do you start to really see how arcane, bloated, and inefficient the current systems are.

Sure, anything is potentially possible but notice how often you had to describe things in uncertain future terms. If you are running a business, that sounds like “call me back when you can do this” — and in particular, consider that while Ethereum-based companies are spending large amounts of effort working around the architectural drawbacks of using a blockchain, everyone else is working on user-visible features.

Sure, by all means wait until these features are ready.

They’re not as uncertain as I made it sound though. Smart wallets already exist and layer 2’s exist where users can submit proof of fraud. Danksharding isn't going to take 8 years like proof of stake.

The biggest issue I see is building trust, which takes a lot of time. A smart wallet is great but it’s going to take years before the community trusts the builder of the wallet.

With that said, I do think crypto has a chance of offering things that the current financial institutions will find very difficult to compete with. I’d love to see Visa reduce their fees to a flat $0.01 per transaction but that that would massively reduce their profits.

Also, with a standardized financial API it opens the door to more competition in other areas. For example, a fairer and more transparent alternative to credit scores. Current credit score providers rely on the fact that their system is opaque. Competing with a transparent credit score would be very difficult.

The reason I’m so interested in crypto is the possibility of taking away power from these large institutions.

> With that said, I do think crypto has a chance of offering things that the current financial institutions will find very difficult to compete with. I’d love to see Visa reduce their fees to a flat $0.01 per transaction but that that would massively reduce their profits.

That's 60 times lower than Ethereum's transaction fee. Now, an L2 service could go lower but then they're taking on more risk which they'll want to be paid for and it's basically reinventing Venmo or Square Cash.

> Also, with a standardized financial API it opens the door to more competition in other areas. For example, a fairer and more transparent alternative to credit scores. Current credit score providers rely on the fact that their system is opaque. Competing with a transparent credit score would be very difficult.

There are two problems here. The most obvious is that it's at cross-purposes with privacy but the more subtle one is that as people build layers on top of the Ethereum network to compensate for design deficiencies, that transparency evaporates and you're left with the same need for individual companies to share data with each other and near-certainty that in the absence of regulation they will do so even when it's not in their customers' best interest.

I think it's important to understand that L2 is considered the future of Ethereum. So when we are talking about fees it's important to use the numbers that people will actually be paying in the future. Right now those are hovering around $0.10 and it's expected that danksharding will reduce those by a couple orders of magnitude in the near/mid term future.

IMO L2's are fundamentally better than Venmo and Square Cash. Firstly, they are much more transparent to the user. Switching to a different L2 is usually as simple as selecting an option from a dropdown in your wallet app. There are also protocols for allowing users to buy crypto straight on L2 without paying L1 fees and transferring from one L2 to another (for a small fee). Additionally, if an L2 goes down there are escape hatches that allow users to pull money out onto L1. The same cannot be said for Venmo or Square. This transparency also means users are less tied to a single provider. If I want to accept money on Venmo I have to sign up for a whole new app, vs selecting an L2 from a dropdown like I mentioned before.

Regarding credit scores and privacy, there is strong reason to believe that zero-knowledge proofs will be very useful here. These are much more cutting edge but zk-proofs allow people to prove things about themselves without giving away their private info. This could allow a privacy-respecting credit score where users can prove certain things about their financial history without giving everything away.

I will admit privacy is still very much a concern. The recent controversy over Tornado Cash proves that governments are not comfortable with total privacy. However, I will say that this isn't the first time the government has tried to stop cryptography. Originally, there were legal battles over public-key encryption when it was first invented but now we use it every day.

> Additionally, if an L2 goes down there are escape hatches that allow users to pull money out onto L1. The same cannot be said for Venmo or Square

Aren't venmo and cashapp FDIC insured?

They are but I’m saying that if their servers go down it might be some time before you get your money back.

You can use an L2 escape hatch at any time. The L2 doesn’t need to be online or functioning.

> Now, an L2 service could go lower but then they're taking on more risk which they'll want to be paid for and it's basically reinventing Venmo or Square Cash.

It feels like there is a subtle misunderstanding here: Credit cards are at least L2 systems, not L1. Physical cash, the foundational raw-unit-of-account layer most comparable to Bitcoin or Etherium, is the L1. Something like Venmo or Square Cash would be L3, built on top of the credit networks or electronic bank transfers which are themselves a layer of abstraction over transacting in cash.

You may not realize this, but credit bureaus are a way for lenders, who compete, to share anonyminized customer data amongst themselves. I don't see why the lenders would be willing to share this very valuable data to the whole world.

The bureaus are regulated because of their power but they were not created by the government but by the value to lenders to having a trusted third party to merge and reshare the customer data in a safe fashion.

And I would have to guess most people can master "understand your credit score" better than we can master "good ops sec for a 100K dollar private key"

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