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Comment by epistasis | Hacker News Reader

This is a faith-based assertion, when data is needed. I am heartily skeptical that, were Bitcoin economy as big as the US dollar economy, that it could ever be as efficient as our system of middle-men, paper forms, etc. US Dollars extract transaction-based fees, whereas Bitcoin extracts continuous make-work in order to maintain consistent value. Say credit cards take a 1% fee on a transaction. At $150,000 per day, and a $2 billion market cap, the overhead is a little over 2.5% per year for Bitcoin. (Not that I think these numbers are completely solid, I'm just going off the best estimates available right now. Also, I'm not an economist, I'm just throwing together a napkin-calculation. Critique away!)

Some things are very amenable to solving with technology. Other things are more amenable to solving with people. Only data will tell for sure.

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Interestingly, the original Bitcoin paper opened by addressing exactly these concerns: the origin of transaction costs in current payment systems consisting of middle-men (central trusted parties, in more charitable terms), paper forms, etc.

While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non reversible payments for nonreversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable.

http://bitcoin.org/bitcoin.pdf

The emphasis on supporting small casual transactions seems to have created a number of problems for the bitcoin infrastructure. Mt. Gox charges a small % for transactions (rather than a flat fee), a by product of this is it allows people to flood the exchange with a ton of micro transactions without any additional penalty for the volume of orders. Seems like this could be part of the reason they have been having issues.

Doesn't this also impact the block chain in some way? A ton of small transactions can flood the chain, requiring more computational energy to be spent than the transactions are actually even worth.

MtGox can currently process about 1 trade per second, which is utterly pathetic... https://bitcointalk.org/index.php?topic=174598.0

It is like 37 trades pers sec max which is still pathetic.

http://www.reddit.com/r/Bitcoin/comments/1cc72b/the_maximum_...

I'll also admit ignorance here, but it doesn't seem valid to compare overhead as percent of transaction vs overhead as percent of market cap.

Current estimated USD Transaction Volume is ~$70 Million per day[1], so the transaction fees needed to sustain the $150k per day electricity overhead would be ~0.2%.

All of the parameters in this calculation are in high flux of course (and we're not including total cost to mine here, just electricity), but when I've run this same calculation in the past at various times I've gotten similar results.

Note also that mining is profitable enough due to new coin creation that transaction fees in practice are much smaller than this for now (average ~0.01%), but coin creation will gradually taper off over the years.

1] http://blockchain.info/charts/estimated-transaction-volume-u...

Making up statistics out of thin air doesn't help anyone. Credit cards charge more than double what you speculate. Neither you nor I have the data necessary to calculate real numbers. The important point is we shouldn't assume Bitcoin is worse just because the waste is more obvious and/or less socially acceptable.

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