Why I'm Interested in Bitcoin
cdixon.org
cdixon.org
Those two transactions will have associated costs. Exchanges take out trading fees and the market makers on the exchanges will want to see some profit as well (you will see this reflected in the bid/ask spread). The total cost for the transaction will be 2x the spread + exchange fees. People keep touting the 2.5% charge for using credit cards, but they don't compare it to a similar value for bitcoin. It clearly is not 0%. Exchange fees alone are can be something like 0.5%. If we double that (two conversions, remember) that's 1% just in exchange fees. Unfortunately, I don't have good numbers for bitcoin / dollar spreads because I don't watch that market very closely.
So we have 2.5% for credit cards and 1% + spread (unknown) for bitcoin. And with credit cards consumers at least get some protection in the case of fraud. Does anyone else have a better model for bitcoin transaction costs?
But ultimately smarter people than me will figure out the right model. That's the beauty of software platforms.
1) You say "You'll converts to and from USD occasionally but not on every transaction" . Sure you wouldn't need to exchange on every transaction, but when you do the conversion, the 1% applies to $ amount not the number of transactions. So if I convert $200 into BTC, I pay the 1% (+ exchange spread) on $200. It doesn't really matter if I do this over 1 transaction or many small ones. Am I missing something here? Are BTC transactions really cheaper?
2) Whats the actual advantage for the average consumer to pay with BTC? Do you see merchants offering discounts if you pay them with BTC? If not, whats the mechanism that compels me, the average consumer, to pay with BTC over say Visa?
It's also worth noting that many of the exchanges have fees that get lower if you trade larger amounts in a given time frame. If you're a high volume trader, the difference can be significant.
I think I have read that if you are a merchant and establish a merchant account that you can get the first 1 Million Dollars (USD) free of fees. I am not sure what bar you must pass to earn merchant status, but I do have a link[1] to back this up. Presumably it's not more complicated than "accept payments for services" -- you could probably fudge it if you were simply in the business of cashing out bitcoins up to $1M. I haven't looked into it further because I'm not a merchant and I have been more interested in buying than selling at Coinbase.
Are the Chinese exchanges still bringing money in and out? I thought I read this was forbidden, and that was the reason for the great dump of $1000USD prices a few weeks back.
[1]: http://blog.coinbase.com/post/59417545262/your-first-1-000-0...
The main thing that happened a few weeks ago was that 3rd party processors were forbidden from dealing with bitcoin. The transfers from banks to exchanges were handled by 3rd party processors, so for a few days there was no way to get money into the exchanges.
The Chinese exchanges are then adopting the practice of Coinbase, the situation sounds much the same (Coinbase initiates ACH transactions with your bank and makes you wait the 5 days until it clears to actually receive and withdraw your Bitcoins.) Mt.Gox works the same way now, except last I heard their Japanese bank was limiting them to some absurdly low number of ACH transactions to USA, like on the order of a maximum of 10 per week. Coinbase, being a US company with their choice of banks, obviously does not have this restriction.
I don't keep my savings in cash, but I can withdraw as much cash as I could reasonably want at zero cost from my bank. How can I do this (i.e., USD->spending money conversion for free) with Bitcoin?
Also, are you making an assumption that the volatility of Bitcoin<->USD will go away at some point in the future? If that happens, keeping Bitcoin around instead of USD will become reasonable.
> But ultimately smarter people than me will figure out the right model. That's the beauty of software platforms.
Sounds like wishy-washy thinking which I hear a lot of from bitcoin advocates.
And once you are over a certain amount, the government finds out.
Besides the obvious problem of the volatile exchange rate there is just no trust in any of the Bitcoin institutions, if I can't trust anyone else to manage my Bitcoins I need to do it myself. I can do that, but it takes time and effort to maintain secure systems. The real kicker is if something goes wrong, its my problem. If someone hacks my netbanking details the bank will cover my losses.
So what does Bitcoin offer? it opens up transactions that would have otherwise been too risky. Irreversible electronic transactions are Bitcoins niche. However that fact makes it very difficult to acquire Bitcoins with reversible payment methods. This slows down the process of entering and exiting the Bitcoin market leaving you vulnerable to the volatile exchange rate.
I really want Bitcoin to succeed but at this stage there is no way I would use Bitcoin for a transaction unless it was the only option.
Bitcoin allows a merchant to recognizing a transaction without considering fraud/KYC. I've sold items on a forum with an escrow moderator and paid 0% in fees. You just cant do that with paypal.
Good to hear you using Bitcoins for something other than dark markets, we should try to brainstorm other niches where Bitcoin has an edge. I think taxi drivers might warm to it, they definitely hate credit cards.
Let's say you accidentally type in the wrong BSB (which my father actually did once) and it happens to line up with an account number in that bank (fortunately for him it did not). Even if you send say, $150,000 to that person....it's not legal for that person to accept it. Nor spend it.
See, while they could claim to have spent a portion of it unknowingly the courts would probably view that as fair, they couldn't go "hey I'm rich!" and buy a house that they would be allowed to keep.
I mean, you might not get all the 150k back in the end, but they would definitely not be keeping any of it. And through this process, you'd generally find your bank would be fairly enthusiastic about getting that money back, since as long as it's not on their ledgers they can't lend against it.
I'm interested in Bitcoin because of its stated goal to disrupt the banking system. Banks suck.
Maybe this is an issue for you
Are you a US citizen, or a resident of one of the Five Eyes countries? If so, it's an issue for you whether you like it or not. You commit crimes all the time without knowing it, just like the rest of us do. Your government wouldn't have it any other way.
BTC is no different. In fact, all transactions are public in BTC due to the nature of the public crypto system.
In what cases will bitcoin be better for small transactions online than a credit card? I'm at a loss for examples.
To pay online right now, you have to decide: 1) do I trust this vendor 2) do I want to fill out this form with all my info
Generally this (plus transaction fees) only make sense for transactions above $10.
The vendor responds by trying to build a relationship with you- by building brand trust and by pushing you toward an ongoing relationship (recurring payments, creating an account etc). This is why "cards on file" is considered a major business asset online.
As a result, any online service that doesn't make the cut is forced to resort to an advertising based business model.
You can see this with the tipping culture on Reddit. It's helped Dogecoin really take off, because it's pretty trivial to send a small, casual payment to someone.
Also, this exposes you to crazy risk because of price fluctuation. Bitcoin has fluctuated over 3% today, and today is a relatively flat day for it.
Or as I like to put it: why do you think you should get wealthy for doing literally nothing? Not investing, not loading, not accepting any risk, not working?
You are not getting wealthy for nothing, you get wealthy for restraining your consumption, which is major problem of todays world, trust me im homeless(for proof can check me on youtube channel AngriestCat) and amounts of good food i find in supermarket trash is ridiculous.
But wealth in a deflationary currency does.
The rest of your argument about curtailing consumption is an irrelevant tangent here.
My point with computers was that hording currency will not affect the markets, same as computer market is not crashing because everyone is waiting for better computer for same price next year! Essential expences must be done and environment factor comes in and is important, because inflation currency lose value all time so big merchant is less afraid to just stock himself with huge amounts of items, even they get outdated he still will make profit selling them cheaper, compared to if he had just stored value in cash and lost that value to inflation.
The time-computing-cost output of a given computer decreases with each new model released. Each new model of CPU does more calculations using less power, or does more calculations over a previously unobtainable timespan.
Your computer, sitting in front of you, does the same, but the amount you spent on it, it now does less.
Computers are massively inflationary - it's why people only buy them when they absolutely need them. It's why you have 1, not 20 as an investment. It's why the second hand market for PCs is terrible - because they're worth far less each month after you buy them then they are new from a manufacturer who is constantly producing more.
And of course more importantly to all of this: computers have value! They do things! They produce value for people by owning them. "Money" does not. Just having it does absolutely nothing!
If a currency is deflationary, there's no point to investment - investment is risky, whereas simply holding it gives it more value (this presumes a stable store of value and no alternative currencies).
This tanks economic growth, because beyond a certain quantity of wealth your savings appreciate in value faster then you need to spend them to stay alive. Whereas below a certain value of wealth, no matter how hard you work or how much you save, you will never reach that point - because you have to reduce your savings to buy the necessities of life.
Of course, its not a stable situation because the economy that goes into a deflationary spiral soon collapses, the rich get murdered, and everyone moves back into a currency which supports a proper debt-system and doesn't doom people to servitude for an actual idle rich.
Even it is true inflation pumps nonstop growth of economy - it is not practicaly possible to depend on nonstop growth or die. Hence all the crisis and ridiculousness in current economies.
There is no difference if rich people are idle because they have stocks or because they have currency. That is what richness is about - the lack of need.
Ofcourse bitcoin or other similar currency wont solve all the problems, but it is a better version of currency than the curent one for sure!
Taking things a bit further, we are optimistic about bitcoin as a payment form with our suppliers as the volatility stabilises. As an example, one of our suppliers is Belgium based and we'd be able to save on the currency exchange with those payments. We've discussed it and they didn't turn their nose up to the idea.
We do educate how the currency functions and the risks there may be.
So VISA can be thought of as a Protocol. Wether I'm a VISA Debit or Credit user doesn't really matter. I give money to my Bank, the Processor is going to (indirectly) get USD for my transactions. Then they're going to take a cut and give the money to a Merchant Bank, who in turn credits the Merchant.
So what if there was a "BTCP" Card that ran on the Bitcoin protocol? I see something I want priced in USD. I want to give them USD. My bank has issued me a BTCP card. So I ring up the charge. The bank sends the money to the Merchant Bank. Without a Processor. Merchants still carry an escrow with their bank for "chargebacks" and fraud. The two banks can sort out the rest of the details between themselves.
The Exchange price doesn't really matter. The Bank deals in USD. They can just agree to peg their debits/credits against the daily value of BTC. Or a Satoshi. Or whatever. It doesn't really matter since it's not like you're forced to sell your Bitcoin holdings at a particular offer price. You can send it to whomever you want for whatever you want.
So even if Bitcoin doesn't find success in replacing Paypal (and I think there's a good chance it will), the truly disruptive idea is that it's a simple standard that could replace Processors. (Though wow, that would be the fight of the century and I'm not sure I'd bet on the scrappy little guy there.)
Bitcoin isn't the missing piece of this puzzle. In fact I suspect Bitcoin would be an obstacle, due to lack of public confidence.
Credit cards are an incredible business for VISA etc. I agree with the article that circumventing it in some way, esp for micro-transactions, would be great. They probably should stop gouging, to deflate interest in alternatives.
It's a pity the press for bitcoin all bubble and crime. OTOH it is press, and niche adoption works.
I'm seeing a lot of parallels between dotcom era payment systems like PayPal and even Flooz. Paypal's original concept was paying friends for things like splitting lunch.
The hook that's different here is that once you deposit legal tender and covert to bitcoin, you're basically trading something that is commodity-like. Basically, it's no different than bartering shares of gold.
My question is, when the regulatory system catches up, is bitcoin better than a commodity?
I don't think most people are interested in Bitcoin primarily because of the utility it currently provides and the infrastructure that has so far been built.
There is merit to the system, but a lot of people just don't care.
At any rate, there need not be any point to what I'm saying. Sometimes, a comment is just a comment.
Before you get too gleeful though, I would wager only a small percentage of people who have ever bought Bitcoins have sustained a loss as of today. Besides, there's nothing wrong with putting money behind a technology and then reaping either a gain or a loss based on how successful it becomes.
My actual point was that you can't look at what the fee structure / usability / etc is today and conclude there's nothing useful there.
This is especially true with the more common argument of, "Sure, I can see why someone would find it mildly useful for use a, b, or c; but I don't think it's useful today for more mainstream purpose x, y, or z, so I think it's worthless." Especially when (so far) the abc list keeps growing and the xyz list keeps shrinking. I'm not sure where that trajectory ends, but I personally think there's a lot of interesting problems that will be solved with crypto-currency.
So while Bitcoin's transaction fees may not be zero, it does seem like it's trending towards zero, much like the price of everything else on the web trends towards zero.
The reality is this: Most of that money gets passed back to consumers via rewards, benefits and consumer protections.
It's not a tax so much as an incentive for consumers to keep using their cards. And so it is considerably harder to come up with an alternative that is appealing to merchants without taking anything away from consumers.
For example, the interchange on a Visa rewards card for a typical brick-and-mortar retailer is about 1.5 - 1.65%. (Processors mark that up, but that's the "wholesale" fee that goes to the card issuer.) But many rewards cards pay out at least 1% cashback, on top of other benefits. That leaves a much smaller margin to compete over.
And remember, a new competitive option faces massive rollout and adoption costs that the entrenched system does not. Even the acts of changing behavior, upgrading POS systems and training staff are adoption costs. So your new alternative has to offer significant benefits for both merchants and consumers. Significant enough to overcome adoption costs.
Oh, and there's one more thing: debit card interchange just got regulated down to almost nothing (0.05% + 21 cents) by the Durbin amendment. So there already is an alternative, low-fee option that merchants can steer consumers toward and that they already support fully. So that pretty much takes out the opportunity to offer a lower-fee, lower-consumer-benefit option. That already exists now.
That leaves what? A higher-consumer-benefit option? Why would merchants adopt that? A same-benefit option but at a lower cost? But how much lower would the cost be while still matching 1-2% cashback reward programs and whatnot?
But.. but.. LOOK AT ALL THAT MONEY. :-)
(Btw, the digital cash for micropayments and garage sales and whatnot does sound interesting to me. My criticism is limited to the project of competing with Visa/Mastercard/banks.)
I agree with you that not all the $500Bn is going directly into the pockets of shareholders, but the reality is that there is a huge transaction cost in taking a clip and then passing part of it back to a consumer. However much is lost in the process, it might not be $500Bn but it is definitely a lot of money, and it is unnecessary.
There are a lot of arguments as to why merchants won't adopt Bitcoin for payments, the main one being that they actually need most of the features of modern finance that these companies charge for. The fees though are definitely an argument for Bitcoin, and not against.
Visa has $10.4 billion in revenue off of processing $4.4 trillion in transactions; that seems to make the credit card tax a mere 0.2%, which is off by an order of magnitude from the conventional-wisdom "credit card tax". Where does this mis-match come from? Is the revenue hidden, and Visa is taking in a few hundred billion in revenue? Or is the revenue potential just much smaller than conventional wisdom says? (eg, the 2-3% and $X trillion come from different classes of transactions, and shouldn't be combined.)
According to their annual reports, Chase, Bank of America, Citicorp, and Wells Fargo had a combined $15.3 billion in card services revenue/card fees.
If you add that to the $7.4 billion in revenue from Mastercard, $10.4 billion in revenue from Visa, and $27 billion in non-interest revenue from American Express (of which $17 billion was "discount fees", which I think means cash-back), you're up to $60 billion dollars.
I feel comfortable going from $60 billion to $100 billion just extrapolating from the top companies to the rest of the industry.
Any guesses on where the extra $400 billion is going?
The question is whether consumers will adopt it.. for more than the cases where anonymity is paramount. As it stands cards offer much better protections and benefits than cash, which is where most of the high fees go.
Not 100% of it -- networks and banks still do make money on the system. But the opportunity is much smaller than the gross processing fee would suggest. Between one and two orders of magnitude smaller. And when compared with the adoption and rollout costs of a new system, it's far less of a compelling case than cd's essay might suggest.
That said, I agree with you that the digital cash / new behaviors are the most interesting part of Bitcoin. Just much harder to explain.
Another consideration: whether the entrenched players can simply make minor adjustments to counter that threat. For example, take your first point, filling out forms. It used to be you always had to do it. Then contactless payments took off in Asia. There was all this buzz about NFC and how it was going to disrupt the system and mobile carriers were going to get involved and so forth. So what did Visa/Mastercard do? They just relaxed the rules so that swipes under a certain amount don't require a signature. Poof, there goes the opportunity, because there's no way the cost of an NFC rollout is worth the extremely minor difference between a swipe and a tap. (Go ask Google Wallet.)
And so it goes for most of the technical issues, I think. Trust and security too.. you could make it easier on the merchant, but at the same time harder for consumers to recover funds if they "did something wrong" like installed malware.
Excited about the new frontiers into digital cash though. And also scared too. The biggest use case for bitcoin right now is not payments. It's international money transfers that skirt capital flight controls. And, for us non-libertarians, it ought to be a big concern. It's a profoundly anti-democratic force. It gives the wealthy minorities (esp. in third world countries) a veto power over policy. Don't like some new environmental or safety laws, or higher taxes to fund public education and health? Just transfer capital out of the country and watch it wither.
Pretty much all my local merchants have machines that accept NFC payment taps - to the extent that the Commonwealth Bank has an app for the Galaxy S4 which will emulate a debit card tap and be accepted by any machine.
The only time I end up keying a pin or signing is usually when the staff themselves don't realize that I can just tap my card (the machines have big NFC icons on them, but they don't offer the machine to me to tap).
Also in Australia I've not seen swipe without PIN used very much - a swipe usually requires a pin, whereas tap does not (and is also a lot faster).
It's interesting you mention Australia because they've taken a different approach to the fee issue. They regulated it away. Cards cost merchants very little. Didn't need bitcoin to do it, just passed a law.
Also interesting: it did not result in a lowering of consumer prices. The merchants kept the windfall.
Visa and First Data each make >$10B/year revenue, which is already 0.2% of US GDP, and none of that money goes toward cardholder rewards.
Just to define these terms for our fair readers:
Interchange is the cut that goes to the bank that issued the consumer's card. That is standard and you can see Visa's rates here: http://usa.visa.com/merchants/operations/interchange_rates.h... Processors are the entities that connect merchants to the card network. (These are often also banks, or another org working with a bank.) One of the most important things they do apart from that technical function is vouch for their merchants. They guarantee that consumers are protected from bad behavior on the part of their merchants, like selling counterfeit goods or running tons of fraudulent cards. So that's why it's often a pain to get a merchant account, and why easier-to-get merchant accounts have higher rates (because they have more fraud).
So, yes, processor markup varies. But we don't need a new currency system to drive competition in the processor space. That's orthogonal. That could happen 100% on top of the current system.
So I'm not sure what else you're referring to as "network fees". Visa/Mastercard's slice? Visa's net income last year was $3B, which is not small, but hardly a major share of GDP. There's also decades of worldwide expansion costs (incl. massive marketing spend) that's gone into that.
Bitcoin advocates like to bang on about hyperinflation which isn't happening, meanwhile they're being robbed blind.
At the same time, some cards "magically" do more than 1%.. they do 2% or even 3% in some cases. You can guess where those funds come from.
But don't miss the bigger point here. The card issuer market is a competitive one. Regardless of where the revenue comes from, competition pressures issuers to hand more of that value to the consumer. It makes it a less lucrative business than the raw processing fee might suggest.
http://www.bcsalliance.com/creditcard_profits.html
18.6 billion is still quite a bit of money to extract for the service of letting people spend their own money.
All those extra benefits should be unbundled and it'll be interesting to see how many consumers purchase them when their costs aren't being subsidized by cash buyers.
So let's not come at it from "credit cards and payments are a bloated gouging industry" I'm not buying that and it also is too merchant focused (vs consumers who really decide what a merchant will do in terms of payments) Now, there are some really interesting fringe cases that Chris touches upon that can open the door for Bitcoin. Micropayments are broken when it comes to credit cards. It's not the %, it that's "+ 30 cents" that is brutal. So Bitcoin could play a roll there. There are disbursements and marketplaces. I suspect TaskRabbit would probably like to have the ability to move money from buyers on their platforms to the TaskRabbiter's with a reduced payment friction than today. There might be 5% margin businesses (Chris' example sounds like the founder of Dwolla) that really are motivated to drive you to Bitcoin.
So what happens over time is Bitcoin focuses in on those areas where it has a strategic advantage over cards and ignores those where it doesn't. It uses that experience to become a legitimate, scaled set of payments rails. Solutions are implemented so that consumers are comfortable with using and paying with Bitcoin. Then at that 5 - 15 year mark it's ready to take on mainstream payments. Assuming issues like fraud and settlement and wild fluctuations are worked out.
EDIT: I am definitely thinking out loud and on the fly so am ok with some serious rebuttals.
Anyone can take payments using Bitcoin in less time than it takes to sign up for and implement the Stripe API (I would know; I've done both), and you don't have to have a bank account in an approved jurisdiction in order to do so.
They can either do this by using the technology directly or using an intermediary such as Coinbase.
"Bitcoin focuses in on those areas where it has a strategic advantage over cards and ignores those where it doesn't."
Thankfully Bitcoin doesn't care what it's used for, and there will probably be people trying to implement a Bitcoin solution for all these areas; the ones that find a niche will survive, and the ones that don't will fail. Either way, we'll (in theory) end up with the services that Bitcoin is suited for, and the ones that it isn't suited for will continue to use more traditional methods.
Last I checked, it takes at least a month to apply for and receive a credit card, so this is obviously wrong. Guess what, I could set you up with a bitcoin account and some bitcoins in less than a minute.
> 2.5% doesn't seem to bad for the people running those rails to collect (fraud, global movement etc)
Yeah, as long as something else doesn't come along that's even better at fraud prevention and global movement and only charges 0.01% (like bitcoin, for instance)
I remember some years ago when people were getting excited about microtransactions, but nobody found a good way to make them work. It seems like Bitcoin might be a viable way of bringing the idea back.
I'm not from Arizona, so Stripe isn't an option. But then there is Bitcoin. Countries: All. Requirements: Internet.
Credit cards are an outdated tool. They pass plain text data about a user to authorize a transaction allowing hackers to pull something off like the Target hack. One of the advantages of bitcoin is the ability to digitally authorize a transaction that cannot be reused. In an online marketplace it's far far easier to accept bitcoins than credit cards because you have no fraud risk, which is a HUGE problem in online retail.
I expect a lot of online retail stores to start accepting bitcoin payments at large discounts to cash just for this reason.
> In an online marketplace it's far far easier to accept bitcoins than credit cards because you have no fraud risk, which is a HUGE problem in online retail.
I'm not sure how you are getting this. Bitcoin is absolutely susceptible to various forms of fraud. Let's make this a bit more concrete: assume eBay accepts BTC. I could sign up for a seller account, make some auction listings, once some people buy them, never ship the goods, and disappear. I could set up a fake seller account, list some fake items, and then also make a fake buyer account, purchase the fake goods with my fake buyer account from my fake seller account, report that everything went well, and now I've laundered some money. That kind of activity can cripple a business.
As a consumer, the irreversability of BTC transactions is a bug, not a feature. You only need to look at the incredible amount of fraud that's happened in the Dogecoin community to see how fraudulent activity can be rampant, and can harm consumer confidence. Consumers expect the ability to be able to initiate a chargeback when fraudulent activity happens. You can't do that with just plain old BTC. When I was home over the holidays, the local TV station ran a story about how you should be using credit cards rather than debit cards to purchase things online, specifically because the credit cards' chargeback policies are often better. "With a credit card, you'll have the money taken off your statement, but with a debit card, it could take over two weeks to get your money back." etc.
Bitcoin is digital cash. Online stores don't allow you to mail them an envelope with $20 inside, because that would be kind of ridiculous for all parties involved. It's only when certain financial instruments are built on top of Bitcoin that have the same kinds of consumer protection and regulatory compliance built in.
This already is a problem on ebay. People post dishonest listings all the time and run with the cash. You have the additional problems of people buying goods with stolen cards or running up the price of an item with no intention of purchasing. With BTC you can verify that a bidder is able to pay for an item, and you can immediately hold the funds in escrow. There is no "overcharging" a Bitcoin account.
> As a consumer, the irreversability of BTC transactions is a bug, not a feature.
Bullshit. Credit card companies are paying people with their own fat. The 3% cashback that you get on purchases for gas and food comes from the profit theyre making on top of that. Many local stores give cash discounts when buying goods, and some refuse to accept cards because they are so expensive.
> It's only when certain financial instruments are built on top of Bitcoin that have the same kinds of consumer protection and regulatory compliance built in.
We dont need your middlemen. I dont need an account to hold my funds when I sell an item online. I dont want to give eBay, paypal, et al, a unilateral authority to withdraw from my bank accounts.
Exactly. It's a problem that doesn't go away with Bitcoin.
> Credit card companies are paying people with their own fat.
I am certainly not arguing that they don't charge a premium. I'm saying that they do add value.
> We dont need your middlemen.
You may not, but I am quite certain most people do.
I currently work for a large online marketplace. A very typical fraud scenario (maybe the most common) is someone collecting payment for an item that they don't actually possess. This would only be harder to deal with and correct if the payment were disbursed to an anonymous seller in bitcoins.
I believe the Silk Road(s) have used such systems.
You're already effectively using an escrow service when you provide a Credit Card payment option; you just don't get to choose who provides the service, you can't unbundle it from a larger product offering, you have very little control over it, it doesn't work well for certain types of goods & services, and it's built on top of a pull payment network instead of a push payment network.
The way I am thinking about it is sort of like those threads on HN where someone says "You can create a Dropbox clone in N lines of X and an external hard drive". That's NOT a Dropbox "clone", but rather something that could be used to replace Dropbox for some people some of the time. It would take much, much more to replace Dropbox, and maybe someone will get it right someday. Same goes for Bitcoin, it's fine to think of alternative financial networks (awesome, in fact, I hate banks!) but it's important not to get ahead of ourselves.
I agree with the first part of your second paragraph, but I don't necessarily think it's going to apply here for any places where we see Bitcoin in wide deployment.
If Bitcoin == cash, what does a storefront do if someone comes to them and says "my stolen cash was used to buy items here"? Usually nothing, yes? Is that what we're saying is the burden of responsibility for an online store with Bitcoin?
The answer is: "Well go report the stolen cash, we have no idea how to help you."
It's just the nature of cash that it works that way. People need to / will learn the nature of bitcoin, whatever that is exactly.
Reversable transactions moves the onus of security to the people who can really do something about it. A consumer can only chose "purchase or do not purchase", whereas a merchant can elect to use (for example) more secure payment methods and stronger identity verification.
I'm actually shocked that we've been able to use our current pull payments system for so long without more problems than we've currently seen.
One innovation I did like (which I only saw when I was using Bank of America) was a feature that allowed you to create new, internet-only, credit card numbers on the fly with a self-chosen credit limit that was tied to your checking account. I would have loved to see this implemented in a physical card so that you could just use a different cc# for each separate transaction and only authorize it (in perpetuity) for the exact amount of the transaction.
Bitcoin includes two methods to pay miners for the infrastructure costs of running the network: mining rewards and transaction fees. The idea is to bootstrap the network off of mining rewards, and then switch to relying on transaction fees in the future, as Bitcoin reaches its limit of 21 million coins.
The problem is that mining rewards are currently very, very non-negligible, even if they're decreasing. In 2012, the Bitcoin supply increased by over thirty percent. In 2014 another 1.3 million Bitcoins will be minted and sold by miners to pay for the cost of operating the bitcoin network. At current prices, that's nearly a billion dollars.
As mining rewards continue to decrease, that billion dollars a year is going to need to be made up through transaction fees. Mastercard takes in less than 8 billion a year, so those transaction fees are probably going to be substantial.
Let's imagine that 2025, and we hit the fourth mining-rewards-halving. It's now unprofitable to mine given the existing numbers of miners, and users refuse to accept higher transaction fees, so 50% of miners exit, leaving half the profits to half the miners.
This means that 50% of the Bitcoin hardware is now on the market, being sold on the cheap. What do you need to compromise the security of the Bitcoin network? Why, 51% of the hardware--
At some point obsolete ASIC rigs should be coming on the market for cheap (but right now the reward isn't anywhere near 'full' in terms of the amount of electricity apparently being used to chase it).
(FWIW, I expect a crisis of confidence long before 2025. Let's see how many miners are left after that happens.)
Part of the genius of the block award being so top-heavy in the beginning is that it made the network much more secure than it would have been if it had relied on transactions from the beginning which will allow it to mature and stabilize before supply & demand determines what the market is willing to bear in transaction fees.
In addition, it allowed a decentralized method of distributing the coins that isn't able to be gamed.
If this continue to roll, same might be applied to many other areas I believe.
It is just my random fantasy at this moment, but why we will need enforcement, if we will have guarantied income in bitcoins and laws system built same way as bitcoin (i.e. opensource and agreed to use by most people) and law enforcement as a function of guaranteed income amount.... Just random thought.
or finally having AI which can exist on its own, buy components of its environment (i.e. machines, networks, etc)
I believe what is emerging right now as a Bitcoin is much wider phenomena than just a way to avoid pay taxes and inflation.
Also, your ideas about an AI-directed or general-consensus utopia are nice but naive. People don't usually agree on what utility function you'd want to maximize, as there is no "right way" for a lot of things that matter to people. Would your Bitcoinish utopia allow late-term abortions? Or school prayer? Or same-sex marriage? Politics is a constant battle of values, many of them are deeply emotional.
But Dixon's idea of Bitcoin as internet pocket-money is actually something I can live with.
He's just saying that regulations can be implemented and enforced by the network itself.
Different thing altogether.
My excitement comes not from being able to get free from government, but rather from the fact humanity found a way to agree on complex topic (money) and set these rules in open source software.
And as far the programmable money idea goes, I'd like to see more compelling applications than M of N transactions or escrow. The examples I've seen so far seem rather unexciting.
ed: Maybe cdixon's real point is that the technology behind bitcoin is disruptive to the financial industry? I can get behind this, and I'm waiting to see how the government-backed bitcoin clones fare.
Yes, the risk of fraudulent creation of bitcoins or of double spending of a well-confirmed bitcoin are essentially zero (assuming no major flaw in the current science of cryptography.)
Also, the odds of stolen identities (name/address/birthdate/ssn) would be zero, since those are not needed for sending bitcoins.
So yes, fraud will be a lot lower with bitcoin.
This is a pretty narrow definition of fraud. Credit card fraud isn't caused by double-spending or counterfeit currency. It's caused by people stealing your credit card information. This is akin to people stealing your bitcoin wallet, as has happened many times already and will probably become even more commonplace if bitcoin takes hold.
And while cryptography seems to be strong mathematically, side channels aren't. What are the odds that if you have a mobile bitcoin wallet app, it would be resistant to all the myriad side channel attacks we know of today and so many more that are going to get invented in the future?
> Also, the odds of stolen identities (name/address/birthdate/ssn) would be zero, since those are not needed for sending bitcoins.
On the other hand, due to anonymity and irreversibility, there is nothing you can do about fraudulent transactions involving bitcoins. You probably don't even even know who took your money. So color me unconvinced me again.
tbh, I can't tell if you guys are deceiving yourselves or trying to deceive me in an attempt to keep the bubble going.
No it isn't. If I buy something on amazon, I need to enter my credit card information. If I buy something with bitcoins from cointagion.com, I don't need to upload my bitcoin wallet.
> Credit card fraud isn't caused by double-spending
If I buy some socks on Amazon with my credit card info intended only for buying those socks and a hacker steals this info and then uses it to buy a plasma TV at Best Buy, this exactly meets the definition of double spending, and this is exactly what credit card thieves do (and what you can't do with bitcoins.)
> There is nothing you can do about fraudulent transactions involving bitcoins.
Again, if someone hacks Target and steal all the credit card numbers you have fraud. Since you can't hack a bitcoin merchant to steal my payment information, you can't have this kind of fraud, so this isn't a meaningful question.
wsxcde, I think you're confusing "fraud" and "theft". Yes, it's possible to steal bitcoins. But this is not fraud.
That's not double spending. The same "dollar" isn't being spent twice. Credit card theft basically means using someone else's credentials (in this case, a credit card number) to purchase goods. If you get the private key for someone's wallet, you can do the same thing (although it should, in theory, be much harder to do this since there's never any need to share your private key, unlike with credit card numbers).
So the key point you're making about the Amazon/Target scenario is that a criminal who breaks into one of these systems has the ability to launch transactions on my behalf, which s/he wouldn't be able to do with Bitcoin. Which is fair but not universally true. Some international vendors and cards require you to go through the equivalent of the verified by visa system for all transactions. The way this works is that you give the vendor-site your credit card info, they pass this on to visa/mastercard and redirect you to visa's page where you can (1) see who you are paying and how much and (2) need to type in a password that only you and visa know in order to authorize this transaction. I suspect usability is the only reason this system isn't universally prevalent.
I think the Bitcoin scenario is worth thinking about a little more. Fred Schneider, the Cornell professor, likes to say that you can't reduce the amount of trust a system needs to work, you can only move trust around. What Bitcoin seems to have done here is now instead of trusting Amazon/Target etc. we now trust the applications which announce our transactions to the Bitcoin network. If this application is another website, like Coinbase, I don't think we've made any progress. If it's a local program that runs on your computer, it's not clear to me that is necessarily more secure. But if this is the hypothesis being made - that locally run bitcoin wallets have a reduced attack surface in comparison to the websites that store your credit card information - then I would say this is a hypothesis that is worth investigating. But we do need to acknowledge that we don't have enough data to determine whether this is actually true at this point in time.
Bitcoin has nothing backing it but an artificial supply limitation. That in itself is not a solution because its monetary base cannot possibly grow at the rate overall goods do, and thus have a stable price point.
For a limited class of taxes, namely, taxes directly denominated in a currency (like property taxes), the taxability of a currency adds to the demand for that currency. But for the most part, since non-local currency transactions and barter transactions are taxed at the effective exchange rate / fair value, the fact that taxes are collected in dollars would seem to neither hurt nor help the currency.
That said, in summary, the "artificial supply limitation" applies to both Bitcoin and dollars, with dollars relying purely on trust that America will not increase the money supply unnecessarily. That inflation has actually been mild is a "bug" in the system -- the Fed is deliberately trying to spur inflation, and has not been having success, for reasons that nobody (including themselves) completely understands. The calculable probability of return that you refer to has been pretty reliable (just like MBS's in 2006, couldn't resist), so that is true, but I don't see that being related to the taxability of the currency so much as to the lack of apparent inflation compared to the nominal returns on sovereign debt.
The monetary base argument also seems specious; M0, the "monetary base", is not generally considered (except by non-mainstream economists) to be all that significant compared to the higher-order money supply factors caused by dollar-denominated assets of varying liquidity. Once (or if) Bitcoin develops a credit market, then the medium-term effective money supply will grow and shrink as the market demands.
http://www.shadowstats.com/alternate_data/inflation-charts
It's only mild if you use their fraudulent CPI accounting, and only if you use the latest version of it, designed solely to hide inflation. If you use the 1980 CPI we're running at 9% inflation, which is not mild at all. In fact, Volcker would have raised rates long ago to fight that level of inflation.
It's exactly the same way they commit fraud in obscuring the real unemployment rate - the U6 - while referring only to the U3 anytime they want to talk about the economy. 14% vs. 6.8% is a dramatic difference, and it only works because they hide the people that have fallen out of the labor force.
In any case, I think it's entirely possible that you're wrong, and I've written a long argument against your claim if you're interested:
http://reviewsindepth.com/2013/12/bitcoin-krugman-and-the-me...
The TLDR is that yes, historically currencies have required intrinsic value or government backing of some kind - but it is not an economic law of nature that a currency has to be backed as such. If you can get the economic costs of securing agreement over a currency, then a currency of "mere agreement" is possible. Given that the internet and the design of Bitcoin itself have dramatically reduced those costs - it may actually have a shot at gaining wide acceptance.
Now let's allow that bitcoin has become universally accepted and is indexed to some basket of goods. Then it should be reliable as a currency, right? Well, yes, it'll be an international currency ... just like the Euro! And what we saw in the last few years is that the Euro system is inherently unstable because of unbalanced trade and uncontrolled government debt. You have the PIIGS countries facing the choice of massive debt service or withdrawing from the currency altogether. You have the wealthier countries being forced to support the deadbeats from their own tax base.
In the end, currency is what people make it out to be, and people will game the system. Whatever system bitcoin settled upon will have its own problems. At least with a state backed system you have players who have self interest in mind.
However as it store of value it fails because people holding currency do not want volatility. Dollars are created in response to increase in goods; bitcoins are created by algorithmic mining. There is a disconnect in creation vs. supply of real goods, therefore the value of bitcoin will fluctuate more. You might say that bitcoin's positive value increase bias makes people desire it over dollars, but that would cause people to hoard bitcoins only to dump and crash the market.
Now, you can adjust bitcoin by CPI, but then you'd just transform bitcoin into a system just like other currencies, along with entrusting a central banker and other problems.
The transactional advantage seems nice, but there is no reason a system can't be set up for dollars either.
I'm not going to say it's never going to happen, but it seems unneeded at this point.
1) Is there a "reference value" in terms of how much transaction fee you have to pay to make a payment from one bitcoin/altcoin address to another?
2) Is there a "message" payload that would allow us to include JSON or transaction details? I've read that it costs a larger fee for more bytes in a transaction, so I'm assuming you can add whatever you want to the transaction.
3) When I last made a transaction with an altcoin [1], it got "split" to two addresses. One of these addresses was not my target receiving account nor an address that I owned. Does anyone know why this other address got coins? Does this happen in many/all cryptocurrencies?
4) If I made a payment gateway that created a unique address for every user to send payments to, would it be unreasonably expensive to collect all of these funds into a single address later? (N user payment accounts * 1 outbound transaction => Large Central Account/Wallet)
[1] http://dogechain.info/address/DLqfuYFwVmroo4oaiVU9oSGTjsEBvQ...
2) As of recently [b], yes... you can add a small amount of junk data
3) When you send a transaction using input address(es) that don't add up to exactly the desired amount, there will be some "change", which needs to go to a new address. Thus, some of your change comes back to you at a new address.
4) Yes, that's possible. But you probably don't want to do that, since it leaks information [c]
----
[a] subject to some limitations: https://en.bitcoin.it/wiki/Transaction_fees#Sending
And to me, the great thing is, that there is no real reason to hate it. There's not company of brand that you can hate, it's just people and ideas.
In other words, better wealth distribution? This is precisely what libertarians are fighting for, no?
Playing the devil's advocate here - couldn't this argument be turned around to say something like "That’s money that could be reinvested in banks which hire the best people to find the best and most efficient use of capital."? (as opposed to consumers or small business owners who can't)
Regardless of whether its a bank or a credit card processing company, why is it the "worst possible choice" to give it to them? Who are we to judge who gets $1 when we are the ones who chose to spend the $1 in the first place?
Hold on, I know you are about to say "yes of course!". But what about the cost of mining? Mining is not analogous to transaction fees, but it is a cost of bitcoin.
I guess credit unions that offer Visa or Mastercard on their checking cards are also funding some of their operations this way (indirectly benefiting their customers).
By removing them and decentralizing the banking process by centralizing it into a third party (which could be many third parties), I think we'll allow anyone who wants to start a bank of any size to compete for marketshare with the big boys by providing better services.
In this paradigm, would you rather be holding US cash or bitcoins (or something else) if there was a political or economic crisis?
Anyway, Bitcoin may not save the world, but if it does anything like what this blog post says, it may very well save the Internet from the advertising platform it's become.
this is the internet. make it happen.
If bitcoin intends to be a cash-like currency, the more apt fee comparison would be swiping ATM cards, which are much closer to 1% (rather than credit card fees of 2.5%+).
Will Bitcoin emerge as the predominant online currency of the 21st century? Who knows? But it'll solve a lot of hard problems, and as a result, something will.
[0]: http://freico.in/
I stopped reading here.
done.