It's a good question and also needs to be answered. I'm the author of the post and have one coming on the consumer side.
I'd suggest using a higher estimate for the value of rewards points. (You used a 1%.) You can explicitly get >1% cash back on many cards, so I'd argue that's really the lower bound.[1]
Most reward points can be redeemed for ~2%, with conscious consumers getting even more than that. [2]
Consumers are very aware of the value they're getting, too. If you read AMEX company filings, the redemption rate on MR points is >90%. I found that shockingly high. It's tough to get consumers to switch to bitcoin when it's worse value and more risk.
[1] https://creditcards.chase.com/freedom?jp_cmp=cc/freedom/off/... [2] http://boardingarea.com/onemileatatime/2012/05/25/my-updated...
Very interesting.
"As you know, our current ultimate redemption rate is 93%, a very high assumption for any consumer loyalty program."
[1] http://seekingalpha.com/article/931161-american-express-mana...
- The user is a bitcoin evangelist - The user bought/mined bitcoins early and wants to cash in without selling them which would incur an exchange fee and tax hit. - The user would prefer anonymity for that txn. Assumes no physical delivery (e.g. online porn) - The merchant offers a steep discount for btc. But why would a merchant offer a fee more than the 0.35% referenced in the article?