Why the practical applications of Bitcoin will be limited
sidazhang.com
sidazhang.com
Take the first argument: for transactions to remain cheap one of three things has to happen, then those three things are painted as almost impossible.
But the second one; "At the same fee level, transaction count must increase 250 folds." Seems completely possible.
If transactions remain relatively cheap then bitcoin can be very useful for microtransactions. And if they are useful for microtransactions then, by there nature, there will be many more transactions.
Then the author is all over the map in the second section. At one point saying decentralized entities are useless, then that they don't provide value compared to traditional centralized entities, then than they /are/ real competition for those traditional services but the only real beneficiaries of trustless decentralized transactions are people engaged in illegal activity.
They close out by saying since cyberpunks, drug dealers, and gamblers use bitcoin now, it will never find a place in the public sphere. But the blockchain idea is a good one and will find some sort of use.
TL:DR The first point was interesting but flawed. The rest was garbage.
The main thing that limits the size is latency in propagating large blocks. But most miners already have most of the transactions in each block. All you really need to send is a small data structure that lets the miner reconstruct the full block, from the transactions he already has. An invertible bloom lookup table makes that pretty easy: http://www.i-programmer.info/programming/theory/4641-the-inv...
Using this, a home bandwidth connection could handle about 45,000 tx/sec, which is more than Visa at peak: https://gist.github.com/gavinandresen/e20c3b5a1d4b97f79ac2
The other problem is blockchain storage. They're planning to prune old empty addresses, which should help a lot. A more radical solution is to store the full blocks only for the last couple months, and only a linked set of hashes back to the beginning. That might be a bigger change than Bitcoin can handle, but another currency could do it.
All full nodes still need to process everyone else's transactions, so bandwidth requirements are still hefty, just not squared. Even if someone's home connection can theoretically maintain 45k tx/s, how many of those generous full node maintainers out there will be excited about the prospect of their Bitcoin node using their entire internet connection? Storage requirements will also still be fairly intensive, even if nodes prune everything but the UTXO set (that needs to be stored in RAM--although that can change--it's a half gig).
Not to mention that proposal can create problems where miners withhold transactions from other miners so they can build secret chains that other miners can't build on until they have see the withheld transactions.
All that aside, your comment still ignores the reality of the situation. The Bitcoin network has been bleeding nodes for ages, and has settled around 6500-7000, probably a little more[1]. What that says to me is that even if Gavin's 20MB block proposal works for him on paper and on his VPS, the reality is that we can barely maintain a healthy node landscape with the current stresses of the network. Upping it to 20MB will likely cause a "shedding" and we will come to the new normal, so on and so forth, until we increase the block size so much that we end up with only a handful of nodes.
This is all assuming the network continues grows to those needs, which I found doubtful.
I've recently read a proposal for such a scheme written by Justus Ranvier, you can find it here:
https://bitcoinism.liberty.me/2015/02/09/economic-fallacies-...
tl;dr Bitcoin peer-to-peer (P2P) network needs price discovery built directly into it through micropayment channels (https://bitcoinj.github.io/working-with-micropayments)
tl;dr: optimizations like pruning, combined with a much larger economy, could result in a far higher full node count under a large-block-size scenario than there is now.
I don't see how those nefarious miners could succeed, unless they were powerful enough to carry out a 51% attack anyway. Otherwise their secret chain will soon fall behind the public chain.
They and a few other projects also hope to pull off a "proof-of-stake" system that mostly does away with mining. Done naively that can be attacked, but there appear to be ways to mitigate the problem. Initially, Ethereum is settling for a proof-of-work algorithm that's more resistant to specialized hardware, so big central miners can't get such an advantage.
https://blog.bitcoinfoundation.org/blocksize-economics/
In the future, the blockchain inital sync should be torrented by default.
So if, for example, average fees increase by 2.5x and price increased by 10x, then transaction/block only needs to increase by 10x in order to raise this metric by 250x. Not only this is possible, but this is likely. This metric has increased by 1,000,000x in the last few years, why would it suddenly plateau right now?
Possible, sure, but likely? Bitcoin has been around since 2009 and has so far failed to gain any real amount of mainstream adoption. I don't see any compelling reasons why this should change any time soon.
To me, Bitcoin is not the internet of money, it's more like the Linux desktop of money. Sure you can argue it has certain benefits over the status quo, such as lower cost and freedom from certain 'evil' corporations, but the general public arguably doesn't care enough about these things to be bothered to make the switch, especially given the relatively high barrier of entry and low amount of third-party support.
edit: anyone care to explain why I am being downvoted?
What does a scammer selling unlicensed shares in porn production have anything to do with the success or failure of cryptocurrency? Bitcoin was simply the method of payment, nothing more.
That example is immediately followed with the eBay + TicketMaster examples and the importance of centralized reputation/trust. The leap is then made to "...drug dealers establish reputation through their PGP key or BitCoin address". Ok, an objectively factual statement. The author proceeds to go off the rails with the assertion that only criminals value decentralized trust. Please.
You know why I would prefer a decentralized trustful solution like OpenBazaar? Because eBay bends me over with fees. In fact, they double dip. And there's nothing I can do about it.
It's not about illegal use cases. It's about empowerment of the individual over seemingly insurmountable institutions. The author is having the wrong discussion.
Actually, the article doesn't set out "to prove cryptos won't be huge," and ends on a crypto-positive note:
> Bitcoin has shown us the promise of blockchain technologies despite its design shortcomings.
> The future of the technology will probably evolve towards a model that more resembles real world needs, rather than the needs of “cyberpunks”.
To diverge from the article a bit and respond to your final point, I don't know that the mantra of individual empowerment in the Bitcoin world amounts to anything other than solipsism. Bitcoin, as far as I can tell, ignores structural biases preventing people from accessing the cryptocurrency. We can see evidence of this in the "Bitcoin in Africa" startups, which on the surface seem benign and even benevolent, but are hiding an uninterrogated colonialism: their chief assumption, it seems to me, is that the developed world will always control more of Bitcoin's limited resources, and the value of spreading a small portion of those resources to the developing world comes from lock-in. It's a classic unfair trade agreement, and it doesn't take much thought to see how problematic this situation can become.
eBay can bend you over with fees because they control the market; Bitcoin's limited resources are susceptible to the same kind of market control. That's the discussion I wish more people were having.
Another huge difference is that anybody can become a new agent in Bitcoin. You just buy the hardware. You cannot influence or join eBay in the same way.
I wonder which group might be in possession of the right idea, the group saying "you don't have to use it if you don't like it" or the group that is already forcing the new currency to be under the same democratic rules of the old, "democratic" currency.
Statism, ideas so good we have to force them on people.
With respect to fairness, what's important is the characteristics of the framework within which the resource is used, that enable rent-seeking. With Bitcoin, each individual is their own bank. They control their own private key, meaning access to money is not intermediated by rent-seeking third parties with their lock-ins and closed networks.
Mining is ultra-competitive, because there are no barriers to market entry to the open mining network, ensuring transaction fees are driven down to the maximum extent possible. The algorithmic money supply ensures that no powerful organization and its host of satellite institutions can inflate the currency on a perpetual basis, to slowly the tax the people over generations.
Any way you look at it, Bitcoin is a force for distributing power and control, by eliminating the roles of rent-seekers.
Because it demonstrates dramatically that one of the main purported advantages of bitcoin (its "trustless" nature) is comically false. As you say, bitcoin is just a payment method, and contrary to what its advocates claim, it does absolutely nothing to prevent shady scams or eliminate the need for good regulations and strong enforcement.
The very nature of Bitcoin lies on the assertion that no individual is trustful, and that a trustful network can arise in which no individual node is trusted.
The blockchain allows us to verify that a particular operation has occurred. For example, the blockchain will verify that a particular address owns 1 BTC, or that 1 BTC has transferred from one address to another. It provides reliable, verifiable unit of account without relying on any one actor to be trustful.
The blockchain absolutely does NOT verify that a person won't lie to you to get your money, or that they won't blow it all in casino once you send it to them. That would be an unbelievable miracle, as it would require knowledge of the future.
No rational person has ever claimed the blockchain will prevent scamming. Quite the opposite in fact.
> 3) No fraud or charge-back (from a seller/business PoV).
> 13a) Potentially, because of the profit from no fraud and the deflationary nature of Bitcoin. Vendors will realise they can lower their prices for Btc purchases. And when inflation ends, due to no fraud, they will still be able to have lower prices than competitors.
Fraudulent chargebacks are a legitimate concern for sellers, and I assure you that loss is reflected in the selling price you and I pay. 13a asserts that if a vendor is able to eliminate the chargeback problem through bitcoin use, then the savings can possibly be passed on to consumers.
What's insane about any of that? You're not comprehending what you're arguing against.
> No fraud OR charge-back
Strongly implies those to be two different things. You write "Fraudulent chargebacks", talking about a single thing, a specific kind (fraudulent) of chargeback. You also neglect to mention that bitcoin eliminates fraudulent chargebacks by just not having chargebacks at all. Which is a bit like celebrating North Korea eliminating voter fraud.
This kind of thing is everywhere in the bitcoin community: Make absurd, grandiose claims ("be your own bank!", "bitcoin is the future of money", "totally decentralized!" [except for the giant central ledger of all transactions]). And then whenever you get called out on it, you'll retreat to some more limited, defensible argument, and claim that's what you were really talking about all along.
There's a name for this kind of rhetoric, it's a "motte-and-bailey" argument: http://philpapers.org/archive/SHATVO-2.pdf
This is a problem a trust-less system wouldn't solve, inherently. The real problem is ebay lacks competition.
>It's not about illegal use cases. It's about empowerment of the individual over seemingly insurmountable institutions.
Again competition. You want people to have the power to compete, and have options.
>The author is having the wrong discussion.
Yes you are. None of the problems you listed are solve by decentralized trustless systems. Their consumer service problems. Which any company, or system can have.
:.:.:
Ultimately you commit the same sins you argue the blog post commits.
Isn't that why established players will mostly prefer not to use decentralized currency? Won't the network effect always relegate things like Bitcoin to the fringes?
Look at Amazon and Overstock. Amazon doesn't need to implement Bitcoin to be successful, but Overstock was able gain some market share by accepting it
It's a bit disturbing.
However, that's not a valid criticism. BTC functioned only as the method of payment. You can't criticize the future utility of a technology based upon how someone has misused it. If that were the case, we should ban the Internet.
When evaluating and discussing any technology, you're absolutely right: it is unfair to criticize it based on a few bad examples.
However, it is fair to look at a technology and consider whether the "legal" outweigh the "illegal" ones, and if not, why.
The author makes this point succinctly.
Ninety percent of opinions are crap.
I think this is a group that is highly sensitive to face value of statements people make and when someone makes an uninformed remark, their entirely argument is cast aside. Dissent is welcomed, but it needs to be backed by a solid justification.
1. At the same number of daily transactions, fees must increase 250 folds. Or,
2. At the same fee level, transaction count must increase 250 folds. Or,
3. Price increases 250 folds to $65000/BTC. Or,
4. A combination of all 3
#4 seemed like the question answered itself. Instead the author doesn't acknowledge #4 at all:
"However, neither one of these scenarios is likely to occur. Scenario 1 represents a per transaction fee of $10. Scenario 2 represents 290 transactions per second and close to 25 million transactions per day"
The second part of the first argument is comparing Bitcoin costs to credit card costs. What the author is trying to say is that Fiat->XBT, buy something, then XBT->Fiat is more expensive than credit card fees of 3%. But on Coinbase, for example, that would be ~2% in transaction fees and that will only go down as XBT inventory is held and pooled so not every purchase transaction results in a fiat conversion. That's only being done now as a bootstrapping strategy (and it seems to be working).
I think the author has some good points here but didn't seriously address them, only thinly speculated on them. I'm giving it an up-vote to hopefully have some deeper discussion especially around the first argument of Bitcoin's inherent costs.
A quick side note: I'd like to see an analysis of electricity costs of mining vs. mining fees. Mining fees eventually need to surpass electricity costs for mining to be sustainable after inflation-payments are gone. The difference between costs and fees is the margin the miners will make. To me, that would really answer the first argument.
The notion of a DAC is extreamly intresting, insead of destroying money be wasting it on energy companys we use this money to improve the infrastructure. This will allow development and even services.
The problem of the transaction and the lack of annonymity can be solved rather well. The goal is identity if you want it, annonymity otherwise.
Bitcoin has a clear first mover advantage but with the development of smart wallets and things like that, altcoins will be more easly integrated with the market.
This technology is in its early days but it does have lits of promis.
> People forget quickly that regulations were enacted in response to fraud and to protect people.
If you really belive that, you have not studied the history of banking reglation.
Bitcoin suffers from the same problem that all trade on the international internet suffers from, the lack of contract enforcment.
There is a huge diffrece between finacial regulation and contract enforcment. Contracts can be self enforcing by simular mechanisms as it is on ebay. We just need a opt identity system.
However, a lot of the points made within are completely legit. The Bitcoin world is rife with scams and one of the primary uses of Bitcoin is to engage in illegal transactions. The benefits of de-regulation are obvious, but the downsides are killing it right now. A lot of people are stuck on the "regulation is evil!" rehtoric due to the current issues with the NSA and the government in general, but I think everyone needs to take a step back and realize that a radical shift in the opposite direction is not the answer.
The technology is interesting, and I definitely think we'll see the ideas behind some of these new cryptocurrencies working to change the future of currency in general, but Bitcoin itself is not that future.
I also see that the /r/bitcoin defense force is in full swing here, unsurprisingly.
Any technology can be applied to do something illegal. Do you think this fact played 0 part in the Internet itself thriving? I don't see us scrambling to throw away steak knives just because some people have been stabbed.
When the internet was in its infancy, this was absolutely not the case. I'm sure there was something going on, but it wasn't the primary use.
If you're really so blind that you can't see why this is very bad news for widespread adoption of Bitcoin, you need to take a step back and see things more objectively.
Bitcoin has widespread adoption among criminals because they cannot reasonably make use of personal checks or card-based payments. It is their best alternative to cash for certain use cases.
For everyone else, Bitcoin has to be better than a debit card, rather than better than cash. This requires widespread adoption and financial service businesses using Bitcoin.
The foundation of the currency has little to do with the character of early adopters. I don't judge my stereo by the pretentiousness of the first audiophile to review it. Likewise, I don't care that people use Bitcoin to buy weed. There are only two problems I have with Bitcoin:
1. I can't pay all my bills with it.
2. I can't get paid for my work with it.
I can certainly jump through additional hoops to convert my dollar-denominated bank accounts into Bitcoin, but that does not actually improve my life right now. I have no compelling reason to use Bitcoin other than a vague desire to have some long-term alternative to the existing financial service businesses.
I have no reason to believe that Bitcoin will be that long-term viable alternative. I think that such an alternative will likely emerge within the next decade, but I don't think I have seen it yet. I see potential. But I don't buy potential; I buy value.
The bad news for widespread adoption of Bitcoin is really that it hasn't happened yet.
0: http://ec.europa.eu/taxation_customs/customs/customs_control...
1: https://help.cbp.gov/app/answers/detail/a_id/778/~/declaring...
Do you have a source for that statement?
As for the hacks and thefts that have occurred thus far, it's worth nothing that Bitcoin is a young and immature sector, that is going through its growing pains. There were similar concerns about crime and fraud in the internet's early years too. I can link you to news stories from the 1990s that demonstrate this. It's not reasonable to generalize Bitcoin's first six years to the inherent qualities of p2p electronic cash.
I appreciate some supporters are there for good reasons; 'snob' may be too strong a word. But it's naïve to believe a pure unregulated market is a good idea, especially one that responds at the speed of light.
And where did that comment about banning bitcoin come from?
The Great Depression was caused by the Federal Reserve, not free markets. The current system, in place since 1973, has overseen an increase in the banking sector's share of total corporate profits to 42%, while the Middle Class has been left behind, and the industrial core has been hollowed out.
There have never been as many regulatory bans, centralized regulatory agencies, and leeway for the central bank to manipulate the money supply, as there have been over the 42 years. I'd be interested to know why you don't blame the current state of the economy on the anti-free-market system, the way you pin 1929 on free markets.
>And where did that comment about banning bitcoin come from?
I got the impression that you were endorsing the prevailing political ideology that favors regulatory control over industries. Regulations are a type of ban in function, if not in popular wisdom. They ban action A, if conditions X, Y, and Z aren't met. We now have thousands of such bans, limiting our actions. It makes for an unfree society. It's naive to think that government bureaucrats will not do more harm than good when given the ideological cover to prohibit nearly any activity.
" You bring up the internet but remember that it is goverment regulator who protect and enforce Net neutrality - not Comcast."
That's the telecoms, which deal with the underlying infrastructure, not 'the internet'. The telecommunication industry naturally gravitates to a oligopoly, because it provides a utility. It is inherently not competitive, so it's justifiable for government to set ground rules. That is until a decentralized global meshnet can replace the current infrastructure.
If the internet itself had been subject to thousands of regulatory bans, like prohibiting people from running a server without a license from a state or federal regulatory agency, it would be nothing today.
Facebook tried to brand itself as a utility. Is my grocer a utility, I need food as much as I need water? I don't know what makes utilities prone to monopolies, but it probably the large investment and slow payoff - this is true of things that aren't traditionally called utilities like pharmaceutical companies, oil wells, or defense systems. These guys could use a good 'regulating.
Indeed, everything gravitates towards a monopoly as it maximizes shareholder value at the expense of the large economic community, this is was recognized by antitrust regulations in the 1890s which aimed to promote capitalism.
>>If the internet itself had been subject to thousands of regulatory bans
Yeah but it wasn't, perhaps because they regulators didn't fail. In many ways this is a success story.
Regulation is necessary, you can debate the merits of a particular method, you can say some regulation is bad or some is good but remove the goverment ability to regulate currency leaves the economy vulnerable deflation during recession which is has been attributed to the recession of the 1930s.
Will high credit card transaction fee's plunge civilization into a new dark age?
However it's not. Its social network is neither a necessity to join nor impossible to compete against.
Utilities are those things we traditionally call utilities, like electricity, water, telephone line and nowadays, an internet line. It's the combination of high capital costs and the limited geographical scope of users per capital project, that makes the market naturally uncompetitive.
>Indeed, everything gravitates towards a monopoly as it maximizes shareholder value at the expense of the large economic community,
In a free market, only utilities gravitate to a monopoly. Other sectors are open to competition, which periodically causes the market leader to be displaced. We've seen this in tech for decades. First it was IBM, then it was Microsoft, then Google, for a brief time Apple, and next who knows.
>Regulation is necessary, you can debate the merits of a particular method, you can say some regulation is bad or some is good but remove the goverment ability to regulate currency leaves the economy vulnerable deflation during recession which is has been attributed to the recession of the 1930s
The 1930s recessions was not primarily due to monetary policy. You can look at the crash of 1921 to see that sharp deflation does not lead to a bottomless downward spiral. The 1930s were a testbed for interventionist policy. It was these policies that kept the economy depressed and suppressed capitalist recovery. Not any dearth of controls by the government.
Deflation itself can only exist when creating competing currencies is prohibited. What the Federal Reserve Act in the US, and similar regulations in other countries in that period, did, is outlaw competing bank notes. It created a banking cartel, with a fragile monetary mono-culture.
So no, regulatory bans are not needed. They are harmful, and unethical. No one has a right to ban an activity that is consensual.
>Will high credit card transaction fee's plunge civilization into a new dark age?
Depends, will competition emerge, or will it be sabotaged by the complicated set of bans that is our regulatory system? E-gold eventually succumbed to the bans, but Bitcoin and its decentralized structure look to be more immune.
MasterCard in Asia certainly hopes the government will step in with more regulations to stop Bitcoin:
http://www.coindesk.com/mastercard-executive-argues-bitcoin-...
He's counting on people like you buying the argument that freedom doesn't work, and the greater economy shouldn't be left free of regulatory bans like the internet was.
Bernie Madoff wasn't using dollars to run his scheme? What about the housing market bubble? Bank bailouts? I don't recall those happening in bitcoin-land. The fact is that scams happen everywhere all of the time with everything. Beanie babies...fake gold bars... you name it.
I don't understand the connection between YouTube revenue splitting and Bitcoin replacing traditional currencies. I guess this is supposed to be an example of intermediaries providing value added, but can we at least provide an example in the payment processing space? What does a credit card company provide that is not provided by Bitcoin?
Overall, I am on the fence on Bitcoin. I get the feeling cryptocurrencies will drastically change the world economy in the future, but I don't think anyone really knows how and to what extent.
- Replace youtube in the form of a decentralized video platform - Decentralized Spotify - Decentralized Uber
A google search of DAO (Decentralized Autonomous Organization) and you will find many many people talking about that. The thesis is that, no Bitcoin won't decentralize all these intermediaries, instead what is more feasible is that maybe future blockchain technologies could lower barriers to entry.
As for comparison payment processing space, this is more in point 1. Bitcoin is not cheaper. Bitcoin is extremely expensive to use and intended to be expensive.
Bitcoin is currently overly secure, due to the block subsidy, so therefore total mining costs relative to number of transactions is very high. As the block subsidy diminishes, this ratio will decline
Total security can be maintained, without transaction fees increasing, if transaction volumes increase, which is entirely possible, and is what has historically happened.
Pre-bitcoin if you want to set up a static website that accepts donations to keep on serving it's content you absolutely have to have a human in the loop to faciliate those transactions.
If your webserver is overloaded and you need to charge browsers 0.0001 cents per connection to filter out the legitimate browsers there is a clear path to do that with bitcoin, not so with any other payment scheme. The path to do that involves everyone loading bitcoin into the browser and doing some sort of side chain, trust channel, trusted third party to enable such a cheap transaction, but the point being that there is no one stopping people from developing and pushing these technologies with bitcoin. If you wanted to do this with paypal or cash or credit cards or any other known payment system there are very real road blocks and people that can simply pull the plug.
Bitcoin enables people to try out new ways of paying without asking anyone's permission.
The quickest to market is illegal trades, because there is no one to say no and no one to pull the plug. It is really fairly similar to bittorrent in that way. Everyone will first say the technology should die because it lets people do things illegally.
Wait, that's the only reason it won't.
How is this not plausible, given how few transactions must occur there?
The community is torn about the issue so it's an open question if it will ever happen.
The US dollar used to be part of a much more expensive "proof-of-work", the gold standard. In order to create dollars, someone had to buy expensive mining equipment and spend a ton of time and money physically digging gold out of the ground, melting it, and keeping it safe. Seemed to work out well for a pretty long time.
The gold that backed the dollar had already been dug up. It was already in the hands of the government. Whatever the costs were to get it, they were sunk costs based on the value of the gold, not the currency system layered on top of it. The dollar was secured via tricky-to-duplicate printing techniques and police powers.
It's actually the reverse. Mining speculates on deflation not inflation.
Speculation is in theory not a factor, since spending $ on buying a bitcoin == spending $ on mining a bitcoin, so the price would be the same, if a rational market existed.
Isn't the market mostly rational? Where is your evidence that it does not exist/that the price is not rational? To me it has the appearance that the price of bitcoin hovers around the cost of mining bitcoin, ever since the big rising bubble first popped. I am not an expert but I have been following for quite some time as mining hardware gets more efficient and the difficulty waggles mostly trending up over time.
There is no universal "electricity cost to mine a bitcoin" since mining hardware varies in efficiency, and it's true that any rational miner would stop mining if his hardware could no longer make a marginal profit on the cost of the electricity. You would get more bitcoin by just spending that part of your utility budget at an exchange. I have obsolete ASIC hardware from BFL that I only run because I have a source of free electricity and for the novelty / because it's cold. They made money for a time, and then the market corrected.
With the advances in hardware that are constantly coming from many different players in the mining hardware market, I would not be surprised to hear that many latest-gen ASIC miners are still hovering around "break-even" electricity cost to mine, and as the difficulty continues to rise, anyone waiting for delivery of their equipment goes on biting their nails, waiting to see if they will make a profit or if all their effort will have been wasted.
"Reason 1: Bitcoin will not replace retail payment systems"
Bitcoin is more of an enabler than a replacer. There are many financial transactions that do not take place because current financial platforms do not let them happen. For example with Bitcoin I could in theory pay an artist in Namibia who makes little sculptures and ships them to worldwide. This economic activity does not exist today because there is no safe/efficient way to pay some random guy in Namibia who does not have a bank account.
"Scenario 2 [transaction count must increase 250 folds] and 3 [Price increases 250 folds to $65000/BTC] are not likely to occur"
So the author hand-waves that and says it cannot continue to happen with zero reasons? To see a combined 250 fold increase all we need to see is a number of transactions increasing by 25x (which will happen with the upcoming block size increase) and a price increasing by 10x. Consider that:
- the number of transactions has already increased 1,000 fold (and more) in the past few years, and there is no sign of it slowing down: https://blockchain.info/charts/n-transactions?showDataPoints...
- the price has already increased 1,000 fold (and more) in the past few years: https://blockchain.info/charts/market-price?showDataPoints=f...
So the author ought to explain to us why he thinks such increases would suddenly stop.
"Fiat conversion makes Bitcoin transactions even more expensive"
The author completely ignores the economic incentive of transactions within the Bitcoin economy itself. When I give 1 BTC to my father, he can spend 1 BTC on Dell.com. No fiat conversion takes place.
"Reason 2: Bitcoin will not end the need for trusted central parties"
I agree with this, but I do not see at all why the author listed this as a reason why Bitcoin will not succeed. In some cases having a central trusted party does make sense, in others it does not.
"When is censorship resistance so important that it is worthwhile to make those trade offs? The answer is: illegal use cases"
Or: oppressive governments who seize the bank accounts of dissidents, Paypal when they decide to shut down the accounts of donation receivers (because their fraud system incorrectly interprets such sudden flows of money as fraud), etc. You see, the world is bigger than you. There are many instances where censorship resistance is important and is needed for legal use cases.
"Whereas most Bitcoin users are primarily using Bitcoin as a speculative asset and illegal transactions"
The author provides no source for the "illegal transactions", because he has no data to back this up, because this claim is false. In fact the biggest illegal shops have been shut down (SR 1.0, SR 2.0). And the number of legit merchants continues to increase (now surpassing 100,000 merchants accepting Bitcoin worldwide).
"Internet did not make design trade-offs to primarily focus on censorship resistance at the expense of other qualities (such as speed)"
Yes it did make trade-offs. Internet was designed to be decentralized to make it resilient (which is similar to censorship resistance), at the expense of complexity (it took decades to develop a stack that works well: BGP / IP / TCP / UDP / DNS / HTTP).
"If online gambling were to become legal and widely accepted by banks, Bitcoin would not be used to gamble online"
Another flawed argument. Let me try this: "if online reselling were to become legal and widely accepted by banks, Bitcoin would not be used by online merchants". Yet 100,000 merchants are using Bitcoin...
"However, Bitcoin has shown us the promise of blockchain technologies"
The author does not understand that Bitcoin's block chain technology simply cannot exist without Bitcoin (the currency): why would miners mine if they received no bitcoins rewards? For the block chain technology to succeed, Bitcoin needs to succeed, and vice versa.
Because they have already stopped. The price of bitcoin has only dropped for the last year. You should give a reason why the drop should stop and it would start to rise again.
> The author completely ignores the economic incentive of transactions within the Bitcoin economy itself. When I give 1 BTC to my father, he can spend 1 BTC on Dell.com. No fiat conversion takes place.
Dell does not accept bitcoin. Dell accepts dollars from bitpay. The expense is paid by bitpay having a worse exchange rate than the normal bitcoin exchanges.
So yeah there is fiat transfer happening.
Out of curiosity do you know any single big retailer that actually accepts bitcoin in the sense that they are not being actually paid in fiat?
> Yet 100,000 merchants are using Bitcoin...
Merchants might use bitcoin. But customers unfortunately are not. Wordpress just stopped accepting bitcoin because they got only 2 purchases per week using it. Data from overstock suggests that it's far more common phenomenon.
Thanks to bitpay there is not really any reason for merchants not to accept it though. They get paid in fiat and they don't get any expenses from accepting it.
No, tx/block certainly NEVER stopped increasing: https://blockchain.info/charts/n-transactions?showDataPoints...
And price is cyclical. After the bubble of June 2011, it took 21 months to surpass its previous high of $30. What makes you think this bubble and price correction is different? In fact, Bitcoin is on the rise since its $150 bottom on January 14th so it would indicate the drop in fact did stop.
> Dell does not accept bitcoin
This is irrelevant to the point the OP was making: transactions that remain within Bitcoin incur no fiat exchange fees. I sell something on craigslist for bitcoins, I use these bitcoins to pay back lunch money to my coworker, he gifts the bitcoins to his brother, his brother sends the bitcoin to his son overseas for remittance, etc. All this with zero fiat exchanges.
> But customers unfortunately are not
Growth is not through-the-roof, but it certainly is there: http://avc.com/2014/10/bitcoin-adoption-metrics/ You cannot quote 2 anecdotes and infer an industry-wide trend. The plural of anecdotes is not data. Anyway it's again irrelevant to the point the OP was making: the blog post's argument is flawed, not everybody who uses Bitcoin is doing it for illegal purposes.
I simply wanted to point out that you cannot cherry pick the time periods. Right now on a 6-12 month timescale bitcoin has been absolutely terrible investment.
You are right that transactions that remain within Bitcoin do not incur transaction fees. However those transactions do not include the big merchants, which you did use as an example. So yeah you can give bitcoins to your friend without a fee but you cannot buy anything from a shop that 'accepts' bitcoin in practice without a fee.
The annual revenue of the merchants in those slides is the total annual revenue. There is no mention whatsoever on how many purchases they have that is being made with bitcoin. So it's useless data in that sense.
Do you happen to have any data about the purchases made specifically with bitcoin?
This is again irrelevant to the point the OP and blog post author were making. If the number of tx/block continues to increase, then the current level of network security will increase, all else being equal (eg. USD price of Bitcoin staying flat).
> on a 6-12 month timescale bitcoin has been absolutely terrible investment
Absolutely, but long price downtrends have happened multiple times in the past. That's why I asked "what makes you think this bubble, as opposed to the last N bubbles, is clearly different and clearly marks the end of Bitcoin?".
> which you did use as an example
Well I didn't, the OP did :)
> There is no mention whatsoever on how many purchases they have that is being made with bitcoin.
I was pointing to these slides because they show a multitude of metrics increasing. It seems unlikely bitcoin purchases would be declining given everything else is increasing: number of bitcoin startups, number of wallets, number of merchants, number of daily tx, etc. Individually these metrics mean little, but all combined... Heck we went from 0 to 100,000 merchants since 2009, so it is certain bitcoin purchases have increased in that time frame. Why would you doubt that?
> Do you happen to have any data about the purchases made specifically with bitcoin?
Very few merchants publish their bitcoin metrics. But 2 come to mind: Gyft and Newegg said that their 2014 Bitcoin black friday sales were the best ever: http://blog.bitpay.com/2014/12/09/bitcoin-black-friday-2014-...
I didn't say this is necessarily the end of bitcoin. There are intermediate stages between "to the moon" and total crash. Personally I think it's quite likely that bitcoin will simply stagnate and remain little used.
I don't doubt that the bitcoin purchases have increased since 2009. It's just that the raw numbers which we do have (your link did not have any hard numbers) show that it's not really doing that well when absolute sales figures are taken into account.
The fact that only hard numbers which we do have show poor adoption indicates that it's the same elsewhere, otherwise we'd see bitpay and others jumping up and down and telling the great numbers to everyone to increase the adoption even more.
I understand you now. That's right. But my point was the price is unlikely to stay down... Anyway this debate of whether the price will go down or up is a little silly: even assuming the price stays down it will literally take DECADES for the network to "need" to increase the tx/block by 250x to maintain the same level of security. The bitcoin reward is halved every ~4 years, so we only need the tx/block to double every ~4 years to maintain the same level of security. So far Bitcoin as MORE than met this need: the tx/block has more than doubled every year since its creation.
> I didn't say this is necessarily the end of bitcoin
You were saying you did not believe the price drop would stop. Now you are saying it will quite likely stagnate. That's quite a different statement.
> It's just that the raw numbers which we do have show that it's not really doing that well. > [...] > The fact that only hard numbers which we do have show poor adoption indicates that it's the same elsewhere.
Yes we know that for merchants accepting Bitcoin, it represents an incredibly tiny fraction of their total sales. But why do you think this means Bitcoin is not doing well? A brand new payment technology unlike anything else going from zero to representing 0.1% of the sales of 100,000 merchants worldwide is a significant accomplishment in my opinion. I say 0.1% because 0.x% seems to be approximately what the average merchant reports. For example Overstock reported 0.2% of their sale revenues were in bitcoins for 2014.
Also why do you extrapolate your single anecdote (WordPress shutting down Bitcoin sales) to an industry-wide trend? Why do you ignore 3 other anecdotes that contradict your opinion (Overstock consistently doing 0.2% of their sales in bitcoins = $3 million/year so they are far from stopping to accept bitcoin, Newegg reporting their best bitcoin black friday sales in 2014, Gyft reporting the same)? Why do these 4 anecdotes, whether positive or negative, matter at all, when I showed you more indirect metrics (avc.com) that obviously show strong overall adoption? The avc.com metrics may not show actual bitcoin sales figures, but clearly they indicate something.
To answer your question: I think BitPay and Coinbase don't release current numbers of Bitcoin payments processed because this is sensitive financial data for competitors. But surely VCs wouldn't be pouring tens of millions of dollars in them if they showed no growth, don't you think?
Miners can't profit? Miners drop out and leave more breathing room for the other miners.