Comment by patio11 | Hacker News Reader

Comment by patio11 | Hacker News Reader

“The price of handling bits [of data]has come down by a factor of 10,000 fold over the last generation; it’s high time that the costs of payments processing fall by a factor of even two,” says former U.S. Treasury Secretary Lawrence H. Summers.

Bitcoin's price advantage over traditional payment processing options is not because it is cheaper at handling data. On a bit-for-bit basis, it is radically more expensive. (~$6k per megabyte at the moment?)

Bitcoin's price advantage is that Bitcoin declares out-of-scope the services which contribute most of the price, which are a) collecting massive install bases on both sides of a truly staggering number of markets, b) providing trusted environments for commerce to happen and c) mitigating many forms of risk within those environments.

You can, today, get a piece of plastic issued to you by an AI algorithm which will judge your character in single-digit seconds. You can then take that piece of plastic, literally fly to the other side of the world, and buy lunch with it, in the near certainty (in the first world) that there will be many lunch options that will honor it. You can then leave the plastic in the foreign country attached to a note which says "PLEASE STEAL ME!" You'll arrive back home to discover your card stolen, canceled, and reissued, at no cost to you.

This adventure will cost you the price of lunch plus about 5~8%, which will shock you because normally (domestically) the magic plastic costs you negative amounts of money, since domestic use of the payments network and dispute processing gets paid for entirely by merchants (whom it costs ~3%).

You've hinted on a few things in your comment that are taken care of with your 5-8% surcharge that bitcoin certainly does not.

1) Chargebacks, there is a way to dispute a charge after-the-fact, without the merchant's approval.

2) Stolen plastic means I don't lose my money.

These two things (probably others) are reasons I have trouble believing bitcoin is the new thing we'll all use eventually. Never mind that I can't see anyone I know using it. Good luck securing coins (they would never be able to do it themselves, and third-party services usually need some kind of private key. How is this better than a normal bank account??)

Also, it's not exactly easy to get. Sure, there are sites that verify your identity and allow you to buy with credit card, but then, why use the middle-man? I can buy what I want directly with credit card. I have yet to try a bitcoin ATM, this may work.

Both problems can be solved with transactions that require at least m of n signatures.

To dispute a charge afterwards, require up front that the merchant issue a refund transaction, which goes through if it's signed by any two of (buyer, seller, arbitrator). The arbitrator will charge a fee for this, but only has to get involved if buyer and seller dispute.

To secure coins, make transactions which pull them out of a storage address, which must be signed by any two of (the key on your computer/phone, a key held by an online service provider, a paper key in your safe deposit). The online service can't steal your money, someone who gets your phone can't steal it without your password to the online service, and if the online service disappears you use the paper key to get the money.

Aside from paper key storage, all this can be automated and transparent in everyday operation.

Say what?

Dispute - How is this any different than today. The credit card company is the arbitrator. Also, will this new arbitrator process in bitcoin-land cost me less than in credit-card land? Also, where is the improvement on the status-quo in this new scenario??

Secure - I concede that what you say sounds possible. Perhaps with a nice UX, but I don't see anything like you suggested available today. Also, how much will this online service cost? Will it be cheaper than government-backed money (ie. Chase/Bank-of-America/Credit Union/etc).

Again, all the solutions I see to have bitcoin lead to mass adoption are solutions that seem to add costs that will lead it to be no better than using current infrastructure.

Regarding disputes, the difference is that the arbitrator isn't involved at all if there's no dispute. He's not taking a piece of every transaction whether there's a dispute or not.

> Good luck securing coins

Securing Bitcoin is a solved problem. Trezor is bullet proof piece of open hardware already working with multiple software backends, including two android wallets. And it's easy to use, as simple or even simpler than online banking. And it's not the only one - there are other hardware wallets. For corporations today there is multi-sig and an improvement over multi-sig, called treshold signatures, currently in development.

Is it ever possible to state that security is "solved"? People, and organisms in general, are clever.

> Securing Bitcoin is a solved problem.

Trezor has solved Bitcoin's security problems in the same way that PGP has solved internet messaging security; that is, amazing technology exists that addresses real problems, but in practice the problems are still prominent. Security is a major problem for the internet, and a much bigger problem for bitcoin since the incumbent system provides nearly identical services with a substantially smaller risk of losing real money.

Shoot, somebody tell the exchange services that keep shutting down because they lost gazillions of coins that this was a solved problem.

Context is king. I was talking about secure handling of one's BTC. Exchanges need warm wallets and that is totally different story.

A merchant's ~3% cost is passed on to the customers, one way or another. (It's not costing the customer "negative amounts of money".)

They don't and it's a common misconception. Merchants need to stay competitive and they'll lose business by not keeping prices competitive. That's why spicy peanuts cost $.59 and only $.59 at every convenience store. The merchant fee isn't tagged on and you'll notice this on most products when you compare across stores.

Not sure how that has anything to do with passing the cost onto the consumer. If, for instance, the processing fee increased to 10% across the board, you would see an increase in prices to cover that expense. It will certainly not be instantaneous and may not ultimately ever cover the full increase in cost, but Company's cannot make a profit without passing on their costs to the consumer.

Don't all convenience stores put up a small handwritten sign that says "Minimum Purchase Amount for Credit/Debit Transactions: $<whatever they need you to spend to offset the cost>

My understanding is that these signs are more "polite recommendations" than they are enforceable rules. My suspicion is that the card companies have a clause against this in the merchant agreement and don't want their payment method to be perceived as "costing more" to consumers.

A merchant will not always be in a position to pass along that cost. They may have to accept a decrease in profit margin per customer in exchange for increased business. They may also have to accept a decreased profit margin overall in exchange for staying in business, if all their competitors are accepting cards and they aren't.

The only way what you say is universally true is if you hold that all costs of doing business are passed along to the customer "one way or another" which is sort of true but not a really useful way of thinking about it.

That's not necessarily true.

All payment options, including cash, have associated costs.

It's certainly within the realm of possibility that the credit card networks, as a whole, are more efficient than any next best alternative, and indeed likely that they are so for certain specific actors within the marketplace.

Yes, of course customers are ultimately covering all costs of doing business, this included.

But not specific customers. Affluent consumers often use credit in advantageous ways. That behavior is subsidized by consumers of more limited means. I get 5% cashback every time I shop at amazon, 6% at every grocery store, 5% on every tank of gas and 2.5% on every restaurant, etc. (Sallie Mae Rewards Card, Amex Blue Preferred, Sallie Mae again, and Chase Sapphire, respectively). Access to credit most certainly costs me "negative money."

If you don't max out the BCP $6k, make sure you buy Visa gift cards at a grocery store to max it out. :)

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