
Why the practical applications of Bitcoin will be limited - mikkiq
http://sidazhang.com/3-reasons-why-bitcoin-wont-be-the-new-internet/
======
clavalle
I think this essay is top heavy: the conclusions can't hold given the
assumptions.

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.

~~~
StavrosK
I think he means transactions per block, which is hard to increase 250x.

~~~
DennisP
The Bitcoin devs are working right now on something that could increase the
block size more than that.

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...](http://www.i-programmer.info/programming/theory/4641-the-invertible-
bloom-filter.html?start)

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](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.

~~~
jedunnigan
Transactions not having to propagate across the network a second time in
blocks is certainly nice, but that doesn't solve all the problems of large
blocks. As you said, that proposal is focused on maintaining an incentive for
miners to create large blocks without having to worry about orphan races.

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.

[1][http://getaddr.bitnodes.io/](http://getaddr.bitnodes.io/)

~~~
DennisP
VISA is typically around 2000 tx/sec, so it'd only saturate at peak. And
anyone with gigabit fiber won't be bothered even at peak. If we reach that
traffic level, gigabit will probably be fairly widespread by then.

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.

~~~
sp332
The fewer miners there are, the easier it is to carry out a 51% attack. And
the top miners have much more processing power than the average miner. Just a
few of the top ones collaborating could carry it off.

~~~
DennisP
That's definitely a problem, and it's the reason other projects are working on
ASIC-resistant proof-of-work. I just don't see how the method I described
would make things any worse.

~~~
sp332
I'm just pointing out that limiting active miners to people with fast internet
connections means there will be fewer of them.

------
Mahn
Despite the click-bait title, the article makes valid points which are very
often overlooked or downright ignored by hardcore bitcoiners. As someone who's
been watching bitcoin for the past few years, this is in my opinion the plain
reality.

~~~
lsadam0
The problem with that article is not that it makes 0 valid points, it's that
it makes some terrible correlations as an attempt to prove cryptos won't be
huge.

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.

~~~
post-
> The problem with that article is not that it makes 0 valid points, it's that
> it makes some terrible correlations as an attempt to prove cryptos won't be
> huge.

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.

~~~
Frondo
I like your ideas about the colonial aspects of Bitcoin in the developing
world. That is an angle I haven't heard anyone else mention before. It pairs
nicely with another critique I don't often see, that Bitcoin is undemocratic;
there are economic assumptions baked in that, if it were a government-backed
money, people could discuss, vote on, and ultimately change. With bitcoin,
there is no way that the people whose lives could be affected by those
assumptions can have a say in them--the design and operation of bitcoin
doesn't answer to the people in a democratic way.

~~~
innguest
That Bitcoin is undemocratic is a good thing. Look around in the world at what
democracy has done to currency. Not a single democratic currency has withstood
the test of time. It's time for a different approach.

~~~
Frondo
I am unable to agree with the statement, "It is time for an undemocratic
approach to money".

~~~
innguest
I want an undemocratic currency and I don't want to forbid you from using a
democratic currency if you prefer it. I doubt those that like you, who are
unable to agree with the statement above, will willingly extend the same
courtesy to those like me, who disagree with that statement.

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.

------
LukeHoersten
The first point is the only real argument IMHO and as others here have said,
it's prediction, not reasons. Here's the crux of the first argument:

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.

------
nickik
I do belive that bitcoin has huge drawbacks, but there are allready system
that are way better in most of these. Delegated prove of stack allows for
extreamly low cost, high speed transactions.

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.

------
GlickWick
The title is very click-baity, I think we can all agree on that.

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.

~~~
jgrowl
I find arguments against Bitcoin by talking about scams and illegal
transactions completely baffling. The same thing happens with cash simply
because it is a medium for exchanging value. It is an inherent property of
currency.

~~~
tormeh
That's also why suitcases full of cash are considered suspicious and you can't
bring with you as much as you want across borders[0][1]. The problem is
acknowledged (though not solved) when dealing with cash, so that's not a valid
argument for ignoring it in Bitcoin.

0:
[http://ec.europa.eu/taxation_customs/customs/customs_control...](http://ec.europa.eu/taxation_customs/customs/customs_controls/cash_controls/index_en.htm)

1:
[https://help.cbp.gov/app/answers/detail/a_id/778/~/declaring...](https://help.cbp.gov/app/answers/detail/a_id/778/~/declaring-
currency-when-entering-the-u.s.-in-transit-to-a-foreign-destination)

------
csentropy
Bad arguments. 1. Reason one is wrong as both increase in transaction volume
and BTC price are both not only possible but can actually be positive
externalities that reinforce each other. The increase in transactions could
lead to an increase in price as more people adopt BTC. This has already proven
to be the case in the early history of BTC. 2\. See above. Once adoption
increases, the incentive to convert to Fiat decreases thus making this problem
gradually irrelevant once the market tips (the big if). 3\. The need for
regulations: Obviously total garbage. No need to refute. 4\. Decentralization
is better than monopoly central control. Legislators and Regulators are the
only true monopolies. Market actors are not, so market based intermediaries
will still have reasons to exist. This is not a necessary condition for
widespread BTC adoption. 5\. Full decentralization and "censorship
resistance(aka freedom)" are important when there is a threat of property
confiscation, which will become increasingly relevant when states become
desperate for more revenue (already happening). 6\. People don't find daily
utility in fast decentralized transactions? That is ludicrous. 7\. Trust.
That's the whole point of btc protocol. Achieving trust between unknown
parties (refer to Byzantine Generals Problem) 8\. The section on blockchain is
good and valid.

------
frozenport
Is anybody worried about the terrible consequences if Bitcoin does succeed? It
will be a like putting the world back on the gold standard, except with even
less inflation! Is anger at online transaction fees worth destroying the world
economy?

~~~
JoeAltmaier
I'm worried as you are. That silicon valley snobs will ignore a thousand years
of learning, just to spite 'the man'. We've seen abominable cheating, lying
and abuses in virtual currency systems - that surpass anything physical
currency systems have experienced, in that they happen at the speed of the
internet if nothing else.

~~~
aminok
I don't believe people should be banned from doing a whole host of things to
ostensibly prevent cheating and fraud. The faith you have in centralised
authority is extremely dangerous and leads to things like the multi-trillion
dollar LIBOR scandal. Unlike with a market system, industries centralised
through thousands of regulatory bans cannot evolve because they are typically
dominated by a small number of super-giants, and are monocultures. Super large
organisms and monocultures are rare in nature for that reason. If anything is
snobbish, it's your willingness to impose your will on others through forceful
bans that dictate their personal financial activity.

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.

~~~
JoeAltmaier
No faith; just experience. Virtual currencies are unregulated, and behave like
it. That sort of system got us the great depression and numerous recessions.

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?

~~~
aminok
The experience of a brand new tech industry is not indicative of its future.
As mentioned, the internet matured, and became safer, on its own, without
regulations. Regulatory prohibitions would have destroyed everything good
about the internet.

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.

------
smokeyj
We've moved past the "Bitcoin will die" phase to the "Bitcoin may not be the
largest technical innovation since the internet" phase. I'm okay with that.

~~~
vectorpush
That's not a "phase", that's just a rebuttal to a hyperbolic claim often made
by bitcoin fanatics.

------
shawnhermans
The author makes a lot of statements but doesn't really back them up with
solid facts or analysis. Consider the second reason of "Bitcoin will not end
the need for trusted central parties" and claims that intermediaries do more
than just payment processing. As an example, he talks about YouTube and
revenue splitting.

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.

~~~
sida
To build a bit more context, there are a lot of talks about how Bitcoin will:

\- 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.

~~~
aminok
>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.

------
placeybordeaux
The real practical application for bitcoin that I see will be machine to
machine transactions, not human to human transactions.

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.

~~~
TheCoelacanth
Did you read the article? If you accept his conclusions, then long term even
using bitcoin for $1 transactions much less for $0.000001 isn't economically
feasible since he proposes that the true cost of a bitcoin transaction is
~$10.

~~~
placeybordeaux
Thats for transactions on the main block chain. For true micro transactions
there are a multitude of options for increasing throughput or decreasing
latency.

~~~
TheCoelacanth
But that wouldn't be bitcoin anymore. It would be a different crypto-currency.

------
moe
Congrats. That may be the dumbest bitcoin-related headline ever created (and
the competition wasn't weak to begin with).

~~~
theandrewbailey
Reason 4: Bitcoin doesn't transmit ideas effectively, thus ruling it out as
any internet "replacement" or successor.

Wait, that's the only reason it won't.

------
efnx
Each point is a prediction, not a reason. Given that, I didn't read more than
those.

~~~
kordless
Totally agree with you here. It smacks of "I think it's this way, so therefore
here's why I'm right thinking these things."

------
NoMoreNicksLeft
> At the same fee level, transaction count must increase 250 folds. Or,

How is this not plausible, given how few transactions must occur there?

~~~
sharpneli
The transaction count can only increase if they allow the block size to
increase. Right now it's 1MB at maximum.

The community is torn about the issue so it's an open question if it will ever
happen.

~~~
aminok
Almost everyone agrees with the 1 MB block size limit being removed, and
replaced with something else. The only question is what it will be replaced
with.

------
tuna-piano
For his first point "You cannot be cheap and secured by proof-of-work at the
same time".

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.

~~~
ianferrel
Being pegged to gold and being secured by gold aren't the same thing.

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.

------
hartator
"Per transaction cost is currently low because mining revenue comes from
inflation."

It's actually the reverse. Mining speculates on deflation not inflation.

~~~
tveita
I think the point is that mining is subsidized by "printing" new bitcoins,
which currently make up most of the block reward.

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.

~~~
yebyen
You say this like it's not a thing... "if a rational market existed." Maybe
we're experiencing a breakdown of understanding because your intent isn't
clear, so forgive me if I've misinterpreted your sentiment.

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.

------
mrb
The author's post is full of misguided opinions, and inaccuracies.

 _" 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...](https://blockchain.info/charts/n-transactions?showDataPoints=false&show_header=true&daysAverageString=7&timespan=all&scale=0&address=)

\- the price has already increased 1,000 fold (and more) in the past few
years: [https://blockchain.info/charts/market-
price?showDataPoints=f...](https://blockchain.info/charts/market-
price?showDataPoints=false&show_header=true&daysAverageString=7&timespan=all&scale=1&address=)

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.

~~~
sharpneli
> So the author ought to explain to us why he thinks such increases would
> suddenly stop

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.

~~~
vanzard
> Because they have already stopped

No, tx/block certainly NEVER stopped increasing:
[https://blockchain.info/charts/n-transactions?showDataPoints...](https://blockchain.info/charts/n-transactions?showDataPoints=false&show_header=true&daysAverageString=7&timespan=all&scale=0&address=)

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/](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.

~~~
sharpneli
tx/block did not stop increasing. But the transaction volume in USD has been
flat recently due to the falling price:
[https://blockchain.info/charts/estimated-transaction-
volume-...](https://blockchain.info/charts/estimated-transaction-volume-
usd?timespan=1year) The amount of value transferred in bitcoin network has
seen no growth at all lately. On the other hand it has not diminished either.

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?

~~~
vanzard
> But the transaction volume in USD

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-...](http://blog.bitpay.com/2014/12/09/bitcoin-black-
friday-2014-recap.html)

~~~
sharpneli
OP made the argument that it's enough for the price to go 10x and transactions
25x. That's why I pointed out the price. If the price stays down the
transactions must go 250x.

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.

~~~
vanzard
> If the price stays down the transactions must go 250x.

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?

------
CyberDildonics
This whole thing rests on the fundamental assumption that the current level of
mining must be constant. If mining is less profitable, there will be less
miners. This is the most likely scenario and not some crazy price increase or
fee price increase.

Miners can't profit? Miners drop out and leave more breathing room for the
other miners.

------
Lord_Zero
"internet" I dont think that word means what you think it means.

------
simas
People are hyped about Bitcoins being trustless? That sounds wrong.

------
drthsrth
Tl;rd

------
jerguismi
Bitcoin won't be the new internet, true. Its impact will be far greater than
that. Trolololo.

