
Why Bitcoin Matters - untilHellbanned
http://mobile.nytimes.com/blogs/dealbook/2014/01/21/why-bitcoin-matters/
======
minimax
_Bitcoin is the first Internet-wide payment system where transactions either
happen with no fees or very low fees (down to fractions of pennies). Existing
payment systems charge fees of around 2 percent to three percent_

As long as consumers are paid in their local currency and vendors pay their
employees, their taxes, and their other costs in local currency, then bitcoin
as a payment technology has similar costs as credit cards. Those costs are
reflected through exchange fees and bid/offer spreads.

Let's walk through a transaction. I want to buy something that costs 1
bitcoin. The going rate on the bitcoin exchange is $825 bid by $830 offered. I
take my cash to the exchange and convert it to bitcoin. Assume exchange fees
are .5%. To buy 1 bitcoin I pay $834.15 (fees included). I transfer the
bitcoin to the vendor, who then does the reverse transaction. He recieves
$820.875 (fees included). The cost for transaction was $13.275 (834.15 -
820.875) which comes out to 1.59%. That is cheaper than the oft quoted 2.5%
rate for credit cards but is very much in the same ballpark. If you factor in
that some credit cards give you 1% cash back then bitcoin and credit cards are
back at basically even in terms of net transaction costs.

With bitcoin as a payment technology, the transaction costs flow to the
bitcoin exchanges, market makers, and dealers. A dealer is sort of like an
exchange combined with a market maker. The dealer quotes you a price to buy or
sell bitcoins and you transact directly (not on an exchange). The dealer, like
a market maker, makes money on the bid/ask spread. The only reason I'm going
on about this is because one of a16z's big bitcoin investments is in a company
called Coinbase, which is a bitcoin dealer. When you buy or sell bitcoins with
Coinbase, Coinbase always takes the other side of the transaction. They make
money on the bid/ask spread, and in some cases ("instant exchange") they
charge you a 1% fee _on top_. It's a pretty clever business.

Just putting this out here so that everyone understands how the guys out there
touting bitcoin for payments plan to make money from the people using bitcoin
for payments.

~~~
ye
Yeah, you described pretty much the worst case scenario where everything goes
through fiat. But once Bitcoin penetration is significant and people start
getting paid in Bitcoin (already happening) and accept it as payment (also
already happening), all these exchange fees go away.

With fiat you're stuck with the fees forever.

Also your 0.5% assumption is wrong. You can place a buy ad on LocalBitcoins
and actually buy at below the market rate. Also, coinsigner.com.

~~~
pyvpx
does bitcoin have an intrinsic value? if so, what?

~~~
ye
Does dollar have an intrinsic value?

Actually, can you even define "intrinsic value" without going in circles or
defining it simply as current value?

~~~
plock
If we take 'intrinsic value' to mean 'having some use other than to simply
trade away again to someone else, or being backed by something with intrinsic
value', then the dollar has intrinsic value in that it is backed by freedom
from being prosecuted by the US government for non-payment of taxes.

~~~
BlackDeath3
>If we take 'intrinsic value' to mean... being backed by something with
intrinsic value

Hypothetical situation: Water holds "intrinsic value" to me, for obvious
reasons (in much the same way as your freedom from US government prosecution).
I know a guy who will trade me some water from some snail tails. Therefore,
snail tails are "intrinsically valuable".

I reject your definition of "intrinsic value". Sounds sorta' like "regular
value" to me.

~~~
plock
The degree to which you believe the guy will make good on his promise to
always buy snail tails in exchange for water is the degree to which you
believe snail tails are backed by water. We can be pretty sure the US
government will generally make good on its promise to take US dollars in
exchange for not prosecuting you for non-payment of taxes.

>I reject your definition of "intrinsic value". Sounds sorta' like "regular
value" to me.

I don't like the term 'intrinsic value' at all, since it sounds like it's
suggesting some type of absolute value, which I don't think very many people
(at least, not the ones having these conversations) really believe exists. I
think the way they mean it is more in line with the way I defined it, to
distinguish between something some people buy for its own sake versus
something people only buy so they can trade it away to someone else, who is in
turn only buying it so he can again trade it away. The latter still clearly
has value to those people who take it in trade, and 'intrinsic value' is a
convenient term to distinguish between the two.

~~~
BlackDeath3
If I have a comparable amount of confidence in my snail tail guy as I do in
the USG's hunger for USD, then snail tails are suddenly "intrinsically
valuable"?

I agree that intrinsic value is sort of a nebulous thing to begin with, and
I'm not convinced that the idea even makes sense to at all (as you've
suggested), but your definition just seems confusing at best, and perhaps even
useless (though if it's useful to you, then have at it).

~~~
plock
>If I have a comparable amount of confidence in my snail tail guy as I do in
the USG's hunger for USD, then snail tails are suddenly "intrinsically
valuable"?

According to the definition I gave, yes. If you're thinking of 'instrinsic
value' as meaning 'absolute value', then yes it's just as absurd to say snail
tails have intrinsic value as it is to say anything else has intrinsic value.
It certainly sounds absurd to say "snail tails have intrinsic value" for any
definition of "intrinsic value", but then, it's absurd to be as certain some
guy is going to trade snail tails for water as you are that dollars will buy
you freedom from prosecution for non-payment of taxes.

>but your definition just seems confusing at best, and perhaps even useless
(though if it's useful to you, then have at it).

Ya, I have no idea if it's useful or not. There are certainly people who are
suspicious of using goods as currencies if they don't have 'intrinsic value',
according to that definition. I don't know if that suspicion is well placed or
not, but it is there.

------
asciimo
I'm a Bitcoin believer but I feel a little embarrassed after reading this. I'm
impressed that Marc Andreessen can get an entire Dealbook page to advertise a
pet technology without any fact checking. (Is that the point of Dealbook? I
almost never read it.)

> Even Netflix, a completely virtual service, is only available in about 40
> countries.

The implication is that mere payment logistics are inhibiting Netflix's
internationalization. What about copyright and regional distribution
restrictions?

> Ben S. Bernanke, formerly Federal Reserve chairman, recently wrote that
> digital currencies like Bitcoin “may hold long-term promise, particularly if
> they promote a faster, more secure and more efficient payment system.”

Bernanke never said this ([http://imaginarymarkets.com/reddit-corrects-
bitcoin-quotes-a...](http://imaginarymarkets.com/reddit-corrects-bitcoin-
quotes-and-provides-more-quotes-with-sources/)), and it's tacky to perpetuate
this falsehood.

> But I hope that I have given you a sense of the enormous promise of Bitcoin.

Indeed, he succeeded here, though a little too breathlessly.

~~~
marcamillion
> Bernanke never said this ([http://imaginarymarkets.com/reddit-corrects-
> bitcoin-quotes-a...](http://imaginarymarkets.com/reddit-corrects-bitcoin-
> quotes-a...)), and it's tacky to perpetuate this falsehood.

I don't understand this. He did say it....here is the paragraph in it's
entirety from his address to the Senate:

 _Historically, virtual currencies have been viewed as a form of “electronic
money” or area of payment system technology that has been evolving over the
past 20 years. Over time, these types of innovations have received attention
from Congress as well as U.S. regulators. For example, in 1995, the U.S. House
of Representatives held hearings on “the future of money” at which early
versions of virtual currencies and other innovations were discussed. Vice
Chairman Alan Blinder’s testimony at that time made the key point that while
these types of innovations may pose risks related to law enforcement and
supervisory matters, there are also areas in which they may hold long-term
promise, particularly if the innovations promote a faster, more secure and
more efficient payment system._

He was using Vice Chairman Alan Blinder's testimony to prove the point that
while those innovations may pose risks there are areas which they may hold
long-term promise.

So not sure what you mean by he didn't say that.

Marc's original statement is indeed accurate, per the transcript of Bernanke's
speech. [1]

[1] - [http://qz.com/148399/ben-bernanke-bitcoin-may-hold-long-
term...](http://qz.com/148399/ben-bernanke-bitcoin-may-hold-long-term-
promise/)

~~~
asciimo
He's paraphrasing Alan Blinder's 1995 testimony in the context of the history
of virtual currencies. It is more accurate to say, "In 1995, Alan Blinder
stated that virtual currencies hold long-term promise, particularly if..."

My larger point is that whenever you see the Bernanke "bitcoin statement," it
implies that he is a Bitcoin advocate. He may very well be a Bitcoin fanboy in
his private life, but there is not public evidence that this is true.

------
sigil
_Bitcoin is the first practical solution to a longstanding problem in computer
science called the Byzantine Generals Problem._

Wait, isn't Paxos arguably the first practical solution to BGP? [0] [1] It's
been in production use at Google since at least 2006. [2]

Furthermore, Paxos actually has a _proof_ that timely consensus will be
reached. Do we have the same level of rock-solid mathematical certainty about
Bitcoin yet? The Eyal-Sirer paper [3] from late 2013 raised some concerns
about a new mining strategy that might lower the attack threshold from 50% to
33%. Ed Felton's group at Princeton responded with some interesting analysis
from game theory [4], but AFAIK there is no rigorous proof yet that the
selfish mining equilibrium isn't a real threat.

If Bitcoin is The Way of the Future (I hope it is), we need to be _sure_ about
these things. Hand-waving statements about how Bitcoin isn't vulnerable
because no one has found an exploit yet [5] are ridiculous and dangerous.

[0]
[http://en.wikipedia.org/wiki/Paxos_(computer_science)#Byzant...](http://en.wikipedia.org/wiki/Paxos_\(computer_science\)#Byzantine_Paxos)

[1]
[http://read.seas.harvard.edu/~kohler/class/08w-dsi/mazieres0...](http://read.seas.harvard.edu/~kohler/class/08w-dsi/mazieres07paxos.pdf)

[2]
[http://research.google.com/archive/chubby.html](http://research.google.com/archive/chubby.html)

[3]
[http://arxiv.org/pdf/1311.0243v2.pdf](http://arxiv.org/pdf/1311.0243v2.pdf)

[4] [https://freedom-to-tinker.com/blog/felten/bitcoin-isnt-so-
br...](https://freedom-to-tinker.com/blog/felten/bitcoin-isnt-so-broken-after-
all/)

[5]
[https://twitter.com/cdixon/status/412447615331360768](https://twitter.com/cdixon/status/412447615331360768)

~~~
hendzen
No, Paxos is not a solution to BGP. Paxos explicitly does not consider
malicious processes.

EDIT: fixed typo

~~~
sigil
Paxos is Byzantine Fault Tolerant. A malicious node is a special case of
failed node.

"The objective of Byzantine fault tolerance is to be able to defend against
Byzantine failures, in which components of a system fail in arbitrary ways
(i.e., not just by stopping or crashing but by processing requests
incorrectly, corrupting their local state, and/or producing incorrect or
inconsistent outputs)."

[http://en.wikipedia.org/wiki/Byzantine_fault_tolerance](http://en.wikipedia.org/wiki/Byzantine_fault_tolerance)

~~~
hendzen
That is a correct definition of BFT, but as I said, Paxos does not tolerate
Byzantine faults. Here's a direct quote [0] from Leslie Lamport, the author of
the Paxos algorithm.

    
    
        Assume that agents can communicate with one another by sending messages. 
        We use the customary asynchronous, non-Byzantine model, in which:
        
        • Agents operate at arbitrary speed, may fail by stopping, and may restart. 
        Since all agents may fail after a value is chosen and then restart, 
        a solution is impossible unless some information can be remembered by an agent
         that has failed and restarted.
        
        • Messages can take arbitrarily long to be delivered, can be duplicated, 
        and can be lost, but they are not corrupted.
    

So, to be clear, Paxos tolerates processes that crash arbitrarily, but not
processes that send malicious or incorrect messages.

For a consensus algorithm that __does __tolerate Byzantine faults, see Liskov
's Practical Byzantine Fault Tolerance [1].

[0] - [http://research.microsoft.com/en-
us/um/people/lamport/pubs/p...](http://research.microsoft.com/en-
us/um/people/lamport/pubs/paxos-simple.pdf)

[1] -
[http://www.pmg.lcs.mit.edu/papers/osdi99.pdf](http://www.pmg.lcs.mit.edu/papers/osdi99.pdf)

~~~
sigil
I referred in the top level comment above to Byzantine Paxos, a modified
version of Paxos that is BFT.

[http://en.wikipedia.org/wiki/Paxos_(computer_science)#Byzant...](http://en.wikipedia.org/wiki/Paxos_\(computer_science\)#Byzantine_Paxos)

~~~
hendzen
Ah - when the term Paxos is used it is usually in reference to the original,
non-BFT algorithm. Also, Google's implementations of Paxos (in Chubby, as well
as Megastore) are non-BFT, and I am not aware of any use of Byzantine Paxos in
production elsewhere.

~~~
sigil
Interesting, and makes sense. Why would you need the full BFT Paxos among
trusted participants?

Still, the claim that Bitcoin represents "a breakthrough in computer science"
on the Byzantine Generals Problem rings false to me. First, we already had BFT
algorithms, just no compelling need for them. Second, if this is really a
computer science breakthrough, where's the proof?

Don't get me wrong, I think Bitcoin is an enormous breakthrough in engineering
terms. It's just too important now to _not_ have the proven properties we're
relying on.

------
hooande
Andressen is making bitcoin out to be a decentralized paypal, when it was more
intended to be a form of currency. It makes more sense as a long term
investment or speculative bet than it does a way to transfer money from point
A to point B.

An analogy would be if person A and person B conducted a transaction by
converting their money from dollars to euros or vice versa (assuming A and B
are both in the same country). Depending on the current exchange rate, this
could be a good or a bad thing for both of them. If the dollar is weak, both
parties stand to lose. If the dollar is strong then it won't last because the
market will quickly be flooded with people trying to get in on the deal.

There is no way of controlling or predicting the bitcoin exchange rate. If I
send money to someone in my country with paypal they are going to whack me
with fees, but at least I know what the fees will be in advance. I can plan on
it as a business. Having to deal with an unknown and uncontrolled exchange
rate just doesn't sound fun. This is assuming that bitcoin stops having wild
price swings over time and stabilizes to the level of established global
currencies.

It just doesn't make sense to perform a currency conversion when transferring
money to someone who uses the same currency as the sender. This article was
amazing and pmarca opened my eyes to uses of bitcoin that I never would have
imagined. But the only thing I can't imagine is this new currency living up to
the utility that is expected of it.

Bitcoin the protocal, however, is freaking awesome. I expect to see a lot of
startups taking advantage of some of the non-monetary uses, up to and
including micropayments. It could be a very long time before bitcoin paychecks
are mainstream. But electronic transactions of all kinds are going to be
getting easier soon.

~~~
nhaehnle
The micropayments claim is a red herring. If Bitcoin were to actually take off
for micropayments, it would no longer scale, and/or the operation of Bitcoin
nodes would be limited to people with very serious hardware. At that point,
we're back to the game that is currently being played by banks, just with
different players in charge.

So it's understandable that many people hope that such a transition will
happen and that they will end up in charge after that transition.

For the society as a whole, however, Bitcoin does not have an inherent
advantage that is sustainably scalable.

~~~
drcode
You're assuming no progress will be made in bitcoin scalibility in the near
future, and comparing it to another technology stack that arguably hasn't seen
any meaningful innovation in 40 years (since the advent of the debit/credit
card.)

~~~
nhaehnle
If there really hasn't been any meaningful innovation in that other technology
stack, then the situation looks actually looks worse for the long-term fate of
Bitcoin, because it means that the other technology stack could easily improve
given the incentive.

That doesn't mean that Bitcoin will disappear or anything like that. It's just
not going to become the prevalent unit of account as a currency.

~~~
drcode
Oh no question, MasterCard et al are going to change their tune greatly in the
coming years due to this new competition, and we're all going to benefit from
this.

------
untilHellbanned
"Finally, I’d like to address the claim made by some critics that Bitcoin is a
haven for bad behavior..."

Just need more examples like Dogecoin funding the Jamaican Bobsled team[1] to
keep the narrative going in the right direction.

[1][http://www.theguardian.com/technology/2014/jan/20/jamaican-b...](http://www.theguardian.com/technology/2014/jan/20/jamaican-
bobsled-team-raises-dogecoin-winter-olympics)

~~~
willholloway
I've become a big Dogecoin proponent. I believe that Dogecoin will add another
dimension to our online experience, and open up avenues for content creators
to be rewarded that did not exist before.

I'm all in.

~~~
adrianwaj
For sure, SoundCloud would be an awesome place for more tipping.

------
riemannzeta
_Bitcoin is a digital bearer instrument. It is a way to exchange money or
assets between parties with no pre-existing trust: A string of numbers is sent
over email or text message in the simplest case. The sender doesn’t need to
know or trust the receiver or vice versa. Related, there are no chargebacks –
this is the part that is literally like cash – if you have the money or the
asset, you can pay with it; if you don’t, you can’t. This is brand new. This
has never existed in digital form before._

Doesn't this reveal the flaw in the "Bitcoin is the solution to the Byzantine
Generals' Problem" argument? My understanding is that the bulk of transactions
costs associated with most payment systems is associated with chargebacks.
Some result from fraud by the payer and some by the payee. Regardless, a
digital bearer instrument doesn't eliminate these failure modes; it simply
avoids them entirely. If the BGP is about solving the problem of fraud, then
Bitcoin hasn't solved it. It's simply avoided it.

~~~
eurleif
>If the BGP is about solving the problem of fraud, then Bitcoin hasn't solved
it.

Do you have any idea what the BGP is?

~~~
riemannzeta
I'm not an expert, but I read the paper. So you don't need an intermediary to
confirm that a particular digital transaction took place between two people.
By analogy to the original problem as stated, that's like saying you don't
need an intermediary to confirm that a message with particular content was
delivered between two generals. You still need an intermediary to confirm that
the recipient is going to act on it as intended.

And I believe the history of Silk Road and its would be successors is evidence
that an intermediary is still required post-Bitcoin. So you don't have to
worry about the money not being there. You still need an escrow agent.

[http://www.nytimes.com/2014/01/19/business/eagle-scout-
ideal...](http://www.nytimes.com/2014/01/19/business/eagle-scout-idealist-
drug-trafficker.html)

~~~
eurleif
>By analogy to the original problem as stated, that's like saying you don't
need an intermediary to confirm that a message with particular content was
delivered between two generals.

No, that's not analogous. Bitcoin prevents double-spending. It doesn't just
deliver messages.

You're talking about a whole other level of cooperation. It's true that
Bitcoin doesn't guarantee that, but no one said it did, and that doesn't imply
it doesn't really solve BGP.

Bitcoin _does_ have a built-in feature, multisig transactions, that makes a
more-trustworthy form of escrow possible.

~~~
riemannzeta
Well I found a partial answer to the question I asked right in Andreessen's
essay, but it's not the one you give here.

I guess I think of the authentication of sender and content for recipients as
being equivalent to the elimination of double-spending, and I don't see either
as being responsible for the failure modes of fraud in digital payment
systems. As a practical matter, recipients don't have has to question whether
a particular person actually has the credit to complete a given transaction
right now, and I'm not aware of double-spending credit as being a big problem
for credit card payment systems. Who cares about solving that problem when we
have a perfectly workable solution right now?

But sure, I get the point about other forms of fraud might be harder --
namely, stealing account information necessary to initiate transactions.

The question there is whether that problem too goes away in a world in which
credit numbers are kept as private keys on a physical device (like a
smartphone) and exchanged with merchants via something like SSH. Is the
overhead of Bitcoin still worth it?

------
comex
_Future email systems and social networks could refuse to accept incoming
messages unless they were accompanied with tiny amounts of Bitcoin – tiny
enough to not matter to the sender, but large enough to deter spammers, who
today can send uncounted billions of spam messages for free with impunity._

Heh. Talk about historically backward:

[http://en.wikipedia.org/wiki/Hashcash#Bitcoin](http://en.wikipedia.org/wiki/Hashcash#Bitcoin)

~~~
SilasX
I was thinking the same thing. If you want to impose costs on people who send
you emails, you can just strip out the proof of work component of bitcoin
(which indeed predated it), and use that as a challenge/response system.

~~~
sirsar
Implemented in Bitmessage, with free anonymity on the side.

------
interstitial
Personally, I prefer websites that take as a form of payment the riskiest
tranches of securitized subprime mortgages or cosmetic surgery loans, while
amplifying risk with my fundamental misunderstanding of default swaps.

------
jt2190

      > The criticism that merchants will not accept Bitcoin 
      > because of its volatility is also incorrect. Bitcoin can be 
      > used entirely as a payment system; merchants do not need to 
      > hold any Bitcoin currency or be exposed to Bitcoin 
      > volatility at any time. Any consumer or merchant can trade 
      > in and out of Bitcoin and other currencies 
      > any time they want.
    

I'm having trouble understanding this point of view because it implies that
someone, somewhere is _always_ willing to buy in to BTC, no matter the
circumstances. So, two questions:

1\. Is BTC somehow immune to currency crises like many government-backed
currencies have experienced? 2\. If BTC is not immune to crises, have any
parties emerged that will act to "defend" BTC in a crisis?

~~~
Spooky23
No and no.

One of the big reasons that the US moved towards central banking and
eventually paper currency is stability.

Any finite commodity is subject to rapid swings when supplies are constrained.
In recent memory, copper, silver and electricity are all commodities whose
price went crazy when either demand got wacky high, or supplies got very
limited.

In history, the economy was traditionally very vulnerable to economic shock in
the fall, because when agriculture dominated the economies small banks were
starving for capital as they waited for the harvest (and payment of crop
loans). Any hiccup would rapidly cascade through the system and lead to bank
runs.

With the fiat system, capital is made available to smooth the bumps. Instead
of a depression and widespread bank failures in 2008, the central banks
flooded the markets with capital and blunted the impact of the crisis and
avoided panic.

~~~
Nashhhh
This is true, but the end of your post implies that recessions have become
rarer and less pronounced in a fiat system. They haven't. In other words,
sure, central banks "flooded the markets with capital and blunted the impact
of the crisis and avoided panic", but what system was in place that allowed
the manic colossal 1995-2008 housing bubble to take place? Did it not have
anything to do with central banking policies, say, I dunno, incredibly low
interest rates for a decade?

The interesting part about your post is that it is in response to OP asking if
people would be willing to buy BTC at any price (to which you responded no).
But you gave the perfect example of mass psychology encouraging people to
hoard an asset they believe to be safe: in this case, in 2008, it was the USD.
Despite 'printing' (yes, I get it, it's not literally printing) massive
amounts of USD, the world ate it up because the USD it the world's reserve
currency and they (correctly) assumed that if the US is in trouble, every one
else's currencies were in waaaaay worse shape. Thus the insatiable demand for
something that was becoming 5x less scarce.

Now, if Bitcoin ever reaches that level of belief in its capacity as a store
of value (for example, based on the fact that for the first time ever you have
a currency/scrip/asset/commodity whose entire supply is predetermined, fixed
and immutable politically, could you not conceive that it might to have buyers
flock to it? (not asking if it's probable, only if it's possible; I'd agree
that at this stage this isn't the case)

~~~
Spooky23
I think bitcoin is like any other commodity. People may indeed flock to it,
but the relative stability of the current system is what makes it great -- can
can predict with some level of certainty what $1 will be worth in say 10
years.

That's important because it makes longer term capitalization of things like
homes possible. If the world was still using gold or BTC as currency, lending
would be like it was in the gold era as well -- things like 30 year mortgages
that make homes affordable would not exist.

As far as crises go, 2008 was a painful market contraction, but not a panic.
Contrast an event like the Panic of 1907, when banks collapsed and many people
lost life savings, mostly due to a shortage of short term cash. The nation
averted disaster becuase JP Morgan happened to be in town and had enough money
and clout to intervene.

In 2008, the Fed pumped money into the markets to allow banks to stay solvent.
FDIC made depositors at the few failed banks whole. Thanks to the corrupt
perversion of the banking regulations, the "too big to fail" banks required
even more extraordinary aid. People were hurt and lost money -- but they did
so because their assets lost value, not because their bank went out of
business.

Our monetary system isn't perfect by far. But it's much better than the old
style gold standards that BTC is reminiscent of.

~~~
Nashhhh
Your examples are not examples of the problem with gold standards, but the
rather the problem with fractional reserve banking, which is virtually non-
existent with BTC (I disagree with Bitcoin proponents that say FRB isn't
possible with BTC-- it'll simply be market based and potentially auditable
through the blockchain). My point with 2008 is that it was a problem created
by banks/government, which, whether corrupt or whatever, is essentially
centrally planned. So I meant to say that while the current system was "saved"
by the central planning, you must couple it with the fact it was caused by it,
too (or, caused by a failure of it, if you'd prefer).

------
easy_rider
>The criticism that merchants will not accept Bitcoin due to its volatility is
also incorrect. Bitcoin can be used entirely as a payment system; merchants do
not need to hold any Bitcoin currency or be exposed to Bitcoin volatility at
any time. Any consumer or merchant can trade in and out of Bitcoin and other
currencies any time they want.

I don't understand this. Someone is taking the risk right now. Currently it's
the exchanges and merchants directly, because they rely on the exchanges. With
high volatility merchants wouldn't be getting about the same amount in 1 hour
turnover time right now. Everything in the process should be synced according
to current exchange rates. Obviously technology makes this possible, but the
technical implementation effort would be huge for widespread adoption.

BTC as it stands now seems to be somewhat stabilizing, but anything is still
possible until it becomes more widespread and trusted. Kind of paradoxical.

~~~
eatitraw
> I don't understand this. Someone is taking the risk right now.

Correct.

> Currently it's the exchanges and merchants directly, because they rely on
> the exchanges.

Incorrect. There is the solution: [https://bitpay.com/](https://bitpay.com/) ,
which automatically does conversion for a small fee. Buyers pay in bitcoin,
but sellers receives fiat money(e.g. USD). The risk is taken by bitpay,
sellers always receive fixed amount in fiat money, and buyers have the window
of 15 minutes to make BTC payment.

~~~
tptacek
"Fiat money" is as I've seen it used a political message, used most often to
assumptively introduce the idea that government-backed currency is suspect.
But fiat currencies are simply currencies that aren't backed by collateral. To
the extent that you believe it's a currency and not a tradable instrument that
happens to have interesting barter and liquidity characteristics (right now),
Bitcoin is a fiat currency as well.

~~~
eatitraw
Well, in my comment I simply wanted to distinguish between state-run
currencies and bitcoin.

> But fiat currencies are simply currencies that aren't backed by collateral

I've checked wikipedia, and one of the definitions for the term "fiat money"
is "state-issued money which is neither convertible by law to any other thing,
nor fixed in value in terms of any objective standard.". Bitcoin clearly
doesn't fall under this definition. So your statement is not quite true.

~~~
gnaritas
Because one definition doesn't fit doesn't preclude the other from fitting.
Bitcoin fits the third definition on your wikipedia page, so it is fiat
currency.

------
kolev
Bitcoin matters, but it won't survive "as is" ("thanks" to hoarders and
speculators). It just brought attention to a problem, which will get solved
more elegantly.

~~~
drcode
Please let me know when web programming finally gets solved more elegantly,
without the anachronistic ugliness of js/css/html.

~~~
kolev
Many have tried, but people keep using what they are used to. Same with
Bitcoin. People will keep using their convenient credit cards regardless if
they are a superior or a subpar technology. Until Bitcoin diehards get this
simple fact and quit spreading delusions that Bitcoin is replacing cash,
credit cards, and Western Union, people will not take them seriously.

~~~
drcode
Centralized technologies: Compuserve, MasterCard.

Decentralized technologies: The Internet, Bitcoin.

~~~
reqres
So you're saying both can work?

------
Guvante
> The practical consequence of solving this problem is that Bitcoin gives us,
> for the first time, a way for one Internet user to transfer a unique piece
> of digital property to another Internet user, such that the transfer is
> guaranteed to be safe and secure, everyone knows that the transfer has taken
> place, and nobody can challenge the legitimacy of the transfer. The
> consequences of this breakthrough are hard to overstate.

But bitcoin doesn't do this at all. This is what makes Bitcoin amazing, but it
doesn't solve this issue yet. Bitcoin is interesting since it is a minor
revelation from providing this, but it seems incorrect to assert that this is
the cool thing about Bitcoins right now.

~~~
vladd
The reason I feel bitcoin is a scam is due to such misunderstandings. Bitcoin
is not what makes any of this possible, the research happening for 20+ years
in the background is.

Bitcoin is just a marketing term, a specific implementation of those
principles that derives its power just from the number of clients installed
across the world with it. All the arguments that Andreessen gave are not
Bitcoin's, but are rather characteristic for all altcoins out there.

When you leave the research out, all you end up with is a term which denotes
the first runner in a long-tailed race -
[http://coinmarketcap.com/](http://coinmarketcap.com/) . And when you compute
the long-term value, being today's winner of the race in terms of marketing
and clients user-base is totally different than the open-sourced research that
happened and what Andreessen invoked.

Fiat currency is sustained by our obligation to pay taxes in it and the legal
tender notion that the law offers to it. Bitcoin is not offering such
uniqueness, nor in the law nor by being the only system which provides the
features involved in the article. It's only power comes from the specificity
of its installed client-base, and anyone who sustains otherwise is either too
less technical to notice the difference or comes close to border-line fraud to
manipulate its interest in this bubble, at least in my book.

~~~
lectrick
Your argument is, paraphrased, "bitcoin is bad because it is new and does not
fit well into _current_ conceptions of money and current payment systems."

Well, first of all, most of this friction only happens _when trading bitcoin
for fiat_. It's the fault of the existing system.

I can send any amount of Bitcoin in 5 seconds, anywhere in the world where
there is an Internet connection or a reasonably good cellphone. So can any kid
(who can't get a credit card), so can any third world unbanked person. You
simply cannot _do_ that trick with any other currency.

Cryptocoins, led by Bitcoin, truly are "of, by, and for the Internet".

Secondly, shit changes. Look at what the Internet did, and it too had its
famous skeptics: [http://kenhoma.wordpress.com/2011/09/15/the-internet-is-
just...](http://kenhoma.wordpress.com/2011/09/15/the-internet-is-just-a-fad-
newsweek-feb-26-1995/)

~~~
Guvante
I would be 100% behind bitcoin if its value would stabilize. I would totally
put a little into coins and keep an eye out for when I can use them if I had
any faith they would hold their value.

------
candybar
The part about bitcoin entirely as a payment system makes no sense, because
both the consumer and the merchant need an existing payment system, to convert
into and out of bitcoin for this to work, in which case bitcoin is just a
middleman doing no work. I suppose some payment systems are localized and
bitcoin can work as a global bridge, but that seems like a trivial legal hack
that will be shut down soon.

~~~
baddox
> in which case bitcoin is just a middleman doing no work

So you're saying that, pessimistically, all Bitcoin could do is disrupt the
credit/debit card companies? That's very pessimistic, and still a very big
deal.

~~~
vasilipupkin
It sounds to me like what we need is a single place where I can deposit my
credit card info, which I trust is secure, and then all the merchants transact
with me by doing some version of auth against that web service/api without
ever exchanging any credit card numbers. For consumers this is great, since
they never have to update their credit card info on 10 million places. It's
good for businesses, too. That kind of service would undercut one of the main
premises behind bitcoin usefullness.

------
Aaronn
Non-mobile version: [http://dealbook.nytimes.com/2014/01/21/why-bitcoin-
matters/](http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/)

------
billyhoffman
Some variation of "no or very low fees" appears 5 times in this article. Marc
is doing a good job (re)setting the expectation that transaction fees are not
going away. a16z's bitcoin companies are just going to utterly gut the
existing payment industry's 2.5%

------
lectrick
The best lesson Bitcoin taught me is that the currencies we grew up with are
just a shared illusion.

~~~
jude-
How so? Currencies are only an abstraction layer on top of goods and services.
Instead of directly trading my goods and services for yours, we use a currency
--a common "interface" for doing so. The currency doesn't have intrinsic
value; the reason it has value at all is because you can exchange it for a
wide variety of goods and services. That's why people want dollars, but not
Monopoly money.

~~~
lectrick
> The currency doesn't have intrinsic value;

That is the #1 criticism of Bitcoin. Which means it's a meaningless criticism.

~~~
hashmap
It isn't though - it's a way to illustrate Bitcoin's usefulness as a currency
as "worse than gold."

I'd put bitcoin's inherently deflationary nature, inability to perform
chargebacks, vulnerability to selfish mining, incentivizing the waste of
electricity, or a myriad of its other problems far higher on the list than the
fact that it has no intrinsic value. Outside the above argument, its lack of
intrinsic value isn't that common a criticism, nor is it really relevant.

------
chris123
The crypto currency market = "winner take all" market ("all" >= 80%). That
said, if the capital costs (mostly mining hardware) and operating costs
(mostly electricity, with some rent and labor) leave room for a low-cost
producer to enter the market (and the switching costs are not too high). Time
will tell. Evolution will do its magic and the fittest will survive (at least
until the wheel turns round again). Regardless of who "wins," crypto-currency-
based disruptors are a comin' to a status quo near you. And that's a good
thing.

------
deegles
Aren't transaction costs being "paid for" by all those people running mining
rigs? All that processing power used to confirm your transaction cost
_someone_ real money. Transaction fees ostensibly pay for this, but I haven't
seen anyone do the math on how much to charge to make transactions break even.
As the difficulty gets higher and higher, miners will have to rely on these
fees to make any profit.

As a side note, is it possible to build mining rigs optimized for transactions
vs. mining? or is that the same job?

~~~
lostsock
It's the same job. The way that transactions are processed is that they are
included in the block that is mined. At the moment there is an extra 25 BTC
reward for mining a block in addition to the transaction fees of those
transactions you have included but over time this extra reward will diminish
to 0.

------
vasilipupkin
So, one big reason for merchants to accept bitcoins is the high fees charged
by credit card processors? So, suppose they cut the fees? Does that kill
bitcoin ?

~~~
sskates
On any payment network the fees are a result of the risks of credit card
fraud. Card processors can't cut fees without losing money. It's an efficient
market as it is.

~~~
vasilipupkin
Wouldn't then all the fraud risks move to those businesses which take consumer
credit cards and exchange them for bitcoins. So why would the aggregate fraud
cost in the system be any lower ?

Also, I seriously doubt that 2.5% fee is all cost. Visa/Mastercard, etc. are
massively profitable - they have plenty of room to cut those fees

~~~
drinkzima
Visa processed ~4.2T of payments last year (page 32) and earned ~5B of net
income on ~11.7B of revenue (page 29). By my calculations that is ~0.1% off
the top of the transaction net of costs to do business. Not much.

All from the most recent 10K:
[http://investor.visa.com/phoenix.zhtml?c=215693&p=irol-
SECTe...](http://investor.visa.com/phoenix.zhtml?c=215693&p=irol-
SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTkyNDQzNjMmRFNFUT0wJlNFUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9NTc%3d)

------
known
There are only $1 trillion cash/coins in circulation. Everything else is debt.
[http://www.federalreserve.gov/releases/h41/current/h41.htm](http://www.federalreserve.gov/releases/h41/current/h41.htm)

~~~
Guvante
The USD is a debt based currency, so that is expected.

Bitcoins are a proof of work based currency, but unfortunately it acts more
like a commodity at the moment.

~~~
varjag
Proof of useless work based, to be precise: the only reason work tokens are
hash computations instead of say push-ups or soap bubbles is the ease of
bookkeeping. So it always puzzled me why that aspect matters.

~~~
maaku
The fact that the work is useless is essential to the security of the system.
It's a proof of sacrificed opportunity. If the proof of work was actually
useful and monetizable, you might be able to pay for your mining via its
utility, and that would completely destroy the security assumptions underlying
bitcoin.

~~~
umanwizard
How so?

~~~
maaku
It would cost "nothing" to mount an attack because the attack mining is
profitable for other reasons.

------
nether
Remember when everyone said bitcoin was doomed because it's deflationary?

~~~
base698
That's only people that read the 101 level of how the economy works and don't
consider that bitcoin is infinitely divisible practically, unlike gold.

~~~
Crito
I'd say that gold is infinitely divisible in practice, as much or moreso than
bitcoin. There is what, a USD dollar or two worth of gold leaf in
Goldschläger? You can trivially get down to flakes of gold worth fractions of
pennies.

The only problem is the cost of division (making leaf is somewhat labor
intensive, but not prohibitively so by any stretch).

The _hard_ limit is $1e-20, according to wolfram alpha. IIRC bitcoin will only
get you down to e-8.

~~~
base698
Bitcoin is only fixed at that now, it can change as needed.

------
bluekite2000
anyone has experience with remittance from US to countries that don't have a
local bitcoin exchange? How would it work in such case since the receiver
can't convert the money to the local currency?

~~~
oafitupa
localbitcoins.com

------
judk
I wish Will Satire would explain the etymology of "Why X Matters"

------
panabee
this may be a stupid question, but how does the cap of 21 million coins affect
bitcoin? does it not matter because each bitcoin is infinitely divisible?

~~~
sirsar
Divisible to 8 decimal places. There are thus 2 quadrillion atomic units.

------
timelincoln
Beautiful

