

The (practical) End of Bitcoin - fraserharris
http://blog.fraserharris.com/post/6553721422/the-practical-end-of-bitcoin

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malandrew
What people who argue argue bitcoin don't seem to get is that you don't need
the participation of banks at all.

If an individual offers any good or service in exchange for bitcoins they can
get bitcoins so long as the people with bitcoins wants that good or service.
There was a perfect example here on HN the other day. Someone would purchase
electronics products from Newegg for HNers in other countries in exchange for
bitcoin. The cost in bitcoins was equal to the cost of the product in USD
converted to bitcoins plus an operating margin.

The flatter the World gets the more likely that bitcoin is likely to have
utility.

All the naysayers keep harping on about how bitcoin will never gain mainstream
acceptance in the US. They're partially right. The mainstream US is not the
target market. Bitcoin will probably enjoy some mainstream acceptance in the
US, but it will probably be a long time from now and occur well after it
enjoys mainstream success in some foreign market.

The key global feature that makes bitcoin viable is a functioning and reliable
postal service. Beyond that all that is necessary is a robust reputation
management system.

With those two features, you can transact easily and simply with anyone in the
World without ever dealing with US banks. That's the key piece to get here. In
the long-term, regulation of US banks prohibiting bitcoin will hurt banks more
than bitcoin, because it just means that they won't be able to participate.

The key to a functioning bitcoin economy is not the middlemen such as banks.
The key are enough endpoints so that there are enough goods and services you
want to buy in bitcoin that uses charge in bitcoin and then maintain the
currency until they spend it on a good or service they want.

Everyone focuses on the banks and intermediaries, but it's the quantity and
diversity endpoints (buyers/sellers) that truly matter.

~~~
irickt
While bitcoin is designed to be a currency, it is not yet a currency. It is
rather a commodity. If it is to be a currency it must be able to be used to
buy any commodity - in particular, dollars. If someone has to think about what
they can't "buy" it may be useful to them but it's not as a currency. A
currency has this property of universal exchange (and security, stability,
...) Bitcoin is questionable on many counts, thus is likely to remain a
tradeable commodity only.

~~~
krschultz
You hit the nail right on the head. I can buy some stuff on Newegg, and have
someone in another country mail me gold. Or ship me oil. Or coal. That doesn't
mean oil or coal is a currency, they're just a commodity. And I'm just engaged
in trading.

Bitcoin is more _like_ a currency than oil or coal, because it mechanically
works a lot like one. But just because you say 'this is a currency', doesn't
mean it actually is one. You are missing all of the higher level stuff. There
is a reason a dollar backed by the US government is far more useful than a
random coin 'backed' by a government of an island nobody recognizes.

My uncle is a mechanic, and has traded his time fixing commercial vangs for
goods. We've had plenty of parties cartered in exchange for fixing the
restaurent's delivery fan, or borrowed plenty of heavy equipment from
contractors that need their truck fixed but don't have cash. Does that mean a
tray of chicken marsala and a plate of bakery cookies are a currency? Of
coruse not. Trade/bartering existed long before currency existed, and it still
goes on today. Commodities existed long before currency existed. Being able to
trade one commodity (bitcoin) for a good or service doesn't make it a
currency.

We've learned this lesson over the last 200 years but a lot of people seem to
ignore them. Most of the people pushing bitcoins harp on the fact that dollar
keeps getting devalued, but they are ignoring the history showing that is a
far better problem than a deflationary currency .

~~~
malandrew
Bitcoin has greater fungibility than oil, coal or gold and can be exchanged
electronically with anyone in the World.

Is bitcoin competitive with the Dollar, the Euro or the Yen? No, it isn't
competitive with those currencies or many other currencies. If, however, you
abandon a developed country centric viewpoint, there are plenty of secondary
and tertiary markets where bitcoin is competitive with the domestic currency.

If you've ever lived abroad you know that you simply don't have access to the
same goods and services that people in the US and Europe enjoy. It's a huge
pain to purchase US goods and services from abroad. The transaction costs are
very high.

Increasingly individuals want to be able to trade as if the world is flat and
it's very difficult and banks siphon off lots of money with unnecessarily high
fees. This makes some goods entirely unpurchasable because the fees become a
significant part of the cost.

That right there is a great example of a buy-side willing to spend bitcoins.

For bitcoin to gain traction in the US you need a buy-side here. This is where
the US War on Drugs makes bitcoin attractive. Drugs will always be in demand.
Always. Anyone who tells you otherwise is full of it. You now have a medium of
exchange which makes trade much much safer for individuals involved in
clandestine activities.

Personally, I'm neither for or against these activities. I'm just making an
observation. I actually and for a Portugal-style approach that treats drugs as
a social problem and not a criminal problem. So long as drugs remain a
criminal problem you will have a buy-side here in the US.

Now, if those at the top of the drug pyramid start seeing significant benefits
from trading in bitcoin, they will start adopting it. Bitcoin is safer because
it eliminates the money laundering risk from their business, which is pretty
much the only activity that is truly centrally observable by a government. On
top of that, money laundering is a significant cost of doing business and
AFAIK is probably comparable to the fees Apple charges developers for in-app
subscriptions.

If bitcoin demand moves down the drug distribution pyramid it only becomes a
matter of time before dealers are going to start wanting to collect at least a
portion of their costs in bitcoin.

As I said, I'm neither for or against these activities, but this is a
sufficiently large and stable market to eventually help stabilize the value of
bitcoins and make it tradable in other contexts in other countries.

If Square can be successful in helping individuals transact with other
individuals, then so can bitcoin ... eventually.

The moment you abandon a Dollar or Euro centric viewpoint it become far more
obvious how bitcoin can gain legitimacy in other contexts. As far as the US is
concerned the bitcoin will probably remain a currency for illegal activities
until it becomes so commonplace for those activities that it starts crossing
over to the mainstream among drug purchasers. Keep in mind that 47.1% of the
US have used illegal drugs.

------
Kurtz79
This article is short but nails the biggest bitcoin hurdle I can see at the
moment.

The intrinsic value of currency is given by the services and tangible products
it can buy.

With a USD (or EUR or GBP or whatever) you can buy virtually everything
(except, maybe, love and happiness :)), while it it wasn't for the possibility
to exchange bitcoins for "actual" money, the amount of things you could buy
with them would be virtually nothing, as of today.

Want to buy an Ipod from an Apple store ? You can't. Renew your WoW account ?
You can't. Buy at Amazon ? You can't.

The only way to do that is to either go through middlemen that offers the
same, or similar, products/services secondhand or exchange bitcoins for cash.
And both services will disappear in a blink, if they will find they can't
exchange their bitcoins for cash.

The only way I can see bitcoins to take off indefinitely is that its economy
of services/products you can buy with them will grow to a point that its
intrinsic value will be enough for the people to stick with them, regardlessly
of the possibilit to exchange them.

But we are talking years, I doubt they will be given such breathing space.

------
vessenes
For all the short blogs, there are very few, if any short options written or
listed at bitoption.org. I made a little bit of money on mild shorts there
this week, essentially betting against major price increases, but I just don't
see any like $2 puts being listed for end of the year.

------
pavel_lishin
This whole thing reminds me of Daemon/FreeedomTM and the darknet credits.

~~~
nissimk
Yes, I agree, and "Anonymous" reminds me a lot of the daemon network. The only
thing we don't have is Hari Seldon, er I mean Matthew Sobol. Daniel Suarez is
awesome.

~~~
pavel_lishin
Funny that you bring up Hari Seldon - you have to kind of suspend a lot of
disbelief to be convinced that someone could basically single-handedly foresee
everything that could potentially happen.

But I guess that's why it's fiction.

~~~
cubicle67
except

\- he knew he _couldn't_ foresee everything, hence the line of similarly
trained followers, all of who worked to expand the science

\- he was wrong anyway. Things happened that he didn't/couldn't have forseen

~~~
pavel_lishin
I think you're talking about Seldon for this one, and you're definitely right
- the Mule was unforseen, and unforseeable, and he did have spiritual
successors.

I don't think Sobol really did - definitely not in the Daemon novel, anyway,
every operative was following the AI's instructions. The darknet became (or at
least, was shown to be) more self-sufficient later on, when there was less
focus on murdering people and more on building communities.

I just didn't think it was particularly realistic to skip from A to B without
everything falling apart in between - especially considering that there wasn't
anything like psychohistory in Suarez's book to wave your hands around.

