
Why I'm Interested in Bitcoin - ckurdziel
http://cdixon.org/2013/12/31/why-im-interested-in-bitcoin/
======
minimax
For all the people out there who are thinking about bitcoin as a payment
technology: If you assume that customers get paid in dollars and that vendors
will have to use dollars to pay their taxes, pay their employees and buy the
raw materials for their products (reasonable assumptions, I think), then a
payment consists of one conversion from dollars to bitcoins by the purchaser,
and one conversion from bitcoins to dollars by the vendor.

Those two transactions will have associated costs. Exchanges take out trading
fees and the market makers on the exchanges will want to see some profit as
well (you will see this reflected in the bid/ask spread). The total cost for
the transaction will be 2x the spread + exchange fees. People keep touting the
2.5% charge for using credit cards, but they don't compare it to a similar
value for bitcoin. It clearly is not 0%. Exchange fees alone are can be
something like 0.5%. If we double that (two conversions, remember) that's 1%
just in exchange fees. Unfortunately, I don't have good numbers for bitcoin /
dollar spreads because I don't watch that market very closely.

So we have 2.5% for credit cards and 1% + spread (unknown) for bitcoin. And
with credit cards consumers at least get some protection in the case of fraud.
Does anyone else have a better model for bitcoin transaction costs?

~~~
cdixon
Here's one model that could work. Think of Bitcoin as analogous to physical
cash. Cash = small casual payments in offline world. Bitcoin = small casual
payments in online world. (btw, the original Bitoin paper says this pretty
explicitly). I don't keep my savings in (physical) cash. I keep some spending
money there. Similarly you will have your internet spending money. You'll
converts to and from USD occasionally but not on every transaction. Maybe some
people will store value in Bitcoin but they will be the exceptions.

But ultimately smarter people than me will figure out the right model. That's
the beauty of software platforms.

~~~
porter
The reason why you carry cash is because you sometimes find yourself in
situations where a credit card won't work - tipping the valet, vending
machines, car washes, etc.

In what cases will bitcoin be better for small transactions online than a
credit card? I'm at a loss for examples.

~~~
cdixon
I think the original Bitcoin paper said it well: "small casual payments."

To pay online right now, you have to decide: 1) do I trust this vendor 2) do I
want to fill out this form with all my info

Generally this (plus transaction fees) only make sense for transactions above
$10.

The vendor responds by trying to build a relationship with you- by building
brand trust and by pushing you toward an ongoing relationship (recurring
payments, creating an account etc). This is why "cards on file" is considered
a major business asset online.

As a result, any online service that doesn't make the cut is forced to resort
to an advertising based business model.

~~~
steveklabnik
> I think the original Bitcoin paper said it well: "small casual payments."

You can see this with the tipping culture on Reddit. It's helped Dogecoin
really take off, because it's pretty trivial to send a small, casual payment
to someone.

------
abalone
This is the same naive analysis everyone makes when they first look at the
payments system. "Look at all that money. 2-3% on every transaction. A $500B
tax. LOOK AT ALL THAT MONEY."

The reality is this: _Most of that money gets passed back to consumers_ via
rewards, benefits and consumer protections.

It's not a tax so much as an incentive for consumers to keep using their
cards. And so it is considerably harder to come up with an alternative that is
appealing to merchants without taking anything away from consumers.

For example, the interchange on a Visa rewards card for a typical brick-and-
mortar retailer is about 1.5 - 1.65%. (Processors mark that up, but that's the
"wholesale" fee that goes to the card issuer.) But many rewards cards pay out
at least 1% cashback, on top of other benefits. That leaves a much smaller
margin to compete over.

And remember, a new competitive option faces massive rollout and adoption
costs that the entrenched system does not. Even the acts of changing behavior,
upgrading POS systems and training staff are adoption costs. So your new
alternative has to offer _significant_ benefits for _both_ merchants and
consumers. Significant enough to overcome adoption costs.

Oh, and there's one more thing: debit card interchange just got regulated down
to almost nothing (0.05% + 21 cents) by the Durbin amendment. So there already
is an alternative, low-fee option that merchants can steer consumers toward
and that they already support fully. So that pretty much takes out the
opportunity to offer a lower-fee, lower-consumer-benefit option. That already
exists now.

That leaves what? A higher-consumer-benefit option? Why would merchants adopt
that? A same-benefit option but at a lower cost? But how much lower would the
cost be while still matching 1-2% cashback reward programs and whatnot?

But.. but.. LOOK AT ALL THAT MONEY. :-)

(Btw, the digital cash for micropayments and garage sales and whatnot does
sound interesting to me. My criticism is limited to the project of competing
with Visa/Mastercard/banks.)

~~~
jval
If card companies are paying it all back to consumers, then what are their
shareholders ending up with?

I agree with you that not all the $500Bn is going directly into the pockets of
shareholders, but the reality is that there is a huge transaction cost in
taking a clip and then passing part of it back to a consumer. However much is
lost in the process, it might not be $500Bn but it is definitely a lot of
money, and it is unnecessary.

There are a lot of arguments as to why merchants won't adopt Bitcoin for
payments, the main one being that they actually need most of the features of
modern finance that these companies charge for. The fees though are definitely
an argument for Bitcoin, and not against.

~~~
saalweachter
Actually, where are all of these numbers coming from in the first place? I
know I've heard a lot about the "credit card tax", but I can't seem to pull
the numbers off the public data on these companies.

Visa has $10.4 billion in revenue off of processing $4.4 trillion in
transactions; that seems to make the credit card tax a mere 0.2%, which is off
by an order of magnitude from the conventional-wisdom "credit card tax". Where
does this mis-match come from? Is the revenue hidden, and Visa is taking in a
few hundred billion in revenue? Or is the revenue potential just much smaller
than conventional wisdom says? (eg, the 2-3% and $X trillion come from
different classes of transactions, and shouldn't be combined.)

~~~
patio11
Visa is not the only party receiving money on the transaction: the
processor/merchant bank and issuing bank also both receive cuts which dwarf
Visa's.

~~~
saalweachter
Hmmm, that is definitely a part of the mystery.

According to their annual reports, Chase, Bank of America, Citicorp, and Wells
Fargo had a combined $15.3 billion in card services revenue/card fees.

If you add that to the $7.4 billion in revenue from Mastercard, $10.4 billion
in revenue from Visa, and $27 billion in non-interest revenue from American
Express (of which $17 billion was "discount fees", which I _think_ means cash-
back), you're up to $60 billion dollars.

I feel comfortable going from $60 billion to $100 billion just extrapolating
from the top companies to the rest of the industry.

Any guesses on where the extra $400 billion is going?

------
jusben1369
I too am fascinated by Bitcoin and still in learning mode. I think there's one
important distinction to add here though. Credit cards can charge 2.5% because
they're _awesome_ Some guy in Arizona can set himself up online, sign up for
Stripe, have no set fees, and accept a payment from someone in Germany (or NY
or Australia) that afternoon. That's amazingly empowering and 2.5% doesn't
seem to bad for the people running those rails to collect (fraud, global
movement etc)

So let's not come at it from "credit cards and payments are a bloated gouging
industry" I'm not buying that and it also is too merchant focused (vs
consumers who really decide what a merchant will do in terms of payments) Now,
there are some really interesting fringe cases that Chris touches upon that
can open the door for Bitcoin. Micropayments are broken when it comes to
credit cards. It's not the %, it that's "\+ 30 cents" that is brutal. So
Bitcoin could play a roll there. There are disbursements and marketplaces. I
suspect TaskRabbit would probably like to have the ability to move money from
buyers on their platforms to the TaskRabbiter's with a reduced payment
friction than today. There might be 5% margin businesses (Chris' example
sounds like the founder of Dwolla) that really are motivated to drive you to
Bitcoin.

So what happens over time is Bitcoin focuses in on those areas where it has a
strategic advantage over cards and ignores those where it doesn't. It uses
that experience to become a legitimate, scaled set of payments rails.
Solutions are implemented so that consumers are comfortable with using and
paying with Bitcoin. Then at that 5 - 15 year mark it's ready to take on
mainstream payments. Assuming issues like fraud and settlement and wild
fluctuations are worked out.

EDIT: I am definitely thinking out loud and on the fly so am ok with some
serious rebuttals.

~~~
Sambdala
"Some guy in Arizona can set himself up online, sign up for Stripe, have no
set fees, and accept a payment from someone in Germany (or NY or Australia)
that afternoon."

 _Anyone_ can take payments using Bitcoin in less time than it takes to sign
up for and implement the Stripe API (I would know; I've done both), and you
don't have to have a bank account in an approved jurisdiction in order to do
so.

They can either do this by using the technology directly or using an
intermediary such as Coinbase.

"Bitcoin focuses in on those areas where it has a strategic advantage over
cards and ignores those where it doesn't."

Thankfully Bitcoin doesn't care what it's used for, and there will probably be
people trying to implement a Bitcoin solution for all these areas; the ones
that find a niche will survive, and the ones that don't will fail. Either way,
we'll (in theory) end up with the services that Bitcoin is suited for, and the
ones that it isn't suited for will continue to use more traditional methods.

~~~
sergiotapia
Yes but you don't have the incredible safety net of using a bank. Bitcoin
seems really unsafe and I keep hearing of people stealing wallets and large
sums from Mt.Gox

------
quack
I used to believe that the reversibility of transactions was a major benefit
of using cards, but it turns out that is really just a reversibility of
liability.

Credit cards are an outdated tool. They pass plain text data about a user to
authorize a transaction allowing hackers to pull something off like the Target
hack. One of the advantages of bitcoin is the ability to digitally authorize a
transaction that cannot be reused. In an online marketplace it's far far
easier to accept bitcoins than credit cards because you have no fraud risk,
which is a HUGE problem in online retail.

I expect a lot of online retail stores to start accepting bitcoin payments at
large discounts to cash just for this reason.

~~~
steveklabnik
Hi, I work for Balanced Payments, a payments company for marketplaces, YC W11.
You can track our plans for cryptocurrency support here:
[https://github.com/balanced/balanced-
api/issues/204](https://github.com/balanced/balanced-api/issues/204)

> In an online marketplace it's far far easier to accept bitcoins than credit
> cards because you have no fraud risk, which is a HUGE problem in online
> retail.

I'm not sure how you are getting this. Bitcoin is absolutely susceptible to
various forms of fraud. Let's make this a bit more concrete: assume eBay
accepts BTC. I could sign up for a seller account, make some auction listings,
once some people buy them, never ship the goods, and disappear. I could set up
a fake seller account, list some fake items, and then also make a fake buyer
account, purchase the fake goods with my fake buyer account from my fake
seller account, report that everything went well, and now I've laundered some
money. That kind of activity can cripple a business.

As a consumer, the irreversability of BTC transactions is a bug, not a
feature. You only need to look at the incredible amount of fraud that's
happened in the Dogecoin community to see how fraudulent activity can be
rampant, and can harm consumer confidence. Consumers expect the ability to be
able to initiate a chargeback when fraudulent activity happens. You can't do
that with just plain old BTC. When I was home over the holidays, the local TV
station ran a story about how you should be using credit cards rather than
debit cards to purchase things online, specifically because the credit cards'
chargeback policies are often better. "With a credit card, you'll have the
money taken off your statement, but with a debit card, it could take over two
weeks to get your money back." etc.

Bitcoin is digital cash. Online stores don't allow you to mail them an
envelope with $20 inside, because that would be kind of ridiculous for all
parties involved. It's only when certain financial instruments are built on
top of Bitcoin that have the same kinds of consumer protection and regulatory
compliance built in.

~~~
quack
> Let's make this a bit more concrete: assume eBay accepts BTC. I could sign
> up for a seller account, make some auction listings, once some people buy
> them, never ship the goods, and disappear.

This already is a problem on ebay. People post dishonest listings all the time
and run with the cash. You have the additional problems of people buying goods
with stolen cards or running up the price of an item with no intention of
purchasing. With BTC you can verify that a bidder is able to pay for an item,
and you can immediately hold the funds in escrow. There is no "overcharging" a
Bitcoin account.

> As a consumer, the irreversability of BTC transactions is a bug, not a
> feature.

Bullshit. Credit card companies are paying people with their own fat. The 3%
cashback that you get on purchases for gas and food comes from the profit
theyre making on top of that. Many local stores give cash discounts when
buying goods, and some refuse to accept cards because they are so expensive.

> It's only when certain financial instruments are built on top of Bitcoin
> that have the same kinds of consumer protection and regulatory compliance
> built in.

We dont need your middlemen. I dont need an account to hold my funds when I
sell an item online. I dont want to give eBay, paypal, et al, a unilateral
authority to withdraw from my bank accounts.

~~~
steveklabnik
> This already is a problem on ebay.

Exactly. It's a problem that doesn't go away with Bitcoin.

> Credit card companies are paying people with their own fat.

I am certainly not arguing that they don't charge a premium. I'm saying that
they do add value.

> We dont need your middlemen.

You may not, but I am quite certain most people do.

------
saalweachter
We don't know what the cost of transactions in Bitcoin will be yet.

Bitcoin includes two methods to pay miners for the infrastructure costs of
running the network: mining rewards and transaction fees. The idea is to
bootstrap the network off of mining rewards, and then switch to relying on
transaction fees in the future, as Bitcoin reaches its limit of 21 million
coins.

The problem is that mining rewards are currently very, very non-negligible,
even if they're decreasing. In 2012, the Bitcoin supply increased by over
_thirty percent_. In 2014 another 1.3 million Bitcoins will be minted and sold
by miners to pay for the cost of operating the bitcoin network. At current
prices, that's nearly a billion dollars.

As mining rewards continue to decrease, that billion dollars a year is going
to need to be made up through transaction fees. Mastercard takes in less than
8 billion a year, so those transaction fees are probably going to be
substantial.

~~~
modeless
You're assuming that mining revenue must never decrease, but there's no reason
for that to be true. A more likely scenario is that as block rewards go away,
instead of transaction fees going up, overall mining revenue goes down. Some
miners will exit, but as long as there's money to be made there will still be
miners. Bitcoin users and miners will adjust fees until they reach a
compromise that's mutually acceptable.

~~~
saalweachter
The problem with shedding hardware from the Bitcoin network is that it
undermines the core of Bitcoin's security.

Let's imagine that 2025, and we hit the fourth mining-rewards-halving. It's
now unprofitable to mine given the existing numbers of miners, and users
refuse to accept higher transaction fees, so 50% of miners exit, leaving half
the profits to half the miners.

This means that 50% of the Bitcoin hardware is now on the market, being sold
on the cheap. What do you need to compromise the security of the Bitcoin
network? Why, 51% of the hardware--

~~~
maxerickson
I think the practicality of the attack will still depend more on the price of
bitcoin at that point in time than it will on the sudden availability of all
the least efficient mining hardware.

At some point obsolete ASIC rigs should be coming on the market for cheap (but
right now the reward isn't anywhere near 'full' in terms of the amount of
electricity apparently being used to chase it).

(FWIW, I expect a crisis of confidence long before 2025. Let's see how many
miners are left after that happens.)

------
hippich
The reason why people should get excited about Bitcoin is not a bubble or
money, but rather a something completely new. Large group of people put
financial rules into software and agreed that they are going to use these
rules without external central entity and enforcement.

If this continue to roll, same might be applied to many other areas I believe.

It is just my random fantasy at this moment, but why we will need enforcement,
if we will have guarantied income in bitcoins and laws system built same way
as bitcoin (i.e. opensource and agreed to use by most people) and law
enforcement as a function of guaranteed income amount.... Just random thought.

or finally having AI which can exist on its own, buy components of its
environment (i.e. machines, networks, etc)

I believe what is emerging right now as a Bitcoin is much wider phenomena than
just a way to avoid pay taxes and inflation.

~~~
pron
But now you're putting a libertarian political agenda into Bitcoin again, and
this is what makes many people (including me) very nervous. You see, many
people think about the terrible pain and suffering the US experienced about a
century ago when the economy and law were largely unregulated and unenforced.
Much of the country became quickly enslaved to a small group of individuals;
terrible exploitation and rampant poverty ensued. It was through a lot of hard
work that Americans were able to place government regulation to free
themselves from the tyranny of the robber barons. So when many people today
hear the words "without external central entity and enforcement" the horrors
of the gilded age flash before their eyes.

Also, your ideas about an AI-directed or general-consensus utopia are nice but
naive. People don't usually agree on what utility function you'd want to
maximize, as there is no "right way" for a lot of things that matter to
people. Would your Bitcoinish utopia allow late-term abortions? Or school
prayer? Or same-sex marriage? Politics is a constant battle of values, many of
them are deeply emotional.

But Dixon's idea of Bitcoin as internet pocket-money is actually something I
can live with.

~~~
waterlesscloud
There's nothing about what he's saying that precludes the rules of the network
being decided by a representative democracy or what have you. Which is part of
the beauty of the network.

He's just saying that regulations can be implemented and enforced by the
network itself.

Different thing altogether.

------
wsxcde
How much of the 2.5% credit card fees goes towards combating fraud and
enabling reversibility of transactions? I assume it's a significant fraction
because you get a better rate if you use services like "verified by visa", no?
Is there any reason to believe that fraud rates will be lower with bitcoin?

And as far the programmable money idea goes, I'd like to see more compelling
applications than M of N transactions or escrow. The examples I've seen so far
seem rather unexciting.

ed: Maybe cdixon's real point is that the technology behind bitcoin is
disruptive to the financial industry? I can get behind this, and I'm waiting
to see how the government-backed bitcoin clones fare.

~~~
drcode
> Is there any reason to believe that fraud rates will be lower with bitcoin?

Yes, the risk of fraudulent creation of bitcoins or of double spending of a
well-confirmed bitcoin are essentially zero (assuming no major flaw in the
current science of cryptography.)

Also, the odds of stolen identities (name/address/birthdate/ssn) would be
zero, since those are not needed for sending bitcoins.

So yes, fraud will be a lot lower with bitcoin.

~~~
wsxcde
> _Yes, the risk of fraudulent creation of bitcoins or of double spending of a
> well-confirmed bitcoin are essentially zero (assuming no major flaw in the
> current science of cryptography.)_

This is a pretty narrow definition of fraud. Credit card fraud isn't caused by
double-spending or counterfeit currency. It's caused by people stealing your
credit card information. This is akin to people stealing your bitcoin wallet,
as has happened many times already and will probably become even more
commonplace if bitcoin takes hold.

And while cryptography seems to be strong mathematically, side channels
aren't. What are the odds that if you have a mobile bitcoin wallet app, it
would be resistant to all the myriad side channel attacks we know of today and
so many more that are going to get invented in the future?

> _Also, the odds of stolen identities (name /address/birthdate/ssn) would be
> zero, since those are not needed for sending bitcoins._

On the other hand, due to anonymity and irreversibility, there is nothing you
can do about fraudulent transactions involving bitcoins. You probably don't
even even know who took your money. So color me unconvinced me again.

tbh, I can't tell if you guys are deceiving yourselves or trying to deceive me
in an attempt to keep the bubble going.

~~~
drcode
> This is akin to people stealing your bitcoin wallet

No it isn't. If I buy something on amazon, I need to enter my credit card
information. If I buy something with bitcoins from cointagion.com, I don't
need to upload my bitcoin wallet.

> Credit card fraud isn't caused by double-spending

If I buy some socks on Amazon with my credit card info intended only for
buying those socks and a hacker steals this info and then uses it to buy a
plasma TV at Best Buy, this exactly meets the definition of double spending,
and this is exactly what credit card thieves do (and what you can't do with
bitcoins.)

> There is nothing you can do about fraudulent transactions involving
> bitcoins.

Again, if someone hacks Target and steal all the credit card numbers you have
fraud. Since you can't hack a bitcoin merchant to steal my payment
information, you can't have this kind of fraud, so this isn't a meaningful
question.

wsxcde, I think you're confusing "fraud" and "theft". Yes, it's possible to
steal bitcoins. But this is not fraud.

~~~
andrewfong
> If I buy some socks on Amazon with my credit card info intended only for
> buying those socks and a hacker steals this info and then uses it to buy a
> plasma TV at Best Buy, this exactly meets the definition of double spending,
> and this is exactly what credit card thieves do (and what you can't do with
> bitcoins.)

That's not double spending. The same "dollar" isn't being spent twice. Credit
card theft basically means using someone else's credentials (in this case, a
credit card number) to purchase goods. If you get the private key for
someone's wallet, you can do the same thing (although it should, in theory, be
much harder to do this since there's never any need to share your private key,
unlike with credit card numbers).

~~~
drcode
Agreed, the comparison I made to double spending wasn't very good.

------
nicholas73
I don't think Bitcoin will ever be a viable currency, at least not on the
scale of national currencies. Despite all the flaws fiat currency has, it is
actually backed by something - the power of the country's government to tax.
Thus, any buyer of sovereign debt has a calculable probability of return.
Despite America's printing of dollars, inflation has actually been mild so
far.

Bitcoin has nothing backing it but an artificial supply limitation. That in
itself is not a solution because its monetary base cannot possibly grow at the
rate overall goods do, and thus have a stable price point.

~~~
grovulent
Folks make this statement: "but a currency must have backing, or intrinsic
value" and feel that they have just proved bitcoin can't work. But not many
contributors seem capable of stating WHY they believe this. Care to elaborate?

In any case, I think it's entirely possible that you're wrong, and I've
written a long argument against your claim if you're interested:

[http://reviewsindepth.com/2013/12/bitcoin-krugman-and-the-
me...](http://reviewsindepth.com/2013/12/bitcoin-krugman-and-the-mere-
agreement-of-value/)

The TLDR is that yes, historically currencies have required intrinsic value or
government backing of some kind - but it is not an economic law of nature that
a currency has to be backed as such. If you can get the economic costs of
securing agreement over a currency, then a currency of "mere agreement" is
possible. Given that the internet and the design of Bitcoin itself have
dramatically reduced those costs - it may actually have a shot at gaining wide
acceptance.

~~~
nicholas73
Another point is to look at the position of sovereign wealth, large banks, and
investment funds. If you held a trillion dollars, would you park it in a
currency that is backed by a state, or trust that kind of money with mere
agreement? Would you put most of your net worth in bitcoin?

Now let's allow that bitcoin has become universally accepted and is indexed to
some basket of goods. Then it should be reliable as a currency, right? Well,
yes, it'll be an international currency ... just like the Euro! And what we
saw in the last few years is that the Euro system is inherently unstable
because of unbalanced trade and uncontrolled government debt. You have the
PIIGS countries facing the choice of massive debt service or withdrawing from
the currency altogether. You have the wealthier countries being forced to
support the deadbeats from their own tax base.

In the end, currency is what people make it out to be, and people will game
the system. Whatever system bitcoin settled upon will have its own problems.
At least with a state backed system you have players who have self interest in
mind.

------
possibilistic
Kind of off topic, but I have some questions related to transaction fees.

1) Is there a "reference value" in terms of how much transaction fee you have
to pay to make a payment from one bitcoin/altcoin address to another?

2) Is there a "message" payload that would allow us to include JSON or
transaction details? I've read that it costs a larger fee for more bytes in a
transaction, so I'm assuming you can add whatever you want to the transaction.

3) When I last made a transaction with an altcoin [1], it got "split" to two
addresses. One of these addresses was not my target receiving account nor an
address that I owned. Does anyone know why this other address got coins? Does
this happen in many/all cryptocurrencies?

4) If I made a payment gateway that created a unique address for every user to
send payments to, would it be unreasonably expensive to collect all of these
funds into a single address later? (N user payment accounts * 1 outbound
transaction => Large Central Account/Wallet)

[1]
[http://dogechain.info/address/DLqfuYFwVmroo4oaiVU9oSGTjsEBvQ...](http://dogechain.info/address/DLqfuYFwVmroo4oaiVU9oSGTjsEBvQ6yEE)

~~~
stuhood
1) Yes and no... the QT client has default/"suggested" transaction fees, but
unless a block is completely full you're not likely to see any difference in
processing time if you exclude a fee entirely [a]

2) As of recently [b], yes... you can add a small amount of junk data

3) When you send a transaction using input address(es) that don't add up to
exactly the desired amount, there will be some "change", which needs to go to
a new address. Thus, some of your change comes back to you at a new address.

4) Yes, that's possible. But you probably don't want to do that, since it
leaks information [c]

\----

[a] subject to some limitations:
[https://en.bitcoin.it/wiki/Transaction_fees#Sending](https://en.bitcoin.it/wiki/Transaction_fees#Sending)

[b]
[https://bitcoinfoundation.org/blog/?p=290](https://bitcoinfoundation.org/blog/?p=290)

[c] [https://medium.com/p/7f95a386692f](https://medium.com/p/7f95a386692f)

------
neals
There is so much unexplored territory when it comes to Cryptocurrency. I think
people will find innovative uses and start amazing businesses with this.

And to me, the great thing is, that there is no real reason to hate it.
There's not company of brand that you can hate, it's just people and ideas.

------
mbesto
> _Let’s say you sell electronics online. Profit margins in those businesses
> are usually under 5%, which means the 2.5% payment fees consume half the
> margin. That’s money that could be reinvested in the business, passed back
> to consumers, or taxed by the government. Of all of those choices, handing
> 2.5% to banks to move bits around the Internet is the worst possible
> choice._

In other words, better wealth distribution? This is precisely what
libertarians are fighting for, no?

Playing the devil's advocate here - couldn't this argument be turned around to
say something like "That’s money that could be reinvested in banks which hire
the best people to find the best and most efficient use of capital."? (as
opposed to consumers or small business owners who can't)

~~~
sliverstorm
Payment fees typically go to Visa or MasterCard, I thought. And considering
the financials of those companies, operating the existing payment networks
must be costly- both companies are growing & profitable, but not _nearly_ as
much as you might expect if the payment networks were zero-cost to operate.

~~~
mbesto
Ya, agreed. I think this statement sticks out the most: _Of all of those
choices, handing 2.5% to banks to move bits around the Internet is the worst
possible choice._

Regardless of whether its a bank or a credit card processing company, why is
it the "worst possible choice" to give it to them? Who are we to judge who
gets $1 when we are the ones who chose to spend the $1 in the first place?

~~~
waterlesscloud
Currently our choice is to pay the fee to the banks for convenience they
provide. If it's possible to provide the same convenience without the banks
and with much lower fees, is that not an improvement?

~~~
sliverstorm
Does bitcoin actually provide those lower fees?

Hold on, I know you are about to say "yes of course!". But what about the cost
of mining? Mining is not analogous to transaction fees, but it _is_ a cost of
bitcoin.

~~~
foley
Plus indirect fees due to the exchange rate volatility.

------
tomasien
I know it's not quite "not relying on banks and credit card companies", but
removing ONE of them from the equation (credit cards skimming fees) is what
I'm working on now. This is how it works
[https://www.youtube.com/watch?v=QR5UTLxe5zA&feature=youtu.be](https://www.youtube.com/watch?v=QR5UTLxe5zA&feature=youtu.be)

By removing them and decentralizing the banking process by centralizing it
into a third party (which could be many third parties), I think we'll allow
anyone who wants to start a bank of any size to compete for marketshare with
the big boys by providing better services.

------
suedadam
Bitcoins are an amazing investment if you have the money;the only problem in
investing into it is that there is absolutely nothing close to a guarantee
that you will receive any sort of return of investment with profit (not that
it's expected to with this type of unofficial currency);however, a problem
with it is that you would have to bank wire the money into the place you
purchase your BTC from such as BTC-E which would take a few days and for all
you know;it could drop or rise at that time (most likely rise) in which you
would then not have enough or you could just wait again for it to drop;if it
ever were to.

------
radicaldreamer
Everyone here trades private currencies (often called credit) all the time.
Those Visa bucks are not dollars- they are IOUs from Visa to the merchant
accepting them. When the monetary system is functioning well, Visa bucks (or
Chase dollars, Wells Fargo dollars etc.) trade at par with legal tenders (US
gov. backed cash). Only in times of turmoil does the hierarchy of money
reassert itself.

In this paradigm, would you rather be holding US cash or bitcoins (or
something else) if there was a political or economic crisis?

------
infruset
This is refreshing. I suspect even though the libertarians are the most vocal
among bitcoin adopters (and that's ok), a lot of people actually agree with
this.

------
diminoten
I know this is completely off-topic, and I know this is a war I will lose, but
must we call ourselves "bullish"/"bearish"?

Anyway, Bitcoin may not save the world, but if it does anything like what this
blog post says, it may very well save the Internet from the advertising
platform it's become.

~~~
taylorhou
let's change the jargon! if you're pro/bullish on alt currency --> bitish (B)
if you're con/bearish on alt currency --> dolish ($)

this is the internet. make it happen.

------
drinkzima
One important fact that seems to be getting ignored with payment fees is that
credit cards have much higher fees than debit/ATM cards.

If bitcoin intends to be a cash-like currency, the more apt fee comparison
would be swiping ATM cards, which are much closer to 1% (rather than credit
card fees of 2.5%+).

------
chaseadam17
I think Bitcoin is an indication of a larger trend, similar to search in the
early 90's and social networks in the early 2000's.

Will Bitcoin emerge as the predominant online currency of the 21st century?
Who knows? But it'll solve a lot of hard problems, and as a result, something
will.

------
maaku
Given your more liberal leanings, have you looked at Freicoin[0]? It's a
perishable currency that is meant to counteract the natural tendency of money
to be a wealth transfer device in the hands of bankers.

[0]: [http://freico.in/](http://freico.in/)

------
iblaine
This reminds me. Bitcoin is so complicated and controversial these days. I
miss the days before 2013 when bitcoins were used almost exclusively on the
deep web among nerds.

------
MrBlue
"... I’m a lifelong Democrat who supported Obama in the last two elections. I
think the Federal Reserve plays an important function..."

I stopped reading here.

~~~
aggronn
Regardless of what any armchair economist thinks about the federal reserve,
how can you love bitcoin as a currency if you think that the fed 'plays an
important function'?

~~~
natrius
I think the Fed plays an important function, but I also think that paper money
won out over gold only because it was much easier to spend and verify.
Otherwise, gold's track record as a store of value is clearly better. I think
Bitcoin could outcompete the dollar, and if it does, central banking will end
regardless of how I feel about it.

~~~
aggronn
There is a third possibility: central banks come up with their own alternative
to bitcoin.

------
taylorhou
me and my alt currency enthusiasts think of bitcoin as simply virtual gold.

done.

~~~
lingben
then it is clear you neither understand gold, currency nor bitcoin

------
pacofvf
In discussions I've read about bitcoin in HN, I've seen how some people call
"leftie" to those who think like this, mainly by right leaning Americans, the
funny thing is that they use that word as an insult, when in other rich
countries you only have center-left, moderate-left and far-left flavors for
political parties.

