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Set aside what Bitcoin enthusiasts want it to be for a moment, and think about the transactions that are actually happening.

Is the majority of the usage pattern currency-like, where people are getting paid in BTC and buying things with BTC?

Or is the majority of the usage pattern that of a commodity, where people are mostly buying and selling it for fiat currency, and trying to do so at a profit?

I would strongly suspect the latter: the vast majority of BTC transactions (other than transfers between personal wallets) are the buying and selling of BTC for fiat currency.

Even most "Pay with Bitcoin" businesses are this way: in reality, all you're doing is selling your Bitcoin to an exchange who will convert it to USD and pay the USD-denominated price of the item you're buying. Gold certainly can't do this so conveniently, but the principle is the same: I want to buy something, so I sell some gold and use the USD to buy things.




I actually know someone who receives her salary in Bitcoin. She's a remote contractor who lives in a country where the banking industry imposes really unreasonable fees on international transfers. To me, she is using Bitcoin the way it was originally intended: to break the stranglehold of the monopolies in banks for financial transactions.

Similarly, I'm not entirely sure that the "Pay with Bitcoin" approach, where an exchange converts the currency for you is that far removed from this idea. Before Bitcoin, my options for payments were pretty limited. Either credit card or Paypal -- both of which are convenient in the US, but at the time very inconvenient (to the point of impossibility) for people living in poorer countries.

I've read the early mailing list archives for Bitcoin to see if I could understand Saotoshi's intent in creating Bitcoin. Interestingly, he doesn't seem to discuss it much at all. It seems to be all about the tech. I think the "bitcoin is going to replace fiat currency" narrative is something that was adopted by overenthusiastic people who arrived on the scene later.

I think Bitcoin (and potentially other digital currencies) still has a number of hurdles to get over, but it's succeeded at wresting the payment industry from the banking monopoly (plus Paypal) far better than I originally suspected it might. I certainly hope it can continue.


I don't think it matters (or should matter) to regulators what Satoshi intended, or what one person does, or what a few hundred people do. I agree paying with Bitcoin is a good option and I hope it becomes more accessible (and that the price stabilizes).

That doesn't mean regulators should treat it like currency when, practically, the real world doesn't use it that way.


> I've read the early mailing list archives for Bitcoin to see if I could understand Satoshi's intent in creating Bitcoin.

The answer could be here:

Thus, bit gold will not be fungible based on a simple function of, for example, the length of the string. Instead, to create fungible units dealers will have to combine different-valued pieces of bit gold into larger units of approximately equal value. This is analogous to what many commodity dealers do today to make commodity markets possible. Trust is still distributed because the estimated values of such bundles can be independently verified by many other parties in a largely or entirely automated fashion.

In summary, all money mankind has ever used has been insecure in one way or another. This insecurity has been manifested in a wide variety of ways, from counterfeiting to theft, but the most pernicious of which has probably been inflation. Bit gold may provide us with a money of unprecedented security from these dangers.


That quote is from Nick Szabo. Here's a Satoshi quote:

The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.

Also the text in the Genesis block suggests bitcoin was a response to the failure of banks in the GFC:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks


> She's a remote contractor who lives in a country where the banking industry imposes really unreasonable fees on international transfers.

And she most likely converts her bitcoins into whatever local currency she needs to pay for her goods.


I'm not sure if this is supposed to be a criticism of bitcoin's utility or not, but if it is I think you missed the point. The point is she has more currency units now than before, because she didn't have to pay the bid bad bank, even if she had to use local fiat to buy bananas.


No, I think the point is that her method of receiving payment is functionally no different than if they drop shipped gold bullion to her. She must convert it into a usable currency in most cases.


If that's your mindset, then look at it like this: Bitcoin is a technology for shipping gold buillion equivalents to any remote location in the world in under the hour, for the price of a tenth of a cent. Pretty nifty, is it not?


Mindset? I was simply providing a different, I think more accurate, interpretation of the anecdote presented upthread. The person was paid in bitcoin, but in this specific case, because of the circumstances, I think it's no different than if they were paid in some other easily fungible commodity, such as gold. I interpreted the usefulness in getting paid in bitcoin not that the worker now had an easily used currency, but that the worker now had a commodity that could be exchanged for a local currency to actually buy most things needed, and it was cheaper than dealing with the local currency exchange fees.

Yes, it also points to the utility of bitcoin, but this specific example also points to it's use as a commodity, IMO. As it gains in popularity, I think it will gain more utility as a currency, but until then it's a currency of limited use (limited in that there are limited venues that accept it) except as a commodity.


Nifty? Sure. Deserving different tax treatment from gold bullion? Nope.


Gold bullion is rather expensive to ship and insure.

Bitcoin seems quite promising for foreign currency transactions.


Yes, so it's an unprecedentedly easy to transport commodity, but that doesn't mean it's not a commodity.


Only if someone in the destination currency is willing to trade that currency for Bitcoin.


Isn't that true for all (or at least most major) currencies at the moment?


It's certainly easier to sell Bitcoin locally than gold bullion.


I'm not convinced that's true in very many countries.


You probably won't be getting too good prices for gold in such countries either.


So when I was getting paid in dollars, and converted it to my local currency right away, I was proving that USD is a commodity? I could not get anything with USD, so it is not a currency? Interesting.

What people miss is that commodity and currency are not exclusive. And the difference between them does not really matter all that much.


> So when I was getting paid in dollars, and converted it to my local currency right away, I was proving that USD is a commodity?

Yes. It is a commodity. People trade in it every day.

> I could not get anything with USD, so it is not a currency?

For your use at that location, apparently not.

> What people miss is that commodity and currency are not exclusive.

Yes, and I said as much in a separate reply.

> And the difference between them does not really matter all that much.

Except for when they are classified as one and not the other and taxed differently.


I'm curious how she does use it though. Is there a local exchange willing to trade bitcoin for the local currency? Because she can't exactly do it through Coinbase, or she's right back where she started...


Coinbase is available is 28 countries: https://www.coinbase.com/global

(I work for Coinbase)


You might want to update your FAQ: https://support.coinbase.com/customer/en/portal/articles/182...

It only lists 4 countries.


According to our lawyers we're not allowed to advertise exchange services in certain jurisdictions but if users happen to stumble upon it we're allowed to offer them the service ;)


Did not realize that.


Coinbase has an exchange (https://exchange.coinbase.com) that supports several currencies and is accessible from many countries.

(I also work at Coinbase)


North-African countries have better exchange rates for BTCs in the local market than the USD one. (because of capital flow controls). I suspect the same for other third-world countries.

She probably takes 10-20% more with BTC than with bank wire.


Not necessarily. Coinbase's fees are probably far less than it costs to wire money or PayPal's 3-4%.


But not less than Transferwise at 0.85%


So it's a criticism of the bank's fees, not of Bitcoin's utility. How does she get her local currency? Volatility has to be factored in to determine the price savings. (I personally think the level of control is a much stronger argument than the cost, since savings can be wiped out by the market or the banks updating fee structures)


The main point I was trying to make is that Bitcoin opened up the transfers of money to operators other than banks. Of course this is both useful and scary :-). For my friend, she has to hope that the service she uses isn't going to turn into another MTGOX. Regulation of financial services == good. Monopolies on financial services == bad. ;-)

I'm not privy to her financial transactions, but I believe she holds some BTC for online purchases and transferring money between her and her husband. Clearly the bulk of her money is converted to a fiat currency because that is the most useful at the moment (though I'm willing to bet dollars to doughnuts that the fiat currency she most often chooses is not that of her home country).


Nobody can force anyone to adopt bitcoin. I regularly buy Subway with bitcoin at a local store that accepts it.

The benefits of bitcoin are out there, its up to stores to offer it as an option. There should be a strong pressure to eliminate credit card processing fees though, since most companies are paying ~10% of revenue just to credit card companies, sometimes worse.


10%?

Perhaps a small Mom & Pop store that has tiny volume.

Any company of decent size would be paying significantly less than that in practically all circumstances


Which would likely convert at close to the same rate as USD -> local currency if BTC -> local currency is a liquid market. If it's not liquid, then Bitcoin is essentially unspendable locally -- she would have similar results if she opened up a US bank account and had her fees paid into that.


Surely her contract specifies she will receive $X,000 worth of BTC rather than a fixed amount of BTC each month?


Sure, but what's your point? My contract states the same and my national currency is the Euro.


You have your salary denominated in dollars even though your national currency is Euro?


Yes. It's not unusual for contractors to choose to fix their rate in any currency. Sometimes I denominate it in GBP, even if neither of the two parties is in the UK.


Perhaps she and her company should take another look at what remittance companies are out there: the 'fact' that Bit-coin is a cheap way to transfer money (and that 'traditional' money transfer is expensive) is mostly wrong:

https://www.saveonsend.com/blog/bitcoin-money-transfer

TL/DR: shop around the money transfer companies and you can save a fortune, their fees vary wildly. Online companies can be very cheap indeed. Comparisons with bit-coin mostly cherry-pick the expensive companies to make themselves look competitive.


> I've read the early mailing list archives for Bitcoin to see if I could understand Saotoshi's intent in creating Bitcoin. Interestingly, he doesn't seem to discuss it much at all. It seems to be all about the tech.

http://p2pfoundation.ning.com/forum/topics/bitcoin-open-sour...


Personally I wouldn't want to receive my salary in a currency whose value, relative to the money I have to use everywhere, fluctuates wildly all the time.


I think the intent was to show how easily one can transfer Bitcoin as a means of payment, then transfer the amount into a more preferred currency, which presumably, in a country with poor financial institutions/regulation, is easier than directly wiring USD


Somewhat similarly, many Dutch people don't use credit cards (which is very wise IMO hehe), and over here we have something called "iDeal" that's really only supported by Dutch webshops. Bitcoin can be a handy alternative to cc/paypal for us.


As a Dutch person who does hold a credit card, i am always baffled by the near-taboo reaction when it comes up in conversation (noticed this in both France and the Netherlands). People seem to take pride in an almost pious/religious way in the fact that they want nothing to do with credit cards. I just don't get it. I know what the downsides of using a credit card can be (e.g., high interest rates) but they certainly have advantages, too (they work everywhere i travel, there are neat insurance policies). I use mine as a debit card for online and foreign purchases: there's an automatic payment at the end of the month from my current account into the credit card account, so i end up never ever paying interest, it only costs me the €x per year in card fees.


Credit card is more difficult to keep track of your finances. You don't notice your balance changing until the end of the month. Further, you're doing things on credit, where most Dutch mentality is to save, then spend.

The insurance policy is there because of a lack of security. Plus you pay it back anyways. E.g. if you pay with your credit card abroad they make money on the currency conversion plus they charge the merchant significantly more. Hidden costs that you don't notice. The bank cards / Meastro system is way cheaper.

If you stay within the EU you can just pay with your bank/debit card. Only if you travel outside of the EU you'd really need a credit card. Not too many people need that, so someone having a credit card is not that common (though IIRC Rabobank automatically gives you one).

Plus the whole confusing difference between credit card and the bank cards. I'd highly prefer things to go out of my bank account immediately. My bank card doesn't have the credit card number and isn't accepted. I'd wish my bank provided a better (integrated) overview.


The public attitude in Colombia towards credit cards is very similar.


So what happens when Bitcoin crashes? Does she just not make as much money that year?


She probably quickly exchanges it for local currency


She very likely receives payment in "dollars worth of bitcoin" and not a fixed bitcoin amount.


I doubt that is nearly as true any more. It is likely exotic to be payed in bitcoin, but buying things is a breathe of fresh air. Any electronics, anything that can be bought at overstock, some local food delivery (through restaurant menu startups that take btc), vpns, Louis CK's latest release... If I can pay by btc then I do. The convenience is fantastic. No fraud, no punching in numbers, no hassle from some extension messing with e-commerce tracking that messes up the order, no fraud false positive from using a vpn or privacy tools... The list goes on.

If they take BTC? Click a QR code/link, put password into wallet. Done.


Buying with BTC is a breathe of fresh air, huh? How about when taxes are due?

If you're a US taxpayer, you are required to report the profit/loss of every single purchase made with bitcoin.

Which means that you need to dutifully look up and record the current price of bitcoin every time you make a purchase, so you can properly report the fair market value, and then copy that information over to Schedule D in the proper format.

And according to the tax rules, if you've made several purchases of bitcoins over time, then you have to separate the purchases into lots. So if you bought 0.3 bitcoin on Mar 1st and 0.2 bitcoin on Mar 31st, and you bought a video card for 0.4 bitcoin on May 2nd, then you have to decide from which of the previous lot(s) you want to take bitcoins on to report the profit/loss at the time when you bought the video card. For each separate lot, a separate line needs to be created (or you may put VARIOUS, and figure the correct gain/loss and just add that to the form, its up to you)

Of course, if its been more than a year between the time you made some of those purchases, you need to separate out the gain/loss into long-term vs short term gains.

And then, if you decide to refill your bitcoin account within 30 days before or after a purchase, and the bitcoin price went down from the time you bought it until the time you made your purchase, then wash sale rules come into play. In those cases, you need to report the sale, and then further mark it as a wash sale, reverting the loss on the form. Then those bitcoins that you sold and rebought have to be put back into your lots of bitcoins to use for further purchases, adding together to the final sale in the future the total loss and gain made by all the wash sales those bitcoins may be a part of (all while respecting the long term/short term gain split).

---

Yea, what a dream! :/


That's not unique to Bitcoin though, is it?

I have a box of foreign money at home which I use every time I am abroad. I bet most people have something like it.

If I were to trust you on this, I'd have to record the price of that currency with every cup of coffee in every airport I buy. In practice nobody has done that, ever. I'd say that's safe.

Should I suddenly pay cash for new sports cars or houses out of my little box that would be different of course. I doubt the difference between a cup of coffee and a sports car is really encoded in law, but the difference is there and should you find yourself in a grey area (old used car perhaps?) there are people specializing in this very matter that can help.


>I have a box of foreign money at home which I use every time I am abroad. I bet most people have something like it. If I were to trust you on this, I'd have to record the price of that currency with every cup of coffee in every airport I buy. In practice nobody has done that, ever. I'd say that's safe.

This is not true.In the US there is a tax exemption for small denomination purchases in foreign currency's(I think $200) [1]. I can't find a source right now...

*Edit updating citation: User icebraining cited this source in this discussion.

1. https://www.law.cornell.edu/uscode/text/26/988


well, for one, the IRS doesn't treat bitcoin as a currency, but as a commodity. While some foreign currency transactions fall under the regime of capital gains, a transaction resulting in the gain/loss of less than $200 are specifically excluded from capital gains [1].

Note that this relates specifically to changes in value of the US currency in relation to the commodity or foreign currency. In this sense there is a difference between a sports car and a cup of coffee encoded in law. If the euro you bought for $1 is suddenly worth $1.02, and you buy a 1 euro coffee, you'll only realize $0.02 in gains, and not hit the $200 threshold. If you buy a 100,000 euro sports car, you will realize a $2000 gain, and have to report that on your taxes.

Since bitcoin is a commodity, it doesn't matter if the value moves 2 cents or 2 dollars or 2 million dollars, all gains are capital gains.

So if you buy a coffee with euros you specifically don't need to report that, but with bitcoin you do. Whether the IRS is going to notice that you don't record every single capital gain arising from a bitcoin transaction is another question, but there is a major difference between foreign currencies and bitcoin as far as the IRS goes.

[1]http://www.maximadvisors.com/2013/12/us-taxation-of-foreign-...


There is no law that says you have to record every transaction. On your tax form, there is a field where you put in the total amount gained or lost over the entire year. For 2014 I lost money, so in my tax form, I didn't put anything. For 2015 I will probably break even across all buys/sells. Maybe for 2016 the price will rise and I'll end up making a net profit after adding up buy and sell spreads. You don't have to be exact, you just have to give it a goo guess. If you guess too large, you pay more in taxes, if you guess too low, you pay less in taxes, but run the risk of getting in trouble if audited.

I guess if you wanted to get brownie points with your accountant, you can record all transactions, but if you don't you certainly aren't breaking any laws.


Uh, sure... a field on your tax form... that you can't even be bothered to give the form and line number of. Sounds trustworthy.


Sounds like something that's very easy for a machine to calculate.


All of this can be done easily with software.

Would you happen to have a link to where you got this information yourself?


I actually called the IRS and asked them. They told me to treat it just as securities, which has all these rules attached to them.


How many of those places do not instantly convert to USD?


Is this an advantage over paypal where I am insured as a buyer?


Try buying something using your Canadian PayPal account on an American IP address with a shipping address in Vietnam.

I did, my account got insta-blocked and I could not complete my transaction. I would have been perfectly happy to risk losing my money instead of having a 100% chance of not receiving the thing I want because of PayPal's paranoia.


Frankly, I see that as a positive.

If I made a similar transaction I'd be up set if it didn't at least trigger a fraud alert.


If there was an easy way to unblock my account I wouldn't mind much, but they wanted me to pick up my Canadian landline to prove that it was actually me buying things in Vietnam...

Can't make this stuff up.


We can answer this question, but first we must make it operational. Let's measure a "usage" of bitcoin as a bitcoin transaction. This is the most simple, general measure of bitcoin usage. Now we have a quantity. We can graph it. [1]

Now, we just need to get some data on whether these transactions occurred due to commerce in bitcoin, or due to trading for a profit. We can't see this on the blockchain directly; however payment processors like Bitpay and Coinbase have access to this information. Coinbase, in particular, operates both an exchange and payment processor. It knows what percentage of transactions (within its market segment) are due to buys and sells vs. ordinary commerce.

Luckily, Coinbase has gone on the record answering this specific question! [2] Brian Armstrong, the CEO, said specifically at Techcrunch that the majority of bitcoin uses are for buying and selling things -- actual payments. [2]

So the answer to your question surprises you -- the majority of usage is very currency-like!

[1] https://blockchain.info/charts/n-transactions?timespan=all&s...

[2] http://techcrunch.com/2014/10/21/coinbase-ceo-brian-armstron...


Funny coincidence that according to that chart we are right now at an all time high.


It's because people were flooding transactions and sabotaging bitcoin to prove it doesn't work well by it's current design. [1]

http://motherboard.vice.com/read/great-job-everyone-bitcoine...


This. Also don't forget that currency and commodity are not always mutually exclusive:

https://en.wikipedia.org/wiki/Commodity_money


Yes, this is the majority of usage but some customers pay me in bitcoins and I pay a few development services with bitcoins too. I can lose or win with the fluctuations but I am more confident that the bitcoin is fluctuating less and eventually will move up, in the mean time I keep this bitcoins moving inside the ecosystem.

My rational side thinks that this ecosystem is just starting and there are killer use cases. For example minors offering their services (e.g: web design, software development) for bitcoins where in the real world they can't handle their own credit card or bank accounts without permission.

Another killer use case is loans, in developed countries you can pay more than 60% of annual interest, cryptocurrencies are a way to normalize these numbers worlwide.


> For example minors offering their services (e.g: web design, software development) for bitcoins where in the real world they can't handle their own credit card or bank accounts without permission.

Good old regulatory arbitrage. (Hey, it works for Uber.)


A large fraction of Bitcoin transactions is gambling. See how the number of transactions suddenly takes off in summer 2012? That's Satoshi Dice.

https://blockchain.info/charts/n-transactions?showDataPoints...

Furthermore, the largest use of Bitcoin volume-wise is indeed trading against other currencies. However, the same holds for the USD. US GDP is below 20 trillion per year, while global forex trading is 5 trillion per day, with the majority of trades involving USD.


And Silk Road


The function of Bitcoin goes beyond it's use. It's sending a very clear message to other forms of financial transaction to keep it simple and cheap.

I think it delineates a threshold where no other financial transaction can go. I think it's very beneficial even though comparatively few transactions go through Bitcoin.


Commodities are increasingly behaving like this, though not to the extent that BTC does. The economy is very, very financialized. Bitcoin is an asset that appeared well into the financialization trend, so I don't think it is that surprising that such activity dwarfs actual uses of BTC as a medium of exchange. Who is interested in bitcoin? Consumers for whom the use of bitcoin is better than currency (so, like, contraband over the Internet), technophiles, libertarians and investors, really.


From the outset bitcoin was set up to be digital gold...


Exactly this. The precursor was Szabo's bitgold [0]. Also, the feeling in the community has always been that bitcoin would remain as the gold of the cryptos, used as both money and a commodity with some industrial applications.

[0] http://unenumerated.blogspot.com.es/2005/12/bit-gold.html


Meh, i hold that what made gold money was the face stamped on them to verify they were of a certain weight.

Straight gold without it is a questionable commodity as the usage, at least for the time, was ornamental at best.

But once measured up and stamped you had an item that would not lose its weight much over years of storage (even it if was down a hole or at the bottom of a lake etc).

What made it money was not the metal itself, but the process.


Or digital cash. Where do you actually draw the line?


It's both.

Bitcoin's supply is strictly limited. Most cash these days can be printed at will. So the comparison to digital gold coins is apt.


Thing is that i think the reason they picked gold back in the day to make coin out of, was that it was durable. You could bury it for decades, or even drop it at the bottom of the ocean, and it would not lose any noticeable weight etc.

These days, "paper" notes etc do just as well.


Oh, it's more complicated. Pebbles are super durable, too. But they are not rare enough. Gold wasn't the only commodity money, and it's wide popularity is actually fairly recent. Silver was historically more popular, even copper and in some cases iron.


Was there not some stone wheels used as currency on some pacific islands?


What about silk road? Do you think people were using it as a currency there or still as a comodity?


So basically the only example you can come up with is illicit commerce? Guess we should also consider Tide detergent a currency. http://nymag.com/news/features/tide-detergent-drugs-2013-1/


Bitcoin was definitely used as a hobby internet currency before it started becoming popular around 2011-12. Now it's largely speculation and hoarding.


>Or is the majority of the usage pattern that of a commodity, where people are mostly buying and selling it for fiat currency, and trying to do so at a profit?

This sentence would make sense if you had said "that of a security"!

I think you forget that the defining aspect of wheat is that eventually it ends up in people's mouths! (i.e. has some actual usage.) Futures contracts are an afterthought on top of what the definition of a commodity is, in my opinion.

https://en.wikipedia.org/wiki/Commodity


During the transaction spam, Bitcoin was all but unusable with the standard wallet software. The price went up. Whatever the Bitcoin price depends on, it sure isn't whether it's usable.


It is possible to buy and sell things with commodities, for instance gold bars.


If memory serves right, the vast number of transactions on the blockchain are people playing Satoshi Dice, ie gambling.




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