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Bitcoin: the Stripe perspective (stripe.com)
813 points by gdb on July 21, 2014 | hide | past | web | favorite | 244 comments

This is my favourite article about Bitcoin to date, and properly describes one of the main ideas I wish Bitcoin detractors would come around to. Bitcoin has a lot of problems as a unit of account and as a store of value, but that is not primarily what Satoshi was building (https://bitcoin.org/bitcoin.pdf). Bitcoin is, and has always been, a medium of exchange first and foremost. It still has some shortcomings in that regard, but it is the closest thing we have to solving the trust issues of peer-to-peer exchange in a purely technical fashion.

Comparing Bitcoin addresses to the IP layer of the internet is brilliant. Something that the Bitcoin community has been a bit slow to accept is the idea that "peer-to-peer exchange" may be occurring at the corporate level rather than at the individual level for most people--it's hard to imagine a world where that isn't true due to the points outlined in the "Comparison to the card networks" part of this article. However as long as the corporate implementation is done in such a way that anyone could jump in as an individual if they wanted to bear their own risk, then we are still miles ahead of how the traditional financial system currently works ("net neutrality" for money).

Let me ask a dumb question: If money exchange is the main problem that Bitcoin solves, then why isn't the problem of money exchange attacked directly instead, i.e. through some other less volatile classical stores of value like gold or stock? Why is money exchange a problem anyway and why couldn't a classical wire transfer solve the problem?

The article doesn't say anything about these things and the underlying principles other than that it's "suprisingly difficult". Instead it goes right into proposing a solution based on Bitcoin and making big picture comparisons with network protocols that probably sound very smart to the right audience.

Given the amount of agreement and hype that the article has received so far, I feel a bit like an outsider right now questioning what is proposed. I think I just don't get it. Is everybody just a lot smarter than me or does the community miss to address some basic questions here?

The answer to basically all of your questions is that to transfer money, you need to move money. This can be basically a promise of money, as with wire transfers, or physical, as you'd do by transporting bullion or cash.

The problem with using a promise to move money is that you have to trust whoever's promising. That works alright if there's a central authority, like a bank, but less well if you don't want to trust the authority, don't have access to the authority, or are unable to comply with the rules of the authority. Also it's kind of a shitty experience, as is. (You wouldn't pay for all of your Amazon purchases with wire transfers, I'd imagine.)

The problem with moving physical money is that it's difficult to do over long distances or en masse.

In order to solve the problems with existing money transfer, then, bitcoin needs to be able to do without a central authority and without using a physical representation of money. Which it accomplishes by allowing you to store money - not just a representation or promise thereof - digitally.

Thanks for your answer. However I still don't fully understand the problem I'm afraid. How is the trust required to move money cross borders different to the trust required to have an account with money at your bank? That acct is just a "promise" of money as well isn't it?

Also, according to your response a domestic money transfer would suffer the same problems but these seem to work just fine (at least much better than international transfers).

Why does a mechanism that works just fine in between bank and customers and generally domestically just break down when country borders are involved?

> Also, according to your response a domestic money transfer would suffer the same problems but these seem to work just fine (at least much better than international transfers).

Certainly they work better, but "just fine" is a much stronger claim and one I'd disagree with. I don't find myself spending money by wire transfer hardly ever, eg, and when I do it is a much larger affair then using cash. See also andrewla's comment here [1].

> Why does a mechanism that works just fine in between bank and customers and generally domestically just break down when country borders are involved?

Because banking systems and the regulations surrounding them are different in different countries, basically, and that adds lots of complications to an already extremely complex system. The bitcoin protocol is not different in different countries.

[1] https://news.ycombinator.com/item?id=8066251

This is absurd. I spend money by wire transfer all the time. A good 80% or so of my ebay shopping would be wore transfers to merchants in Hong Kong via Paypal. This is a big enough issue in Australia that we've had retailer associations complain about it on occasion. Overseas money transfer is not at all difficult on a consumer level.

> This is absurd. I spend money by wire transfer all the time. A good 80% or so of my ebay shopping would be wore transfers to merchants in Hong Kong via Paypal.

It's worth noting that EFTs (Electronic Funds Transfers) between domestic banks in Australia is nearly always free, and that in your case you're not transferring money overseas at all.

You are transferring money to PayPal Australia, who is then communicating to PayPal Hong Kong that all is well - so that PayPal Hong Kong can pay the merchant. Both entities can transfer to/from local bank accounts because they have explicitly set up B2B interfaces (and met regulations) that allow them to do so.

In this case, PayPal is the bank, and they are a bank seeking to specifically facilitate money transfers between countries. You could not, for example, transfer money to a merchant in (e.g.) Siberia - they wouldn't be able to get that money out of PayPal into their regular bank account, because PayPal has no local presence/connection to the banks there.

This is the exact same thing involved in Bitcoin funds transfer.

The article explicitly notes that PayPal is offering a very similar service. They argue that the open nature of Bitcoin is a competitive advantage to the network in the long run.

From the article: "This would not, of course, be the first global payments network. One obvious comparison is with PayPal. The fundamental advantage a Bitcoin gateway ecosystem has over PayPal is that it’s open".

I can't reply the comment below so I will reply to this one.

XorNot: Please correct me if I am wrong.

USD is not a relevant comparison. What matters here is how money gets moved. When money is transferred within the country, a central bank (Fed Reserve, Bank of England, Reserve Bank of Australia) keeps an account for each local bank. Which means that when 'Alice' of Wells Fargo sends money to 'Bob' at Chase, the central bank actually debits and credits the banks. And then several times a day the banks will settle with each other and net out the differences.

But this is not possible internationally, that means banks must each other have direct bank relationship and have an account with each other. And if 2 banks don't have direct relationship, then they have to go through intermediary banks which they do have a relationship.

Enters Bitcoin, what bitcoin provides is not a reserve currency, what it provides in this context is a global ledger. Instead of the Commonwealth bank of Australia (CBA) needing to have a direct account relationship with Wells Fargo (WF) bank. CBA can just simply send bitcoin to WF.

There is a bit more about the underlying transfers here: http://gendal.wordpress.com/2013/11/24/a-simple-explanation-...

Although here is my question:

Why doesn't international transfers just go through the VISA network. The VISA network is essentially the global central bank

Internationally banks simply have to be able to acquire sufficient foreign currency holdings. Which is trivially easy because every competent reserve bank on the planet has enormous foreign currency holdings.

But this is all irrelevant to Bitcoin - which is marketed by its advocates a consumer currency, not an international system of exchange between institutions. Institutions have no need nor desire for such a thing - it is a saturated marketplace, with literally thousands of avenues of exchange, of which Bitcoin is a particularly poor one.

Which circles back to my original point: foreign currency transactions are very simple for anyone ranging from consumers to medium or large size businesses, barring tax issues (like not paying a lot of it). Bitcoin does not solve a problem not already solved for centuries by the banking system - this is literally the thing that got it started way back with the Knights Templar.

I have a feeling that international remittance is not as simple acquiring FOREX reserves. Often times you see international transfers from an Australian bank to a US bank taking 4 hops in between over peering banks. The process is complex.

Because unlike domestic transfer where the central bank helps keep a ledger between banks, there is no "global ledger" internationally. So banks have to resort to "correspondant banking" which is why you see so many hops in international transfers.

Bitcoin provides such global ledger. I don't think FOREX is the issue here.

Instead of going through correspondent banking (many hops), 2 banks can simply send bitcoin to each other and immediately net off.

Could you clarify if my understanding is incorrect?

EDIT: Here is a document on how VISA handles international payments


2.3.3 Clearing and settlement procedures ... Settlement is not carried out through Base II; Visa merely provides the data to allow settlement to be carried out. For settlement in US dollars, Chase Manhattan Bank, New York, acts as the settlement bank. For multicurrency settlement, Chase Manhattan Bank, London, acts as the settlement bank. All members may hold their own settlement account with any other financial institution, such that all requests for funds or payments are ultimately settled through the correspondent services of domestic clearing and settlement systems. ...

Remember that many (most?) recipients of international remittances don't have bank accounts or access to payment cards. Hence why Western Union et al have to maintain extensive agent networks.

As for visa, I wrote about it recently here: http://gendal.wordpress.com/2014/07/05/why-the-payment-card-...

The thing to remember is that Visa authorisations are done in near real-time but settlement between issuers, Visa, acquirers and on to merchants is done over the normal banking system, as far as I know.

Does it mean that even if it goes through the VISA network. Actual settlements still have to hop through layers of peering banks?

Do you see an advantage for bitcoin then by removing the need of peering banks?

I don't know enough about Visa's design to comment authoritatively - but my working assumption is payments from issuing to acquiring banks in-country are done net and through visa - i.e. one net payment per issuer into visa and one net payment out to acquirer. e.g. see the last page of this doc: https://usa.visa.com/download/merchants/visa-core-principles...

What isn't obvious to me is what happens in international scenarios - you ask a great question.

[EDIT] - Actually - here's your answer.... See section 2.3.3 of this doc: http://www.bis.org/publ/cpss53p16.pdf

Transacting in US dollars accomplishes the same thing, with far less volatility. In fact, transacting in any commonly exchanged currency does (US is the global reserve for this reason - you can exchange US dollars for any currency on the planet - notably Chinese currency - easily).

Moreover, there's no benefit here: dealing with separate Bitcoin services removes any end-user guarantees. If I send money from Australia to England, Paypal Australia has to deal with the Australian government and the British government to obey consumer law. With a Bitcoin exchanger, once the BTC is transferred you're at the mercy of whatever local exchanger you use at the destination.

Paypal wants to stay in both countries, which means there's an end-to-end legal protection for both parties.

The open-nature of Bitcoin is irrelevant. The USD is pretty damn open.

These are good questions. Someone should write a primer on money transfers and cryptocurrencies (someone with better answers than my best guess, included below.)

My hunch is that the trust required to move money is very similar to the trust required to have an account with money at your bank, but the main difference is you pay for that trust in different ways.

If you write a remittance, you trust it will be remotely delivered upon request (ie, immediately). That trust is ensured by an organization that has access to ready capital in many locations (which involves some opportunity cost, Western Union could just be pooling all that money and investing it). You pay for that trust through fees.

When you deposit money at a bank, you trust that they will return it to you at any of their branches at some point in the future. That's a very similar sort of trust. Yet here, you really pay for it by foregoing the opportunity cost of lending your money to strangers. Though they pool your money with the money of others to smooth risk, so they're getting a better return / less risky return from lending than you could get on your own. But you're really paying through the difference between the return you would earn by loaning it out and the interest you earn. You're paying that gap.

Similar problems occur in domestic money transfers, so domestic money transfers still have fees. However, I would expect that establishing trust with international money transfers involves dealing with multiple currencies (possibly some of which are being inflated by a government), magnifying the costs. I would expect the fees would tend to be higher.

(Western Union doesn't suggest this is the case. Sending $1000 instantly seems to bounce between $86 and $95 no matter where I send it, domestic or international. They may be making some money by setting exchange rates, I'm not sure. Also, they sometimes gave me wildly outlier fee quotes, so I'm not sure those are their actual prices, or how stable they are, or if there's not a bug in the website. For comparison, World Bank says remittances average around 8.14%: http://remittanceprices.worldbank.org/en )

Banks often charge more for international wire transfers, but weirdly tend not to change their prices based on the amount sent. Here's a chart of some of their fees: http://www.mybanktracker.com/news/2013/04/18/wire-transfer-f...

Bitcoin offers some opportunities to bypass some of the required trust, possibly resulting in drastically lower fees. (You still have to trust the network won't implode though.) That said, I don't want to suggest remittance services are gouging anyone. I have no doubt it's costly to set up an international trust network with cash on hand all around the world. But I think there's an argument to be made that the infrastructure for a cryptocurrency scales a bit more easily than the infrastructure for a Western Union. (On the other hand, ensuring there are buyers and sellers of bitcoin in whatever two cities you're using as endpoints isn't trivial either.)

That World Bank link above talks about the "5x5" goal of reducing remittance fees by 5% (from 10%) over 5 years (beginning in 2010). Work anywhere in the developing world or on development economics and you'll get a sense of how critical remittances are to developing economies (often swamping the impact of foreign aid). It's conceivable that many humanitarian and development goals might be hit if we could use technology to lower barriers to easier money transfers.

There is a primer on money transfers and crypto currencies: http://gendal.wordpress.com/2013/11/24/a-simple-explanation-...

tldr: Even transfers within a single country are very complicated. Your bank just hides the complexity from you.

You might be interested in the Hawala system[0] of money transfer. It has existed for hundreds of years, and allows efficient international money transfers with no central authority.

[0] https://en.wikipedia.org/wiki/Hawala

Hawala has fascinated me to no end, as essentially an anarchistic peer-to-peer web-of-trust banking system. It has existed for a long time, and keeps functioning even where traditional banking systems have broken down. As cool as Bitcoin is, I have more hope for a system akin to Hawala than some proof-of-work based system. Guerilla banking that depends on having more (computational) power than your enemies isn't too realistic. PGP'd remittances are much more cryptographically robust, and depend just on the one factor that any real monetary system relies on anyway: human trust.

If your money transfer model includes gateways, then trust is involved. You have to trust the gateways (local banks or exchanges) to make the conversion.

The gateways on each end would also want to take a fee.

Add to that the (MASSIVE) cost of compliance globally, and the costs of the model described by Stripe may not be much better than that of existing services (TransferWise, Western Union, etc.).

It's just an absolutely mind-bogglingly large, long, and costly endeavor, and the end results may not be worth it.

> The answer to basically all of your questions is that to transfer money, you need to move money.

Is that true? I everyone around the world is moving money around, then most trades can be covered by not moving any money around, just between people in the same country.

If I want to move $1000 to France, and someone else wants $1000 from France, we just swap money, and two people in France do the same.

What is left is keeping track what everyone has put in, and what they have taken out.

> What is left is keeping track what everyone has put in, and what they have taken out.

And that's exactly what Bitcoin is; a secure digital ledger. It's a way to securely and globally record "person A has 10 BTC, gave person B 5BTC, then person B gave persone C 3 BTC" in a way that doesn't allow person A to simultanously have given those same 5 BTC to person D (who, given the anonymity of the internet, may also be person A).

That's all Bitcoin does; it provides a secure way to record such transactions without having a trusted third party who must trust to increment and decrement the right accounts in the right way.

So is that not an impressive solution - if Alice wants to move 100 USD to France and Bob wants to move 100 USD out of France (let's say both want to buy a new textbook) then one could envisage a peer to peer money transfer system.

A site allows bob and Alice to find each other, agree a shared amount to transfer, agree to which end point they will onwards transfers (hmmm this might be the breakdown point) and then record that in the block chain

I think oddly there is still an enormous amount of trust involved - trust that Alice will complete the final important step of giving the money to Bobs silver haired grandmother or whatever

You can actually achieve the same thing with Coinjoin if all involved parties agree. Instead of a bunch of individual transactions, they collectively generate and sign one.

I am returning to this thread a bit late, but let me try to answer your questions:

> If money exchange is the main problem that Bitcoin solves, then why isn't the problem of money exchange attacked directly instead, i.e. through some other less volatile classical stores of value like gold or stock?

"Money exchange" is a poor way of phrasing the problem that Bitcoin solves. Satoshi called it "Peer-to-Peer Electronic Cash", which is a better way to think of it: currently, without Bitcoin, the only way to transfer money to a peer without relying on a third party of any sort is to hand deliver a wad of cash. Bitcoin enables that transaction to happen electronically, for free. I don't see how it would be possible to enable those features (no need for third party, free international transfer) while using classical stores of value, and as far as I know neither does/has anyone else.

> Why is money exchange a problem anyway and why couldn't a classical wire transfer solve the problem?

This is basically asking "why is the trust thing so important?" That's a pretty heavy question, but one simple answer that comes to mind is that trust is expensive, and economically inefficient. The capital involved in mimicking the behaviour of a company like Western Union is a small fraction of what they're worth by virtue of being Western Union (ie. having people trust them) and the fact that they meet regulatory requirements everywhere they operate. That brand is only valuable and those regulations are only necessary because transferring money used to be impossible without them.

Now, what Stripe is suggesting (and I happen to agree) is that there may always be trusted third parties and possibly some level of regulations involved to protect the consumer, but the level of trust and the amount of safeguards will ultimately be tempered by the enormously reduced barriers to entry (and hence vastly increased competition), potentially to the point where consumers will have almost the same variety of choice with their payment providers (ie. replacing credit card) as they currently enjoy with email. There are still a lot of technical hurdles to work out before that can become a reality, but that's the dream I'm excited about and the real value I see in Bitcoin.

Classical wire transfers have two things that people object to: high fees and anti-money-laundering legal requirements.

The problem with making it "easy" to move money is that fraud becomes easy as well. There was an article on HN the other day about someone who wired $4k to a fraudulent AirBNB host. The credit card system skews towards assuming that the merchants are fraudulent and the customers mostly honest. Bitcoin goes in the other direction: it's entirely caveat emptor, there's no fraud protection or recovery at all. If your key is used to send bitcoins, by you or someone else, they're gone to that address. This allows for the low transaction fees but creates a trail of people who've lost money, whether on mntgox or localbitcoins or random internet purchases.

(I've been playing with the description "uber for banknotes" for a while; the disruptive evading of existing regulated systems is important to both Uber and Bitcoin)

Bitcoin allows for escrow transactions, where a third party can act as a referee in case there's a dispute in the transaction. It has the important property, absent from current escrow setups, that the escrow party never holds the money: they have the power to accept or reverse a transaction, but nothing else. It limits the trust commitment towards the escrow service.

People keep saying this, but how much is it actually used? How much do you have to pay the escrow service? How good are they at dispute resolution?

Also, the money has to be kept in escrow until the possibility of a dispute is over, which adds a substantial delay.

I imagine escrow being done by the likes of Airbnb, in the case of the service. It won't be error free, but should stop the absolute frauds. In those cases, the escrow service is already paid for: it's the market that facilitated the transaction.

As for the money being kept in escrow, that is the definition of escrow. The alternative is the scenario of credit card payment processors, which keep the money for a period, and retain a fixed percentage of sales turnover, as a guarantee for refunds. From the merchant perspective, the average payment delay should be shorter using bitcoin than it is with credit cards.

The answer for why Bitcoin instead of Gold or stocks or whatever comes down to trust and logistics. Take Gold for example you have to have to either ship the gold around which is expensive and slow or have a trusted third party store the gold and handle netting out the transactions between entities or accept delayed payment and trust that the counter party will deliver the underlying asset. Bitcoin does not require trust in anything except the math underlying the system.

You are completely ignoring that you still have to trust your own security and 3rd party apps and services.

I don't think you'll ever be able to devise a system where you don't even have to trust yourself.

Also that BTC has no chargebanks, fraud detection etc. Once its gone from your account its gone.

Multisignature services enable escrow and fraud detection, etc.

> Bitcoin does not require trust in anything except the math underlying the system.

False. It requires trust in the liquidity of bitcoin. If you can't convert bitcoin to local currency, it has no value. Bitcoin's fragility is in its ability to act as a holder of value, as repeatedly show by speculative price swinging (sometimes without apparent cause).

Gold, for all its faults, has a huge track record as a value store.

Beside the fact that it already exists, I think the best argument would be that the BTC network didn't require coordination between financial institutions or a design committee.

You're not alone: all the people who bought Bitcoin and holding it use Bitcoin mainly as the best store of value in human history. All fiat currencies are being printed like crazy (CHF was an exception, but it changed a few years ago)

Could you explain that? Compared with traditional currencies, Bitcoin's high volatility and unknown long-term risk profile make it look like a terrible store of value to me. (And, for similar reasons, very attractive to speculators.)

Volatility should never be important when selecting a store of value. Gold and silver has much volatility compared to USD and hamburger price, still if you sold a cow 5000 years ago in Egypt for silver, you could buy at least 0.1 cows from the same amount of silver today. Silver doesn't lose more than 0.01% of its value/year (still the volatility is much higher than that). It's actually more important to understand why USD and CHF are so bad store of value. The best explanation is by Mike Maloney: https://www.youtube.com/watch?v=iFDe5kUUyT0

Volatility matters a lot for a value store, because the point of storing value is being able to convert back to something you actually value later on. If you put it in something highly volatile relative to whatever you actually care about, you may end up losing a lot of the stored value.

I can't reply to your comment for some reason, so I reply here.

I bought Bitcoins more than 1 year ago. If you look at Bitcoin in terms of years, and as a long-term store of value, Bitcoin is not volatile: the value is increasing until total adaptation. And I don't know anybody else who bought and held his bitcoins who's complaining :) (I'm not counting people who had Bitcoins held at MtGox, as they didn't have Bitcoins, just IOUs for Bitcoins)

Bitcoins are way more volatile than gold: http://btcvol.info/

That you bought something and had it go up is great for you, but it does not mean the volatility is low. Indeed, if it went up a lot, it means volatility is high. Volatility is the inverse of stability.

A currency can be as volatile as it wants from day to day, but if over a very long time the value appreciates consistently then wouldn't that make it a good value store? You're hedging day to day against a long term win, surely?

Nope: long term appreciation may make it a good investment but a poor store of value.

Lets say you have two magical safes, and you put $100 in each one.

The first safe gives you the real-dollar value of what you put in, less $0.50 per-month. So a year later, you get $94 worth of inflation-adjusted dollars no matter how high or low inflation has been over the course of the year.

The other safe gives you an additional dollar for each day you keep the money in it, but there is a 70% chance all but $10 catches on fire when you open the safe. So one year later you have $465 or $10, statistically averaging $149.5 .

The second safe might be worth gambling on as statistically you get almost a 50% return on investment: but if you need to be certain the value you put in is maintained, the first safe is the better option. Therefore, the first safe is a far better store of value.

Gotcha. I've been thinking a lot about BTC recently, but I'm useless when it comes to economics and there is a lot of "faffing" around it. Thanks for the information. :)

Nothing goes up consistently. If it did, people would invest in it until the price changed so that it didn't go up consistently.

how can you make the assumption that "over a very long time the value appreciates consistently"?

in fact, one definition of a bubble is when people start to assume that an asset will always appreciate over time...

I don't, I think it's dumb.. but I think that's how people are defining it? I'm no economics major though. Totally ignorant.

Bitcoin has a relatively fixed supply, but that doesn't mean it's guaranteed to appreciate over time.

Bitcoin is only valuable because people choose to find it valuable. One example of how it could crash in value is if a competing cryptocurrency starts to gain momentum, and people jump ship, or if a major flaw is found.

There are many plausible scenarios for bitcoin going to 0.

How many ancient Egyptians are around wanting to trade their silver coin for cows?

Cryptocurrencies are no different in that regard.

The maximum amount of each cryptocurrency is hardcoded into their design, but nothing stops people from "printing" new cryptocurrencies. There's bitcoin, litecoin, peercoin, darkcoin, namecoin, primecoin, and of course dogecoin... Gimme a few hours and I could cook up xiphiascoin in your honor.

And when something happens that makes people migrate en masse from one *coin to another (perhaps a security flaw in the reference implementation), you might wake up to find that your old coins are now worth less than a Zimbabwe dollar.

Agreed. The more I think about BTC, the more I understand that the exchange protocol is the most useful part of it. Storing value in an encrypted wallet on your computer is inconvenient to say the least. Not that I want local storage of value to go away, but as a consumer I want a very different payment experience than "here, have my CC number" or "let me pay with PayPal".

Satoshi wrote in the genesis block:

    The Times 03/Jan/ 2009 Chancellor on brink of second bailout for banks
Bitcoin was released in staunch opposition to the banking system.

> Storing value in an encrypted wallet on your computer is inconvenient to say the least

It's possible to store Bitcoin on sheets of paper, or entirely in your brain, safely and securely.

I get the distinct feeling you've never used Bitcoin before. Please, sign up for an account at Coinbase and buy $1000+ of BTC or otherwise put yourself in the shoes of someone who wants to buy a serious amount of coin before making these sorts of statements.

Bitcoin isn't about being a PayPal competitor. It's money outside the State, always has been, always will be. Unless of course it is corrupted from the inside out, probably by whitewashed companies who are too afraid to embrace a great thing in spite of what regulators would like them to do.

>It's possible to store Bitcoin on sheets of paper

The process for making a secure paper wallet is far from convenient and brain wallets are about the worst possible way to store bitcoin and are far from safe and secure. If you're going to get some please do not use a brain wallet.

Numerous wallets make it dead simple to create a paper wallet. With Electrum, you just open the program and it automatically generates 12 words which you can write down on paper or learn by heart. It doesn't get much easier than that, and it's perfectly safe and secure to do.

> It doesn't get much easier than that

I think a lot of people would argue that sticking with their current system (banks, fiat currency, etc) is, in fact, much easier than that.

They are more familiar with the current system, but after you have done it for the first time, you realise that electrum is actually way easier than banks. People just think its harder, but it is not really.

It's only easier if you ignore the part where you have to get bitcoin in the first place.

All the examples of "see Bitcoin isn't hard, here is $0.0005 worth" completely gloss over this point.

That's no fault of Bitcoin, however. Getting USD isn't magically easy either.

Sure it is. You can sit on a street corner and people will literally hand you physical cash. It doesn't get any easier than that.

Someone merely held a Bitcoin address sign on TV and received coins from all over the world: http://www.theverge.com/2013/12/1/5163926/one-college-footba... How awesome is that? It sure beats the reach of sitting on a street corner...

Oh? Something tells me I can't write a Bitcoin address on my direct deposit form.

Seriously, the interface provided by Citibank is pretty freaking great. I work, I swipe my credit card places. As long as I do the former more than the latter, I don't need to touch anything else. Also every few months I accumulate enough points to buy something on Amazon for $50-$100 for free.

Bitcoin could be even better if I got paid in Bitcoin and could pay people in Bitcoin, but I can't.

I had to physically go to a bank and talk to people to set up my bank account. I don't see how that can be considered more convenient than spending 5 minutes on a website.

How does spending 5 minutes on a website get you bitcoin without having already gone to a bank and talked to people?

Localbitcoins.com, buy with cash

I don't see how you think that avoids you needing to go see people in person which was the claim of the person I replied to.

Dead simple but no more secure than just storing the file encrypted on your computer.

Electrum is great and if you write down the words thats fine. If you try to memorize them without a backup there are a lot of events that can happen in your life that will lead to the total loss of your coins.

Agreed. I'm looking for a LiveCD style paper-waller generator, do you know of one?

I don't use paper wallets myself but any barebones linux bootcd/usb with https://github.com/pointbiz/bitaddress.org and BIP38 selected is the route I see most recommended.

Very convenient!

If you know what you are doing, brain wallets are very safe. However, if you don't, you might easily make a disastrous mistake. The casual user should not store coins in a brainwallet, but they can be quite useful.

If you know what you are doing you can get enough entropy that is true but there is still a lot of things that can happy in your life that will affect your memory but not be life ending. In those cases without a backup you'll lose your coins.

I have bought and sold a few hundreds of USD worth of BTC and even used a few tens of USD of it for transactions, and while you're definitely right about the intent and philosophy of BTC, I agree with your parent comment that what is actually exciting about BTC (or something inspired by it) is its potential as the lowest-friction way to buy things digitally. The sooner BTC shakes its crypto-libertarian culture the better. Right the vast majority of people in the world (at least those who've heard of it) know it as this weird, unsavory, and probably criminal thing, instead of as the backbone of the new cheaper and much more convenient way of buying things and moving money around.

If it can still be used by die-hards like you to protect themselves from the State, all the better, but that part of it is never going to be of much interest to most people.

> the vast majority of people in the world (at least those who've heard of it) know it as this weird, unsavory, and probably criminal thing

Yes, and it's the truth. What can bitcoin do that no other currency can? It can operate entirely outside of the existing banking system. That's the X factor of bitcoin, and NY regulators hate it for this reason.

The black market actually has _very_ wide appeal. It's worth north of 40% of GDP in certain developing nations. It's worth billions of dollars in America, and Bitcoin has that market cornered online. This _is not_ a bad thing. It is something worth celebrating.

I might add, the vast majority of Americans can't imagine a world in which the US Dollar isn't world reserve currency. Bitcoin was devised as a better currency system than the US Dollar ever could be, and that's why it's so special. Bitcoin doesn't try to be legal, it doesn't try to be whitewashed and savory, Bitcoin just _is_. And what it is, is a vastly superior form of money than fiat currency.

We disagree. Bitcoin (or other cryptocurrencies) can be safely transferred across large distances more easily than existing currency. It will be a good thing when governments figure out how to regulate it (and I think they will, eventually).

Except NY already figured that part out. In fact, they recently presented their regulatory framework for public review. It involves shutting down Bitcoin as we know it, and replacing it with something in which

- every single wallet provider, including makers of open source wallets like Bitcoin-QT, in addition to Bitcoin exchanges and banks, are legally considered "Virtual Currency Businesses"

- each customer of a "Virtual Currency Business" must have a verified physical address and government issued photo ID on file in order to use Bitcoin

- each "Virtual Currency Business" must file suspicious activity reports on all transactions valued at over $3000 USD, meaning open source software like Bitcoin-QT must know each of its users at all times

- each "Virtual Currency Business" must retain records for no less than 10 years

- each "Virtual Currency Business" must maintain collateral in the form of USD including collateral for total Bitcoin balances

- each would-be creator of a cryptocurrency must register with the State before releasing 1 SLOC

The reason it's easy to transfer Bitcoin across long distances is that the system works without intermediaries. Regulation, as outlined by NY, involves polluting the Bitcoin protocol with precisely the same intermediaries that make the traditional banking system so awful.

> It will be a good thing when governments figure out how to regulate it

In other words, you believe it's a good idea to castrate Bitcoin and make it no different than PayPal, SWIFT, ACH, etc.

Points taken! That does sound awful. I want to have my cake and eat it too. I want regulations, but "good" ones, where "good" is defined in some vague and totally subjective way.

Ask an Italian whether a black market dominated economy is a good thing.

I believe you are philosophically right about the idea of bitcoin. The cat is out of the bag: there is a distributed alternative to the global banking system. BTC might be corrupted, but the idea is not. Another spin on the POW and on the mass distribution mechanism, and the regulators might have a serious problem on their hands. Lots of ifs.

Sorry, but you are wrong on most accounts, especially your evaluation of my person. You cannot possibly argue that using BTC is in some way more convenient than using a credit card. Is it personally and politically better to use BTC? Maybe. Is it easier for an average bear? Absolutely not.

>Bitcoin was released in staunch opposition to the banking system.

No, i think that quote makes it clear that bitcoin was released in staunch opposition to centralized currency, where some authority (central bank) can issue new units of currency at will and devalue the currency for everyone.

That's the only thing about bitcoin that actually interests me, how easy is to make payments cutting and pasting some text.

But everything else surrounding bitcoin, I don't find it useful at all. I just want/need something like bitcoin, but connected to my €-denominated bank account. I don't want or need an alternative "digital currency" and I find the mere idea of one stupid, I just want to make exchanges with current currencies (which are already "digital", something that for some reason is missed all the time, maybe because it's much easier to get attention on the internet using buzzwords).

Because bitcoin wants to be a currency, and a decentralized one at that, it needs to do the cool, but weird shit that the blockchain is. All the cryptography behind it, i find it a massively complex waste of time that only gets justified because of the absurd fetish of decentralization. The world just needs to safely and easily exchange money through internet, nothing else. An overengineered solution that tries to workaround the current financial system for no good reason is not a great solution for that need IMO.

I'm hoping that at some point someone (banks, credit card companies, paypal) will end up doing what bitcoin doesn't wants to do.

So you want Ripple, essentially.

You should be aware that anything dependent on a small set of entities can fail spectacularly. You never know if they get hacked, bankrupt, sued, raided, etc ...

Ripple is a rip-off. You buy a gift card and the money stays there..

Ripple allows people to issue cryptographically secured debt securities, not sure what you think it is

>Bitcoin has a lot of problems as a unit of account and as a store of value, but that is not primarily what Satoshi was building

Yes, if you see bitcoin as a meme (in the traditional Dawkins sense of the word), then the unit of account aspect makes it a self-financing meme. The speculative frenzy may be unpleasant, but it is necessary bootstrapping mechanism, and not accidental.

Exactly. This is the point that's under-appreciated. People talk about the economic optimality of a currency that has an intelligent issuer who can adapt the supply as needed, and how Bitcoin locks you into a specific (and depreciating, yikes!) supply path -- but that's just the nature of bootstrapping a currency, let alone one without huge guarantors!

If someone had said, "Hey, I'm starting a very thinly-traded currency and we're going to appoint an elite circle to have arbitrary authority to issue more whenever" ... eh, it's a much weaker sell, to put it mildly -- even if some ideal currency does have that property.

> Bitcoin has a lot of problems as a unit of account and as a store of value, but that is not primarily what Satoshi was building (https://bitcoin.org/bitcoin.pdf). Bitcoin is, and has always been, a medium of exchange first and foremost.

Which is consistent with the primary function and origin of money: because there is a division of labor it means a common medium of exchange must exist. The secondary functions of money - store of value and unit of account - are precisely that...secondary. You can't have the secondaries without the primary (see: gold). I sort of wish the OP wouldn't have made the characteristic of money as being a medium of exchange out to be a "oh well money is also this". The problem is that the press got a hold of Bitcoin for it's secondary reasons and drove the eyeballs to that without defining the problem to begin with: our medium of exchange, globally, is broken.

IMHO, Bitcoin adoption curve is taking exactly the course it should be: the exchanges that are at most threatened by poor inefficiencies ("third world") are seeing the most benefit. The first world doesn't have a problem moving money because there are solutions...they just cost money. Third world doesn't have solutions. Once they all see benefit the "first world" will adopt. It won't happen overnight and it shouldn't.

You have the supervenience[0] of "medium of exchange" and "store of value" reversed. If something is valuable then there will be demand for it. In fact value and demand in the domain of economics, according to Aristotle, are equivalent. (Aristotle also wrote over two thousand years ago that money is not "real" but that's another story.) When there is demand for something it can become a medium of exchange. Asserting that something is a medium of exchange does not make it so unless there is underlying demand for that something.

Primary and secondary is the wrong way to think about. "Medium of Exchange" is a high-level property that depends on the lower-level property "In Demand". And that is why the value of, or the demand for, bitcoin is critical to its success as a payments platform.

[0]: http://en.wikipedia.org/wiki/Supervenience

I think it's a shame that Balanced Payments didn't wind up their PR machine when their CEO was talking about this same stuff last January: https://soundcloud.com/aroundthecoin/podcast_01_18_14

They're not doing the best job at demonstrating it, but I think they've been looking at Bitcoin in a clever way for much longer than Stripe :/

Bitcoin (the currency) is a terrible medium of exchange. It may make for a decent store of value. Are you sure you're using those terms correctly?

Bitcoin (the protocol) is awesome for payments. But that is a separate issue from the monetary policy underlying bitcoin (the currency), which is stacked against being a medium of exchange.


I've generally come around to this idea. I'm not even sure "bitcoin" as the blockchain of today needs to exist. But the distributed blockchain of transactions for financial transfers seems to be a really great idea.

Has/Is someone building a payload VPN transaction system based on the bitcoin protocol?

Working on it. (Also was researcher for TorCoin). Get in touch if you're interested -- email in profile.

Very good comment.

What exactly is the problem with a store of value with 500% annual returns?

I read people talking about the supposedly awful volatility, but they fail to mention that the volatility has a very distinct trajectory. Bitcoin is volatile as it increased in value by orders of magnitude year after year.

The article repeats this fear of volatility in the context of one's live savings. How frequently do people tap their life savings to pay for grocery runs? Isn't it the case that Bitcoin is by far the best possible store of value one could have adopted for their life savings over the past five years?

Unless of course they invested when bitcoin was over $1000.

Ever heard the phrase "past performance is not an guarantee of future returns?"

I've been meaning to build a chart to evaluate this. The question would be: What are the longest periods of time one could have held Bitcoin and lost money? And secondarily, how frequent were the opportunities to have lost money?

My ballpark guess would be that the longest you might have held Bitcoin at a loss were if you purchased during a few day span during the peak of 2011. You would have had to have held for almost two years to have turned a profit. But on 95-99% of days in which you could have purchased bitcoin, you would have profited within 1 year.

I'll try and put that together. Should be interesting.

If I understand you correctly, your estimate is way off. Have a look at the bitstamp exchange rate for the last 8 months. Looks like around 40% of days closed at a price above the current price.

In my example I was using a 1 year horizon. So none of those closing prices would be charted until they had a year to mature.

I think I would need to make a slider so that you could explore the concept at various time horizons -- 8 months might bring a 50% occurrence of profit.

But my expectation is that at 1 year 95% of investments are sound, while at 2 years it would be 100%.

Gold is the typical store of value asset, and the story there is very similar.

Gold has experienced rapid growth since 2008, but historically the growth curve has been flat. I have never heard a competent Financial Advisor recommend gold.

But this boom is weird? I wonder if HFT's will be to blame, when we have the crash?

Gold is a good asset to hedge with, because it is typically inversely correlated with the markets. Hence the boom around 2009.

A competent Financial Advisor would calculate correlations between Gold price performance and your portfolio, and use the coefficient to recommend the right amount of gold to buy. Or they just spare you the jargon and do it for you.

How do you define the competence of a financial adviser?

The growth has to stop very soon - exponential functions can go on only so long. And when it stops the volatility will not stop - this is a prediction of course - but I am pretty sure that it will be this way.

But why would it stop sooner than a $200 billion market capitalization? Or $700 billion for that matter?

When Facebook was raising money at $10 billion valuations would it be wise to predict that it had to "stop very soon"?

I don't disagree that Bitcoin will at some point stop revaluing upwards by orders of magnitude, and I don't pretend to know what the market cap will be in a few years time. But I don't think it would be all that surprising if Bitcoin were to be more valuable than say, What's App. And for that to happen we're going to likely see another order of magnitude adjustment.

When Webvan was raising money valued at $1 billion would it have been wise to predict that it would "stop very soon"?

Anecdotes are not market principles.

But that's my point. Arbritrarily declarations that exponential growth must stop soon are not meaningful in the positive or negative.

There are reasonable methods, however, to estimate likely outcomes of successful growth. I think its reasonable to predict that Bitcoin is likely to reach valuations of large publicly traded corporations. There are those that estimate it reaching valuations similar to gold, or the GDPs of industrialized nations.

But saying that the growth must stop because growth must stop isn't really saying much at all.

exponential growth of other technologies did not stop until they reached mainstream adoption. Bitcoin is very far from that

So you are saying once it reaches mainstream adoption you risk that the price will start dropping? Seems like a pretty bad road to go down.

The problem is with a medium of exchange with 500% annual returns.

Dude, go look up tulips on wikipedia.

Bitcoin has shown predictable, steady growth sustained over a many year period.


Tulips experienced exponential an order of magnitude shift in price during the course of one year in 1637.

Unlike tulips, Bitcoin is widely appreciated for its utility. I don't think the comparison is as meaningful as critics would make it out to be.

Steady logarithmic growth in valuations is a normal phenomenon among tech startups -- yet it seems to me that many otherwise smart people are flustered by this growth when applied to Bitcoin, thinking it must be too good to be true.

> Tulips experienced exponential an order of magnitude shift in price during the course of one year in 1637.

Did you fail to notice that your Bitcoin graph shows several occurrences of order-of-magnitude change over less than one year?

Anything can be made to look "steady" if you plot it on a log scale.

This is one of the best posts on the "state of the Bitcoin economy" I've read yet. They nail a few key points that shows they get it in a real-world sense.

* Mass-consumer adoption of Bitcoin is a tough sell in developed countries (USA, etc.)

* Bitcoin the Network may ultimately be more valuable than BTC the currency

* "No chargebacks!" is a pitch to merchants for BTC, not consumers. Consumers like chargebacks & trust.

* BTC the currency may end up being a behind-the-scenes player so long as traditional currencies do their job.

This says to me that Stripe's position is ultimately to be the Visa of Bitcoin or the SWIFT of Bitcoin. And that's could indeed be a huge opportunity.

> This says to me that Stripe's position is ultimately to be...the SWIFT of Bitcoin.

Agreed. To illustrate how broken the SWIFT system is for those unfamiliar with international wires: Last week I wired AUS$2,500 from an account I control in Australia to an account I control in the US. It touched 4(!) banks in the process, who collectively took ~$45 in fees ($25 of that being a total surprise to me, represented only by a small asterisk footnote in the fee schedule of my initiating Australian bank).

I became a huge Bitcoin cheerleader following the experience.

That's 1.8%. What are the current spread rates for AUD-BTC and BTC-USD?

For comparison I get 0.6 - 1.4% from an online specialized currency service, taking a couple of days. Set-up was a bit involved. How good is connecting BTC to real world bank accounts these days?

Buying BTC for 2500 AUD on https://anxbtc.com/ right now would net you 3.875512102 BTC, which can be sold for 2302.054188836 USD on Bitstamp. At current exchange rates that's a 2% loss on the transfer alone, and you'd incur the wire transfer fee anyway, when sending the USD from Bitstamp to your US bank account.

I think the bottleneck is currently the BTCAUD market, where the spread is 1.43% (http://bitcoincharts.com/markets/anxhkAUD.html), and also liquidity on US-based exchanges where you can avoid the subsequent international wire transfer.

Try Transfer Wise. It's a very useful middle ground between the current method of SWIFT and the potential of Bitcoin as a medium of exchange. It costs much less than a SWEIFT transfer and is much quicker.

> * Bitcoin the Network may ultimately be more valuable than BTC the currency

This is a fundamental misunderstanding of Bitcoin. Because each and every Bitcoin function as a sort of "token" that provides access to this payment network, their value is closely tied to the value of the network. For Bitcoin to become an international payment gateway system, liquidity requires every Bitcoin to be worth a lot.

I guess I mean "valuable" in the intrinsic sense, not the financial sense. If, for example, in the model that Stripe outlines, the Bitcoin network ends up powering the Bank-to-Bank side of things (away from the consumer), only a handful of counterparties are going to be involved on the BTC side of things. Millions of consumers may use Stripe/whoever to send $$ to millions of other consumers, but that might all be handled by a (relatively) few BTC flying back and forth in batches on the back-end, which doesn't necessarily require a large per-BTC price.

I know not a perfect example but that's my gist.

I understand but I'm afraid you are being misled by the article.

While I believe it is an interesting scenario. I do not envision something like that will happen. The only reason it might is for its "consumer protection" value.

I appreciate that Greg realises some of the promises of Bitcoin but the true value for "billions of people" is not an optimized "clearing house". I expect Bitcoin to scale to a point where the store of value and liquidity concerns are non-existent.

At this point, high-inflation economies will turn to Bitcoin, and not gateways that will convert their already worthless currencies to USD or whatever. This provided value will ultimately catch on over here at which point some will find it largely preferable to hold BTC and not their "normal currency. Hell, some already do.

> Millions of consumers may use Stripe/whoever to send $$ to millions of other consumers, but that might all be handled by a (relatively) few BTC flying back and forth in batches on the back-end, which doesn't necessarily require a large per-BTC price.

That depends on what you mean by "large per-BTC price". It requires a certain minimum BTC price to move a certain amount of money when settling in bitcoin. You can't move $1M USD in one Bitcoin transaction if a single bitcoin is worth 1 cent and there are only 20 million of them. So the bitcoin price measured in a certain currency limits the maximum transaction volume for that currency when settling in bitcoin.

Secondly, and perhaps more importantly, it requires great liquidity/market depth. One must be able to buy or sell a lot of bitcoins without affecting the price. This is the essence of money: a high-liquidity commodity.

> I guess I mean "valuable" in the intrinsic sense, not the financial sense.

When settling in bitcoins, they need to have value in "the financial sense". That's a requirement.

Agreed. The people who say that don't understand that something that Bitcoin got right (though it can be improved) are the incentives. People looking after their own self-interest will make Bitcoin work. That's why all those clones that tried to remove the currency part failed horribly. Eg: "It's like Bitcoin's blockchain, but for a social network!".

If one uses BTC primarily for exchange, one doesn't care what the "value" is. The only priorities are the convenience and reliability of the conversions into and out of BTC. These are threatened only a little by volatility, and not at all by actual BTC value.

Agree for the most part, so long as there's sufficient liquidity in the target fiat currency.

The value of individual bitcoins depends as heavily on how long bitcoins are held as it does on the transaction volume.

If there are 20 million BTC in active circulation and the bitcoin network processes 20 billion USD per day in transactions, than the "intrinsic value" could be $7000/BTC if the average bitcoin is held for a week between transactions (eg, you are paid biweekly in BTC and spend them constantly), or it could be $40/BTC if the average bitcoin is held for an hour between transactions (eg, people hold fiat and the BTC are in constant use by the gateways).

A high intrinsic value really requires adoption both as a payment network and as a store of value.

> "No chargebacks!" is a pitch to merchants for BTC, not consumers. Consumers like chargebacks & trust.

Consumers also like discounts. Merchants can return the savings from unfair chargebacks and reduced fraud as a percentage discount for paying with bitcoin. Many merchants are already doing this.

And the multisignature transaction feature of bitcoin allows for a more robust and fairer 'chargeback' feature than currently provided by credit cards, where arbitration is done by a third party who has built a reputation for fair rulings. See for example Bitrated [1].

[1] https://www.bitrated.com/faq.html

>However, Bitcoin has huge potential as a way to transport value. It’s surprisingly difficult to move money today, and the experience of paying for something online is just about the only part of the internet that hasn’t changed dramatically in the past twenty years.

Based on my very limited understanding, the difficulty in moving money has nothing to do with technical limitations of money (it's not like we lack the technology to transfer dollars electronically) and everything to do with regulation. Does bitcoin only offer a "reset" button for regulation? The restrictions on money transfers exist because stakeholders in the finance system want them there - why wouldn't they implement the same restrictions for *coin?

I suppose you could try to exploit the semi-anonymity of bitcoin to avoid regulation, but that doesn't seem attractive to most businesses.

Regulations are only possible because the technology to "transfer dollars electronically", as you say, requires lots of infrastructure and trust - the entire banking system, basically. If I want to send you a dollar electronically, I can't do so without using the banks. And the banks are both intrinsically and extrinsically motivated to impose regulations, which they can do by limiting access to their transfer-money services.

But access to the technology to transfer bitcoin does not require infrastructure and trust. I can send you a bitcoin without needing a bank or any other large authority. Moreover, I can do so relatively anonymously, and from anywhere in the world. It is therefore much, much harder to impose restrictions on moving bitcoin than moving USD or other non-digital currencies, because there are no large authorities capable of enforcing those restrictions.

(That is, the government can of course pass laws saying I can't send you bitcoin, or limiting the circumstances in which I could. But the most they can do is punish me if they can catch me - they can't actually stop it. Whereas banks do have the power to actually stop me from sending you USD. [Unless I want to do so physically, which is hard to do in quantity or over any distance.])

The appeal of bitcoin in this respect is that it disrupts the idea of money "being" in a certain place and thus having to "move" across borders. As a worldwide distributed ledger, it's unclear that sending someone bitcoins amounts to a value transfer across borders.

I don't see this as a loophole so much as radical redefinition of what a store of value means. It's clear that whatever future regulations look like, they can't mirror the status quo.

Not really a ledger, bitcoin is only an asset, never a liability.

Point taken, but I think that a long list of all accounts and their balances is essentially a ledger even if those balances are constrained to be positive.

A ledger is almost certainly a better model for thinking about the blockchain than, say, a bunch of people with cash under their mattress.

You could argue MtGox have a liability of quite a few bitcoins.

While regulation will always play a role in this, I would hesitate to say that this is "the" difficulty. Transferring dollars (say) electronically is complicated because you need to prove that no dollars are being created or destroyed. Though you could phrase this as a regulatory rule, it's really more of an accounting requirement.

The system as it stands (FedWire/CHIPS/SWIFT, and ACH on a consumer level) is very complex and tries to strike a balance between reasonable clearing times and limiting trust of individual actors.

The difficulties in an electronic money transfer system for fiat currency are, in my option, primarily technical and logistic, with the logistic aspect being maintaining the correspondence between specie and electronic balances.

That said, it's always hard to analyze success. Arguably, bitcoin does not solve the money transfer problem any better than previous schemes, like Chaum blind signatures or egold. The contribution of bitcoin to the electronic payment space is a little more nuanced than just "easy money transfers".

> Does bitcoin only offer a "reset" button for regulation?

Even if that was the case, that would already be pretty awesome.

Really? Which regulations in particular do you feel it would be awesome to do without (apart from KYC/AML)?

It's not quite as simple as that, though. To, for example, send money from the US to Kenya via bitcoin, you need somebody in the US who is willing to sell you their bitcoin in exchange for dollars, and somebody in Kenya who is willing to buy your bitcoin in return for shillings (which are then paid to the destination seller). Creating the technology that makes this relatively transparent is quite doable, but you still need an active bitcoin market in both financial markets. If the general pattern of value transfer is unidirectional (e.g. remittances) then there needs to be a viable flow of bitcoin out of the destination country (i.e. your Kenyan bitcoin purchaser needs to regularly make purchases from foreign markets in bitcoin); that's tricky to establish.

On top of this issue, big banks charge only cents to send large amounts of cash internationally (according to somebody I talked to a couple months ago, Citi charges 10c per international ACH transaction assuming you have $250k on deposit) so the volume in the bitcoin market has to be built from small transactions -- there's no real upside to doing large transactions over bitcoin vs international ACH.

Not sure if this is a relevant point, but as a global reserve currency, the US dollar could act as a gateway for local bitcoin traders to enter and exit their bitcoin positions.

Whereby so long as a USD/BTC market exists and a USD/local market exists (which there is due to the petrodollar), it doesn't matter what local demand is for BTC - the USD can act to buffer any lack of local BTC demand/supply.

Shillings > USD > BTC or BTC > USD > Shillings.

"big banks charge only cents to send large amounts of cash internationally"

This is utterly false. The entire reason the remittance industry exists (Western Union, etc) is because banks don't offer cheap ways of sending money internationally, and/or recipients often don't even have bank accounts. In fact, remittance fees are so high[1] that this is precisely why many analysts see Bitcoin's potential to disrupt this industry[2].

[1] Average remittance cost in the world: 8%. Average to Africa: 12%! Nigeria to Ghana: 22%! Source: http://www.irinnews.org/report/99977/remittance-rip-offs

[2] http://www.businessweek.com/articles/2013-10-08/will-migrant...

You missed out on the word large. Remittances are generally very small.

Also the cost of remittances isn't in moving the money it's in having lots of people in the destination country that your family can go to and get cash from. There is no indication that bitcoin would make that cheaper.

The most blatant way Bitcoin can make remittances cheaper is if the recipient can directly spend the bitcoins. So no more Western Union = no middle man pocketing remittance fees!

Yes, but people can't so it doesn't.

Yes they can, and here is one more example: according to the World Bank the lowest remittance costs to send 140.00 EUR from Italy to China are 12.00 EUR (this is 8.6%!) see http://remittanceprices.worldbank.org/en/corridor/Italy/Chin.... However thanks to Bitcoin exchanges existing in both Europe and China, and with their low fees of typically <1% (so <2% total), the costs with Bitcoin would be less than 2.80 EUR, which is much lower than 12.00 EUR.

So do not say that Bitcoin "would not" make remittance costs cheaper. It does.

The world bank includes a very small number of possible remittance services and basically ignores any of the small grey networks most people actually use.

http://www.cabel.it/media/documents/cemla_slides.pdf has an example of a remittance service that offers fees of 1.15%(See page 7).

So that service would cost 1.61 EUR.

With bitcoin the process would be:

Transfer money to BTC-E which is 1% + the payment source fee so we're already over and we haven't even gotten our bitcoin yet.

ok lets try another one since that didn't work out and I'm sure we can find cheaper.

Kraken is free for SEPA deposits. I can't find any example fees for SEPA transfers from Italy to Germany but lets say 0.10.

Trading fee: 0.28 Withdraw fee is in btc(0.00050) so hard to say but currently around 0.31 then there is the bitcoin fee to deposit on the chinese side in okcoin which is another 0.06 then luckily its free to trade at ok coin and only 0.4% to withdraw in CNY which is 0.56

Total cost: 1.31

So assuming no slippage(which there would be since any country receiving a lot of remittances like this would be a buyers market) you can go through 3 extra transfers and save yourself 0.30 EUR on your 140EUR transfer. This also assumes my SEPA fee is right which I think it might be quite low for reality. Italian banks tend to have very high transfer fees even nationally.

I was tempted to reply that your unknown service, mentioned on page 7 of some slide deck written by some obscure tiny Italian financial holding company probably does not even exist, because it is referred to as a future potential project ("The company will be working...") so it probably means you were unable to find proof of its current operations.

But you would miss my main point. Even if it existed, you are wrong: most people actually use Western Union/Moneygram/etc. This is why they are companies worth hundreds of millions of dollars and not some footnote on a slide deck. At best, if you tried to support your side reasonably by bringing Hawala in the discussion, know that even Hawala represents a minority share of the total remittance market. And Hawala has fees typically higher than 1-2% anyway.

So, you did demonstrate my point that Bitcoin can make remittance costs cheaper for MOST people.

The people that use western union/moneygram etc do so because they need their family on the other side to be able to stop by a location near their house and get the money and they probably need the same on their side too.

Bitcoin isn't going to help those people at all at any lower costs. Since it is the person on the other side with a shop that is the reason for the higher fees not the transmission of funds.

Edit: and the people on this side. Bitcoin ATMs average around 5% at the moment. LBC is the same or worse depending on supply in your area.

I point you back to my 1st example: this overheard (offices, employees) is what Bitcoin makes unnecessary if users can spend the coins directly, or exchange them directly for cash with friends/family/people in their community, or use a Bitcoin ATM (ATMs cost less to operate than a full blown WU-type office so they would lead to lower fees - anything below the average worldwide remittance costs of 8.5% is better.)

You say Bitcoin WOULD (conditional tense) not make things cheaper, but if adoption continues (the condition we are talking about) it WOULD. Perhaps you do not communicate clearly and meant to say WILL instead of WOULD. In other words you don't believe in its adoption? But then your statement becomes obvious ("if Bitcoin's adoption fail it will not make things cheaper", duh).

Yes but again they can't. If you used local bitcoins or a bitcoin ATM to buy and sell bitcoin it would cost you more using almost any ATM around.

It wouldn't make things cheaper. The people with the money on the other side to run the western union shop are the same people with the money on the other side to buy the ATM or the liquidity to give you cash for your bitcoin. They have no incentive to lower the price just because you use bitcoins instead of their traditional services.

Side note:

Overstock released their Q2 results today. So now we can say for sure if it's just a case of them having a slow second quarter which is leading to the dropping bitcoin revenue! Turns out their revenue is up for the second quarter. It's just bitcoin sales that are down.

Unless you want to argue that bitcoin sales are detached from normal sales and operate on an offset cycle I think you have to admit that you were incorrect there.

"they can't"

Yes they can. I already gave you the Italy->China example. I already said Bitcoin ATMs have fees lower than the worldwide remittance average of 8.5%. You initially said if the Bitcoin infrastructure and services are available that it "would not" make remittances cheaper. I am showing you it does. I gave you hard evidence. You gave me footnotes about a hypothetical service on a slide deck.

"are the same people"

No they are not. Do you not understand the market dynamics? A WU competitor who installs a network of Bitcoin ATMs has lower operational costs and overhead than WU (who has offices + employees staffing offices all day), therefore they have an incentive to compete and beat WU's costs.

Overstock: no you still have to wait longer before concluding anything. Bitcoin sales are somewhat detached. For example we know there was a spike of Bitcoin sales in Q1 because this is when they started accepting it, so a initial surge of Bitcoin enthusiasts purchased stuff in Q1 (I bought a $150 kitchen bin from them, haha).

You gave me an example of someone with a bank account on both sides. What I'm saying is most remittances where price is an issue don't have that benefit.

> I already said Bitcoin ATMs have fees lower than the worldwide remittance average of 8.5%

And you were wrong since most bitcoin atms charge 5% per side.

>I am showing you it does. I gave you hard evidence.

Where? You haven't shown any evidence of a comparable service that is actually cheaper.

>No they are not. Do you not understand the market dynamics?

Do you not understand economies of poor towns or that the country receiving the remittances would be a buyers market because of the high sell pressure and low buy pressure causing the spread to be huge?

>A WU competitor who installs a network of Bitcoin ATMs has lower operational costs and overhead than WU

No they don't. They still need someone to watch the ATM and help people use it and it is almost certainly stuck in a store somewhere like every other bitcoin ATM. Hell even the one in Vancouver has to pay someone to sit next to it all day to help people use it and scare off people trying to undercut them.


No we really don't. Bitcoin sales have negatively diverged from their real sales and the divergence is continuing. Even 2 months ago the CEO said on Reddit that bitcoin sales were nothing and he's a huge bitcoin supporter.

Anyhow it's clear we'll never agree and I'm getting bored of going back and forth on the same 2 or 3 points. So I'm going to stop now. Good luck with your investment.

"You gave me an example of someone with a bank account on both sides"

Wrong. I was assuming one side would purchase Bitcoin cheaply on an exchange (eg. the migrant worker in Italy) and the other side (eg. China) would sell on a Bitcoin ATM. So 1% (or less) + 5% of fees which is still less than the 8.5% average of remittances. This is more evidence (again!) that Bitcoin can and does make it cheaper.

"No they don't."

Even banks would disagree with you. Running an ATM (even staffed by one guy sitting next to it) is cheaper than a branch office (which needs employees too). The office has higher costs on all aspects: rent (more square footage), employees (likely more than 1), other utilities, etc.

You look very silly, and alone, to argue that Bitcoin cannot make remittances cheaper. Virtually everybody would disagree with you.

Overstock: come back after they have done 1 year of sales, we will see.

If the difference between USD - BTC - KES vs KES - USD gets too large, there will be an opportunity for someone to arbitrage.

The beautiful thing about bitcoin is that it's an open system, an open currency if you will, that will allow a nice app ecosystem to be built on top of it. That aspect will allow many non-technical people to interact with abstractions that hide away all the complexities (such as Stripe), but it will also allow experts and hackers to still tap into the network directly with their own wallets, nodes, private keys etc.

I think that bitcoin is currently in its early infancy when it comes to user adoption and still has a very long way to go before it reaches its potential. It's not completely off base to compare it with the way the internet was back in the early 90s.

It worries me to see people describe Bitcoin as the "IP layer of payments." I have serious doubts about Bitcoin's ability to scale to a global audience. Transactions are too slow, the blockchain is too heavy, etc. I see Bitcoin in a very similar light to IPv4 and JavaScript: a good idea that escaped into the wild too quickly. And so we wind up piling hacks upon hacks to make up for the lack of a solid foundation, and it only gets harder to replace the current standard with a better alternative.

I think it's just a consequence of Metcalfe's law; the first implementation of a good idea will never be perfect, but has the greatest chance of succeeding. Sure IPv4, JavaScript, Bitcoin, and countless others have defects, but the world is still better with than without them.

JavaScript could have had a better design without impacting adoption. Likewise if IE had fixed the language along with all the other improvements they added, it'd also be better by now.

IPv4 is vastly better than JavaScript for what it does.

In point of fact, your first sentence is wrong.

I know this because I tried for a better design via JS1.2 in Netscape 4, enabled by opt-in versioning (<script type="application/x-javascript; version=1.2">). This was in 1997 while standardizing ECMA-262 Edition 1 (ES1).

And based on this JS1.2 experience (in beta, and it went to final in Netscape 4 when that dog finally released), I argued to the Ecma TC39 TG1 standards group that ES1 should incompatibly change == and != to work as === and !== do in JS today and since ES1.

Microsoft's JScript lead rejected this change as breaking, counterproposed the === and !== operators, and we all agreed. We also rightly decided not to impose opt-in versioning then, or ever after (1JS FTW).

(Irony: in 1996 summer, the same MS lead had mailed me privately to propose some incompatible changes to give JS "a better design", but I couldn't make them without breaking the Web even then.)

So almost 20 years later, asserting that something adopted widely and rapidly on the Web "could have had a better design without impacting [further] adoption" is easy to do but hard to prove. I did try, with == and !=, and that attempt bounced because of adoption-in-full (taking in versioning and backward compatibility).

Number-locked versioning and related protocols such as content-negotiation via the Accept: header have failed hard on the Web, over and over.

Sure, lots could have been better, but the time to get it right was 1995 May, not during standardization in late 1996 or 1997. At that point, "don't break the Web" prevailed, as it does still, among competing browser vendors.


In Firefox bug 988386, we started collecting telemetry on how often users see web content with JS versions. The hope is that we can remove some of non-standard language extensions like `for each`, old-style generators, and destructuring `for (var [k,v] in x)`. XUL is ignored for now because it defaults to JS 1.8.


So far, version telemetry shows that JS 1.7 and 1.8 content does exist on the web, but I'm not sure how or why people are using these language extensions. I hope to add telemetry for actual use of the extensions instead of just the <script> tag version. Maybe these <script> version strings were just cargo-cult copied code and the enclosed JS is actually not using the extensions. :)


If Brendan Eich wouldn't have rushed the JavaScript design, Netscape would've chosen another language which was already in the works (or complete?). It was apparently similar to PHP, and probably would've been worse than JavaScript.

Something got garbled here -- apologies if it's my fault, please cite your source and I'll try to fix it upstream.

The PHP (but much simpler) server side embedded mini-language idea was part of LiveWire, and would never have made it into the Netscape browser instead of JS. Rather, it was intended to do conditional server-side markup, string interpolation based on HTTP header values, etc.

Upper management -- Rick Schell, VP Engineering -- argued "we already have two languages, we can't justify three". The two were Java and JS. This killed the PHP-like exercise.

I rushed JS for many reasons:

1. Everyone at Netscape was rushing, because Microsoft was coming after Netscape and we all knew it. People were working around the clock. This was not healthy, but it happened.

2. There was little time to get the rest of the browser JS integration (AKA "the DOM Level 0") done in the rest of calendar year 1995 before the code froze for Netscape 2.0 final. The first public beta was in the fall, and code freeze in early fall or even late summer (my memory fails me here) meant critical bug fixes only after that point.

3. The Netscape IPO was coming up, which added to (1).

4. JS was called Mocha, then LiveScript, but Netscape marketing wanted to get the JS trademark, which required showing Sun that a VB-like companion to Java was viable. Some of the rushing was based on trying to keep Sun on board, in the person of Bill Joy (who eventually signed the trademark license for Sun, as "Bill Joy, Founder, Sun Microsystems").

5. LiveWire wanted JS frozen as its server-side language, and was on its own hard-charging schedule. I think it was trying to release with Netscape 2, but again my memory fails me. Anyone reading this who was there should weigh in.


Transactions are instant unless the sender double spends. Wait ten minutes for anonymous senders. Trust known senders, then blacklist their identity for instant transactions if bad behavior is detected. This is effectively what any merchant who accepts credit cards does today. Credit card transactions look instant, but can be rejected weeks later.

If the blockchain is too heavy, why are miners willing to process transactions for tiny fees? Bitcoin creates a competitive market in transaction processing. If the blockchain becomes too heavy (as measured by the transaction fees miners demand), alternatives will arise or the protocol will be changed to stay competitive.

Individual transaction fees are being heavily, heavily subsidized by block rewards currently. Just eyeballing the current numbers:

~400 transactions per block, 25 btc reward, ~500 usd / btc gives a transaction cost of 31 dollars each.

What happens to fees when mining rewards taper off? Just authoritatively stating "it'll be fixed" blindly pushes these problems into the future.

It'll be fixed. Or something will outcompete Bitcoin. That's what markets do. Blockchain technology has eliminated the barrier to entry to compete on transaction fees.

Transaction count will go up, and nothing says the value given to miners must stay the same. It is fine if some miners leave due to unprofitability.

> Transactions are instant unless the sender double spends.

Sure. But if we don't need to worry about double spends, we wouldn't need Bitcoin in the first place. Bitcoin solves the double spend problem, which takes, roughly 60 minutes.

> Wait ten minutes for anonymous senders.

A single confirmation is not sufficient for large-value transfers. The larger the transfers the longer one should wait (up to about 6 confirmations).

A miner with, say, 5% of the global hashing power has a 5% chance of finding the next block. That means someone working with the miner has a 5% chance of successfully pulling off a 1-confirmation double spend. If I transfer 100,000 BTC to someone as payment for something, and the recipient delivers to me a product worth 100,000 BTC after one confirmation, then I have a 5% chance of successfully scamming someone of something worth 100,000 BTC (~$60M). That's an average profit per attempt of 5,000 BTC (~$3M).

If I instead wait, say, 7 confirmations (~65 minutes), the probability of pulling of a successful double spend with 5% of the network hash rate is around 0.000000078%. That's an average profit per attempt of $0.05.

Are there counter-examples of enormous, open platforms that escaped into the wild at just the right time? Because sure, IPv4 and JS have their problems, but it is impossible for me to conceive of an alternate universe where they were perfect at launch.

fair point. And on the flipside, we have projects like Hurd and DNF that were hidden away for far too long to ever become relevant or successful.

I guess what I'd like to see is a breakaway from the notion that there can only be one, universally adopted standard. We should focus on building systems that are heterogeneous, not homogeneous. Ideally, we would have a world where IP packets were routed correctly regardless of version; websites could be programmed in any language; and transactions could be conducted in any cryptocurrency.

One way to achieve that is by adopting a very minimal standard, and then creating new models that targeting that standard (see: IPv6->IPv4 gateways, compile-to-JS, sidechains). The problem is that the standard is often not minimal enough, or is minimal in the wrong ways, or is too minimal to be of practical use. So I don't believe that this is the right approach; it's just too difficult to predict how people will use the standard.

Really? Instead of JavaScript, essentially any other language could have been shipped and done a better job.

With hindsight, sure, but was that really obvious in 1995 when JavaScript shipped?

1995 saw Java's first public release. PHP was a CGI-thingie that powered Rasmus' personal homepage. Tcl and Perl was the state of the art of scripting languages. Ruby was released (it would be another four years before it started getting traction outside Japan). The first edition of O'Reilly's "Programming Python" was published in 1996.

ML and LISPs existed. Surely Scheme in the browser would be a better language and implementable in the 10-day window JS had.

Functional programming is barely mainstream today, it certainly wasn't in 1995. Netscape had enough on their plate convincing people that "the web" is a cool thing and they should be on it without driving a programming paradigm change at the same time.

Seriously, it's 20 years ago. You're operating with extreme hindsight.

Does ML force much of a paradigm? Make mutable the default if you want. FWIW I wasn't much of a fan of it in the late 90s either.

COBOLScript. What could go wrong?

Ok, interesting observation--maybe it's extra important to avoid NIH in those situations (trying to launch an enormous open platform). Otherwise feel free to forget that I said JS--it's immaterial to the main point of my question above.

Bitcoin can scale: https://en.bitcoin.it/wiki/Scalability Key quotes: "we will not run out of CPU capacity for signature checking unless Bitcoin is handling 100 times as much traffic as PayPal [100 * 40 tps]", "bandwidth [for handling 2000 tps] is already common for even residential connections today".

Bitcoin already handles more volume than Xoom: http://www.coinometrics.com/bitcoin/btix and is on its way to surpass Western Union. Western Union does merely 600k transaction/day. Bitcoin hovers around 65k/day right now and it can do 600k/day if the artificial block limit is raised from 1MB to 2MB (it will happen at some point).

Bitcoin currently is very good at eliminating counterparty risk and providing anti-censorship for payments. Many people are hoping this leads to other benefits like low transaction fees, micropayments and privacy. The blockchain doesn't seem like the best solution for these other features but it may provide a foundation for innovation. I have hope that new layers will be built on top of bitcoin to solve these issues (see open transactions for example).


> There are a few walled gardens with great payment experiences (the App Store, Amazon)

I'm of a different opinion: Amazon is much stricter than other online merchants, and they don't give you meaningful errors when something goes wrong with your billing. When I was back in europe, I had to rely on a relative's credit card to make a payment, since my debit card was being refused.

Now that I'm travelling in the US, the situation is even worse: they locked my account 2 times already, and they request information that (due to the privacy laws in my home country) can't be easily accessed and returned by my bank.

Apparently there're differences with credit cards, debit cards and atm cards... but as long as you have enough money/credit on your account, I cannot see how the payment process should be different, and no one has been able to explain it to me yet (an interesting blog post about how things can go wrong when paying in person with a card is this one btw: https://blog.flameeyes.eu/2014/04/my-time-abroad-chip-n-pin it deals with "Cardholder Verification Method" which I never even heard of before reading it)

Trying to pay for an order on Lenovo is even worse: they don't accept non-US issued cards (unless it's an american express) and my bank doesn't let me do a wire transfer to the US online (you have to phisically go to their desks and ask for the wire transfer to be sent)

It's mind boggling the amount of manual work and custom e-mails sent back & forth needed for payments. It's almost like being stuck in the early 20th century.

OTOH, the few times that I used bitcoin to pay for something online, the process has been flawless, and due to its utter simplicity I can vaguely understand the whole process of sending money on bitcoin... unlike with systems like banks, paypal and amazon, which are mostly huge black boxes of which I cannot even audit their source code.

Taking this a step further, when using it as a pure transport medium, the cryptocurrency itself doesn't matter. It could be Bitcoin, Litecoin, Dogecoin, 2304293f20983uf2089j2f3coin, or whatever, as long as it's liquid enough to convert back and forth.

What we really need is a gateway system that will intelligently convert between your local currency -> the cryptocurrency with the best liquidity/exchange rate -> the destination currency.

Interestingly, I could see this leading to automatically generated cryptocurrencies, as various popular cryptocurrencies fall below liquidity, transaction time, and/or exchange rate thresholds. Over time, I'd expect to see some interesting competition and arbitrage between cryptocurrencies going on behind the scenes, all computer controlled.

I see the future of cryptocurrency as being a bunch of behind-the-scenes transactions where the currency you are using isn't relevant at all, because everything will be hyper-liquid.

You pick you favorite currency (or portfolio) as a store-of-value, and then if you need to trade with other people, your client and portfolio negotiates with their client and portfolio to arrange an acceptable exchange. Then you use a decentralized network of exchanges to restore any ratios you want to maintain.

This allows people to create their own currency and enforce it's particular use, backing it explicitly. For example, you could crate 'SoylentCoin', which can be cashed in for 1 month of Soylent shipped by a certain date. You sell it for some price that keeps you in business, but then the market is free to trade it at-will and you can hit more efficient price points for your product. Sometimes you might find that your product is worth a lot more than you are selling it for.

Or in a decentralized example, you could do proof-of-resource sale that sells coins directly transferable to a type of resource. In example of disk storage, you provide storage to the network in return for disk-coins. To get the storage, you need to buy disk-coins. This isolates the disk-coin price to the supply and demand of disk storage precisely. Anyone can participate, and upon buying or selling the disk-coin, they can immediately convert to or from whatever portfolio of coins they personally maintain.

Most of those examples lead to counterparty risk, unfortunately, where there must by some direct trust in the issuer on some level.

It's funny, the article basically perfectly describes Ripple in its gateway section. It gets a lot of heat for the XRP business but in reality it's a very clever system that opens up a lot of possibility. It just needs more gateways at this point.

Correct. You could also solve the "unit of account" and "store of value" problem by pegging your crypto-currency to the USD, 1:1 exchange. Then you get the advantage of the decentralized transport network and the stability of the dollar (or any other preferred real world currency).

It's tends to not be a popular opinion around here (there are probably a few with vested interests), but Bitcoin as a currency is fatally flawed. It's supply is structured so that Bitcoin perpetually increases in value, thereby perpetually slowing down the velocity of Bitcoin transactions.

Doing what you suggested would very much destroy any value existing in BTC. The USD is not actually a reference in terms of store of value.

It's deflationary property is a feature, not a flaw.

Not proposing doing anything to Bitcoin, it's an idea for controlling the supply of a new crypto-currency.

| It's deflationary property is a feature, not a flaw.

I studied this while getting my economics degree. Methinks you are missing some important behavioral dynamics related to interest rate interactions with consumption and investment.

Here's a lesson from the fed: http://www.philadelphiafed.org/education/teachers/resources/...

I agree with this completely. BTC is proving out the idea, but the total market cap is only $8 billion.

What stops Goldman Sachs from seeding a cryptocurrency tomorrow with a market cap that massively eclipses BTC? The big IBanks are sloshing billions and billions of dollars around all the time. There is this assumption that BitCoin is so big that it is the winner, but it is "so big" relative to a bunch of people that aren't in the world financial system today.

The thing that stops them is the lack of a reason to start them. Why would Goldman throw that much money at a new system, rather than using the existing one? Bitcoin has an existing user and development base; it's proven, whether it's at full scale or not. Goldman does not have a guarantee that their hypothetical coin will gain any acceptance outside their walls. And Goldman would have to ask themselves that same question - "If we can create a successful coin overnight, why can't BoA or Chase?" If Goldman can do it, their competitors can, so that $8 billion they apparently have sitting around with no better investments to make is better spent on getting an early hold on Bitcoin.

And, of course, this all assumes that big banks are forward thinking enough to see coins as worthwhile, and that they have the kind of developer power in a new and obscure area to outperform 5 years of FOSS development before anyone else beats them to it.

> Why would Goldman throw that much money at a new system, rather than using the existing one

Why would Apple create their own app store, when they could just use existing ones?

This "gateway system" is the foreign exchange market (or equivalent, if they choose not to adopt bitcoin).

The last section on trust & protection cuts to the heart of what it will take for general consumer adoption. But it leaves unstated the fundamental tension: the very nature of bitcoin is that of anonymity and finality. Whereas card and even ACH transfers can be reversed, bitcoin cannot.

The essay hints that it will take a central trust provider to regulate and police transactions to control for fraudulent activity. That's true. The key question is whether they'll be able to sustain the promised cost efficiencies of bitcoin by the time they build in this capability.

If the technical differences melt away and it just becomes another competitor to Visa/Mastercard, minus the billions of dollars of marketing and POS infrastructure over decades that have gone into cementing that network, then we really have to scrutinize whether "openness" and "unbundling" present a serious enough benefit to warrant the cost of a consumer global payments network rollout.

And couldn't a central trust provider work against this openness and unbundling? That's the whole point of a central entity, right?

One thing I'm glad they didn't focus much on is the fees associated with Bitcoin. Too much is made out of the fee reduction of BTC (I think because it's easy for regular folks to understand) - but that's only a major factor for why you're able to develop on top of it. Bitcoin is SO much more than fees, and really the fees themselves aren't "set in stone" - others will charge on top of BTC anyway, so we have no idea what the fees will be eventually. Coinbase charges 1% for interchange, which seems reasonable, and that's just the start.

The card "network" itself wouldn't have to have the fees it has, it's Visa and Mastercard, the banks, and especially Amex that DECIDE to make the fees higher. Another example is ACH, which is essentially free to transact, and in some countries has wide adoption.

Fees should NOT be a major driver in BTC adoption for consumers or businesses. If you want low fees, let's work on ACH (and we are). But Bitcoin has a TON of other benefits, and those are phenomenally well documented here.

Stipe is hitting on a bunch of the key points here. The big one is that bitcoin alone is not going to solve all our money problems, it will be the network of companies that build products on top of bitcoin. Its the reason we are seeing so much money going into these companies instead of investors just buying and holding Bitcoin.

One problem with the current system that the article did not mention is that having a central party handle all the global financial transfers creates a big handle for nation states to put leverage on.

We saw this very clearly when the US government put pressure on VISA and mastercard to reject donations going to WikiLeaks. I remember watching that whole episode in disgust. With bitcoin, this is pretty much impossible.

This is a great example, since iirc Wikileaks started accepting BTC donations shortly thereafter...

Bitcoin is to payment system as git is to source control system.

It's an interesting toolbox that can be used on its own, but gains a ton of power once tools are built on top of it.

I would say 90+% of git's utility is out of the box

> First, the resulting ecosystem is technologically open. Open ecosystems have a way of getting better much faster than their closed counterpart.

Unless you are specifically in the business of making financial institutions, it would seem that Stripe (and for that matter, nearly every payment provider that a computer can interact with) is open in all the ways that matter to a normal person.

> There are a number of cryptocurrencies which already have gateways baked in at a protocol level (such as Open Transactions and Ripple). However, there are huge network effects in any financial system, and to date these other systems have failed to win the necessary user support.

So you agree with the above—that as far as history is concerned, just being open doesn't get you adopted. :)

Bitcoin's crazy volatility and speculation drives "user support." It's ironic, because (1) the volatility is what makes Bitcoin unsuitable as a currency from the perspective of everything that matters economically (like your example, value storage) but (2) the volatility makes Bitcoin phenomenally successful as a currency from the perspective of user acquisition.

I don't know why it's so hard to promote transaction systems. Maybe there's some rule out there that no one competes on the basis of transaction fees, and those who do are shut out of the cabal. That's not a conspiracy that I subscribe to. Maybe the minimum transaction fee to make things economically viable is 2.9% of every transaction. So people do make platforms with lower transaction fees, but then they can't afford to tell you about it, or they don't manage to enrich themselves enough to make it worthwhile.

But Bitcoin, it managed to lie and tell us, "the lowest possible transaction fees;" while technically true, you just pay for the economic cost of promoting the platform and enriching its owners through its volatility.

In that sense, Bitcoin has been a terrific failure as a payment system. It's much worse to buy Bitcoin at the wrong time than to pay 2.9% on every transaction. But as a payment platform, as far as venture capitalists are concerned, it's fabulously successful. The early buyers of Bitcoin did enjoy a fabulous return.

User acquisition with negative cost to the platform's owners? Brilliant.

First, Bitcoin resembles MLM / network marketing more than any one traditional financial instrument.

Second, that the State would want to allow a free market currency of fixed supply to compete with their own digital currency that can be whimsically inflated and used to fund endless warfare and welfare just doesn't fit the historical record.

Never, in the past hundred some odd years, has any competing currency been adopted by the banking system because of innovative features.

Bitcoin is innovative because it gives people control over a form of globally accepted currency which cannot be debased or manipulated. Bitcoin can be sent and received by any person in the world, in any amount, at any time, for any reason. That's why Bitcoin is important. Bitcoin is _not_ important if it just compliments the existing banking system's functions, or makes it cheaper. It's important because it frees humanity from the arbitrary clutches of the State. It gives power back to the individual at least in matters of money and finance, and everything else can follow from that.

No it doesn't resemble MLM more than superficially, because there's no hierarchy or levels of anything of that kind. At worst it is like another bubble in that manner, like tech stock bubbles before it.

Everyone who holds Bitcoin has a vested interest in seeing the network gain value. Those who hold Bitcoin are incentivized to talk other people into holding it, which is very much in the spirit of network marketing.

While there aren't "multiple levels", there are certainly early adopters who bought coins for next to nothing, and those people stand to profit much more substantially than those who come later.

As for the difference between a tech stock and Bitcoin. Holding Bitcoin entitles you to nothing: no voting rights, no dividends. Bitcoin is backed purely by air.

One more aspect of Bitcoin that bears an uncanny resemblance to MLM is the "cliqueness" of the network. There are superstar early evangelists, many of whom are popular for selling the libertarian dream to people, which they buy into. Of course, many of those people have XXX,XXX BTC to their name and thusly stand to profit from their talking points taking root.

>Society can't make progress if progress hinges upon the diktates of a corruptible few.

Not being sarcastic here, but come again? Isn't that also the argument _against_ bitcoin? The extension of that argument being: would people rather they get to _elect_ the corruptible few, or that the select few be just that because they are rich (family, etc) (eg. VC's dumping their money into bitcoin).

It doesn't matter what some politician thinks, or even what a rich VC thinks: there will never be more than 21,000,000 bitcoins.

Once you invest in Bitcoin, you have a vested interest in the system maintaining and appreciating in value.

I'm not worried about Bitcoin being debased by VCs.

Politicians and bankers do concern me, however, because they can do whatever they want to my fiat currency: inflate it, deflate it, confiscate it, freeze it

and they can always hold those things over my head in order to compel me to take an action against my will.

Mainstream institutions have proven time after time to be more interested in accumulating and preserving their own power, than acting in the public's best interests.

I no longer trust this system, and I actively seek out ways in which to protect myself from its whims. I would never hold any more of its money than I absolutely had to, and I look forward to building a free economy on top of the blockchain.

That's what Bitcoin's about. It's not about being PayPal 2.0.

Take a look at this list of prohibited businesses on Stripe and tell me again how open it is: https://stripe.com/ca/prohibited_businesses

The vast majority are perfectly legal businesses but the chargeback risk is so high they refuse to process payments for you.

> Maybe there's some rule out there that no one competes on the basis of transaction fees, and those who do are shut out of the cabal.

Because lowering your price does nothing if your competition can lower theirs just as easily. It's a race to the bottom.

It's an interesting thought, isn't it, especially once you realize that it doesn't just apply to transaction fees.

Great article. The only problem I had with it was an IP address being analogous to a bitcoin public address. Stripe.com is vouchsafed by a certificate authority, so when you go to the address either by typing or by a link, you have some reasonable, if sometimes tenuous, assurance that you are dealing with the real stripe.com and not some typo-squatting fraud or MITM. Using friendly addresses for payment removes the statistical uniqueness of public keys from the equation. As long as the friendly identifier is not the primary one, there is no issue, but I see nothing wrong with establishing identity through copy/pasting a bitcoin address from a known trusted source or scanning a QR code.

What about a voting system? With little keychains given out with only the voting system having the public key for, and any third party can validate the votes. "Coins", or voting credits can be distributed back to voters without transaction fees.

It has the same problem of every cryptographic (and not cryptographic - see paper) voting system. It's impossible to create a system that assures both a correct result and voter anonymity.

Paper assures none, but has quite strong guarantees on both. I'd settle on some system that assures the result, and has good guarantees of anonymity, what one can create with pseudonyms, but at that point it's a political debate, not a technical one.

People don't have to share their name to their public key in the blockchain. So the anonymity is about the same as a social security number, and but confirming the identity is much stronger and doesn't need to reveal private information or their private voter's token keychain. Transparency is giving out tokens to known voters, since there is already registration at least in united states elections. What it does give is a strict list of keys that should correlate with registered population.

Accountability in the ballots themselves is just as important as accurately tracking the votes.

Not impossible, actually! Heard of Secure Multiparty Computation?


"Now, the voter makes his vote. He generate a nonce (unique number used once), makes his vote, signs it with his keypair, and encrypts this with the public SMPC key. ... Since the vote wasn't encrypted with the voter's key, he can't decrypt it which means that nobody can prove what he voted for using the encrypted message."

Eh, he didn't encrypt it, but he signed it. How can people not prove that he created it? Whoever holds the SMPC key knows everybody's votes.

Bitcoin as a store of value is only when people are holding other commodities or speculative fiat. Large caches of early bitcoin holders will likely not crash a market that creates them wealth, so if there are actual commodities that align with bitcoin, and illegal drugs are not that commodity for a multitude of reasons and even just fluctuated with the usd, so bitcoin either needs significant natural resource or "hard assets" backings of bitcoin or it'll ebb and flow with the USD because shops that accept bitcoin still have to pay to do USD conversion and the rate moves dynamically just like there is a broadcasting network for the gas prices for gas stations when the gas price per gallon fluctuates quickly based on futures markets.

This is a very good article and highlights what I also think is Bitcoin's biggest strength, its use as a medium of exchange. Whenever someone asks me to describe why they should be interested in Bitcoin I always focus on using it to transfer money. I use an example of sending money to someone else easily, cheaply, and quickly without using shitty services like Paypal. This resonates more in the USA than Europe since our banking system is terrible and doesn't have easy, free transfers baked in. It also makes a lot of sense for cross border / currency transfers.

They copied my blog post! [1] Ok, that's actually extraordinarily unlikely, and I'm glad that other people think we need to look at Bitcoin through the medium of exchange/unit of account/store of value trichotomy and I'm glad that they seem to be going forward with using bitcoin as the basis for an electronic money system without denominating anything in bitcoins.

[1] http://hopefullyintersting.blogspot.com/2014/07/thoughts-on-...

> "what might a Bitcoin that's useful for the mainstream look like?"

Great article, and the extremely familiar line above made me smile.

Potentially dumb question: if there are 21 million bitcoins (and therefore 21 million bitcoin addresses), would that limit bitcoin's efficiency as a medium of exchange? Ie wouldnt there be potentially billions of transaction moving through a financial system powered by bitcoin daily? (Apologies in advance for any flawed assumptions).

The flawed assumption is "and therefore 21 million Bitcoin addresses". Generate an RSA keypair, and give out the hash of the public key (encoded in a Bitcoin-specific way). Anyone can send you Bitcoins there now.

Good piece. If you're reading this expecting something new from Stripe though you'll be disappointed:

>> "So what role will Stripe play here? We already provide Bitcoin acceptance, and we're actively investigating other functionality. We'll have other updates on this front before too long."

What if banks compete and start providing a reasonable quality of service?

It wouldn't be hard.. they just don't bother because there is no return for the investment right now.

Bitcoin scares the crap out of me. It looks too much like a criminals dream for me to have any trust in it and the network yet...

If you had a large enough transaction base where you could simultaneously convert in and out of bitcoin chunks such that the transaction didn't suffer f/x creep (or if it did, it was tolerable via transaction costs) that would be a pretty interesting thing indeed.

This post does a very good job of explaining clearly why Bitcoin could be huge in a way that someone not familiar or excited by the technology could understand. And I think the meta-point here from Stripe is, by the way 'we want to be the next Visa'.

Money isn't the only relevant unit of account. Even in stable economies, stocks, bonds, and the like are very high friction, and there is a lot of room for disruption and innovation.

This article is genius, Greg Brockman has figured this out.

Does NameCoin have all the needed features to make this happen right now?

Unrelated question: are there any formalization of the Bitcoin protocol out there?

There is too much venture capital money behind bitcoin for it to fail. EDIT: Don't underestimate the stubbornness of investors.

Very good article. Great times are coming.

Bitcoin, no matter how you word it or rationalize it will always have a root problem and inherent risk...it is backed by nothing. Users today think its usage gives it market value and it can but to a limit. Money (USD) originally (the dollar bill) worked because it was back by gold. A metal that worked because everyone on the planet wants it. That dollar bill was a "check" or agreement stating, this dollar bill represents this much gold thus the value of money. The USA today does not have gold backing its money-- so as you can see we already have a bitcoin and the USA will not allow you to complete with its money - enjoy

If gold wasn't used as a store of value its value would be very maybe a hundredth of what it is now: Gold-plated jewelry in our modern era is essentially indistinguishable (even at the level of a physics lab using scales/xrays/etc if need be) from solid gold jewelry.

Gold, for all intents and purposes, is also "backed by nothing".

Aluminum was more expensive than gold until a cheap way to purify it was developed. Now we wrap our food in it. Gold is only valuable until the first metallic asteroid is placed into high Earth orbit. Not tomorrow, but probably sooner than you think. reply << Has nothing to do with Bitcoin being back by nothing. Even if gold did lessen in value other forms of metals/currency can take golds place. Gold is specifically a variable for anything however it is "some thing". (the root point).

If gold wasn't used as a store of value its value would be very maybe a hundredth of what it is now: Gold-plated jewelry in our modern era is essentially indistinguishable (even at the level of a physics lab using scales/xrays/etc if need be) from solid gold jewelry. Gold, for all intents and purposes, is also "backed by nothing". << again has almost nothing to do with Bitcoin being back by nothing. Gold is the item of value it doesn't need to be backed, it is the back'er.

I suggest you return to your economic and history books. Gold has no intrinsic value as you would probably call it. It is only because of some VERY distinctive properties that are not found in other metals that gold was ultimately selected as the better store of value available. Its only value comes from a market agreement.

Bitcoin is essentially the same as it replicates the same properties of gold while having a more predictable supply and features that allow it to be used more commonly as a currency, unlike gold.

Gold has intrinsic value because 1: Its rare 2: Its tangible 3: People want it. Look at history and you will see gold wrapped around everyone's neck and fingers. As mentioned before, a currency has to be back by something. Bitcoin is backed by nothing - nothing cannot be something - no matter how much you exclaim - that is the risk of investing any time with Bitcoin. Just because you like the utility of of bitcoin almost has nothing to do with it being a currency. Example - You can have 50 coins of solid gold or 50 zeros on a computer.

Also, unlike Bitcoin, gold remains gold without the need for a constant supply of electricity or technology. It's an element, and part of the reason it worked as a store of value was because "ooh shiny" and zero upkeep.

Exactly. My point was that "the things people want" is true wealth, gold is just another measuring stick for converting billable hours of work into diapers (or whatever). If Bitcoin is perceived as a superior measuring stick it will be preferred.

Aluminum was more expensive than gold until a cheap way to purify it was developed. Now we wrap our food in it. Gold is only valuable until the first metallic asteroid is placed into high Earth orbit. Not tomorrow, but probably sooner than you think.

You are going in an infinite loop trying to equate something (gold) to nothing (bitcoins). Typing zeros into a screen will not equate to a hand full of gold coins. The value of gold or any other metal is not a relevant argument because in a free market you can have competing currencies. Bitcoin could compete if the USA was a free market (its not) and if it was backed by something (its not). Thus the reason why investing in Bitcoin in any manner has risk. The argument with the asteroid doesn't support simply bc the metals will still be around after it hits earth. Your hard drives with stored zeros will be annihilated (much like your premise).

I am not sure why anyone would want to accept Bitcoin via Stripe

Same can be accomplished with Bitpay, who take 0% in fees with a 30$/month package (1% otherwise), they also pay into the bank the next business day unlike Stripe. And they are also alot more open as to the types of businesses they accept.

Or hell one could directly accept bitcoin with bitcoind running locally or using the blockchain.info api and then converting bitcoins with Bitstamp (or just using the bitcoins to buy things, every day more and more places accept them!)

It is great seeing Stripe actually embracing new technologies but imho their current bitcoin "offering" is not great and they are picky as to who they do business with.

edit: ah typical HN fanboyism, vote down anything negative said about Stripe instead of addressing the points raised.

Bitpay, bitcoind et al may technically be better offerings, but if you're already using Stripe to take card payments then woohoo, you can now take Bitcoin.

If Bitcoin wants to play with the big boys then the likes of Stripe getting on board are nothing but positive.

Having to have a separate system to handle Bitcoin vs Visa, MasterCard etc just seems archaic.

I think the problem with your comment is that it is both poorly reasoned and promotional.

Because Stripe has already established a reputation with people who take payments but aren't familiar with the ins and outs of Bitcoin?

A lot of people aren't going to have the time to do research to find out about the ins and outs of taking online payments with Bitcoins, and at any rate, there's enough negative news about bitcoin that some of their research is going to turn up the various shenanigans of bitcoin banks, or the shenanigans done to them, etc.

In short, Stripe provides some automatic legitimacy.

If I had a need for Bitcoin, I'd probably want to go with someone established in the mainstream of payments, as well. Which means Stripe or Braintree or one of those guys. A large bank would be even better, but that may take a while.

You are getting down-voted because you miss the point of stripe. Sure, there are arguably better methods to accept bitcoins, but Stripe is a service that does bitcoin AND other payment methods in one single solution.

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