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Why Bitcoin Matters

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Re: Why Bitcoin Matters

#11

Post by dmix »

jt2190 wrote: post #9

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

1. no, but stability will increase with mass adoption. It's not tied down to one specific geographic market as nation-state currencies. Once it's based on global trade then it requires global instability, which is a higher threshold. USD has a similar global stability because of that vs other currencies.

2. no, how would this would decentrally? You could pay into an insurance policy maybe, that pays out in alternative currencies?

Re: Why Bitcoin Matters

#12

Post by alextingle »

candybar wrote: post #10
alextingle wrote: post #8

Earlier quoted context omitted.

The merchant needs a payment system that they trust, and the customer needs a payment system that they trust. But the payment systems don't really need to know or trust each other . He's saying that Bitcoin turns payment from a many-to-many problem, into a one-to-many problem.

Except, you're not getting around the problem here either - I need to find a real money payment system that the bitcoin exchange and I both trust and and the merchant needs to find a real money payment system that they and their bitcoin exchange both trust. You're doubling the problem no matter how you look at it, because the problem of you sending money to the bitcoin exchange is the exact same problem as you sendin…

But I can have an ongoing relationship with a single bitcoin exchange that I trust, rather than N merchants - any of whom might be dodgy.

Re: Why Bitcoin Matters

#13

Post by eatitraw »

tptacek wrote: post #7
eatitraw wrote: post #6

Earlier quoted context omitted.

> I don't understand this. Someone is taking the risk right now. Correct. > Currently it's the exchanges and merchants directly, because they rely on the exchanges. Incorrect. There is the solution: https://bitpay.com/ , which automatically does conversion for a small fee. Buyers pay in bitcoin, but sellers receives fiat money(e.g. USD). The risk is taken by bitpay, sellers always receive fixed amount in fiat money,…

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

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

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

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

Re: Why Bitcoin Matters

#14

Post by pdq »

jt2190 wrote: post #9

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

Coinbase (and others) provide merchant services, whereby they accept a small (1% if I recall) fee to convert BTC into USD, at the current spot price. So users can pay for a product in BTC, and the merchant receives USD at the spot price of when the transaction occurred (minus fees).

This eliminates BTC price fluctuation from a merchant who does not want to speculate.

Re: Why Bitcoin Matters

#16

Post by minimax »

Bitcoin is the first Internet-wide payment system where transactions either happen with no fees or very low fees (down to fractions of pennies). Existing payment systems charge fees of around 2 percent to three percent

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

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

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

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

Re: Why Bitcoin Matters

#17

Post by yummyfajitas »

candybar wrote: post #10
alextingle wrote: post #8

Earlier quoted context omitted.

The merchant needs a payment system that they trust, and the customer needs a payment system that they trust. But the payment systems don't really need to know or trust each other . He's saying that Bitcoin turns payment from a many-to-many problem, into a one-to-many problem.

Except, you're not getting around the problem here either - I need to find a real money payment system that the bitcoin exchange and I both trust and and the merchant needs to find a real money payment system that they and their bitcoin exchange both trust. You're doubling the problem no matter how you look at it, because the problem of you sending money to the bitcoin exchange is the exact same problem as you sendin…

You're doubling the problem no matter how you look at it, because the problem of you sending money to the bitcoin exchange is the exact same problem as you sending money to the merchant.

No, because we've introduced loose coupling. I need to figure out how to turn USD into BTC. My wordpress guy needs to figure out how to turn BTC into UAH. Either of us can swap out our solution and the other doesn't care.

Suppose we used Paypal instead. If Paypal decides they hate Ukraine, we can't transact anymore.

Similarly, if you build your company's internal architecture using JSON over HTTP with a common json schema, you have doubled the problem. The Scala side needs to turn java data structures into JSON, and the Python side needs to turn them into python objects. Doesn't mean it's a bad way to go.

Re: Why Bitcoin Matters

#18

Post by dragonwriter »

tptacek wrote: post #7
eatitraw wrote: post #6

Earlier quoted context omitted.

> I don't understand this. Someone is taking the risk right now. Correct. > Currently it's the exchanges and merchants directly, because they rely on the exchanges. Incorrect. There is the solution: https://bitpay.com/ , which automatically does conversion for a small fee. Buyers pay in bitcoin, but sellers receives fiat money(e.g. USD). The risk is taken by bitpay, sellers always receive fixed amount in fiat money,…

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

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

That's the looser definition, the narrower one (from which the name comes) is that that it is currency not backed by collateral but backed by a government's designation of it (by fiat) as legal tender.

Given the absence of significant non-representative non-government-issued currencies prior to modern cryptocurrencies, the looser definition was essentially equivalent to the narrower and naming definition, so there was really no real reason to concern oneself with the difference. Now, though, especially in the context of discussions of cryptocurrencies, its probably better to stick with the narrow definition of fiat to avoid confusion and adopt a different term when something like the broader definition is necessary.

Re: Why Bitcoin Matters

#19

Post by billyhoffman »

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

Re: Why Bitcoin Matters

#20

Post by candybar »

alextingle wrote: post #12
candybar wrote: post #10

Earlier quoted context omitted.

Except, you're not getting around the problem here either - I need to find a real money payment system that the bitcoin exchange and I both trust and and the merchant needs to find a real money payment system that they and their bitcoin exchange both trust. You're doubling the problem no matter how you look at it, because the problem of you sending money to the bitcoin exchange is the exact same problem as you sendin…

But I can have an ongoing relationship with a single bitcoin exchange that I trust, rather than N merchants - any of whom might be dodgy.

Except that's exactly the problem that existing payment systems solve that bitcoin fails to solve. What problem do you see bitcoin solving as far as payment system goes for people who are not using bitcoin otherwise? People can buy from untrustworthy merchants quite easily right now. And bitcoin costs more - you pay the bitcoin exchange and the payment system and your merchant pays the bitcoin exchange and his payment system.
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