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Why I'm Interested in Bitcoin

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Re: Why I'm Interested in Bitcoin

#131

Post by nicholas73 »

adventured wrote: post #120
nicholas73 wrote: post #37

I don't think Bitcoin will ever be a viable currency, at least not on the scale of national currencies. Despite all the flaws fiat currency has, it is actually backed by something - the power of the country's government to tax. Thus, any buyer of sovereign debt has a calculable probability of return. Despite America's printing of dollars, inflation has actually been mild so far. Bitcoin has nothing backing it but an…

I don't agree that inflation has been mild. http://www.shadowstats.com/alternate_data/inflation-charts It's only mild if you use their fraudulent CPI accounting, and only if you use the latest version of it, designed solely to hide inflation. If you use the 1980 CPI we're running at 9% inflation, which is not mild at all. In fact, Volcker would have raised rates long ago to fight that level of inflation. It's exactly…

I don't disagree with you. You bring up very good clarifications. When I say "mild" I mean relative to what it could be without faith in the US and the status of the dollar as the reserve currency.

Re: Why I'm Interested in Bitcoin

#132

Post by abalone »

dlubarov wrote: post #130
abalone wrote: post #126

This is the same naive analysis everyone makes when they first look at the payments system. "Look at all that money. 2-3% on every transaction. A $500B tax. LOOK AT ALL THAT MONEY." The reality is this: Most of that money gets passed back to consumers via rewards, benefits and consumer protections. It's not a tax so much as an incentive for consumers to keep using their cards. And so it is considerably harder to come…

If you compare interchange with rewards rates, they seem comparable, but most merchants pay much more than interchange. Direct relationships with issuers isn't feasible, even for the largest merchants. There are network fees and usually other middleman processors involved. Visa and First Data each make >$10B/year revenue, which is already 0.2% of US GDP, and none of that money goes toward cardholder rewards.

Interchange is by far the biggest component. The second biggest part is the processor markup. The card network's cut (e.g. Visa itself) is extremely small in comparison.

Just to define these terms for our fair readers:

Interchange is the cut that goes to the bank that issued the consumer's card. That is standard and you can see Visa's rates here: http://usa.visa.com/merchants/operations/interchange_rates.h... Processors are the entities that connect merchants to the card network. (These are often also banks, or another org working with a bank.) One of the most important things they do apart from that technical function is vouch for their merchants. They guarantee that consumers are protected from bad behavior on the part of their merchants, like selling counterfeit goods or running tons of fraudulent cards. So that's why it's often a pain to get a merchant account, and why easier-to-get merchant accounts have higher rates (because they have more fraud).

So, yes, processor markup varies. But we don't need a new currency system to drive competition in the processor space. That's orthogonal. That could happen 100% on top of the current system.

So I'm not sure what else you're referring to as "network fees". Visa/Mastercard's slice? Visa's net income last year was $3B, which is not small, but hardly a major share of GDP. There's also decades of worldwide expansion costs (incl. massive marketing spend) that's gone into that.

Re: Why I'm Interested in Bitcoin

#133

Post by jval »

abalone wrote: post #126

This is the same naive analysis everyone makes when they first look at the payments system. "Look at all that money. 2-3% on every transaction. A $500B tax. LOOK AT ALL THAT MONEY." The reality is this: Most of that money gets passed back to consumers via rewards, benefits and consumer protections. It's not a tax so much as an incentive for consumers to keep using their cards. And so it is considerably harder to come…

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

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

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

Re: Why I'm Interested in Bitcoin

#134

Post by meowface »

minimax wrote: post #111
johmas wrote: post #68

Earlier quoted context omitted.

We began accepting bitcoin last month and aren't converting all of our bitcoin to dollars. We have several employees who accept their pay in bitcoin. Taking things a bit further, we are optimistic about bitcoin as a payment form with our suppliers as the volatility stabilises. As an example, one of our suppliers is Belgium based and we'd be able to save on the currency exchange with those payments. We've discussed it…

That is certainly an interesting datapoint, though paying your employees in bitcoin... I'm not sure how I feel about that in ethical terms. What would you as an employer do if you paid someone on Friday and on Monday that paycheck only bought half as much bread as it did on Friday? Also doesn't it make income/FICA tax kind of a pain?

There are definitely a lot of risks involved in accepting Bitcoins as a salary. Anyone doing it should fully research the currency and be aware of the risks before ever accepting such an option.

Re: Why I'm Interested in Bitcoin

#135

Post by glesica »

Sambdala wrote: post #102
glesica wrote: post #94

Earlier quoted context omitted.

I agree that un-bundling the escrow from the rest of the stack would be a good thing. However, I think it is important to keep in mind that replacing credit cards with something less effective (for whatever definition of "effective" matters) than credit cards isn't a true replacement. The way I am thinking about it is sort of like those threads on HN where someone says "You can create a Dropbox clone in N lines of X…

I would argue in this case that Bitcoin is likely to be more effective in a huge number of cases, not less effective. I agree with the first part of your second paragraph, but I don't necessarily think it's going to apply here for any places where we see Bitcoin in wide deployment.

I disagree, because I don't think Bitcoin is a very good currency, and even if it had the potential to be a good currency at some point in the past, that potential has been destroyed by speculative hoarding and a mining arms race. The linked-to article makes clear that it isn't necessarily "Bitcoin" that is promising, but the end-run around the financial services industry that it is trail-blazing for everyone else. I agree with this sentiment, and really I had never considered it the way he stated it. However, if you see Bitcoin itself, as a currency, differently, then it makes sense we would disagree on its worth as a replacement for credit cards.

Re: Why I'm Interested in Bitcoin

#136

Post by drcode »

andrewfong wrote: post #117
drcode wrote: post #80

Earlier quoted context omitted.

> This is akin to people stealing your bitcoin wallet No it isn't. If I buy something on amazon, I need to enter my credit card information. If I buy something with bitcoins from cointagion.com, I don't need to upload my bitcoin wallet. > Credit card fraud isn't caused by double-spending If I buy some socks on Amazon with my credit card info intended only for buying those socks and a hacker steals this info and then…

> If I buy some socks on Amazon with my credit card info intended only for buying those socks and a hacker steals this info and then uses it to buy a plasma TV at Best Buy, this exactly meets the definition of double spending, and this is exactly what credit card thieves do (and what you can't do with bitcoins.) That's not double spending. The same "dollar" isn't being spent twice. Credit card theft basically means u…

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

Re: Why I'm Interested in Bitcoin

#137

Post by drcode »

wsxcde wrote: post #123
drcode wrote: post #80

Earlier quoted context omitted.

> This is akin to people stealing your bitcoin wallet No it isn't. If I buy something on amazon, I need to enter my credit card information. If I buy something with bitcoins from cointagion.com, I don't need to upload my bitcoin wallet. > Credit card fraud isn't caused by double-spending If I buy some socks on Amazon with my credit card info intended only for buying those socks and a hacker steals this info and then…

Cheers, those are some good points and I am indeed conflating fraud and theft. So the key point you're making about the Amazon/Target scenario is that a criminal who breaks into one of these systems has the ability to launch transactions on my behalf, which s/he wouldn't be able to do with Bitcoin. Which is fair but not universally true. Some international vendors and cards require you to go through the equivalent of…

I am in full agreement with what you've written. Distinguishing between fraud and theft was a bit pedantic on my part.

Re: Why I'm Interested in Bitcoin

#138

Post by cdixon »

alooPotato wrote: post #42
cdixon wrote: post #12

Earlier quoted context omitted.

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

Chris - this argument seems compelling, at least on the surface. It brought up two questions in my mind: 1) You say "You'll converts to and from USD occasionally but not on every transaction" . Sure you wouldn't need to exchange on every transaction, but when you do the conversion, the 1% applies to $ amount not the number of transactions. So if I convert $200 into BTC, I pay the 1% (+ exchange spread) on $200. It do…

My guess is the exchange fees will go down over time and instead Bitcoin companies will end up making money selling additional services.

Re: Why I'm Interested in Bitcoin

#139

Post by cdixon »

abalone wrote: post #126

This is the same naive analysis everyone makes when they first look at the payments system. "Look at all that money. 2-3% on every transaction. A $500B tax. LOOK AT ALL THAT MONEY." The reality is this: Most of that money gets passed back to consumers via rewards, benefits and consumer protections. It's not a tax so much as an incentive for consumers to keep using their cards. And so it is considerably harder to come…

My view is that the whole system was designed for a different era and not for the web. The problems include 1) consumer having to fill out a form at each merchant, 2) consumer having to decide if she trusts the merchant (1 & 2 lead to the strategic asset of "cards on file"), 3) the bank trying to determine with probabilistic algorithms whether it was really me paying, 4) the security of the whole system is very flawed. 5) all the money spent on marketing these services (including rewards) when instead the services should be baked into the internet.

That said, I agree with you that the digital cash / new behaviors are the most interesting part of Bitcoin. Just much harder to explain.

Re: Why I'm Interested in Bitcoin

#140

Post by pfisch »

abalone wrote: post #132
dlubarov wrote: post #130

Earlier quoted context omitted.

If you compare interchange with rewards rates, they seem comparable, but most merchants pay much more than interchange. Direct relationships with issuers isn't feasible, even for the largest merchants. There are network fees and usually other middleman processors involved. Visa and First Data each make >$10B/year revenue, which is already 0.2% of US GDP, and none of that money goes toward cardholder rewards.

Interchange is by far the biggest component. The second biggest part is the processor markup. The card network's cut (e.g. Visa itself) is extremely small in comparison. Just to define these terms for our fair readers: Interchange is the cut that goes to the bank that issued the consumer's card. That is standard and you can see Visa's rates here: http://usa.visa.com/merchants/operations/interchange_rates.h... Process…

It seems like you need a new security system to reduce fraud which will reduce fees, and that is what bitcoin offers potentially
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