Bitcoin's Use in Commerce Keeps Falling

https://www.bloomberg.com/news/articles/2018-08-01/bitcoin-s-use-in-commerce-keeps-falling-even-as-volatility-eases

by prostoalex • 8 years ago

226 353 8 years ago

jonny_eh4• 8 years ago

When can we call Bitcoin a failed experiment? And don't tell me it was "always about storing value", that's not in the original paper.

err4nt• 8 years ago

A failed experiment to me would be one that wasn't able to run its full course, or from which no information can be gleaned. Bitcoin has run for a long time, we have gleaned a ton of useful information - as far as experiments are concerned this seems like it went bigger and better than expected, so it should be a very GOOD experiment!

DoofusOfDeath• 8 years ago

Rather than questioning if the experiment failed, perhaps we should question if recent participants considered it an experiment in the first place.

I.e., I don't think most bitcoin miners / companies / investors saw this as a knowledge-gathering exercise.

redisman3• 8 years ago

I think it's really unfair to call Bitcoin "failed". It has unarguably changed the world. There was way too much hype about it changing everything.

tboyd47• 8 years ago

Ask again after the next major financial crisis.

adiusmus8• 8 years ago

So 18 months then. Ok.

Meekro• 8 years ago

If Bitcoin is a failure, I wish some of my projects would fail like that.

jonny_eh4• 8 years ago

I hope my projects never hurt the environment as much as Bitcoin has.

keymone22• 8 years ago

You want to join the growing list of Proclaimers that Bitcoin is dead? It’s growing ever since 2011.

Edit: typo

fwip3• 8 years ago

Wild how consensus forms over time, huh?

jchw3• 8 years ago

Not really. Was the goal of Bitcoin ever to be the successor to paper money? We're here today and Bitcoin is a functional payment network. Not only that, it's a fairly large one, and it has become a household name. I don't really use Bitcoin but I think it's hyperbole to consider it a unilateral failure just because it didn't supercede traditional currency.

acdha5• 8 years ago

It’s a household name because of speculation, however, and statistically almost nobody uses it for the kind of decentralized transactions for which it was originally pitched. The number of vendors accepting it has gone down over time (e.g. Steam, Microsoft) due to the endemic problems and many of the people who claim to use it (even here) are actually using the credit card network with government currencies for the actual transactions so there’d be very little disruption if it disappeared tomorrow.

davidgerard2• 8 years ago

Was the goal of Bitcoin ever to be the successor to paper money?

Yes, blatantly and repeatedly.

beaner3• 8 years ago

We're a pretty long way off, I'm sorry. Bitcoin is more popular than ever. The payments network (Lightning) being built on top of the financial sovereignty base layer is just getting started.

adiusmus8• 8 years ago

Another fork of bitcoin. So not actually bitcoin but still bitcoin at the same time. This appears to be an issue with cryptos. Nothing stops another fork later. It’s like people find a problem with a currency and start printing money in another one.

I can see blockchain currency being useful when it is backed by something solid. But right now it’s still just wasted electricity. Eg MasterCard and friends could easily create a currency and use it for exchange.

If I can’t actually use a currency to buy/sell or store value then what is it for? Or am I wrong?

dj43nq3• 8 years ago

What is backing bitcoin? Gold? Cpu cycles?

scotty79• 8 years ago

Algorithm thay decides how many bitcoins exist. Bitcoin is backed by same thing art and collectibles are backed by. Scarcity.

grubles5• 8 years ago

Barring a catastrophic vulnerability in SHA256 or ECDSA, Bitcoin is going nowhere. Bitcoin has been a wild success. At this point, the goal is simply educating newcomers on its advantages (immutability, trustlessness, sound money).

yborg• 8 years ago

Failed in what sense, and for whom? Some people made and are making a lot of (real) money from it (especially the thieves that have executed the numerous heists from exchanges, wallets, etc.) There is a definite ecosystem here that has players profiting from it that would want it to continue.

jonny_eh4• 8 years ago

In the original sense, a faster/cheaper alternative to wire transfers.

nicky0• 8 years ago

When can we call Bitcoin a failed experiment?

When nobody is mining blocks any more?

DINKDINK5• 8 years ago

that's not in the original paper.

Bitcoin the protocol != bitcoin the paper.

The main point of the paper was show that you can solve the byzantine generals problem in a completely untrusted. This contribution built on prior distributed-system designs such as Paxos.

don't tell me it was "always about storing value"

Bitcoin was always about a fixed-scarcity asset/currency given that the controlled supply algorithm was in the very first version.

Bitcoin doesn't need people's interpretations of bitcoin to be positive to come to trustless consensus.

When can we call Bitcoin a failed experiment?

If you think that Bitcoin's value is $0 long term, why not go short and make reams of money? After 10 years the market has shown that owning 100 btc has preserved more purchasing power than owning 100 USD, What's your call for the next 10 years?

dman• 8 years ago

How does one short Bitcoin?

singularity2001• 8 years ago

I'd call it a successful experiment that is soon over.

lawn5• 8 years ago

Everyone should differ between Bitcoin the idea and Bitcoin the coin, only one of many cryptocurrencies.

I don't think cryptocurrencies are ever going away. It's simply too good to be able to accept digital money anywhere from anyone quickly and with low fees. Dark markets for example will always use cryptocurrencies.

joering2• 8 years ago

Bitcoin advocates have long suggested the virtual money would one day replace fiat currencies as a means of doing business

That's not the case anymore either. We have few powerful miners than own more than 50%. Sure they separate entity per se, but if they talk and agree together, they can do whatever they want.

They whole premise that crypto is free and decentralized and "banks cannot control it" is a good idea.. unless you quickly realize the flaw that biggest miners can get together and form a "crypto mob" if you will, and control currency future anyways.

lern_too_spel• 8 years ago

The whole system consists of flaws the authors would have forseen if they understood economic thinking. Instead, they pretended that all the tenets of economics magically go away if you apply a little cryptography.

The flaw you're pointing out is that whoever has access to cheap electricity and scale will be able to control the system. There is not sufficient incentive for others to jump in to a money losing proposition.

dnomad• 8 years ago

I propose Bitcoin and most other extra-legal (ie non state supported) currencies are going to zero. That said we can be grateful that the experiment was done and data was gained.

BonesJustice• 8 years ago

Over time, power always consolidates amongst a privileged few. That’s pretty much a universal constant. It doesn’t really matter what the unit of power is, be it dollars, hash rate, or political capital.

glup2• 8 years ago

Unless the privileged few choose to build institutions to limit the accumulation of capital or power, e.g. https://en.wikipedia.org/wiki/Fabian_Society. To call it a universal constant is a convenient abdication of responsibility.

KasianFranks2• 8 years ago

Bitcoin (and crypto) is not a currency, commodity, stock or bond. It's a combination which makes it a completely new and different kind of asset class. It's a programmable asset that primarily serves as a 'trading vehicle' in the mind of traders and Wall St. Understanding this helps to understand why Goldman and others are stepping over themselves to setup trading desks for most crypto now and in the future.

glup2• 8 years ago

I totally agree with the assertion that it doesn't fall into existing asset type (or-- maybe that it can move between asset types in a novel way), but what do you mean by "programmable"? Isn't the simpler explanation or enthusiasm on the part of Goldman et al. just classic FOMO?

KasianFranks2• 8 years ago

When you can engineer sophisticated scripts or wrappers around a globally accessible immutable tradable asset it increases functionality and innovation in financial products which includes autonomous machines trading crypto with one another in exchange for data. I think we're in for a world of fun.

grubles5• 8 years ago

Bitcoin uses smart contracts for its transactions. Meaning, you can program a transaction to occur if certain conditions are met. One example is a multisignature-required transaction. A multisig transaction is only valid and spendable if n-of-m signatures are present.

briatx• 8 years ago

It has been clear for a while now that Bitcoin is an inferior payment system for the consumer:

* The fees are higher.

* The risk to the consumer is higher.

* The difficulty of use is higher.

* It is accepted at an extremely low amount of vendors and even that is falling.

So you really how to wonder why people ever thought consumers would use it en masse.

wycs• 8 years ago

Also, money works pretty well. Bitcoin is not 10x better. Maybe 0.1x. Bitcoin is not even useful for illicit transactions anymore.

keymone22• 8 years ago

By money you mean what exactly? Anything in a bank account is not money but promise of money that can be taken away without your knowledge. Any specific currency is subject to whim of corresponding central bank. Sure, some are safer than others but still. Even the right to participate is not a given as you can be banned from opening a bank account.

Bitcoin is orders of magnitude better money than anything else in every aspect except convenience, but it’s getting there.

raverbashing• 8 years ago

And the BTC people made darn sure to make it harder and more expensive to use.

Not a surprise commerce will turn to other coins, including BCH

chrismorgan4• 8 years ago

One of your points is of dubious validity: fees may not be higher.

Fees went very high when the network became congested; but when it’s not congested, they’re much lower than credit card systems are for normal businesses.

https://bitcoinfees.earn.com/ suggests that right now, what equates to about nine US cents is sufficient for a basic transaction. And if you’re happy to wait an hour, then two cents ought to do you fine.

I’m not sure whether this is a typical rate; I haven’t been keeping an eye on it, and https://core.jochen-hoenicke.de/queue/#30d is hard to read casually. But by the looks of it, a very substantial fraction of transactions have been going through at what will be under ten cents if they’re simple transactions.

Your standard sorts of base rates for accepting credit card transactions are 30¢ + 1.75–2.9%, depending on certain conditions like country and card type.

ttoinou4• 8 years ago

Yes. But don't forget credit cards offer others services, such as charge refund and fraud protection

Retric• 8 years ago

Average person pays fees twice. One buying the currency, and a second time at sale. On top of that exchanges have even more fees so, consumers are paying more than just one block chain fee.

bscphil• 8 years ago

I agree. It's almost hilariously counterintuitive. I recently needed to send a moderate sum of money (4 figures) to someone who lives across the country. There's no obvious reason why this should cost me anything or not happen in the same day. However,

* Checks / ACH takes days to close, plus in many situations you might have to actually mail the person a check

* EFT seems reliable, but takes days and requires having been previously set up and authenticated (which borders on impossible if you don't own both accounts).

* Wiring seems like the obvious solution, but depending on your combination of banks fees are going to be >1% for transactions of my size. I also failed to get a wire to happen in <24 hours online for reasons I still don't understand.

* Using a money sending service like Google Pay sounds reasonable enough, but even assuming you're under the transaction limit and have already set up everything necessary to satisfy their fraud prevention systems, any large amount will still take multiple days to fully clear.

On the other hand, while Bitcoin's slow transaction times are a pain for in-person merchant payments, being able to send even large sums of money reliably in less than an hour for (comparatively) a small fee seems almost miraculous. It's true that if you need to go USD -> BTC -> USD it takes much longer, but that's more a problem with currency exchange than an inherent limitation of the currency itself.

blattimwind• 8 years ago

but when it’s not congested, they’re much lower than credit card systems are for normal businesses.

It's extremely americanocentric to assume All Of The World either uses credit cards or x-gen Kriegerands.

cageface• 8 years ago

One benefit of crypto might be that it lights a fire under the ass of banks to improve their services. There is no technical reason why banks can’t match or exceed the convenience of crypto for making money transfers. They just haven’t had enough competition to make it happen yet.

fstanis3• 8 years ago

when it’s not congested, they’re much lower than credit card systems are for normal businesses

So, it sounds like it only works if nobody uses it.

Sure, you can say we now have <insert name here> which is like Bitcoin, but solves this problem. This, however, is similar to pointing out there are credit cards with lower fees than what you mentioned (e.g. national ones), it's just the major ones that are expensive.

cromulent• 8 years ago

And the maximum transaction rate is 7 per second, so en masse is impossible.

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

keymone22• 8 years ago

no longer the case since payment channels and routing between them are the option.

p2p channel payments is only limited by network bandwidth and cpu power between participants. routed channel payments are limited by routing network connectivity and capacity, which is not amazing yet but far better than 7tps.

udfalkso• 8 years ago

Yes, right now this is true (for those with easy access to credit cards and bank accounts at least). But the same criticisms could have been made about pretty much any technology in the early days of its adoption. A lot of smart, well funded, groups of people are working hard on these problems. It will only get better.

vit05• 8 years ago

All of your points are problems that can, and will eventually be, solved by engineering.

The main problem is to believe that Bitcoin will be the solution for markets that have their banking system and governments functioning perfectly.

The reality is that most of the world does not have this efficiency found in the US and Europe. Opening a bank account is not a trivial task in every corner of the world. Acquiring a loan, importing or exporting a product, sending values to a person, organization or company in another country. All these activities are extremely difficult to do for more than 80% of the world's population.

Not being centralized is an advantage that entails enormous difficulties. But none of them kills the initial purpose.

lawn5• 8 years ago

Fees are only higher in Bitcoin which the developers have crippled. Look at Bitcoin Cash or other cryptocurrencies for much lower fees.

Here are some reasons why cryptocurrencies is a superior payment system, even for the consumer:

* The fees are lower (VISA and PayPal fees are priced into the cost, and they are much higher)

* It's anonymous (see Monero for example)

* You can send money easily to anywhere in the world (lookup EatBCH which is a charity providing food in Venezuela)

* You don't need a bank's permission. There are many unbanked people in the world.

Here are some reasons why it's a superior payment system for the merchant:

* Eliminates credit charge back fraud, which is a very big problem

* The fees are lower, especially important for low margin businesses

* Nobody can freeze your accounts, like PayPal has done on numerous occasions

* Any business can accept money digitally, for example porn sites and marijuana businesses have had a lot of problems accepting credit cards

A permissionless and trustless digital payment system has so obvious benefits I really wonder why people have trouble seeing them.

Is it ready yet? No. Are there problems? Yes. But the benefits are there.

tyree731• 8 years ago

Some counterpoints:

* You don't need a bank's permission. There are many unbanked people in the world.

Do we imagine those unbanked people being likely to have bitcoin wallets?

* Eliminates credit charge back fraud, which is a very big problem

That a problem, for sure, but in exchange consumers have no recourse if they legitimately need to chargeback a vendor. This is an anti-consumer feature of bitcoin.

* Nobody can freeze your accounts, like PayPal has done on numerous occasions

Unless you can somehow always keep your money in bitcoin until you exchange it for goods and services, you'll need an exchange to your currency of choice, at which point governments have all the ability in the world to effectively freeze your assets.

* Any business can accept money digitally, for example porn sites and marijuana businesses have had a lot of problems accepting credit cards

There isn't any technical reason that websites can't accept bitcoin today, and yet the number of websites that are offering bitcoin payments is shrinking, for well discussed reasons. I feel it's fair to say that that business have had more (and different) problems accepting bitcoins.

jfaucett• 8 years ago

The primary utility of money is this: it is the good that best lends itself to exchanges for other goods.

Its been clear to me for some time now, and I'm not alone in this, that as the properties of Bitcoin have moved further away from its primary function as a useful unit of exchange that its usage would decline.

There are other crypto-currencies which are now much better suited as a medium of exchange, which ones people will prefer as time progresses remain to be seen, but unless Bitcoin takes a major corrective path, I would be quite surprised to find Bitcoin in that final set of widely utilized currencies.

andrewmcwatters4• 8 years ago

Isn’t this issue inherent in its design? If you can only have 21 million Bitcoins, the value will skyrocket until the currency is worthless.

ttoinou4• 8 years ago

It's more than 21 millions since bitcoins can be divided. And no, it could serve as a digital gold / long term investment, and others crypto currencies could be used for day to day transaction

TACIXAT3• 8 years ago

A currency with no mechanism for monetary policy is not going to be adopted. Bitcoin is purely deflationary for more reasons than just people losing their keys.

For example, a fixed reward split between a growing group of miners will also cause a rising price floor. The miners will not sell for less than their electricity costs, which makes the smaller piece of the block reward they receive have a higher price.

So you have this asset you call a currency but it is always deflationary. No one will set prices in that. Think of it in terms of setting a salary. One month you are paying the equivalent of 1000 dollars, the next you are paying 2000. Since this has no way of stabilizing it will never become a true base currency.

Instead, at best, it serves as a pass through to a fiat currency. So it is acting as a payment processor but very inefficiently. Slow transaction speeds, expensive, difficult to acquire.

The price is driven by speculative demand. It honestly is more like a digital collectible than a currency (sign up to receive one of 21 million e coins, be part of history).

comboy5• 8 years ago

Currency that is guaranteed to be deflationary sure has its problems. But taking ideology and using it for every day stuff aside, why wouldn't you want to own some?

kristjansson2• 8 years ago

Exactly: own some. Not spend some, hence the problem with using it as a currency.

pjc50• 8 years ago

... why would you?

konschubert• 8 years ago

For example, a fixed reward split between a growing group of miners will also cause a rising price floor. The miners will not sell for less than their electricity costs, which makes the smaller piece of the block reward they receive have a higher price.

No that's not how markets work.

Miners will sell at the best prive they can get. If they cannot cover their costs, they'll stop mining and the difficulty will drop until mining is profitable again.

The resulting mining rate may be too low though to secure the network, bug that's a different topic.

jstanley2• 8 years ago

The miners will not sell for less than their electricity costs, which makes the smaller piece of the block reward they receive have a higher price.

That's not how it works. If you spent $100 in electricity and you have an asset that's worth $50, you can either sell it for $50 and only be down $50 on your electricity, or you can not sell it at all and be down $100 on your electricity.

Electricity cost of mining does not set a price floor. The price floor is 0.

Scaevolus• 8 years ago

More than just power, you have depreciating assets (mining chips, servers, buildings) that are effectively losing money constantly. Operating them at a small loss is better than leaving them idle for a huge loss.

You see similar economics when farmers sell crops at a net loss.

klodolph3• 8 years ago

That's not how it works.

Obivously, the meaning of the original sentence is that miners will turn off the mining equipment when they decide that it's more profitable to leave it off than leave it on.

…you can either sell it for $50 and only be down $50 on your electricity, or you can not sell it at all and be down $100 on your electricity.

This is a false dilemma, the question is not just whether you sell the coins, but also how many, with what timing, on what markets, and in exchange for what. The “either sell it and make some money back, or don’t sell it and eat the loss” is only true if you are paying for your electricity in Bitcoin to begin with, or if you know that the asset you have will only depreciate in value. If I spent $10,000 on a car that I don’t need, selling it for $8,000 might be a good deal because if I wait I will only get less. For Bitcoin, the exchange rate fluctuates, and you can divide it and sell parts at different times.

crististm3• 8 years ago

What do you mean? That the miners will sell at a loss?

TACIXAT3• 8 years ago

You can sell at a loss if the asset is dying off, but for the most part an actor isn't going to sell for less than their costs.

zaarn6• 8 years ago

It kinda does set a price floor, the cost of operation of the cheapest miner is the price floor. No miner will want to sell below as it would be a loss and considering Bitcoin is deflationary in nature, it is likely worthwhile to just hold the coins and earn the deflationary interest on them until the price adjusts.

Assuming you can only either sell or loose the money fails to take temporal effects into account, ie the fact that there is such a thing as time progressing that changes variables.

dev_dull• 8 years ago

For example, a fixed reward split between a growing group of miners will also cause a rising price floor. The miners will not sell for less than their electricity costs

Sure they will. They’ll have to if there are more sellers than buyers. Sellers are poor things at creating “floors” unless they’re in collusion. Bitcoin is famously decentralized so good luck with that.

DennisP2• 8 years ago

Bitcoin automatically adjusts the difficulty of mining, targeting ten minutes per block. If the price drops, then some miners will find themselves unprofitable and shut down, blocks will take longer to produce, and the difficulty will drop. Mining effort follows price, not the other way around.

TACIXAT3• 8 years ago

Price follows buyers and sellers. It is not some magical property that miners are chasing. They produce a product for costs and aim to sell it above those costs.

osrec• 8 years ago

It is by definition deflationary due to its restricted supply. This would not be so much of a problem at the moment, if it wasn't for the fact that people started treating it as an asset in its own right, rather than an experimental medium of exchange. Most people have lost sight of the fact that it is the first iteration of a series of experiments to create a decentralised mechanism of value transfer. It wasn't going to be right the first time round.

Sometimes I feel that criticising Bitcoin for it's failures is like criticising Edison based on his first attempt at inventing the light bulb!

forgotmypw2• 8 years ago

I think of Bit<oin as the MS-DOS of e1e<troni< <urren<ies.

tomrod• 8 years ago

Fantastic assessment. I hadn't thought about it in these terms before, but agree strongly.

sneak2• 8 years ago

A currency with no mechanism for monetary policy is not going to be adopted.

...except that bitcoin has been adopted, just not widely. Your basic premise is false.

betterunix2• 8 years ago

Bitcoin has only been around for a decade, and for most of that time its adoption was driven more by ideological support by libertarians and anarchists than by technical or economic advantages. After ideological reasons the next biggest driver was misunderstanding of its technical features by people who thought they were getting anonymity. Even ignoring the criminals and ideologically-driven adopters, you do not really have large-scale acceptance, because most businesses that claim to accept Bitcoin are only doing so via services that immediately convert the payments to fiat currencies (i.e. these supposed "adopters" are really accepting fiat currency and have no particular desire to receive, use, or hold Bitcoin).

The basic premise of Bitcoin as a currency has always been questionable. With each passing year the premise has become more questionable -- there is the extreme volatility, the enormous energy tax, the inability of anyone to respond to liquidity or credit crunches (and the deflationary nature that encourages such problems) and the ever unclear driver of BTC demand (why would I want a BTC payment, especially when I need to make certain legally-mandated payments that are only payable in my nation's fiat currency?).

tzs2• 8 years ago

For example, a fixed reward split between a growing group of miners will also cause a rising price floor. The miners will not sell for less than their electricity costs, which makes the smaller piece of the block reward they receive have a higher price.

There is one group of miners for whom electricity costs and Bitcoin price don't really matter much: home miners in cold regions whose homes used electrical resistance heating. Almost all of the energy consumed by a computer ends up as heat released directly into the room. A computer is, for most practical purposes, an electrical space heater that is as efficient as a "real" space heater [1]. It's just more complicated and the power consumption (and hence heat output) tends to vary a lot depending on what computation it is doing.

I wonder if this will result in mining eventually becoming mostly a home activity again, as it was when Bitcoin was starting out?

[1] https://www.pugetsystems.com/labs/articles/Gaming-PC-vs-Spac...

lalaland11252• 8 years ago

This logic is flawed because it doesn't consider the fact that we have more efficient heaters than electric space heaters. In particular, the two main alternatives are gas (more efficient because you skip inefficient fuel -> electricity steps) and heat pumps (more efficient because you draw in heat from outside). Compared to these alternatives, Bitcoin miners make very, very inefficient heaters.

conanbatt5• 8 years ago

I disagree with several of your statements. First, bitcoin has a monetary policy, and the key is that it cant be changed, which is very appealing: more appealing that storing gold vs fiat, since gold has a less predictable monetary policy. Gold had been chosen as currency for most of history, across cultures and languages. In countries where the currency breaks down, things like chocolate, potatoes or corn get into circulation. Also bonds and other papers of different calibers.

It is not the deflationary policy that makes bitcoin less adoptable: being deflationary predictably is better than unpredictably inflationary. Specially in this day and age, where bitcoin prices can be tracked to the second and prices changed accordingly across the board. Its interesting to see there's research talking about how the ability to price things faster has changed the effect of monetary policy on prices at all.

The rest, I agree. It has a very speculative value, and its best usecase is pass-through. But pass through is still a good use-case. Argentina, 3 years ago, would pay up to 5% of funds to transfer money in-out of the country: bitcoin would have been easier and cheaper. And its still used as a way to evade controls. The use of bitcoin can severely reduce the government's capacity to levy taxes, as it is way harder to track down than bank/card transfers. Whether that's moral or good will be secondary to the fact that it can do that. If its use case is to sell drug money and reduce taxes, it will have value.

WJW2• 8 years ago

and the key is that it cant be changed, which is very appealing

This is only very appealing if:

- It is never necessary to change monetary policy.

- The same monetary policy is appropriate for all nations.

- The monetary policy that was chosen by the bitcoin dev team is exactly the right one.

Lerc• 8 years ago

Bitcoin monetary policy can be changed. If there is a significant consensus then you can move to any set of rules. Bitcoin monetary policy cannot be unilaterally changed.

Consensus is difficult and slow, but when it comes to the world economy, that's probably the least-bad solution.

crististm3• 8 years ago

I'm sorry but your analogy is stretched at best. Unlike gold, potatoes rot...

cirgue• 8 years ago

being deflationary predictably is better than unpredictably inflationary.

Unpredictable deflation is what bitcoin does, and with a fixed policy it can never do anything else. The amount of wealth generated by an economy grows in an unpredictable manner, and fixed monetary policy translates that fluctuation directly into the value of the currency. We learned this with metal currency. It didn’t go well.

bestnameever• 8 years ago

Specially in this day and age, where bitcoin prices can be tracked to the second and prices changed accordingly across the board. Its interesting to see there's research talking about how the ability to price things faster has changed the effect of monetary policy on prices at all.

isn't this true for all currencies, virtual or not?

throwaway1231562• 8 years ago

The Fed can easily replicate the benefits of cryptocurrency in seconds. They simply need to come out and say "We will only print X number of dollars, every Y number of months".

There you go. All the benefits of Bitcoin replicated in the USD, which is a far more widespread and versatile currency?

So why doesn't the Fed do it? Because it really is a terrible idea. It's like pegging your currency to gold, which was a terrible idea (although good for its time) and the delay in moving away from it probably cost tons of money and lives.

tmornini_ey• 8 years ago

it is always deflationary

Except for the fact that it is currently, and always has been, inflationary.

You need to learn more about economics.

Inflation/Deflation is a separate phenomenon than rising/falling value — though they are sometimes related.

Tim_cas• 8 years ago

How Google is entering the crypto space is https://blog.usejournal.com/google-entering-the-blockchain-s... very telling. Bitcoin is not going away. Get over it.

jeromegv• 8 years ago

Crypto space doesn't necessarily mean Bitcoin, could be another better technology that eventually becomes mainstream.

shawnz• 8 years ago

And when someone claims that they support Bitcoin or see a future for Bitcoin, chances are they too are talking about cryptocurrencies in general and not specifically Bitcoin.

hk__2• 8 years ago

Google is not entering the crypto space. Quoting from the article:

Google finally officially entered the blockchain space, announcing on its blog just before the Google Cloud Next ’18 conference in San Francisco in July 24–26, to be supporting distributed ledger technology, aka blockchain

Adding a blockchain service to your cloud platform offering is far from "entering the crypto space".

octopod• 8 years ago

Bitcoin != despite the wearisome and over-blown emotional 'bitcoin is bad see i told you so!' mentality on HN.

wgerard3• 8 years ago

By no means am I a bitcoin-enthusiast, but I've shared this story before:

We had to send a payment to someone who lives in a commonwealth country - what a pain in the ass that was. For the first time I actually saw a use for bitcoin, but the volatility and my general desire not to run afoul of any weird money laundering laws got the better of me.

I do think there's a legitimate case for bitcoin as a means of getting around FX and just the general inaneness of international banking.

That being said, I'm sure that there are plenty of reasons why that'll never come to fruition (e.g. as I noted, AML rules).

wslh2• 8 years ago

We had to send a payment to someone who lives in a commonwealth country

I use it for that purpose all the time. In general, People in developed countries don't have a clue about how painful and time consuming an international payment can be. Even with credit cards banks put very low limits that are unrealistic for someone who travel often and consume cloud services like AWS or Google Cloud.

That is why I think the Bitcoin narrative is misleading, the main point was to make P2P transfer, not holding. In this context stable coins like DAI are currently one of the killer use cases.

wgerard3• 8 years ago

I use it for that purpose all the time.

Not to dig into your business too much, but: Any weird tax/legal implications around that? I didn't want to dig into it too much (just because often these things are rabbit holes with unclear answers), but I'm really curious about it for the next time we have to send a payment.

In general, People in developed countries don't have a clue about how painful and time consuming an international payment can be.

I can definitely say I had no idea until I had to do it myself. Trying to figure out how to do a wire transfer to someone in another country was a huge boondoggle (and expensive).

ttul2• 8 years ago

When I was starting a BTC ASIC company (don’t worry - it failed to attract investment) in 2011, one of the things that always spooked investors was the slide showing transaction volume. Even in those early days, one had to really stretch one’s imagination to believe that Bitcoin could one day take over from Visa/MasterCard as a payment method of choice.

But we did understand its value as an alternative store of wealth, and potentially as a way to transfer money across borders more cheaply. I think the former utility has been somewhat dented by the steady drop in value since its peak. And the latter isn’t really all that amazing of a value prop when you consider that regular old PayPal isn’t that expensive and the set of situations in which it does not work is really small.

Not to mention that SWIFT is really ancient but also works well and can be endlessly improved...

amelius• 8 years ago

What does it take to actually make BTC ASICs?

In my understanding, the hash functions are quite simple and just do things like XOR, and SHIFT, and perhaps ADD/SUB, but not multiply or divide. So the main difficulty would be to do everything at the lowest possible amount of power.

But I could be wrong.

gammateam6• 8 years ago

yes, we stopped making application specific integrated circuits (ASIC) back in 1980 in favor of general purpose processors that do all applications decently fast.

there is no rocket science to making an ASIC because we already know how to, and its economically viable again to dust off that knowledge

ttul2• 8 years ago

You are correct. The ASIC engineering was routine. It was all about justifying the enormous NRE costs... back in early 2011, BTC was a curiosity and not well known at all. Investors were not easy to convince.

socrates1998• 8 years ago

It sounds weird, but I think a big part of Bitcoin's, and other crypto's value, isn't in the day to day ability to use it to buy and sell things, it's the inability of the government to devalue it.

This isn't as big a problem in many richer countries with relatively stable currencies, but I sure as hell would prefer Bitcoin to anything the Venezuelan government or the Argentinian government would issue.

The kinks are still getting worked out for Bitcoin, but I still think it is a big game changer.

grubles5• 8 years ago

You hit the nail on the head. Hodling is, in some cases, the best use case for Bitcoin.

pg_bot2• 8 years ago

There is a reason why an investor that holds a security until it is worthless is called a "bag holder". It makes no sense to "invest" in any currency when you can own productive assets instead. If you are concerned about the government seizing your assets, I would suggest emigrating to a country that respects private property rights. Countries that undergo hyperinflation are fairly rare, and the citizens of those countries tend to not tolerate it for very long. (Research dollarization of Ecuador and Zimbabwe)

bobthepanda3• 8 years ago

I mean, what advantage does it have over gold?

Advantages of gold vs. Bitcoin:

- gold is pretty easy to find, not that hard to buy for the average consumer; BTC is anything but

- gold is physical in form and securing it is not hard; BTC is not physical, exchanges get hacked with losses to accounts, in the event of a natural disaster or some event where power generation and internet is lost you lose access to BTC. (Someone can come break in and loot your gold, but people could also do that with your BTC wallet credentials, and if people are doing that you have worse things to worry about)

- gold at least has some kind of floor value, since it does have uses other than a currency store; the same is not true for BTC

guiomie2• 8 years ago

Can't figure out if this is sarcasm...

deevolution2• 8 years ago

Maybe its a generational thing, but i have no clue how i would go about buying/trading gold and i dont think anyone in my friend group does either. Bitcoin is far more accessible.

sneak2• 8 years ago

Securing bitcoin is much easier than securing gold. Gold can be confiscated easily; bitcoin is much harder, especially with things like brainkeys.

Additionally, gold does not have a built in global teleporter. Bitcoin does. I can send basically an unlimited quantity of value to anyone with internet access in minutes with bitcoin; the same is not possible with gold.

If bitcoin is only useful for global remittance and bypassing the long-distance-money-transfer cartels of the world, it is an insanely valuable tool. My estimation is that it is valuable for at least that, and probably several other things as well (e.g. online payments for physical goods that are subject to high chargeback risk, et c).

comboy5• 8 years ago

In this context, it's much harder to protect gold from the government (if it decides it wants to take it away).

Plus buying stuff online is more tricky.

I could envision alternative reality though, where there are companies specializing in providing tokens that have 100% coverage in gold. You would need to trust them and their software, but some trust is always involved. The problem is those would be an easy target with physical holdings (so the problem of the gov comes back, but they could choose under which gov to operate). In that scenario, if the problem gets big enough the gov will take care of it, no matter where on the planet is that gold. In the case of Bitcoin though, while temporarily it can be hampered very easily, it's quite impossible to make it completely go away.

The biggest point for gold IMO which you didn't mention, since all value comes from people and their beliefs, is thousands of years vs 10 years.

CyberDildonics3• 8 years ago

The fact that you can use it electronically.

deevolution2• 8 years ago

Bitcoin advantage: easily and instantly divisible. Gold not so much.

Bitcoin advantage: weighs nothing, highly transportable. Gold not so much.

DINKDINK5• 8 years ago

where power generation and internet is lost you lose access to BTC

You don't need the internet nor the power grid to use bitcoin.

To use bitcoin via the Lightning Network minimally, you need a CPU and a method to transmit data.

CPU: phone

Transmit Data: Bluetooth, QR code/camera.

Electricity for your phone: Cheap emergency solar panel

another-cuppa2• 8 years ago

I mean, what advantage does it have over gold?

It's electronic. That is the only advantage, but it's a huge one considering that virtually all (yes, virtually all) money transfers are done electronically today.

antidesitter• 8 years ago

How are gold bars easier to secure and transport than private keys?

safgasCVS3• 8 years ago

I'll add to this -

As someone who's country is actively looking at expropriation of white-owned land a bank account that NO ONE can access without your permission is hugely appealing. If you're living in a country with functioning institutions you take this for granted

msie2• 8 years ago

Which country is this?

keymone22• 8 years ago

If you're living in a country with functioning institutions you take this for granted

people in developed world don't even realize how many things they take for granted.

sorokod2• 8 years ago

It is weird, if you can't buy and sell with bitcoin daily(whatever that means) what value does it have for you?

mathattack2• 8 years ago

Illiquid investments can still have value if they’re out of the reach of governments. (Governments can’t decide the exchange rate, or tax/confiscate them)

This is a stretch in the US, but less so elsewhere.

I’m not a holder because it’s too speculative an investment for me.

paulpauper2• 8 years ago

I used to think that, but bitcoin didn't go up despite the currency collapse there. The problem is the vast majority of Venezuelans are too poor to buy even a fraction of a bitcoin. Hyperinflation destroys wealth very quickly, so often everyone it too poor by the time they can do anything. The wealthier people put their money overseas or in gold.

justincormack• 8 years ago

When I was there (20 years ago though), diamonds, gold nuggets and hundred dollar bills were fairly common forms of portable wealth. The banks and cash were never trusted (they were shut down when I was there), and the country mines gold.

fstanis3• 8 years ago

inability of the government to devalue it.

This sounds like it seriously underestimates just how much influence a government can have.

First and foremost, they can make it illegal. This would immediately make the fact it can't be devalued moot, as people who'd use it become criminals by default.

fandango• 8 years ago

The biggest part is plain and simple speculation. Betting on bitcoin and other crypto is like betting on human greed. Bitcoin could possibly be worth 1 million dollar, that is the main attractor. It is gambling, but in a fairly transparent and decentralized manner. I don't think it is fair to call it a ponzi (which it is not by definition because of the lack of a central actor) and also not a pyramid scheme (because it has genuine valid use cases).

It is just a market of buyers and sellers, extremely volatile and in a very immature and experimental state.

superkuh3• 8 years ago

Bloomberg's use in news keeps falling too. They have set up computational paywalls to prevent people from reading their articles. But for some reason people on HN just keep posting them. It's a weird exception to the no-paywalled article status quo.

paulpauper2• 8 years ago

ditto. used to be ok but now too much clickbait, low quality content, and now paywalls

gammateam6• 8 years ago

First, use in commerce peaked when transaction fees went too high in 2017, and consumers didn't try the shitty user experience again

okay, temporary problem

the payment processor's user experience kind of sucks and the network didn't help that

better UX and lightning network will help with that. There are also some BIPs regarding signing transactions differently, as well as smaller transactions coming. This year, 2018, more people already use another form of smaller transactions and also combine them. Bitcoin would handle a lot more load this year.

Secondly, M1 is a tiny fraction of the supply used for goods and services, M2 and M3 are illiquid stores of value. Bitcoin isn't functioning differently to currencies in this regard so its a weird standard to put it at to proclaim it isn't a good value transfer mechanism.

Nursie2• 8 years ago

better UX and lightning network will help with that.

Lightning appears to be a bit of a joke - routing payments is almost impossible, lots of attempts seem to fail, and there also appear to be requirements like keeping a node up constantly.

gammateam6• 8 years ago

yeah I read and repeated all of that stuff without investigating too, at one point.

they aren't fundamental flaws to the concept. just like with tcp/ip packets, routing will improve with robustness of the network. I saw a couple of work in progress efforts to address the full node requirements.

they'll be growing pains but bitcoin is interesting because the protocol doesn't go away, even as the payment processing companies themselves run out of money. so a different company or group of efforts will implement it with merchants when its better.

prostoalex• 8 years ago

Fundamentally, though, a consumer in a developed economy with high degree of e-commerce has access to a credit card / PayPal / AliPay -like set of tools, that allow for

* cash back (and similar incentives like airline miles)

* transaction reversal

* consumer protection in case a purchased iPhone X arrives broken due to an unscrupulous seller

* custom perks, like extended warranties for consumer electronics, travel insurance or additional coverage for a rented vehicle

Even if you have a better UX, what are the incentives for consumer to switch away into BTC? A 2% discount compared to credit card payment?

The higher the item price, the stronger is the incentive to employ some consumer protection mechanisms.

agorabinary3• 8 years ago

It's pretty remarkable that the transaction layer (Lightning network) on top of Bitcoin hasn't garnered any discussion in this comment section - I would expect this to be the primary topic when talking Bitcoin commerce! It's not possible to have an intelligent discussion on Bitcoin commerce without discussing its most relevant tech.

From my experience, I see that most apolitical or politically averse techies (a lot of HN) are drawn heavily to Ethereum, which has been falling relative to Bitcoin ever since the January highs. Pretty sure there is a strong correlation between this and HN crypto frustration in general.

CyberDildonics3• 8 years ago

It's pretty remarkable that the transaction layer (Lightning network) on top of Bitcoin hasn't garnered any discussion in this comment section

I would say it's pretty encouraging since it barely works, doesn't deliver on any of its promises and much more convoluted to use that normal crypto-currency.

agorabinary3• 8 years ago

I can send less than a satoshi to someone across the globe for virtually zero fees, anonymously and without any need to wait for block confirmations? And all of this works right now on mainnet?

Bitcoin progress has always consisted of overcoming allegedly insurmountable problems, Lightning dev is no different. Next up is solving efficient routing and intermittent nodes.

seltzered_• 8 years ago

I gave up reading the original article after ctrl+f'ing for it revealed it didn't mention lightning network or plasma. I've never even owned ether or bitcoin but those seem like aspects one would cover when discussing transaction improvements.

vasili111• 8 years ago

Cryptocurrency will never replace fiat money. Corporations will never put their money in a system that is controlled by only one password and that uses transactions that in case of error can't be undone.

jobserunder3• 8 years ago

Keep dreaming. You will see.

talkingtab• 8 years ago

My thinking, probably wrong goes like this:

what is money? It is a messaging system that allows people to decide what to do in a decentralized fashion. We need more food, the price of food goes up, more people grow food. What happens when you make money from money? Dysfunction. World currencies are increasingly dysfunctional - the most profit comes not from productive economic activity but from speculation, arbitrage, etc.

Bitcoins are completely dysfunctional because they are not tied to any productive economic activity, they are completely speculative. The idea of cryptocurrencies is great, but without being tied to real economic activity, they are ... well speculative.

Would love some explanations on why this thinking is wrong.

empath75• 8 years ago

They’re tied to economic activity — buying drugs, money laundering, paying ransoms, funding intelligence operations.

Just nobody is using them to buy legitimate products.

opticbit• 8 years ago

And Bitcoin-based transactions can’t be reversed, an issue when a merchant or a consumer comes up against fraud

That's the fucking point. Use multisig/escrow if you need it.

BitcoinIsCash2• 8 years ago

With the small-blocker and big-blocker schism, BTC is not Bitcoin, and is not meant for commerce.

If you want fast, cheap, settled transactions, use Bitcoin (BCH).

mortdeus4• 8 years ago

I think what people need to realize about cryptocurrencies is that they aren't going to derive their value from being convertible to fiat currency.

Rather cryptocurrencies are going to be revolutionary in the sense of how they can be combined with other technologies.

For example, what if World of Warcraft used a cryptocurrency based system for ingame currency? Where the ingame money was actually finite and that in theory the players in the game could suffer from an economic depression. Or a few players could hoard all the wealth in the game. etc. etc.

The game would be way different than it is now, which is to say that it just emulates an economy, not actually implements one.

This is probably a bad example to get what I am trying to say. So lets imagine a different scenario. Let's say we wanted to build a social network, where we didn't actually want everybody to just be able to say whatever they want without a threat of consequence. What we want is a social network where you have to do something to earn the ability to speak, and once you speak you lose the currency to be able to speak again until you do something once again to earn the ability to speak.

What you have to do in order to earn the ability to act depends on the service in question, but the same basic concept of a cryptocurrency is what underlying the system. In that the platform only has value when the ability to act is a limited and highly valued resource.

mortdeus4• 8 years ago

This is another reason why i think all these crypto based startups that are using ICOs as an alt means of funding are totally delusional and devaluing their product. You take all the value out of your platform if you take away the requirement that people must do some form of work to generate wealth. The fact that the platform acts like the Fed and can print their own currency whenever they want, proves that they don't truly get the point of why cryptocurrency is innovative.

TheDong• 8 years ago

For example, what if World of Warcraft used a cryptocurrency based system for ingame currency?

Why would they need a distributed system? They already have an in-game currency with a central authority (their trusted servers) and can already limit the rate of currency creation (reduce monster's gold drop rate to zero or whatever).

EVE Online shows just how well a central authority can manage a virtual game currency. No crypto or blockchain needed.

Let's say we wanted to build a social network, where we didn't actually want everybody to just be able to say whatever they want without a threat of consequence

Cool, so like a reputation system on old forums where you have to have a certain number of positive comments to participate in other private forums, and there's heavy moderation?

Oh woah, no crypto, no blockchain. I don't see how cryptocurrencies make the fundamental problems of building such a system any easier btw. Attaching a value to someone in a database is easy, and even distributed social networks like mastodon trust the participating servers (and if you don't, you block the whole server).

Cryptocurrencies are a problem looking for another problem, and it turns out rubbing two problems together doesn't make fire.

A central database is usually better (the WoW example), and they're often orthogonal to other ideas they're shoved into (reputation system, file storage, whatever).

CryptoPunk5• 8 years ago

This is a totally expected consequence of Bitcoin Core abandoning the original plan of raising the block size limit in favor of 'the Lightning Network', which is a technology that does not even work at the conceptual level, let alone being production ready.

A blockchain limited to 3 transactions per second cannot be a global currency. Before Bitcoin came up against its 1 MB per 10 minute (1.67 KB/s) limit, which is its life from launch to 2017, its daily transaction volume was growing exponentially, yoy.

smsm425• 8 years ago

I am not surprised. I am a programmer with decades of experience under my belt, and I have no idea how to install bitcoin in a way that would allow me convenient use of it. No, I can install the apps, and I can spend a month or two waiting until it downloads the whole 40+G of current blockchain, or I can trust some site that says it'd fix it for me, or I can open an account on any of the exchanges and pray to cryptogods it's not the one that is going to be robbed or go bust next. But why would I?

Now, if I would plan to trade in commodities that local government is frowning upon, or speculatively invest in assets that make Las Vegas look like index funds, it would be worth my while. But I don't, so it isn't.

Now make a step from myself - the experienced professional who actually knows what Bitcoin is and can probably explain how it works without wading too far from the truth - to a person who doesn't know the difference between "browser" and "internet". Why on earth would they go through this trouble - and more importantly, why on earth anybody who cares about them would advice them to go there at all? My advice to anybody who is not an agressive risk investor or a person with interests misaligned with current law would be "not with a ten foot pole". Right now it's so ripe with opportunities for both unintentional screwups and intentional skullduggery that I don't see how people can do consumer commerce with it.

keymone22• 8 years ago

exaggerating a bit? bitcoin syncs within couple hours unless you run it on the computer you'd gain your decades of experience on :)

every mobile bitcoin app is a lightweight client - it only syncs block headers, much faster but not great for large sums of money.

so for a person that can't tell "browser" from "internet" there's no difference between introducing them to paypal or to bitcoin - it's just an app on your phone and you can press the "send" button.

nebolo• 8 years ago

Yes, but for that person the all advantages of Bitcoin that are typically mentioned (trust-less, secure, etc.) go out of the window.

andrewmcwatters4• 8 years ago

it only syncs block headers

I think what the parent comment is trying to say is: who cares about this? Not even many of us technical people care.

It's like saying, "Just get the mobile app, it just synchroaligns the ledger manifest distributable intra-block metadata! Duh! Simple!"

It's not accessible to people, and not even engineers who aren't familiar with the tech.

I don't need to understand the minting process to know how to use a dollar, but for some reason the Bitcoin community expects you to understand blocks, difficulty, ledgers, exchanges, and many other concepts that are relatively advanced and take time and effort to understand. A dollar is a dollar.

This continually seems to fall on deaf ears.

smsm425• 8 years ago

With paypal, if someone gives you trouble, you can call support and reverse the payment. And they have protection policies. With bitcoin, if anything happens, you're the idiot who bought into the hype and now getting what was coming you you. For consumer, there's a huge difference - that's why "ZERO FRAUD LIABILITY" is written on every credit card conditions in big friendly letters. Are there any zero fraud liability bitcoin instruments? Are they even possible?

lawn5• 8 years ago

Just use the mobile wallets? It's very easy.

There's no need for end users to store the whole blockchain.

digianarchist• 8 years ago

Run SPV wallet like Electrum. It's the same size as a regular desktop application and takes about a minute to setup.

smsm425• 8 years ago

Doesn't it require essentially trusting Electrum server with your money (and your transactions)?

mr_theopolis• 8 years ago

The problem with bitcoin as a currency or a store of value is simpler than all these comments.

It is not secure.

If I own gold, I own the gold, nobody can take it from me without physical access to it.

If I own bitcoin, I own a transaction on a ledger. I don't own that ledger. The majority miners control the ledger.

A miner who has 50% of hashing power (actually less, when selfish mining) completely owns and controls the ledger. They can erase any transactions they want, block transactions and double spend.

You don't have that with gold, you actually own the gold.

Bitcoin Gold was the same source code and same ledger as bitcoin (no extra words) and it was double spent in exactly that way.

The whole system was designed to make the people who created the fake money a lot of money, it wasn't designed to run forever. They've made their 100s of millions+ and more. Beyond their wildest dreams. It's a simple pyramid scheme designed to run as long as possible.

It is not a currency. It is not a store of value. It is a worthless asset being traded back and forth by people losing money in a less than zero sum game. Less than zero because money is going to miners and exchanges who facilitate the game.

jobserunder3• 8 years ago

Selfish mining with less than 50% does not exist. False

Also.... see how they confiscated gold in the USA.

You cannot confiscate bitcoin, anymore than you can confiscate "internet"

Both are networking protocols

davidgerard2• 8 years ago

Selfish mining with less than 50% does not exist. False

Incorrect, and this has been well known for nearly five years: http://hackingdistributed.com/2013/11/04/bitcoin-is-broken/

PoespasAR• 8 years ago

So many initiatives are currently in development to make it easy to accept crypto. Just wait 2 or 3 years...

Bitcoin's Use in Commerce Keeps Falling

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