Bitcoin: the Stripe perspective

https://stripe.com/blog/bitcoin-the-stripe-perspective

by gdb • 12 years ago

813 244 12 years ago

pat2man• 12 years ago

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.

k-mcgrady• 12 years ago

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."

VexXtreme• 12 years ago

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.

nlh2• 12 years ago

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.

chadkruse• 12 years ago

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.

afro88• 12 years ago

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.

jarek• 12 years ago

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?

brg4445• 12 years ago

* 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.

nlh2• 12 years ago

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.

oafitupa• 12 years ago

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!".

jessaustin• 12 years ago

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.

saalweachter• 12 years ago

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.

oska• 12 years ago

"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

jcr• 12 years ago

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

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

nemo16182• 12 years ago

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.

napoleond4• 12 years ago

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.

nemo16182• 12 years ago

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.

MichaelGG4• 12 years ago

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

gdb• 12 years ago

Agreed.

jmhain• 12 years ago

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.

MichaelGG4• 12 years ago

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.

natrius2• 12 years ago

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.

ceallen• 12 years ago

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.

runeks3• 12 years ago

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.

mrb9• 12 years ago

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).

ejhong• 12 years ago

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).

dcc1• 12 years ago

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.

drivingmenuts• 12 years ago

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.

pbreit• 12 years ago

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

_puk• 12 years ago

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.

justinpaulson• 12 years ago

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.

napoleond4• 12 years ago

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).

IgorPartola2• 12 years ago

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".

Cyther6067• 12 years ago

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.

diegocg• 12 years ago

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.

edpichler2• 12 years ago

Very good comment.

sassypants6• 12 years ago

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?

lxmorj• 12 years ago

Dude, go look up tulips on wikipedia.

boucher2• 12 years ago

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

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

zby• 12 years ago

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.

kaonashi4• 12 years ago

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

FatalLogic• 12 years ago

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.

SilasX• 12 years ago

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.

mbesto• 12 years ago

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.

seliopou• 12 years ago

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

maaku2• 12 years ago

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.

pnathan• 12 years ago

Agreed.

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.

rsp19842• 12 years ago

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?

pmorici• 12 years ago

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.

foobarqux2• 12 years ago

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.

Bakkot3• 12 years ago

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.

xiphias3• 12 years ago

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)

napoleond4• 12 years ago

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.

pjc504• 12 years ago

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)

samstave• 12 years ago

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

chatmasta• 12 years ago

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

patcon• 12 years ago

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 :/

mfringel• 12 years ago

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.

wcummings3• 12 years ago

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

driverdan• 12 years ago

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.

ahtomski• 12 years ago

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'.

flavor8• 12 years ago

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.

benmanns• 12 years ago

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

adrianwaj• 12 years ago

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.

mrb9• 12 years ago

"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...

sanswork13• 12 years ago

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.

tomasien• 12 years ago

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.

jarin• 12 years ago

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.

nawitus2• 12 years ago

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

Taek• 12 years ago

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.

Natanael_L9• 12 years ago

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

krschultz• 12 years ago

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.

embolalia• 12 years ago

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.

joelhaus2• 12 years ago

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.

brg4445• 12 years ago

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.

jedunnigan• 12 years ago

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.

edpichler2• 12 years ago

Very good article. Great times are coming.

freedom1234• 12 years ago

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

drcode• 12 years ago

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

freedom1234• 12 years ago

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.

jp5552• 12 years ago

freedom1234• 12 years ago

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).

Symmetry• 12 years ago

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-...

webmaven• 12 years ago

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.

flatline• 12 years ago

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.

doctorpangloss• 12 years ago

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.

Cyther6067• 12 years ago

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.

rooneel• 12 years ago

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).

Natanael_L9• 12 years ago

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.

foobarqux2• 12 years ago

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.

nhaehnle• 12 years ago

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

aianus• 12 years ago

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.

mcs4• 12 years ago

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.

mcs4• 12 years ago

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.

marcosdumay2• 12 years ago

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.

mcs4• 12 years ago

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.

Natanael_L9• 12 years ago

Not impossible, actually! Heard of Secure Multiparty Computation?

http://www.reddit.com/r/crypto/comments/r003r/are_others_int...

berdario• 12 years ago

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.

aeturnum• 12 years ago

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.

badbaguette2• 12 years ago

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.

kaonashi4• 12 years ago

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

Bakkot3• 12 years ago

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.])

andrewla• 12 years ago

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".

baddox4• 12 years ago

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

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

pjc504• 12 years ago

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

ChuckMcM• 12 years ago

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.

aburan28• 12 years ago

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

abalone• 12 years ago

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?

GmeSalazar• 12 years ago

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

throwaway2274• 12 years ago

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.

wcummings3• 12 years ago

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

jtanner• 12 years ago

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

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

jheriko• 12 years ago

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...

billyarzt• 12 years ago

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).

nathan72• 12 years ago

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.

Bitcoin: the Stripe perspective

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