Yeah I thought about using "vertical integration" but that's a pretty overloaded term at this point. Usually refers to existing businesses buying up suppliers/buyers to control production and pricing. I think "whole product" (from Crossing the Chasm) might also work. Happy to call it something else but I think it's useful to have a word for what's happening.
My view is that the whole system was designed for a different era and not for the web. The problems include 1) consumer having to fill out a form at each merchant, 2) consumer having to decide if she trusts the merchant (1 & 2 lead to the strategic asset of "cards on file"), 3) the bank trying to determine with probabilistic algorithms whether it was really me paying, 4) the security of the whole system is very flawed. 5) all the money spent on marketing these services (including rewards) when instead the services should be baked into the internet.
That said, I agree with you that the digital cash / new behaviors are the most interesting part of Bitcoin. Just much harder to explain.
I agree with all those points, but the key question is whether the virtual currency community can come up with something significantly better to offset the considerable adoption costs.
Another consideration: whether the entrenched players can simply make minor adjustments to counter that threat. For example, take your first point, filling out forms. It used to be you always had to do it. Then contactless payments took off in Asia. There was all this buzz about NFC and how it was going to disrupt the system and mobile carriers were going to get involved and so forth. So what did Visa/Mastercard do? They just relaxed the rules so that swipes under a certain amount don't require a signature. Poof, there goes the opportunity, because there's no way the cost of an NFC rollout is worth the extremely minor difference between a swipe and a tap. (Go ask Google Wallet.)
And so it goes for most of the technical issues, I think. Trust and security too.. you could make it easier on the merchant, but at the same time harder for consumers to recover funds if they "did something wrong" like installed malware.
Excited about the new frontiers into digital cash though. And also scared too. The biggest use case for bitcoin right now is not payments. It's international money transfers that skirt capital flight controls. And, for us non-libertarians, it ought to be a big concern. It's a profoundly anti-democratic force. It gives the wealthy minorities (esp. in third world countries) a veto power over policy. Don't like some new environmental or safety laws, or higher taxes to fund public education and health? Just transfer capital out of the country and watch it wither.
Pretty much all my local merchants have machines that accept NFC payment taps - to the extent that the Commonwealth Bank has an app for the Galaxy S4 which will emulate a debit card tap and be accepted by any machine.
The only time I end up keying a pin or signing is usually when the staff themselves don't realize that I can just tap my card (the machines have big NFC icons on them, but they don't offer the machine to me to tap).
You might consider that the reason staff don't realize you can tap is that nobody uses it, because you can just swipe without a PIN for small purchases. I am not saying this is superior, just observing an example of how even changing consumer behavior is difficult when the value add is minor.
Australia has different rules. In the US at least, the PIN is not required for small purchases.
It's interesting you mention Australia because they've taken a different approach to the fee issue. They regulated it away. Cards cost merchants very little. Didn't need bitcoin to do it, just passed a law.
Also interesting: it did not result in a lowering of consumer prices. The merchants kept the windfall.
Here's one model that could work. Think of Bitcoin as analogous to physical cash. Cash = small casual payments in offline world. Bitcoin = small casual payments in online world. (btw, the original Bitoin paper says this pretty explicitly). I don't keep my savings in (physical) cash. I keep some spending money there. Similarly you will have your internet spending money. You'll converts to and from USD occasionally but not on every transaction. Maybe some people will store value in Bitcoin but they will be the exceptions.
But ultimately smarter people than me will figure out the right model. That's the beauty of software platforms.
Chris - this argument seems compelling, at least on the surface. It brought up two questions in my mind:
1) You say "You'll converts to and from USD occasionally but not on every transaction" . Sure you wouldn't need to exchange on every transaction, but when you do the conversion, the 1% applies to $ amount not the number of transactions. So if I convert $200 into BTC, I pay the 1% (+ exchange spread) on $200. It doesn't really matter if I do this over 1 transaction or many small ones. Am I missing something here? Are BTC transactions really cheaper?
2) Whats the actual advantage for the average consumer to pay with BTC? Do you see merchants offering discounts if you pay them with BTC? If not, whats the mechanism that compels me, the average consumer, to pay with BTC over say Visa?
I'm not aware of any exchange charging 1% for a one-way exchange. That would be very high. Most tend to be around 0.5-0.6%, with some as low as 0.2% Actually, many of the Chinese exchanges are currently 0% to trade, though they charge to bring money in or out of their systems.
It's also worth noting that many of the exchanges have fees that get lower if you trade larger amounts in a given time frame. If you're a high volume trader, the difference can be significant.
Coinbase is probably the most popular US exchange (no source on this, sorry... I just use them) and they charge $0.15+1%.
I think I have read that if you are a merchant and establish a merchant account that you can get the first 1 Million Dollars (USD) free of fees. I am not sure what bar you must pass to earn merchant status, but I do have a link[1] to back this up. Presumably it's not more complicated than "accept payments for services" -- you could probably fudge it if you were simply in the business of cashing out bitcoins up to $1M. I haven't looked into it further because I'm not a merchant and I have been more interested in buying than selling at Coinbase.
Are the Chinese exchanges still bringing money in and out? I thought I read this was forbidden, and that was the reason for the great dump of $1000USD prices a few weeks back.
The Chinese exchanges still have money coming in and out through a variety of methods. The primary method is internal bank transfer from your account to their account, using one of the state banks. It's not clear if this is a permanent solution, but it's how things work as of now.
The main thing that happened a few weeks ago was that 3rd party processors were forbidden from dealing with bitcoin. The transfers from banks to exchanges were handled by 3rd party processors, so for a few days there was no way to get money into the exchanges.
Ah. So this is something like US DHS coming to raid the accounts of Mt.Gox affiliate Mutum Sigillum at Dwolla.
The Chinese exchanges are then adopting the practice of Coinbase, the situation sounds much the same (Coinbase initiates ACH transactions with your bank and makes you wait the 5 days until it clears to actually receive and withdraw your Bitcoins.) Mt.Gox works the same way now, except last I heard their Japanese bank was limiting them to some absurdly low number of ACH transactions to USA, like on the order of a maximum of 10 per week. Coinbase, being a US company with their choice of banks, obviously does not have this restriction.
Chris, are you looking into non-currency uses for BTC, a la Albert Wenger [0]? My own feeling is that the protocol (secure ledger) is more generally valuable and can likely be put to work in a lot of uses. Is that your feeling as well or are you primarily excited in its use as cash?
Definitely interested in lots of other uses for the ledger. If you or someone you know is working on something, we (a16z) would love to talk. I'm hoping next year we'll see a lot more startups building on top of the Bitcoin protocol.
Hey Chris, I was trying to reach you to talk about Bitrated. Drop me an email (in my profile) if you're interested to chat about it and see if we can do something together.
Thanks for the response. I hope so too! I work in climate policy so unlikely to come from me, but will keep the thought in mind if my hacker friends start getting on it.
I don't keep my savings in cash, but I can withdraw as much cash as I could reasonably want at zero cost from my bank. How can I do this (i.e., USD->spending money conversion for free) with Bitcoin?
Also, are you making an assumption that the volatility of Bitcoin<->USD will go away at some point in the future? If that happens, keeping Bitcoin around instead of USD will become reasonable.
> But ultimately smarter people than me will figure out the right model. That's the beauty of software platforms.
Sounds like wishy-washy thinking which I hear a lot of from bitcoin advocates.
I've been working on a Bitcoin card over the past twelve months so I have had a lot of time to think about the benefits and drawbacks of using Bitcoins for everyday transactions and I completely agree with you, no compelling advantage.
Besides the obvious problem of the volatile exchange rate there is just no trust in any of the Bitcoin institutions, if I can't trust anyone else to manage my Bitcoins I need to do it myself. I can do that, but it takes time and effort to maintain secure systems. The real kicker is if something goes wrong, its my problem. If someone hacks my netbanking details the bank will cover my losses.
So what does Bitcoin offer? it opens up transactions that would have otherwise been too risky. Irreversible electronic transactions are Bitcoins niche. However that fact makes it very difficult to acquire Bitcoins with reversible payment methods. This slows down the process of entering and exiting the Bitcoin market leaving you vulnerable to the volatile exchange rate.
I really want Bitcoin to succeed but at this stage there is no way I would use Bitcoin for a transaction unless it was the only option.
If someone hacks your netbanking details and sends the money before you realize it the bank most certainly not cover your losses. Debit card fraud transactions have a very short window to report. It's a good thing that you have a 4 digit pin because 4 digits is secure
Bitcoin allows a merchant to recognizing a transaction without considering fraud/KYC. I've sold items on a forum with an escrow moderator and paid 0% in fees. You just cant do that with paypal.
The debit card is definitely the weak link, I should get into a habit of minimising its balance. The internet banking is a lot better, they do guarantee it and have two factor authentication.
Good to hear you using Bitcoins for something other than dark markets, we should try to brainstorm other niches where Bitcoin has an edge. I think taxi drivers might warm to it, they definitely hate credit cards.
Conversely it's illegal to take money which wasn't intended to be sent to you.
Let's say you accidentally type in the wrong BSB (which my father actually did once) and it happens to line up with an account number in that bank (fortunately for him it did not). Even if you send say, $150,000 to that person....it's not legal for that person to accept it. Nor spend it.
See, while they could claim to have spent a portion of it unknowingly the courts would probably view that as fair, they couldn't go "hey I'm rich!" and buy a house that they would be allowed to keep.
I mean, you might not get all the 150k back in the end, but they would definitely not be keeping any of it. And through this process, you'd generally find your bank would be fairly enthusiastic about getting that money back, since as long as it's not on their ledgers they can't lend against it.
Also, go to your bank and try to withdraw "as much cash as you reasonably want." At some point they will probably charge you a "Cash Withdrawal Fee," or some such.
I'm interested in Bitcoin because of its stated goal to disrupt the banking system. Banks suck.
Maybe this is an issue for you
Are you a US citizen, or a resident of one of the Five Eyes countries? If so, it's an issue for you whether you like it or not. You commit crimes all the time without knowing it, just like the rest of us do. Your government wouldn't have it any other way.
The reason why you carry cash is because you sometimes find yourself in situations where a credit card won't work - tipping the valet, vending machines, car washes, etc.
In what cases will bitcoin be better for small transactions online than a credit card? I'm at a loss for examples.
Micropayments is one obvious example. Credit card fees make micropayments very difficult. I'm sure there are workarounds, but that's only one possible use-case for Bitcoin. There are more that have yet to be invented.
I think the original Bitcoin paper said it well: "small casual payments."
To pay online right now, you have to decide:
1) do I trust this vendor
2) do I want to fill out this form with all my info
Generally this (plus transaction fees) only make sense for transactions above $10.
The vendor responds by trying to build a relationship with you- by building brand trust and by pushing you toward an ongoing relationship (recurring payments, creating an account etc). This is why "cards on file" is considered a major business asset online.
As a result, any online service that doesn't make the cut is forced to resort to an advertising based business model.
> I think the original Bitcoin paper said it well: "small casual payments."
You can see this with the tipping culture on Reddit. It's helped Dogecoin really take off, because it's pretty trivial to send a small, casual payment to someone.
Really small transactions (eg the reddit bitcoin tipbot, small website donations, payment for content) for one. iTunes tries it aggregate transactions to lower credit card fees, with bitcoin, you wouldn't need to do that.
I like this analogy Chris. We're already seeing an uptick in interest by developers around the platform: http://blog.bitcoinpulse.com/bitcoin-big-hit-with-developers.... The most likely immediate use of your "Internet Spending Money" would be online services including apps, games, online advertising, storage, hosting and more.
I also think this issue is going to become more urgent as native mobile apps that do have a "global" (OS-wide) payment system become more dominant. Open web needs something analogous to compete.
The analogy doesn't work perfectly because there is usually no cost to withdrawing and depositing cash from an ATM. And when there is a fee, it tends to be fixed as opposed to percentage-based. These may very well be solveable problems, but there's definitely a bit of work to do to make bitcoins function like pocket cash.
bitcoin can be an implementation detail of credit cards, totally hidden from the user. In the medium term, banks can probably figure out how to work this to their advantage, for example by reducing cc fraud.
Huge issue with that model, while cash has a fixed value against a fiat currency that is known to be stable, bitcoins have a fixed value against a commodity that is known for being unstable.
Bitcoin being deflationary, storing value in it is very good idea, apart being a bit risky. I also do not see why it should be limited to small payments, bitcoin is full currency not a toy.
Bitcoin being deflationary, the value will never settle. No government wants deflationary money, and you don't either because no one who doesn't have it has any reason to accept permanent servitude from a deflationary currency.
Or as I like to put it: why do you think you should get wealthy for doing literally nothing? Not investing, not loading, not accepting any risk, not working?
computer power is deflationary, tablet i bought for 200 euros 2 years ago, oday i can buy same specs for 59 euros... still noone waits and holds till stuff get cheaper, same with bitcoin it will only help environment for massive stockpiling of goods will be bad.
You are not getting wealthy for nothing, you get wealthy for restraining your consumption, which is major problem of todays world, trust me im homeless(for proof can check me on youtube channel AngriestCat) and amounts of good food i find in supermarket trash is ridiculous.
Point is wealth in a deflationary currency is increasing, because of worth of things, without things currency is just useless numbers. If all items on world stayed the same, the value of currency would stay same too.
My point with computers was that hording currency will not affect the markets, same as computer market is not crashing because everyone is waiting for better computer for same price next year! Essential expences must be done and environment factor comes in and is important, because inflation currency lose value all time so big merchant is less afraid to just stock himself with huge amounts of items, even they get outdated he still will make profit selling them cheaper, compared to if he had just stored value in cash and lost that value to inflation.
"Computing power" is not a currency - you can't store value in it, it's transient and consumed as soon as it's produced.
The time-computing-cost output of a given computer decreases with each new model released. Each new model of CPU does more calculations using less power, or does more calculations over a previously unobtainable timespan.
Your computer, sitting in front of you, does the same, but the amount you spent on it, it now does less.
Computers are massively inflationary - it's why people only buy them when they absolutely need them. It's why you have 1, not 20 as an investment. It's why the second hand market for PCs is terrible - because they're worth far less each month after you buy them then they are new from a manufacturer who is constantly producing more.
And of course more importantly to all of this: computers have value! They do things! They produce value for people by owning them. "Money" does not. Just having it does absolutely nothing!
Ofcourse it does! Having it means USING IT, are you saying that we should stop use money? Even i totaly agree on stoping using it, my homeless tribe thing - http://postandrate.com/homeless-tribe-drastic-improvement-of... , but ofcourse that is huge step forward and not very realistic yet... basicaly if you horde bitcoins you are using them! and unless you horde 100% of all bitcoins you are just a simple user!!! and i again say that value of it being deflationary and not NEUTRAL like supposedly perfect money should be is thath it discourages mindless consumption and as you yourself say encourages buying when you absolutely need stuff.
I don't think you understand what "investment" does in the economy.
If a currency is deflationary, there's no point to investment - investment is risky, whereas simply holding it gives it more value (this presumes a stable store of value and no alternative currencies).
This tanks economic growth, because beyond a certain quantity of wealth your savings appreciate in value faster then you need to spend them to stay alive. Whereas below a certain value of wealth, no matter how hard you work or how much you save, you will never reach that point - because you have to reduce your savings to buy the necessities of life.
Of course, its not a stable situation because the economy that goes into a deflationary spiral soon collapses, the rich get murdered, and everyone moves back into a currency which supports a proper debt-system and doesn't doom people to servitude for an actual idle rich.
Inflation is how rich write off huge debts they have, because same 1000$ debt after 10 years is a lot less value.
Even it is true inflation pumps nonstop growth of economy - it is not practicaly possible to depend on nonstop growth or die. Hence all the crisis and ridiculousness in current economies.
There is no difference if rich people are idle because they have stocks or because they have currency. That is what richness is about - the lack of need.
Ofcourse bitcoin or other similar currency wont solve all the problems, but it is a better version of currency than the curent one for sure!
That's true in the long run, when its value has settled to something far less volatile than it is currently. Today, storing value in it is investing/speculating/gambling.
Yes, our investment was very publicly disclosed on my blog, Coinbase's blog, and multiple news sites. Also, I was posting positive things on my blog about Bitcoin long before I (or a16z) had a financial interest.
I am interested in Bitcoin as a new payment system / economic protocol for the Internet. I don't think people should buy Bitcoins for speculative purposes. On the other hand I'd love to see more developers build things on top of the Bitcoin protocol. My job is to invest in new technologies and I believe Bitcoin is one of the most interesting new technologies in the past 20 years.
