[davnicwil]

Just to pick up on this one small point: as I understand it, the cashback you get with a credit card is more or less taken straight from the card processing fee charged to the vendor, which of course, raises prices overall and is therefore not really cashback at all. Without the fee, you would likely have just paid a lower price in the first place.

The only party benefitting from the cashback scheme is, of course, the middleman. By offering it, they give you an incentive to use the card more, which in turn gives the vendors more incentive to accept it. More card use equates directly to more money for them.

One of the hugely compelling benefits of cryptocurrencies is they entirely eliminate the necessity for such middlemen taking a cut and driving up costs for the parties actually partaking in the transaction.

[simias]

That's the definition of insurance. The problem with bitcoin, if you think that's a problem, is that there's no obvious way to implement this scheme. You'd have to insure your coins to a third party but then you'd probably have to give them some control over your wallet so that you can't just "steal" your own coins and make a claim.

But clearly people want this type of guarantee so I think the cryptopunk dream of having every human being owning a bitcoin wallet aligns poorly with what real world human beings want.

Everytime I read about long term adoption of cryptocurrency by the masses I always end up asking myself the same question: "Why would a random person for whom money is not a political statement care about any of that? What's the added value?" As far as I'm concerned I still haven't found a satisfactory answer to this question.

[kcanini]

I can think of at least two real-world uses where cryptocurrency is a better choice than fiat: (1) sending money overseas with very low transaction fee, and (2) transacting on the black market.

[root_axis]

> sending money overseas with very low transaction fee

Except that fluctuations in the conversion rate make this very touchy, especially if you're talking about a significant sum of money. Also, sending crypto anywhere outside of a handful of developed nations is fraught with difficulty because recipients need to be able to convert bitcoin into spendable money which often involves risky in-person meetups and gigantic markups on the conversion rate.

[vinceguidry]

These are market problems that are especially suited for developing nations to be able to solve themselves. I am forever impressed by the ability of local populations to work out collective solutions to scaling and trust problems.

Also, having options is better than not having them. Sure, there's the international wire system, but it wouldn't hurt to give it some competition.

[root_axis]

I'm not saying cryptocurrencies shouldn't exist, only that they are not at this time a serious or practical alternative except for very unique scenarios that are generally outside the scope of the average citizen, especially in the developing world. In the developing world, very often, even access to computers, electricity, and internet are serious obstacles, not to mention a gap in technical literacy compared to the developed world.

[wmf]

Didn't developing nations already solve this with hawala?

[reinhardt1053]

>difficulty because recipients need to be able to convert ? bitcoin into spendable money which often involves risky in-person meetups and gigantic markups on the conversion rate.

One day there will be no need to convert to fiat.

[root_axis]

Unlikely, but even if true, it still needs to be converted today and into the foreseeable future.

[ricardonunez]

About number (1). TransferWise is affordable and it doesn't have the currency exchange scam.

[thephyber]

> That's the definition of insurance.

The GP was talking about the marketing (cash back / rebates, discount rates, travel insurance) aspects of credit cards. These aren't insurance in any meaningful way. They are marketing expenditures designed to persuade credit card end-users to stay with a credit card brand. It's not unlike the Apple / Google / Amazon walled gardens for their {devices, paid apps, paid downloads, DRMed content}.

It's not "insurance". Banks and credit cards are regulated by government, so their offerings must meet the standards of the regulations. If cryptocurrencies become widely used for purchases, they, too, will likely become subject to tighter regulation. Additionally, contracts with other parties (cryptocurrency exchangers, retailers, etc) will need to ensure a certain amount of "insurance" of some sort in order to gain wider market acceptance.

The reason you don't get "cash back" from cryptocurrency (or cash) transactions is because there is no (hidden from the end user) 2.5%+ (sometimes 4%+) transaction fee paid by the merchant. That means the merchant passes on that cost onto the end user in the form of higher prices. Their merchant contracts with the credit card systems restrict how they can message this to the end user, so it's an opaque cost. When the Bitcoin protocol change dust settles, Bitcoin transactions will again be far lower than comparable credit card transaction fees.

The only reasonable aspect of credit card purchases that could be considered some form of "insurance" are the protections granted by state governments in the form of consumer protections for retailer purchases (in the form of returns, warranties, etc). Presumably these exist in the same form whether you purchase via cash, plastic, or cryptocurrency. The trick is that these protections are limited if you purchase anything outside of your state (like international transactions).

[simias]

Does it matter as far as bitcoin's adoption is concerned though? I don't know if it works differently in other countries but at least in Europe you pay the same price whether you pay cash or use a debit/credit card, even though the shops probably prefer cash because they don't have to pay any fees on it.

Do you think thinks will be different for bitcoins? Because if I end up having to pay the same price in BTC as I would with cash or Visa and on top of that I have to pay the bitcoin fee then as a consumer I'm not exactly better off.

>if cryptocurrencies become widely used for purchases, they, too, will likely become subject to tighter regulation.

I thought the whole point was to make a currency that could not be regulated by governments? If my coins are stolen what can the government do? It's as difficult to track as cash (if not more difficult) and it's completely immaterial like a credit card number. It's the perfect tool for thieves, as this ICO hack demonstrates. If the thieves are a bit patient and take the time to split and move their money around to hide their tracks they might never be found.

[jtmarmon]

>As far as I'm concerned I still haven't found a satisfactory answer to this question.

Me too. What's better: people are now trying to take advantage of this uselessness beyond money using ETH. every idea for an etherium-based app I've come across seems better served by a real institutional intermediary.

[seanalltogether]

> One of the hugely compelling benefits of cryptocurrencies is they entirely eliminate the necessity for such middlemen taking a cut and driving up costs for the parties actually partaking in the transaction.

Don't all bitcoin transactions require a transaction fee in order to get processed these days?

[vertex-four]

One of the big things in the next couple of years is the development of Lightning Network, which requires the upcoming SegWit patches.

The basic protocol allows you to move bitcoins between two entities without putting every single transaction on the chain - only 2 blockchain transactions are needed for unlimited Lightning Network transactions.

Then, on top of this, there's a framework for moving money through the network - I send money to someone I have a Lightning Network payment channel with, they send it to someone they have a channel with, etc, until it gets to you. The great thing about this is that I can prove everyone isn't cheating, and if they are, I can immediately reverse my transaction - I haven't lost any money.

So the result of this is the creation of a network of payment channels which have very very low costs to process payments, aren't embedded in an industry that's difficult to get into (you or I could process payments just by joining the network), and have no ability to try and take a larger cut under the guise of a "points" or "cashback" system as you can easily switch to a different channel which takes a smaller cut.

[basch]

is that the exact opposite of a ledger of every transaction? off ledger transactions? it seems like its giving up some of the idealistic poetic beauty, even if it is practical.

[vertex-four]

The ledger of every transaction has only ever been a means to an end, that end being a cryptocurrency... and it's still necessary in Lightning Network as a way to resolve fraud and as a monetary backing, it's just not used in every single transaction.

In practice, a ledger of every transaction that is copied to the hard drives of a sufficient amount of bitcoin users is a terrible idea. It doesn't scale, at all. We need better solutions. Lightning Network is one that's potentially viable in the short term - and we're seeing more people play with radically different cryptocurrency designs (e.g. Iota) in the long term.

[davnicwil]

Yes. There is no such thing as a free transaction, because payment methods and networks take work to administrate. I mean, take cash. It's expensive to make, to process, to transport, to safely store. These costs are, obviously, passed on to the users of cash in the aggregate.

Cryptocurrency transaction fees are just very direct, but it's the same deal. The difference is that clearly inefficient transaction costs, like centralised middlemen with limited competition skimming a cut from all transactions, can be eliminated. Remember that bitcoin transaction fees are a completely open market.

[horsawlarway]

But the price you pay for removing those middle men is forcing the network to perform a truly astounding amount of computational work to verify the same transactions.

There's an efficiency trade-off here, and I think for at least many of the older crypto currencies, the amount of work to process transactions is literally unsustainable without some additional tech or service layer.

Which often leads us right back to clearly inefficient transaction costs.

[resf]

Centralized payment networks will always be cheaper to administer than blockchains.

The only reason that Visa and Mastercard have such high fees is because it's a duopoly.

[vkou]

The only other reason they have such high fees is because those fees pay for dealing with fraud.

Bitcoin makes the user deal with fraud, with predictable results.

[QML]

Harder to get access to a centralized payment network though, right?

[lucaspiller]

I paid ~$0.60 to transfer ~$900 of Bitcoin the other day. For that amount it's not too bad, but you'd pay basically the same if you are paying for a $3 coffee.

The transaction fee is based on the byte size of the transaction, not the monetary amount, so in it's current form it doesn't make sense to use Bitcoin for low-value transactions.

[Marazan]

I paid £0 to transfer £10000 the other day. I had to split it into two transfers of £5000 but otherwise it was free to transfer between two completely separate financial institutions.

[Marazan]

Oooh, I forgot to mention the transfer time was approximately 3 seconds.

[protomyth]

Here in the US, we might get a visit from the IRS and our account frozen. https://www.forbes.com/sites/robertwood/2017/04/05/91-of-irs...

[mahyarm]

Now do that to a bank account in Canada and to exchange GBP to CAD.

[Marazan]

Hmm let's see, bank of Scotland to Royal Bank of Canada would be about 30 Canadian dollars of transfer fees.

[vertex-four]

On the other hand, they fund that ability off significant fees whenever you buy something with a debit/credit card. You rarely see those fees, but the shop does, meaning the shop has to increase prices of everything by a couple of percent to cover it - and usually don't provide a discount when you're paying by cash.

[drewmol]

I don't have the time for sources at the moment, but I'm pretty sure there are regulations to make it illegal to offer cash discounts in most states, as it helps both credit card processors and tax collection enforcement, it was very easy to lobby for

Edit: I'm wrong, it's complicated.

[resf]

At least in the UK, merchants pay very low fees to process debit card payments, to the extent that some merchants (e.g. budget airlines) do not accept or charge a penalty for using credit cards.

[vertex-four]

Merchants pay up to 1.75% (Square) to process in-person payments. Whether this cost is embedded into the prices of what you buy or whether it's made clear to you is irrelevant to that point - that you're paying this. And even when credit cards are more expensive to process - do you ever get a discount for using a debit card at the supermarket? Cash?

[QML]

How long did the transfer take? I have Bank of America, and a transfer to another. And would take 3 business days.

[sqeaky]

> fee is based on the byte size of the transaction

Aren'y all bitcoin transaction really close to the same size? The amount being transferred doesn't change the size an integer contain 1 and another container 1,000,000,000 take the same amount of space (32 or 64 bits) because the spec says so.

I thought transaction fees encouraged miners to include your block in a transaction.

[annabellish]

Yes, but also no. The trick here is that if you're paying for your £1,000,000 space rocket by transfering the bitcoins from one address, it's a small transaction.

If you're paying for your £3 coffee by transfering small amounts from many addresses, it's a big transaction.

Address fragmentation happens when your coins are distributed across many addresses, and can be caused by things like spending coins, because all transactions actually spend everything at an address and just route the "change" elsewhere. Buy two cups of coffee too close to each other and your next transaction is going to cost twice as much in fees, whoops!

[simias]

The size of the transactions is mostly a factor of how many addresses are included. So moving 1BTC split across hundreds of addresses ("dust" in the jargon) is a lot more expensive than moving 1000BTC from a single address for instance.

Unfortunately it's generally advised to use a new receiving address for every bitcoin transaction to make it harder to trace how much money you have and how you earn and spend it (most wallet craft a new address for every receive transaction) so it's very common to end up with your assets split up across dozens or even hundred of addresses.

[vel0city]

The size of the transaction can vary a lot, depending on how the source of the BTC is structured.

Imagine two wallets each with a total of 1 BTC. One wallet just received a single transaction with 1 BTC and the other is funded with 10 transactions of 0.1 BTC. The wallet with 1 BTC as an input only needs that single proof to send the whole BTC, while the wallet with 10 0.1 BTC inputs needs to submit all of those proofs to transfer the 1 BTC, effectively 10x the data.

[droidist2]

I think you're both saying the same thing

[bsurmanski]

But do they eliminate the middleman? At least for Bitcoin, it takes an hour for any confidence that a transaction is truly valid. I'm not going to wait around for an hour just to grab my morning coffee.

So obviously there's going to need to be a credit backed middle man to guarantee your transaction so the seller doesn't get screwed by a double spend.

Eth is slightly better, but it still takes something on the order of 10m to confirm a transaction, and it doesn't look like it can get anywhere near the speed needed for a coffee purchase.

[thinkmassive]

Many altcoins attempt to solve the confirmation time problem. Litecoin is an early fork of Bitcoin that reduces the target block time to 2.5 minutes (probably still too slow for your coffee purchase). One that I see as having a lot of promise for retail purchasing is Dash[1]. They claim 1-second confirmations with InstantSend. I'm intrigued by the masternode network because it seems like the best compromise I've seen for gaining fast confirmations while maintaining most of the distributed and decentralized aspects of a good cryptocurrency.

Bitcoin is the largest and most prevalent, so it has become the currency most often used to exchange to fiat. Usually the transaction fees are still mostly negligible because these are larger transactions than the faster altcoins when they're used to make purchases.

[1] https://www.dash.org/

[rtpg]

Though I feel like a lot of BTCers are not interested in this, payment networks based on top of BTC would be very interesting.

Essentially no barrier to entry, and some federation could happen.

Of course, what you end up doing is creating banks, but hey they're not regulated by the government if you are behind 5 proxies? "Hobbyist bankers" might be fun.

The ultimate frustration of bitcoin is that it can occupy the entire range of decentralization, but the community compares everything to the logical limits of "the Federal Reserve will defeat math and generate BTC" and "I don't even have to trust my own computer to do this transaction!".

[xur17]

Eth confirmation is on the order of seconds: https://etherscan.io/chart/blocktime

[saurik]

That is the time to see it is in one block, not the time to feel truly confident in the payment.

[xur17]

But if you're buying a coffee, I think it's safe to only wait for 1 or 2 confirmations.

[maxerickson]

If you are buying coffee who cares about confirmations at all? Once the product is in your hand you are done.

It's the seller that would care about confirmations in that case. Hopefully they do something hilarious like have a bitcoin corral for people to wait in while their payments clear.

[xur17]

My point is that such a limited amount of money is at stake that confirmations really aren't all that important in this example. I think most places would just accept the risk. Heck, they could have the POS alert the owners if anything fishy happens between payment time, and when you actually receive your drink if they are really concerned.

I really don't think this is as big of a problem as you are making it out to be.

[krallja]

People still wait for coffee? I order from the app; it's paid for and ready for me when I walk in the door. With a 3 minute confirmation time, this flow still works. If it doesn't confirm, then they corral me, I guess.

[gst]

> One of the hugely compelling benefits of cryptocurrencies is they entirely eliminate the necessity for such middlemen taking a cut and driving up costs for the parties actually partaking in the transaction.

Without more efficient means of off-chain transactions (such as payment channels) the cost of on-chain cryptocurrency transactions is typically much more expensive than credit card transactions (except for very large amounts, as credit card transactions charge a percentage, and cryptocurrency transactions have a fee not related to the amount transacted).

For some of the cryptocurrencies those fees are currently somewhat hidden, as you don't directly pay them as transaction fees, but as miners get a block reward that contributes to inflation. If you include the miner revenue a Bitcoin transactions currently costs about $20 in average: https://blockchain.info/charts/cost-per-transaction

[vim_wannabe]

A bitcoin transaction costs me 2$.

A credit card transaction costs me 2$ (which is used to provide me great service, including insurance against unauthorized use): Somehow this is a bad thing?

[cyphar]

I don't believe that's accurate, cash-banks are inter-bank processes, and I know several vendors who do actually see a reduction in their bank account when a cash-back occurs.

Yes, if the recieving bank won't honour a cash-back then it will come out of card processing fees, but that's more like insurance than anything else. I wouldn't say that insurance is without worth.

Also, BitCoin has transaction fees. Except rather than being used for insurance, they provide a (very poor) profit motive for miners to continue keeping the network hashing rate high. The reason it's clearly a poor profit motive is that the popular markets around BitCoin are secondary markets (selling graphics cards rather than doing the mining yourself).

[dv_dt]

Are you talking about a charge back? Vs a cash back credit card program that gives the credit card holder some cash on purchases periodically?

[cyphar]

Oh, yeah I was thinking about charge backs. Total brain-fart. ;)

[dragonwriter]

> One of the hugely compelling benefits of cryptocurrencies is they entirely eliminate the necessity for such middlemen taking a cut and driving up costs for the parties actually partaking in the transaction.

Which is why so many of the business “accepting” cryptocurrency do so only through a middleman who converts it immediately back to national currency for the business, charging a fee for the service.

[jdmichal]

Cash has transaction costs too. You have to store the cash in a local safe. You have to pay for counting and accounting of the cash. You have to pay for safe transport of cash from onsite to offsite. You have to pay for trust, because disappeared cash is generally unrecoverable.

As long as there is no difference between the cash price and card price, it's rational for a customer to use a card with rewards. And I have never seen anything outside of gas with differential pricing. And you know what? I just avoid those gas stations as much as possible, because I can pay a similar price at another station and get my cash back.

[root_axis]

As someone who ran a gas station convenience store for six years, I can tell you that this is not a universal truth. We did require a minimum purchase amount to accept cards, but we most certainly did not raise our prices in response to credit card fees.

[endless1234]

So there's a party that takes n% of a big percentage of your purchases, yet that doesn't affect the prices? How?

[root_axis]

The majority of purchases inside the store were cash because we required a $5 dollar minimum purchase for accepting cards. Most card purchases were used for gas which was already a loss leader most months out of the year, so it made more sense to keep posted prices competitive with stations in the area in order to bring people into the store rather than charge a few more cents in order to offset the cost of cards.

[criddell]

I thought minimum purchase requirements were against the terms of service for most credit cards. I've bought plenty of < $1 items with my credit card. I try to use it for everything to "earn" the rewards.

[fma]

Yes they are against TOS. Usually only mom and pop shops have a policy. No one enforces it, though. The reason is there's usually a base charge..like $.30 + a percentage fee like 3%.

So if you buy a $1 soda, that mom and pop store just lost 30% of their revenue, plus 3%, and maybe sold that soda at a lost to you.

For places like McDonalds, they negotiate much better credit card processing fees and I don't care - plus they make a lot of money anyways.

[root_axis]

Maybe it was a violation of the TOS and the owner was not aware (or he was and didn't care), but this policy never caused us any trouble during my time running the store, although its entirely possible that we were just lucky enough to fly under the radar.

[dboreham]

I seem to remember such TOS being ruled illegal many years ago.

[criddell]

I went to look at Visa rules and I think you are right. Here's one relevant paragraph:

> 5.4.2.3

> Minimum Transaction Amount – US Region and US Territories

> In the US Region or a US Territory, a Merchant must not establish a minimum Transaction amount as a condition for honoring a Visa Card, except for a Transaction conducted with a Visa credit Card issued in the US Region or a US Territory. The minimum Transaction amount must not be greater than USD 10 and must not be discriminatory between Issuers or between Visa and another payment network.

So, in the US, it doesn't look like there are any rules. Outside of the US, it looks like a minimum is fine as long as it's not more than $10

[gst]

Because handling cash is expensive too, so the transaction cost was probably already priced in.

[LeifCarrotson]

A few points:

1. The only party benefitting from the cashback scheme is, of course, the middleman. While prices will go up in the long term, consumers who use cash-back cards do benefit in the short term over those who don't. If you make a transaction in cash or with a debit card which you could have made with a cash-back card, you are leaving 3% on the table. I am extremely skeptical that an individual boycott will be effective. Maybe take your 3% and pool it to lobby for better banking regulations?

2. they entirely eliminate the necessity for such middlemen taking a cut - AFAIK, all cryptocurrency includes some sort of transaction fee.

[mikeash]

Seems to me that cash back is a way for card companies to compete on transaction costs. Directly adjusting the transaction costs wouldn't do it, because merchants won't pass the difference on to the buyer. By rebating part of the transaction cost to the cardholder, they effectively reduce the transaction cost, without having to get merchants to pass on savings.

The beneficiary of this scheme, as with most schemes to lower prices to undercut the competition, is me.

[xur17]

Having the sender pay the fee seems like an obstacle for consumer adoption. I agree that consumers are never going to use cryptocurrency vs. credit cards to pay if:

1) It costs them money to use 2) No cashback

It would be interesting to test a cryptocurrency where the recipient payed the fee, and could optionally send cashback. I'm not exactly sure how this would work, but the incentive structure would more optimally aligned for everyone involved.

[detaro]

You don't need a new cryptocurrency for that. Just lower your prices for people paying with BTC/ETH/... to adjust. (Doesn't solve the potentially bigger issue of insurance though, but I think that has to involve some third party)

[xur17]

You can definitely do that and the end cost for the consumer would be the same, but it would result in vastly different levels of consumer usage.

edit: On second thought, you are probably right. With the right wallet ui you could just provide a simple discount or cashback that covers the transaction fee + % cashback at the point of purchase that's covered by the recipient via a contract, or via rules that the recipient publishes.

[jonknee]

In this case the middleman actually provides a very valuable service--fraud protection.

[fma]

That is correct. My wife runs a retail service that charges monthly. The percentage the business pays depends on cards. Cards like Amex, and those high end one with good rewards - charge a higher percentage in fees, and Square passes it on.

Right now she will only accept the first month payment by credit card. Cash, check, or ACH for recurring payments. ACH costs $.99. If everyone decides to pay credit card she will raise cost by $5 (almost 3% of the charge).

[unityByFreedom]

> One of the hugely compelling benefits of cryptocurrencies is they entirely eliminate the necessity for such middlemen taking a cut

Only if you don't count the online exchanges as middle men. Right now I still pay 3-5% to convert fiat to digital money, depending on where my fiat comes from.

The theoretical future where nobody needs to convert between digital coin and fiat isn't here yet.

[ghostbrainalpha]

Slight adjustment... there is also a fair bit of wealth transfer between people who use cash, debit cards, or have credit cards but can't pay them off each month.

So its an extra little 3% tax on the poor, or at least the less financially literate.

[MicroBerto]

But at nearly every store, the price has been increased for everyone, even cash customers. So why not get my cash back if that's how it's going to be?