[minimax]

For all the people out there who are thinking about bitcoin as a payment technology: If you assume that customers get paid in dollars and that vendors will have to use dollars to pay their taxes, pay their employees and buy the raw materials for their products (reasonable assumptions, I think), then a payment consists of one conversion from dollars to bitcoins by the purchaser, and one conversion from bitcoins to dollars by the vendor.

Those two transactions will have associated costs. Exchanges take out trading fees and the market makers on the exchanges will want to see some profit as well (you will see this reflected in the bid/ask spread). The total cost for the transaction will be 2x the spread + exchange fees. People keep touting the 2.5% charge for using credit cards, but they don't compare it to a similar value for bitcoin. It clearly is not 0%. Exchange fees alone are can be something like 0.5%. If we double that (two conversions, remember) that's 1% just in exchange fees. Unfortunately, I don't have good numbers for bitcoin / dollar spreads because I don't watch that market very closely.

So we have 2.5% for credit cards and 1% + spread (unknown) for bitcoin. And with credit cards consumers at least get some protection in the case of fraud. Does anyone else have a better model for bitcoin transaction costs?

[cdixon]

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.

[alooPotato]

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?

[waterlesscloud]

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.

[yebyen]

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.

[1]: http://blog.coinbase.com/post/59417545262/your-first-1-000-0...

[waterlesscloud]

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.

[yebyen]

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.

[cdixon]

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

[tvladeck]

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?

[0] http://www.usv.com/posts/bitcoin-as-protocol

[cdixon]

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.

[nadaviv]

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.

[tvladeck]

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.

[possibilistic]

Hey Chris, my friend and I are working on such a thing. Hopefully we'll be able to post a "Show HN" relatively soon.

[wsxcde]

I'm sorry, I don't follow.

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.

[bluedino]

>> 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.

And once you are over a certain amount, the government finds out.

[wsxcde]

Maybe this is an issue for you, but I don't see this as compelling advantage.

[foley]

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.

[quack]

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.

[CamperBob2]

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.

[dragontamer]

http://www.washingtonpost.com/blogs/the-switch/wp/2013/11/23...

BTC is no different. In fact, all transactions are public in BTC due to the nature of the public crypto system.

[porter]

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.

[robinhoode]

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.

[cdixon]

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.

[steveklabnik]

> 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.

[conception]

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.

[rhino369]

But internet transactions for most people are a one way street. You still have to pay the fees to go from USD to bitcoin for all the bitcoin you have.

Also, this exposes you to crazy risk because of price fluctuation. Bitcoin has fluctuated over 3% today, and today is a relatively flat day for it.

[kordless]

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.

[cdixon]

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.

[andrewfong]

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.

[dustingetz]

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.

[Guvante]

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.

[PureApeshit]

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.

[XorNot]

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?

[PureApeshit]

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.

[XorNot]

The computer you bought 2 years ago didn't increase in computing power in that time. A computer from 2 years ago is not worth more today.

But wealth in a deflationary currency does.

The rest of your argument about curtailing consumption is an irrelevant tangent here.

[PureApeshit]

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.

[bmm6o]

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.

[johmas]

We began accepting bitcoin last month and aren't converting all of our bitcoin to dollars. We have several employees who accept their pay in bitcoin.

Taking things a bit further, we are optimistic about bitcoin as a payment form with our suppliers as the volatility stabilises. As an example, one of our suppliers is Belgium based and we'd be able to save on the currency exchange with those payments. We've discussed it and they didn't turn their nose up to the idea.

[minimax]

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

[nazgulnarsil]

The employer as paternal unit paradigm needs to die. If the employee wants to take a risk they are an adult and should judge the merits of the scheme for themselves.

[johmas]

That's a good question. We don't exactly view it as an ethical issue. Anyone on the team can opt-in to whatever percentage of their compensation they'd like to be paid in bitcoin. Currently no one is taking 100%.

We do educate how the currency functions and the risks there may be.

[saalweachter]

Do you let them specify any of their contracts in Bitcoin? Eg, a salary of $X + Y Bitcoins?

[meowface]

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

[ssmoot]

What is VISA? It's a group of Processors right?

So VISA can be thought of as a Protocol. Wether I'm a VISA Debit or Credit user doesn't really matter. I give money to my Bank, the Processor is going to (indirectly) get USD for my transactions. Then they're going to take a cut and give the money to a Merchant Bank, who in turn credits the Merchant.

So what if there was a "BTCP" Card that ran on the Bitcoin protocol? I see something I want priced in USD. I want to give them USD. My bank has issued me a BTCP card. So I ring up the charge. The bank sends the money to the Merchant Bank. Without a Processor. Merchants still carry an escrow with their bank for "chargebacks" and fraud. The two banks can sort out the rest of the details between themselves.

The Exchange price doesn't really matter. The Bank deals in USD. They can just agree to peg their debits/credits against the daily value of BTC. Or a Satoshi. Or whatever. It doesn't really matter since it's not like you're forced to sell your Bitcoin holdings at a particular offer price. You can send it to whomever you want for whatever you want.

So even if Bitcoin doesn't find success in replacing Paypal (and I think there's a good chance it will), the truly disruptive idea is that it's a simple standard that could replace Processors. (Though wow, that would be the fight of the century and I'm not sure I'd bet on the scrappy little guy there.)

[analog31]

In my view, if anybody could upset the monopoly of Visa and MasterCard by creating a new payment system with lower fees, they could do so today using dollars.

Bitcoin isn't the missing piece of this puzzle. In fact I suspect Bitcoin would be an obstacle, due to lack of public confidence.

[codex]

The potential of Bitcoin is that volume can grow to be so high that the spreads are negligible. Meanwhile, bank interchange fees remain stubbornly high.

[hyp0]

Some US dollars were paid to my paypal account; I won't convert them to local currency, but wait til I buy something in USD - and so avoid the exchange costs you mention. Meanwhile, my local currency works fine. Of course, the bigger the ecosystem for bitcoin, the better this works.

Credit cards are an incredible business for VISA etc. I agree with the article that circumventing it in some way, esp for micro-transactions, would be great. They probably should stop gouging, to deflate interest in alternatives.

It's a pity the press for bitcoin all bubble and crime. OTOH it is press, and niche adoption works.

[jv22222]

I think the larger point is if there is enough commercial acceptance of bitcoin then there's no need for a conversion, we just use bitcoin.

[Spooky23]

Good point.

I'm seeing a lot of parallels between dotcom era payment systems like PayPal and even Flooz. Paypal's original concept was paying friends for things like splitting lunch.

The hook that's different here is that once you deposit legal tender and covert to bitcoin, you're basically trading something that is commodity-like. Basically, it's no different than bartering shares of gold.

My question is, when the regulatory system catches up, is bitcoin better than a commodity?

[Sambdala]

...currently.

I don't think most people are interested in Bitcoin primarily because of the utility it currently provides and the infrastructure that has so far been built.

[BlackDeath3]

And that's unfortunate. It's interesting and somewhat satisfying to see the get-rich-quick people kind of people try to get into Bitcoin, and instead get burned.

There is merit to the system, but a lot of people just don't care.

[Sambdala]

I'm not entirely sure what point you're making?

[BlackDeath3]

You seemed to be implying that most peoples' interest in BTC is related more to its inflating exchange than anything else. I was remarking that I like to see willful ignorance, people who care not about actually understanding BTC, be punished for it.

At any rate, there need not be any point to what I'm saying. Sometimes, a comment is just a comment.

[Sambdala]

Some people are interested in the rising price, some people are interested in the interesting things that can be built with and/or on top of it, and some people are interested in some other aspect of the technology that has sprung up around it.

Before you get too gleeful though, I would wager only a small percentage of people who have ever bought Bitcoins have sustained a loss as of today. Besides, there's nothing wrong with putting money behind a technology and then reaping either a gain or a loss based on how successful it becomes.

My actual point was that you can't look at what the fee structure / usability / etc is today and conclude there's nothing useful there.

This is especially true with the more common argument of, "Sure, I can see why someone would find it mildly useful for use a, b, or c; but I don't think it's useful today for more mainstream purpose x, y, or z, so I think it's worthless." Especially when (so far) the abc list keeps growing and the xyz list keeps shrinking. I'm not sure where that trajectory ends, but I personally think there's a lot of interesting problems that will be solved with crypto-currency.

[jusben1369]

I think his point was more "Most people aren't using Bitcoin because it doesn't provide enough value (utility) and there's not a lot of services built around it (yet)" The get rich quick folks you talk about probably do view that as enough utility to overcome the current barriers to use and thus aren't being burned and punished.

[salient]

It seems the more transactions are on exchanges, the lower they make the rate. Some like Bitpay I think offer flat rates per month, too, for businesses (starting at something like $30 a month, no extra commissions).

So while Bitcoin's transaction fees may not be zero, it does seem like it's trending towards zero, much like the price of everything else on the web trends towards zero.