[aboutus]

I derided Bitcoin and cryptocurrencies in general until I seriously looked into it, and then I could hardly sleep for days because of the huge implications of it.

Bitcoin allows people who are unbanked, especially in developing countries, to hold and transmit money across the world at practically zero cost. Since bitcoin is decentralized, there are no middlemen like banks to take a cut or freeze your account.

Besides, there are a lot more crimes being perpetrated with fiat and credit cards by financial institutions and governments. And with new allegations that it was the US Feds that stole the money from Mt. GOX users (and not Mark Karpeles), I wonder if there isn't a nasty propaganda campaign against bitcoin going on.

This article is close to clueless. But then, for a time so was I.

[tptacek]

The article we're discussing might be wrong, but it's fairly level-headed.

Responses like this, with breathless invocations of the world-changing implications of Bitcoin and heroes-and-villains narratives about governments and banks, sap credibility from Bitcoin.

They suggest that very simple arguments with Bitcoin critics can't be addressed without stipulating that Bitcoin is going to rewrite all of commerce and perhaps even all of regulation. Virtually nobody in the real world is willing to stipulate that.

If Bitcoin is going to work out in the long run, it will need arguments that work even if the IRS retains its ability to enforce tax laws and the DOJ retains its ability to regulate casinos.

[xanderstrike]

1. DOJ/IRS retains its ability to regulate/enforce

2. Decentralized, anonymous cryptocurrency based economy

Pick one.

[tptacek]

Like virtually everyone in the world, I pick #1.

[random28345]

> Like virtually everyone in the world, I pick #1.

Then why Bitcoin? If you add regulation compliance, replace the block reward with higher transaction fees (which is built into the protocol as an inevitable end-goal), and remove (pseudo-)anonymity, what good is it? If you take away the ability to use it for illegal activity, why waste millions of dollars of electricity to sustain it?

[stevenh]

I don't care about the Bitcoin argument either way, but I'm annoyed by how you keep bringing up its use of electricity. There are over 877,500 bank branches in the world, each consuming a nontrivial amount of electricity every day.

[tptacek]

Those bank branches burn electricity to keep lights on so that people can work, and to run computers that keep track of the same information you'd need to track in a hypothetical all-Bitcoin economy. Bitcoin burns electricity to solve a math problem of escalating difficulty and cost whose solution has no intrinsic value.

That's overthinking it, though; really, the dig about electricity simply comes from the fact that Bitcoin is essentially a competition between "miners" burning escalating amounts of cycles.

[tptacek]

I agree. I'm not a Bitcoin believer.

[smokeyj]

If the IRS is going to work out in the long run, it will need arguments that work even if the blockchain retains its ability to maintain a globally distributed ledger.

Are you surprised bitcoin still exists considering the white paper unapologetically spoke heresy against government and bank collusion? That must be frustrating. Seeing the NYSE invest in a bitcoin company must have been a poke in the eye for you!

[mpyne]

Give it 10 years and I guarantee "the white paper" will be treated as reverently as the Qu'ran or the Holy Bible in some circles.

[jbooth]

This kind of comment is probably why Mr. Ptacek chose the word "believer" downthread.

[smokeyj]

Let the record show it's CRYPTOGRAPHY that requires faith, not the enshrined powers of the IRS.

[quinnchr]

Except the unbanked have been transmitting money across the world outside of banks for a few centuries now: http://en.wikipedia.org/wiki/Hawala I'm not so sure Bitcoin is a ground breaking change for the unbanked in developing countries, especially when the hawala market is substantially bigger and already widely used.

[IkmoIkmo]

Except that poor people pay the most money for value transfer even using Hawala, just like paying the most for electricity or water or healthcare. When you can't make large infrastructure investments like most OECD countries can, ordinary utilities become massively expensive. And even clever systems like Hawala command a market price just like any other service. In a world without great alternatives, that price is high.

Read some reports and you'll find the average cost of remittance for poorer countries averages around 10%, an absurd borderline criminal rate.

You'll simultaneously find inflation rates of 10-30% not being uncommon.

The ability then to access international derivative markets, i.e. the option to easily buy and hold dollars using bitcoin providing relief from crazy inflation, and the ability to transfer it to others at the cost of moving 500 bytes of data, is hugely interesting.

Services like Bitpesa (cheaper remittance) or Bitreserve (hold money in different currencies using bitcoin) are the first such steps. In a few years I expect these things to massively undercut remittance costs and provide interesting relief from inflation. Some of the things the early Paypal founders were interested in, including Peter Thiel who spoke on the topic often in the early days.

[quinnchr]

Where are you finding your information for the 10% number? I'd be curious to see. From what I've read formal financial institutions typically charge ~10% which is why poorer people tend to use hawala in the first place.

"El Qorchi et al. (2003) state that the cost of a hawala transaction averages around 2 to 5 percent of the total amount of the funds involved, although Maimbo (2005) report that these fees averaged 1 to 2 percent in Afghanistan. Passas (1999) offers several examples where hawaladars offer free services to their compatriots, in the corridor Australia-Africa."

https://ideas.repec.org/p/una/unccee/wp0812.html

You make an interesting point about bitcoin being a potential hedge against inflation. Given the current volatility I don't see that being much use at the moment, but it certainly has potential if the volatility ever drops to a reasonable level.

[smokeyj]

You describe the Western Union of bitcoin. The game changer will be the Nasdaq of bitcoin. The frictionless issuance of stocks bonds and dividends will change everything. Operating agreements will be codified in software and organizations can operate entirely transparently with a degree of accountability never before seen.

Why would this be cool? Communities can come together and finance join ventures that were previously too small to be viable (incorporating, compliance, lawyers, bribes, etc). Money can now be pooled and organized in a way that mitigates the risk of theft and corruption. While the software isn't ready for this today, I think it's a short matter of time before we get there.

[exelius]

I don't see how Bitcoin enables any of this - you use the term "frictionless" but the truth is BTC is simply low friction. There is already very little friction in the transaction of stocks, bonds and dividends - HFT platforms process trillions of transactions per day with much less friction than BTC (the current iteration of the blockchain will never scale to that volume). Operating agreements are already codified in software in the form of ERP platforms. Organizations will never operate completely transparently because there is a strategic advantage in having asymmetric information.

[CyberDildonics]

Very low friction? Can you buy a stock in the next 10 minutes and get a dividend payout daily? You can't even buy middle man claim to a stock without signing up for an account over multiple days. To fund it? 4 days for checks to clear. To deposit your dividends...

This doesn't even go in to the implications of stocks not being able to be sold in a fractional reserve style, taking out all the middle men etc.

The financial services industry is 8% of the entire GDP of the US. That is close to 8% we could get back since there is very little that can't be hugely automated.

[exelius]

Actually, you already get dividend payments on a continual basis. The future expected dividend payout of a stock is built in to the price of the stock on a continuous basis. Sure, you have to sign up for a brokerage account, but do you think the SEC is really going to let people buy and trade stock anonymously? You're going to have to sign up for some sort of financially verified account even if Bitcoin is powering the transaction system. There will be money laundering laws that will require an institution to verify your identity and credit history (likely by signing your transaction, and by SEC/treasury rules that stock transactions are only legally binding if signed by a licensed identity verification service). The banks and government will never give up the control they have today, and there are ways of introducing such control into a blockchain-style system.

The parts of the financial services industry that can be automated are already automated. Financial services drives the bleeding edge of the technology industry - online banking has been a thing even before the Internet (you used to get a program on floppy from your bank and dial in to their systems through a modem). BTC (or rather, the blockchain) does have the capability to reduce the cost of this automation, but it's already highly automated.

That 8% of GDP in financial services? It's all salesmanship. In order to give someone a loan, you have to be able to sell that loan to an investor. The lower the rate you can convince your investors to take, the more margin you get to keep. Why does Goldman Sachs charge more to issue an IPO than other investment banks? Is it because they're better at filing SEC paperwork? No, it's because they can sell the IPO better by convincing investors of the growth potential of the company (the majority of IPOs are funded through large direct sales to institutional investors). I never said it was fair, but I don't know that you can ever get rid of it entirely either (the US financial services industry also serves most of the rest of the world, which is why it's so much larger than in other countries).

But bottom line, most people are not educated enough in finance to handle this stuff themselves without getting completely ripped off. That fact alone will support a very large, regulated financial services industry. That also precludes the utopian vision of many Bitcoin devotees - unless Grandma Nelly who works as a greeter at Wal-Mart can understand finance, you're always going to have intermediaries. Because those intermediaries aren't to be trusted, they will need to be regulated by the government. It doesn't matter what the transaction system is, people need to be able to trust the economy without knowing a whole lot about how it works.

[smokeyj]

Yes I mean low friction.

I think we're largely talking about different markets, see my comment: https://news.ycombinator.com/item?id=9313044

[exelius]

I just don't think digitized financial services "scale down" to that level, even with BTC. Some transactions just aren't worth enough to bother setting up the safeguards and equity splits (which, again, have to be negotiated and implemented somehow). Someone will feel screwed, and eventually legislation will arise that introduces the friction back into the transaction.

I'm also not convinced that the low-friction transaction model is considered a good thing globally. The US and EU are the exception with respect to having low-friction transactions: in most of the rest of the world, buyers get angry if they can't haggle on price, even over the cheapest items. It's a cultural thing. Compared to the friction of negotiating price, cash or credit cards aren't that bad.

[walterbell]

> Operating agreements will be codified in software and organizations can operate entirely transparently with a degree of accountability never before seen.

Are there any articles or papers which explain why Bitcoin is better than alternative implementations of transparent accounting? E.g. existing access control can be used to make accounts available to any subset (all the way up to public) of interested parties. Techniques are available for append-only data stores. What does Bitcoin uniquely bring to the table?

[smokeyj]

https://github.com/bitcoin/bips/blob/master/bip-0032.mediawi...

I think the main advantage to a blockchain solution is the cryptographic verifiability. Not only is the accounting accurate, but the funds cannot be forged or hidden. Also the rules for managing funds can be programmatically encoded using a series of technologies such as multi-sig keys, pay-to-script-hashes, and HD Keys.

[walterbell]

Thanks for the explanation and wallet pointer.

[smokeyj]

No problem. Here's an open source implementation by bitpay https://copay.io using their open source framework http://bitcore.io

This isn't pie in the sky tech. It's real and accessible from your mobile browser today. Pretty exciting times I think.

[dragonwriter]

Funds can be hidden as soon as they are converted from bitcoin to other goods and services.

[zwtaylor]

I think that you could be right about this particular vision of Bitcoin as a financial platform.

It's my belief that the future of Bitcoin will be analogous to something like Linux; a great deal of financial infrastructure will rely on blockchain technology, but Bitcoin itself will have little visibility or use to the average consumer outside of a small, dedicated circle of enthusiasts.

[CyberDildonics]

If you take into account the fact that Android runs on Linux you could be right.

[random28345]

> The frictionless issuance of stocks bonds and dividends will change everything.

Right now, I can issue all the stock I want for a minimal filing fee. In spite of this, companies regularly pay investment banks billions of dollars to file an IPO. If you think that Bitcoin is somehow going to change that, I have a blockchain to sell you.

[smokeyj]

My comment wasn't about billion dollar IPOs. I'm talking about small communities that would like to purchase something like a solar panel. Maybe they want to sell excess power and return the profits as dividends. My point is, small scale joint ventures require prohibitively expensive overhead (even without the threat of corrupt government officials). Bitcoin stands a real chance at tackling some of those problems.

[dragontamer]

> I'm talking about small communities that would like to purchase something like a solar panel.

How the hell does Bitcoin help any of that?

If you really want to do that, you start an LLC, issue stock to your members (possibly requiring dues or whatever). That will cost you $100 to file for an organization in your state, maybe $50 for the proper LegalZoom papers.

Then you have to actually _run_ said organization. Even paying some dude minimum wage for the effort is going to grossly trump the costs of creating said organizations.

The LLC exists so that when the "company" screws over one of its members and you start getting sued, the "company" can go bankrupt without its members losing everything.

-------------

If you're willing to take on the risk yourself, go all sole proprietorship. Take the responsibility for the solar panel yourself, convince your neighbors to chip in. Doing that is perfectly legal (but stupid).

Because as soon as one of your neighbors / shareholders gets pissed off at you, they can sue you personally.

Companies exist as a protection mechanism. Instead of _you_ getting sued for damages, the company gets sued. You are protected from legal issues.

But none of this has anything to do with Bitcoin. How the heck can Bitcoin make any of this easier? Companies are nothing more than a mechanism to prevent their owners from getting sued by the public at large.

[exelius]

I used to buy into the hype too, but Bitcoin has some serious scalability problems to overcome that will likely end up degrading its cost advantage relative to traditional payment processing. Furthermore, Bitcoin does not implement a number of consumer protections that are legally mandated in most western countries - those protections will need to be implemented by service providers like Coinbase, which will further drive up costs into the range of traditional payment providers.

Bitcoin only allows people who are unbanked to hold and transmit money if they can use it - a point brought up in the article. It's a chicken and egg problem: nobody is going to use Bitcoin until a lot of other people are using it. It's much like a fiat currency in that sense, except there's no central authority pushing it with the authority to mandate its use. It's currently far too volatile, and will remain so as long as speculators are the primary market participants.

Ultimately, there's not going to be a global revolution overthrowing the existing financial system. I expect BTC (or rather, the ideas/technology behind BTC) to be regulated and absorbed by the global financial system because, ironically, its best feature is that it synchronizes a single view of global transaction logs, making it MUCH easier for investigators to trace the flow of money across the globe. If laws are enacted that force payment providers to keep documentation of who owns blockchain addresses and to only transmit funds to verified blockchain addresses (similar to existing money laundering laws), the anonymity goes away and you have a record of every financial transaction that can be traced back to the individual who submitted it. Bitcoin won't be allowed to be a loophole to global financial regulation, but it may just become the mechanism of enforcement.

[aliakhtar]

> Bitcoin allows people who are unbanked, especially in developing countries, to hold and transmit money across the world at practically zero cost.

I'm from a developing country (Pakistan). The people you are referring to are the least likely candidates for using Bitcoin. To use Bitcoin you need to, at minimum, be able to read and write, and own a device with an internet connection. To actually use Bitcoin securely, you need to be a -lot- more technically proficient. The unbanked people are the least likely to fit this description.

Also, I think its quite unethical to consider putting the unbanked people at risk of losing 40-70% of their money by putting it in a volatile currency like Bitcoin.

[abalone]

Actually M-Pesa has been enabling the unbanked to hold and transmit money by phone for many years now and is quite popular. It has a whole retail network and everything.

What Bitcoin primarily offers beyond that is bypassing rules and regulations around cross-border transfers. But that's consistent with the article's thesis.

http://en.m.wikipedia.org/wiki/M-Pesa

[bunderbunder]

> Bitcoin allows people who are unbanked, especially in developing countries, to hold and transmit money across the world at practically zero cost. Since bitcoin is decentralized, there are no middlemen like banks to take a cut or freeze your account.

There aren't any now, but that's not because it's inherently impossible to have such a thing with BTC. It's just that the economy hasn't grown enough for them to exist yet. When (if) it does, they will come. I'm not going to say I know exactly how they will come, but I can think of quite a few plausible scenarios:

- Honest-to-goodness BTC accounts with banks, to solve the same problem with lost/stolen wallet keys that they solved with lost/stolen money-under-the-mattress for traditional currency.

- Wireless providers leveraging their position as most people's only constant/regular access to the Internet to exert control over how BTC is transferred over their networks.

- Online wallets becoming necessary to help deal with scalability problems (not entirely dissimilar to how electronic transaction processing networks have superseded paper checks) and then leveraging that privileged position.

[wongarsu]

There are already middlemen in the bitcoin business. The most notable ones today are the centralized exchanges and online wallets, and more are sure to come.

The important difference is that Bitcoin makes it much easier not to use a middlemen. You can't have a credit card without a middlemen, and the choice of middlemen is limited. Bitcoin abstracts your choice of middlemen away and the person you are buying from or paying to doesn't even notice whether you have chosen to use a middlemen or not.

My prediction is that using middlemen like banks (or should we call them central wallets?) will stay the norm, but they will have entirely new market pressures because not using them at all is suddenly a viable option.

[danbruc]

[...] transmit money across the world at practically zero cost.

Transaction costs on the order of $10 per transaction are only practically zero if you transfer $1000 or more. Not sure if this is such a common scenario for unbanked people in developing countries.

[jbooth]

So what would you place in the "legal/useful" quadrant in the author's post?

Maybe I'm just lacking imagination but it seems that bitcoin's uses are 90% speculation and 10% illegal. What's the killer app that's actually going to make it a useful currency rather than an asset resembling a dutch tulip?

[ericb]

-> Inheritance (transactions that unlock by date)

-> flavored money (only spendable in certain ways)

-> contingent funds (if home_inspector_signs_off then pay electrical_contractor)

-> trustless escrow

-> complex securities (if dow is down but nasdaq is up pay 10% of difference)

[jbooth]

But we already have imperfect solutions for all of those, and together they make up a very minor % of all currency transactions.

Are you saying that being debatably marginally better at those corner-cases will propel it into usurping the dollar and euro? I'm having trouble reconciling these use-cases with world-changing rhetoric.

[ericb]

I made no prediction about it usurping the dollar.

I'm saying bitcoin can do things money cannot. I listed some use cases that demonstrate the kinds of things it is suited for. When the PC first came out, the life-changing uses seemed theoretical and vague, and for about the first 5 years it was mainly a more expensive substitute for a typewriter.

Uber is marginally better than cabs, but that's more than enough to cause disruption.

edit: You know what, I didn't argue about it usurping anything, but I would put this out there as a point in that direction. There are enough use-cases like what I list to get bitcoin to a critical mass of fungibility. Products supporting new valuable use cases don't usually disappear. So if bitcoin supports these use-cases, it is entirely possible that they will propel it to a scale where peer-to-peer transactions make sense because it is prevalent enough. At that point, it could become the lingua-franca of currency.

[pbreit]

I'm still on the fence about Bitcoin but this article describes our experience at early PayPal almost exactly. I suspect the most valuable uses of Bitcoin will be more blockchain oriented than financial.

[maxerickson]

There are no middlemen if you manage to airlift in a bitcoin economy. Short of that, you probably get your bitcoin from a middleman.

At a glance, M-Pesa looks a lot more popular among the under-banked than bitcoin.