Bitcoin Forum

Hello all,

I'd like to begin my first post by saying that I'm thrilled to discover that so many people are working on a new monetary system that avoids the fraud of fractional reserve banking and a debt based monetary system.

After spending the last few days studying bitcoin, it appears that for a fully functioning bitcoin economy to develop vendors will be needed to supply goods and services. My question is: what will attract vendors to bitcoin?

Right now it appears to me that most transactions (if not all) are of the form: fiat currency -> bitcoin -> fiat currency. By this I mean the alpaca sock vendor has not truly adopted bitcoin, but is rather using them as a transfer medium. The buyer of socks is (forget mining for the moment) converting fiat to bitcoin then purchasing the socks. The vendor accepts Bitcoin but then immediately pays out expenses (labour, fuel, materials) in fiat. A fully functioning bitcoin economy will require the consumer to be paid in bitcoin and the vendor to pay expenses in bitcoin. The sock vendor needs suppliers that will accept bitcoins. The consumer needs an employer that pays in bitcoin. Governments get the system created by creating laws that people blindly follow.

How does this economy get bootstrapped?

Ralisse

By exchanges, at first. As adoption picks up and the alpaca socks seller suddenly realizes they can buy food (http://www.bitmunchies.com/) with their bitcoins, they stop cashing as many out. The food seller pays for hosting with bitcoins, and as volume picks up could probably convince their supplier to take bitcoins as well. The supplier can pay employees in bitcoins because it is easier to manage and the employees want the bitcoins to buy alpaca socks, food, etc with bitcoin.

It's a slow process, but it seems to be working so far.

Thanks for the quick reply. I agree with you. For the time being it seems like bitcoin adoption will be a very slow and gradual process.

Perhaps one way of accelerating the process might be to entice vendors though higher margins. Do you think sufficient community commitment exists to the ideals of the bitcoin that people will consider paying slightly more for bitcoin products? Nothing would attract a supplier more than knowing they could make more money in bitcoins than in fiat...

Are people willing to part with their bitcoins, with the intent of starting an economy, even if that means paying a higher price?

Look at the prices on his food link and answer it yourself.  That site is new, but so far has been fairly successful.

Holy shit!  I got my new source for condoms! (http://bitmunchies.com/index.php?cPath=58_59)

Bad move, going to hurt his diaper sales.

A problem for a vendor is the rapid change of value for bitcoins.

I have something to sell, it cost me $5 to produce. I want some profit so I'll sell it for $7 in my shop. Now to sell it for bitcoins I want some insurance because the risk is still high, and I need to convert it to other currency as described above, and there are fees. I'll set a price of 1BTC which just happens to be $9 right now.
Tomorrow it seems that 1BTC isn't worth $9 anymore, it's worth $12 and my products are now very expensive, so I adjust price to 0.75BTC, and the day after that BTC has dropped to $6 and I'm now losing money on each sale. Time for another adjustment.

This takes time and isn't as fun as you'd like to think.
I think this is something that will make vendors think twice.

Intraday changes of that magnitude are quite uncommon. Though any online store can do realtime currency conversion.

Check out the latest Bitcoin Sun. I have an article explaining how an options market will help merchants solve this more easily.

Exactly. Shameful plug about how to solve that problem: http://forum.bitcoin.org/index.php?topic=9923.0

I have made a lot of stupid mistakes in that thread, but the main idea is to create a new digital currency that is totally backed by bitcoins and that is pegged to the U.S. dollar so that it becomes very convenient to use, both for consumers and sellers. The new currency is called bitbacks or bitdollars, I don't know which is the best name for it yet. 1 BitDollar = 1 USD. Simple!

You're actually a loon.

Prove it. Just because my mind hasn't become fixed like concrete by too much social inbreeding on Facebook doesn't mean that my points are invalid. ;)

I've already shown all your first points are invalid and you have huge fundamental misunderstandings about how economics works. Just because you've invented some new points doesn't mean I have to debunk those too; I have better things to do.

You still haven't explained your "decentralized, faster than Bitcoins and more computationally  light-weight" system. Satoshi knows a lot more about this than you, so don't you think he would have made that if it were possible? Don't you think anybody with crypto knowledge would have already explained how to do that, if it were possible? But you have no crypto knowledge, "just a guess" which you parade around the forum as though it is worth anything.

So, if there are a lot of crypto experts out there, then why didn't they invent something similar to bitcoin? Let me answer: because most people are not entrepreneurs. Most people are afraid of making mistakes. Most people need to listed to 10 of their Facebook friends before they can have their 'own' opinion. Entrepreneurs do what is called pivoting instead of being afraid of making mistakes.

No. It's because cryptographers want their cryptocash system to be "elegant". http://bitcoinweekly.com/articles/bitcoin-is-worse-is-better

So none of the crypto experts are enterpreneurs, and you're an enterpreneur who isn't a crypto expert? Then why are you even talking about a new system when you can't put it together?

So in other words the only thing preventing you from building your new system is that you have none of the knowledge required to implement it. :-\

To be honest I think the system would be tricky to implement as a peer-to-peer network. Some clever crypto experts and software engineers may be able to do it, I don't know. To implement it as a centralized system would be very easy, but that's not as interesting as an open source P2P solution.

I have read the Bitcoin paper but only briefly and have been too lazy to learn all the details. ;D Plus I don't know how to start an open source project. So it would take a long time for me just to start the project.

Impressive. You propose a bitcoin-like currency that is centralized, and has magical properties that you have no idea how they would work?

Good job.

No, the centralized version kind of sucks. At the same time, a peer-to-peer solution may be too difficult to implement. The main point is that the problem with bitcoins changing in value all the time can be solved I think by treating the bitcoins as an asset to back up other currencies that are more stable, similar to how gold has been used in the past to back up currencies. Another problem that can be solved is the slow transactions bitcoins have. Several minutes! That's usually too slow for online transactions.

It could be solved that way, if you want to make it far more complex than needed.

Or shop owners could just take out futures, or sell instantly.

We need interoperable, distributed exchanges first.  Then you could just have the bitbuck backed by mtgoxusd, etc.  The exchanges could then use these to transfer funds.  At the end of the day, the balances are squared up in USD.  The block chain is just a ledger after all.  The currency level should also be pegged to the amount in the exchanges.  The block reward can handle deposits, and withdrawals can be handled by requiring the bitbucs be sent to a special address that ensures the bucks are never reused.  They could send the bitbucks back when they receive the funds.  It would need to be enforceable, but dollar backed currencies are better understood legally.  People with money on the exchanges can sell the bitbucks for USD.  It removes the need to deal directly in USD for the exchanges, but it's backed by it. The bitbucks can be spent (any exchange will give you USD for them), or traded for bitcoins.  Some exchanges would be simple like coincard, and others would exist for traders.

Or maybe the shop owners could talk to Visa or MasterCard about acting as a third party to assume the risk of quick transactions, like they do now.

Or this.  The other may come later, but we need more USD exchanges and a means of enforcing bitbuck levels.  It could end up being another fractional reserve system if the exchanges don't report all of their withdrawals.  Then we again needs a centralized system to enforce it.... in other words, it doesn't look plausible to me anymore as a decentralized system.  However, it would be wonderful for liquidity... arbitrage would happen very quickly.

You were saying? MtGox today shows a drop of about $1.5, which probably is enough to make vendors nervous.
There are solutions, I agree, but what I'm saying is that most vendors won't bother with the instability that we see right now. A vendors price will always be off, either too high or too low. Unfortunatly.

I think one attractive thing with bitcoins is that they can be used as cash. So that the online shop immediately gets payed. That's useful when buying small things, or buying downloadable content like music for example. And for that to work in practice the transactions would have to be much faster, like a few seconds max.

Then we would be back to centralized solutions requiring a trusted third party for the transactions. One of the good things with bitcoins is that no such third-party mediator is needed.

There is room in the world of commerce for both.  And there are inherent risks in all transactions that neither buyers nor sellers want, but can't be mitigated.  Bitcoin was not created to destroy Visa and MasterCard.  They, or their analogues will have a place in the bitcoin world.

Yeah, true, there is room for many solutions. Maybe even companies like Visa and MasterCard could create solutions similar to the BitDollar currency I have proposed. They could even use ordinary U.S. dollars instead of creating a new currency. And then let people lock bitcoins in exchange of real dollars.

While there is no doubt demand for bitcoin in the developed world, I think there could be tremendous demand in the third world or in countries currently experiencing high inflation or where there is little faith in the currency. Vietnam, Venezuela, Angola and Afghanistan come to mind. While I fully support the P2P distributed nature of the bitcoin network, one of the challenges in these areas is the lack of access to infrastructure capable of supporting P2P networks. What people in these countries do have are cellphones. I've often thought that people's cell phones (either via apps or telephone numbers) could connect to a central bitcoin wallet to facilitate exchanges. These wallets would be necessary to facilitate exchanges, but the fundamental network would remain a P2P distrubuted one.

My 0.02 BTC

In a world where BTC is the dominant currency, what purpose would it serve for Visa or MasterCard to invent a new currency?

If they merely process transactions denominated in BTC, like they do now in USD, etc, we will have solved the quickness problem, and the rollback risk problem, and all without having invented yet another new currency.

This post is so full of win.

I think you missed this part of my post: They could even use ordinary U.S. dollars instead of creating a new currency.

And you missed the part where they could use BTC, and that using BTC would make the most sense, since the transactions would be denominated in BTC, and since BTC is the customary unit of currency in that scenario.

But the point was that the value of bitcoins goes up and down so fast that it's difficult for both buyers and sellers to know what the actual value is at any given time. So it's impractical to have prices in bitcoins.

You're not listening to what people say.

Using a floating rate is very possible with almost every shopping cart program. It is trivial to denominate in btc.

Silver has been on a wild roller coaster ride.  Hasn't stopped APMEX or NWTMint from presenting and honoring the floating prices on their website.

In practice it would be difficult. For example if I see a price for a product in BTC, how do I know that the seller is not trying to rip me off? How do I know it's a fair exchange rate? I would have to make my own currency conversions all the time which would be tedious and burdensome.

I guess, if you're thinking in USD all the time. I've gotten to the point where I just think in BTC, it happens after a while.

Ok, so how much is one bitcoin worth at this moment in USD? You can't know that for sure since the bitcoin value changes so much and so fast. The bitcoin price can change a lot within a single day! While the price in U.S. dollars can remain stable for months.

My point is you're too attached to the USD.

For example, I see on bitmunchies that I can get a fancy condom for .18 btc or so. I think that's a good price. I have no idea how much that is in USD right now, but it doesn't matter.

Ah, now I see your point. That would require that the person would be very used to bitcoins. In practice it would mean that bitcoins would be more important to the person than the other currencies he or she used. In the future this situation may be valid, but today when people are much more dependent on other currencies it would be difficult for them since the bitcoin value changes so much in comparison to USD, GBP, EUR etc.

Bitcoin needs an off the grid power source to detach it from the dollar.

These guys have just started accepting bitcoin donations and could have a possible solution to the problem of dollar dependence.

openfarmtech.org/wiki/Donate