Bitcoin Forum

JoelKatz posted this question in Bitcoin's StackExchange page that was closed as it was too broad in scope for the SE QA format, but it was a good topic for discussion, so I've re-posted it with permission here:

Here's the OP's body:


Bitcoin has a few weaknesses. Among the well known ones are:

Transactions are not instantaneous.

Large numbers of transactions would bloat blocks.

Transaction fees are needed in some cases.

The client is difficult to use and its operation difficult to understand.

Wallets are difficult to secure. Coins can easily be lost.

Transactions are only somewhat anonymous.

Irreversible transactions are sometimes not what people want.

Of these weaknesses (including any I didn't mention), which are probably most seriously affecting the adoption of Bitcoins, both short-term and long-term?

My answer:

There is no reliable market information that could answer this. There have been no surveys or focus groups done to get a gauge of consumer response to Bitcoin.

I would organize problems into three categories:

Problems with the protocol.

Problems with the client/GUI.

Problems with the economy.

Problems that fall into the first category cannot be easily fixed, and increasingly less so in the future, because it requires a large percentage of Bitcoin users installing a new client.

Problems in the second and third category can be practically solved through technological and business development.

All of the commonly cited weakness I've seen fall into the second and third category and include:

a) Difficult to secure wallet (2)

b) Price volatility (3)

c) Difficulty acquiring Bitcoin (3)

d) Lack of merchants accepting Bitcoin (3)

e) Difficulty in setting up Bitcoin payment processor (3)

f) Legal uncertainty (3)

I also speculate these hinder gains in market share:

g) Long setup time for client (2)

h) Absence of thin-client for mobile phones (2)

b), f), and to some extent d) cannot be addressed directly. They will diminish as Bitcoin's market share increases. Therefore, I think dealing with a), c), e), g), and h) should be the priority. d) can to some extent be addressed at the same time as e) by a company that sets up payment processors for other companies in exchange for a commission on all Bitcoin transactions. Bit-pay is a good example of this type of business model.

A) is being adressed in future versions
B) free market
c) difficulty aquiring - getting easier everyday, mine, buy on the market or offer goods and services for BTC
D) more and more appearing every day -I can buy tshirts, computer stuff even saw advertised an Australian package holiday you can pay for in BTC - there are more sites all the time listing Bitcoin based businesses
E)payment proccesors - I have heard of a minimum of 3 in the process of setting up to offer merchant services to net and b&m businesses so they can accept BTC
F) Legal uncertainty - indeed, but the stronger and bigger BTC is the harder it will be to legislate against, and even so which countries legislation can stop an internet phenomenom? - think about the other internet stuff governments fail to stop...
G)setup times are also being adressed
H) wallets etc for mobile phones are coming there are already many BTC based apps, as are QR codes for payment by mobile, Bitcoin cards and usb wallets are also on the way.

To me the biggest weakness is the communities inability to publicise and market bitcoin in a way that the general population understands.

With Bitcoin AU 2011 coming up in November we hope to address some of these publicity issues. Hopefully the EU conference the week after will have this high on their agenda too.
best
Graet

Biggest three in my mind are volatility, acquiring bitcoins, and easily exchanging in all countries for the local currency.

First thing that needs to be solved is ease of acquiring bitcoins however. People want to go to paypal and buy them or pay with a credit card. That can't happen, so there needs to be some other solution that works better than the current setup.

I think the volatility will die down.. people cant dump 25k at a time forever.  Each time one of these big dumps happen bitcoins are spread out to more people.  I actually like when it happens, the sooner the better.  As far as acquiring them I think Exchange bitcions has a pretty good deal in the US anyways where you can fund your account at any chase or wells fargo branch.

I think that the single biggest factor keeping Bitcoin from gaining market share and mind share is simply that it has not yet gained enough market share and mind share. It's a Catch-22: until I can use Bitcoins to buy my bread, pay my rent/mortgage, pay for the materials for building any tangible products that I might make to sell, and to pay any unavoidable taxes, Bitcoin remains nothing more than something I speculate in. Some folks (like me) will speculate in it mostly because they want it to succeed for philosophical reasons, and others will speculate in it simply because they see it as something to be exploited without caring whether it eventually succeeds. I don't think there's an easy answer to this. If we want it to gain market share, then we need to create markets for it to share by accepting Bitcoins for goods and services. As long as Bitcoins can't be directly spent for necessary everyday goods and services, people who accept Bitcoins will be doing so out of faith and/or hope that it'll eventually take off. Those people are necessarily gambling, and only those who can afford to gamble on Bitcoins will be able to accept them before they become well-established. I wish that there was just some technical challenge that could be met to allow Bitcoin to finally take off, but I don't think that there is one. It's just a matter of more and more people agreeing to accept Bitcoins for at least some small portion of the goods and/or services that they provide. If enough people do that for long enough, Bitcoin may eventually attain the critical mass that it needs to take off.

That being said, there are some other challenges that will need to be solved prior to Bitcoin taking off, even if they're much smaller problems that what I discussed above. I think that the biggest one is the current difficulty of buying Bitcoins with fiat currencies without investing a bunch of time and effort first to transfer dollars (or whatever) from your pocket to a Bitcoin exchange. It seems to me that the main reason for this difficulty is Bitcoin's non-reversible nature (which many consider a good thing), vs. the reversible nature of so many ways of moving other currencies around (PayPal, credit cards, ACH transfers, etc.). This enables various sorts of fraud that make it difficult for people to sell Bitcoins for other currencies using those methods on a large scale. The safest method seems to me to be selling Bitcoins for physical cash, and that might become more generally practical as more of us early adopters spring up in more places.

I think that wallet security is another problem to be solved, but I don't think this will be a big deal. There are lots of ways to approach this both as a technical matter and an educational matter, and I think that this will be solved long before Bitcoin has any chance of really taking off anyway.

Maybe one approach would be to try to create some small, well-bounded environment in which Bitcoins could become the normal medium of trade? It's hard for any one person to start accepting Bitcoins for a substantial portion of the goods or services they provide unless they can also spend those Bitcoins for their day-to-day expenses, and the expenses associated with the goods or services that they provide. If Bitcoins could be promoted in some environment that can naturally form a somewhat closed economy (a town, a school, a dorm, a club, a commune, etc.), then perhaps Bitcoin could take off there without some of the hardest problems that face getting it accepted globally. Once it's seeded in many smaller environments like that, maybe one or more of them can begin to grow and spread Bitcoin acceptance into larger areas?

Price volatility.

Yeah, the dumps will eventually stop, but I'm afraid that the deflationary nature of BitCoin means we'll never be rid of speculation, and wild optimism is easily able to overwhelm market fundamentals.  It's chicken and the egg: this won't be as big a problem if the BC is widely adopted (the market will eventually overwhelm the relatively small pool of starry-eyed speculators), but we'll never get there if merchants are too afraid to enter because of volatility.

Isn't that why places like bit-pay exist?

True, that protects the vendor against currency risk (as does any other automatic trade back to local fiat).  It still leaves them having to reprice their products constantly.  It's hard to advertise when your prices can't stick for 12 hours at a time.

Legal uncertainty surely killed many ideas, including several mine.

This why I choosed "notifications" business model for BitcoinNotify (https://bitcoinnotify.com) which, as I ensured, is fully compliant with all applicable laws: https://bitcoinnotify.com/contact