Bitcoin Forum

Hi Everyone !
My Name is Alon, i started getting interested in BTC a few months ago. I was Asked by my Proff. to choose my thesis work subject and without blinking i said BITCOIN !

sounds easier than it is ....

I want to describe in my work the impacts bitcoin can have on the old economy. Obviously this is a huge subject, but i thought to approach it by first describing the impacts credit cards and services like Paypal had on consumption. The emphasis would be on reducing transaction friction.
For Example : credit cards are much easier to carry and use than cash and offer Tx details to the client BUT slow payment verification, high (relative) commissions, very high foreign currency commissions.
Paypal - very easy remote payment BUT still a lot of the credit cards cons
Bitcoin - single global currency, fast payment confirmation (relative to credit cards), very low commissions, no foreign currency conversion commissions, etc.

By describing the evolution of the way we pay (across the above methods) i can describe possible effects bitcoin can have on the economy by simply reducing transaction friction.

I will love to hear your opinion about the direction i am going. is it good for describing future effects of bitcoin ? is transaction friction reduction is bitcoins greatest quality ?
Obviously suggestion will be much appreciated !
Alon.

read. read a lot.

What kind of thesis?

Impact of the bitcoin in the economy seems like a very wide subject.. You might want to narrow it down quite a bit. Anyway it's good that we are starting to get some researches about bitcoin and how it affects economy. What kind of thesis are you writing? Good luck to your project!

Hi David ! The thesis is in Economics :)

Hi miketonic, i accidentally posted without finishing to describe what i am doing. My main focus will be on transaction friction reduction, by describing the evolution of payment (credit cards -> online payments -> crypto currecy) through transaction friction, i could describe potential effects bitcoin could have.

just saw your recent post - specifying... but this is what I was going to send anyway.. Good luck.

Impact on the economy seems ridiculously large, particularly as you start to include smart property and distributed corporations and contracts, and the potential of reserve currency. I might suggest you stick with one (or 2) of the functions/industries that btc will immediately disrupt if success continues for a few years:

1. Store of value - gold $9T
2. e-commerce (visa, amex, paypal etc) $1T
3. Remittances (wire transfers, WU, SWIFT, ACH, etc ) $500 B

You could also focus on impact of cryptos in general - in terms of capital flows/controls, AML laws etc.

Just my 2 satoshis.

Sounds like fun...

Oh, I was sloppy, you did mention that in the first post.. Now that seems like a good subject. By friction you mean the costs, the time it takes, something else?

What level?  An undergraduate thesis would be very different than a doctorial thesis.

If you have some good database in you school you should start by seeing what you can find about your subject there. If not, here is a list of databases and one database I have personally used:

http://en.wikipedia.org/wiki/List_of_academic_databases_and_search_engines

http://ssrn.com/en/
I did a quick search here for "bitcoin" and found only 31 hits. So for this purpose I know there are some better databases, but this is the only free one I have used.

I don't understand how you can say credit cards have slow payment verification.  They are practically instant if you have a modern EMV chip version.  They give you no nonsense payment protection for purchases and offer cashback depending on the provider.  Also, in what world is bitcoin fast.  It can take an hour to have a fully confirmed transaction.

Hi David !
I am doing an undergraduate thesis  :)

Hi miketonic, i see friction as Tx commissions, foreign currency commissions, Tx delay, micro payments (supported with traditional systems but you will probably pay in commissions more than the transaction is worth), accounts can not be blocked (very important in third world countries), anonymity (very important in third world countries).

Hi bitrider, i thought a lot if i should talk about bitcoin or crypto money in general. I think it would be smarter to talk about crypto money in general, this way, i think i can reduce some scepticism. There are a lot who think that bitcoin is a bubble, starting to debate that point is useless... but there aren't many arguments people can make against crypto money in general, mostly because they have no idea how to even describe it. So i guess the smart choice will be to talk about crypto money and it's possible effects on the economy.

Hi WompRat, correct me if i am wrong, credit card payments will be seen by the cardholder once a month. The cardholder can dispute any payment, thus, making the merchant vulnerable. Obviously such things are not very frequent now, but years ago were more frequent. In bitcoin and credit cards you can confirm a transaction has been made and check that the card/ bitcoin holder has the money to make it. A Tx is 100% verified  in credit cards when the cardholder saw the transaction and by not protesting, accepts it. With bitcoin, after x blocks (There is a great article by meny rosenfeld that talks about exactly how much) you can be nearly 100% sure the Tx is verified and the money is yours.
So, to be sure that the money transferred to you is 100% yours, you need to wait more than a month using credit cards, and, maybe an hour or two on bitcoin. If i got it wrong, please correct me :)

Here's my suggestion as an economist: a topic that has not been explored at all is how different user groups, real or potential, will handle the trade-off between volatility and transaction costs, and how the degree of development of insurance/derivatives markets will come into play in determining the terms of this trade-off. You could run a few nice simulations and see how it plays out.

For the sake of clarity let me give you an example.

The problem with remittances now lies mostly in transaction costs; according to recent World Bank data, fees charged by traditional players such as money transfers stand at an average of 8-10% depending on the area. Now, assuming there was some user-friendly application allowing low-income immigrants to send money to their home countries, and if this application only allowed bitcoin transfers without providing a conversion into fiat for the receiver, they would have to choose between this known fee and the unknown capital gain/loss incurred on account of price fluctuations in bitcoin. If, on the other hand, the application already included the conversion into fiat at known rates (if I understand correctly, that's how Kipochi is supposed to work), that would partly reduce the benefits of bitcoin, as extra fees would probably have to be paid to use the service. There's a whole continuum of possibilities here, and only some of them have been explored. It would be really interesting to see some numbers on how diffferent hedging/insurance architectures (financial derivatives? p2p insurance?) could impact on the choice to use bitcoin versus traditional systems, never forgetting that so far there is no user-friendly app at all for this market, and profit opportunities might motivate a few developers to delve into it.

I'm singling out this specific group of potential users to make an additional point. I suppose that the very same volatility would affect such users in a very different way compared to how, say, it affects high-income investors, and in turn the latter behave differently from merchants that choose to accept bitcoin as payment for their goods. The optimal market for risk-mitigating financial services in the bitcoin ecosystem might look very fragmented, on account of heterogeneous user groups, or maybe there are one-size-fits-all solutions. I wouldn't know as I never studied this topic in any detail. Maybe your thesis could help shed light on this?

Total value of all bitcoins is about $7.6bn right now.

That's not going to have any noticeable impact on the world's economy. In relative terms it's small beans.

yep what is the hypothesis, null hypothesis, alternative hypothesis, bla bla.. Statistical data set . . etc...

That's exactly what people could have said about the cellular phone market in 1990.
Looking forward 10 years cryptocurrency will have a massive effect on the world economy, whether or not Bitcoin is No.1 crypto.

A major effect will be Bitcoin rendering currency controls ineffective. Currency controls are being increasingly discussed as the integrity of the world's fiat system itself is under relentless pressure since 2008 from the ongoing Credit Crisis.

Debit cards are more widely used than credit cards in the UK, and Europe.

The speed of a debit card transaction at the checkout can be very quick, depending on the shop's POS set-up.  It's pretty much instant in larger shops, but can be a bit slow in small shops.

Hi QueenElizabeth, my view of bitcoin is how it's innovation could change the economy (technological innovation). The problem of talking about price volatility is that it's very unpredictable for the moment, but, as use of bitcoin spreads, the volatility will be replaced by stability (more people use bitcoin means that the power of any giving person/ group is much smaller). My view is that bitcoin is first and foremost an amazing technological advancement, and i think this is what we should concentrate on. Credit cards have many cons (personal debit is one of those cons), but their technological innovation opened many doors and opportunities.
If we take the example you gave, i think the bigger impact on that third world country would be that they can rely on a very free money system that is not controlled by the government (key point in third wold countries), which doesn't require any infrastructure and with which they can do business with others in a way they never thought possibile.

Hi danbit, i think solex response is exactly right. We measure bitcoin not by it's current value, but, by it's possibile future value to people (again, not it's inherent value from the $).
I totally agree with you about the debit cards, i have one and i use it more than i use my visa at shops and restaurants. Problem is, debit cards use in remote Txs is very limited... you couldn't rent a car with it. They are marketed as a cheap alternative to credit cards that covers 70% of your payment needs, problem is, those other 30% are what separates 2014 from 1990 :)

Hi knightcoin, My hypothesis is that there is a correlation between Tx friction and economic growth. so H0 will be "Tx friction doesn't impact economic growth" and H1 will be "Tx friction reduction increases economic growth". The importance of fitting some function on how technology reduces Tx friction and whats it's impact on the economy is important because it let's people extrapolate what the effects will be, instead of trying to guess them.
In a time where most articles on bitcoin insist on talking about it's price, we should remind everyone that it's true value is in it's technology.

Yep, it is a very small worth, but I think it could go up if more uses for BTC appear.

About this time last year there was a CIA video on bitcoin. 

Look beyond currency.. that's just Bitcoin1.0.

Bitcoin2.0 is protocols that allow trade. Look at the whitepapers behind Master (MSC); Next (NXT); ProtoShares (PTS); Counterparty (XCP) and more recently New Economy Movement (NEM).

Then take a peek beyond those even to Ethereum, which offer Turing complete options and real complexity of action.

Any or all these could have real impact on the world's economy.

HI davidpbrown, thanks for the answer. I think smart contracts fall beautifully into the Tx friction reduction category, the possibility of simple user to condition very complex payment programs without any intervention of a 3rd party (like lawyers and banks), reduces tremendously friction in that area.
With Smart properties though, i am having some problems. The idea is amazing and very disruptive, but i also think we will not see a massive use of it in the near future, the reason is because we don't really know how to enforce it in the real world. Smart properties can work great in the computer world (renting an online movie, software licence, etc.), but to truly exploit it in the material world, it requires much bigger interventions. I absolutely see the case for Smart Properties, but it requires a much bigger consensus among the people the kick off than bitcoin.

I suspect we'll see fits and bursts of progress in this area. Certainly it'll be a while before the law has its head around the implications but industry could push the issue; especially in a tough economic environment, any edge will be impt - and the first to create a new edge will cut deeper too. All the law needs to do, is understand and acknowledge the idea that ownership is represented in a certain way and set a precedent. So, one use of smart property linked to big industry for example would be cars; if a car knows who its owner is, then the lock can acknowledge the owner; that needed be BTC obviously, that could be GM-Coin..

Some Progress update !
So because bitcoin is a very new thing, especially for economics professors, my prof. asked me to first write an introduction.
last couple of days i'm working my a** off to write a good introduction. The direction i am heading is writing kind of an argumentative thesis, arguing that bitcoin can replace traditional centralized money systems. I explain my argument by comparing the last 2 big evolutions in money technology (credit cards and eCommerce services like Paypal) to bitcoin. The comparison will concentrate on Tx friction reduction and its importance in economic growth.

I know it's only an undergraduate thesis but i really do want to write something that could contribuite to the community !
so .. I thinking i will post the introduction here to see what you think...  :)

Hi Alon, good luck, pls let me know how it goes.

Hi !
I just uploaded here my progress !
(https://drive.google.com/file/d/0B6htTZ-Vp7EDS1E2UTNsbUlKOWM/edit?usp=sharing (https://drive.google.com/file/d/0B6htTZ-Vp7EDS1E2UTNsbUlKOWM/edit?usp=sharing))
In the pdf you will find a first draft of: table of contents, introduction and the first chapter.
As its only a draft and english is not my mother language, you will probably find some spelling and grammar mistakes, obviously those will be resolved :)

Table of contents and the introduction is to give you a more general view of what i'm doing.
The first chapter talks about the traditional money systems we know (from an historical point of view). The goal was to describe the evolution in money technology through transaction friction, meaning, how much easier it is to make a transaction. I choose 4 historical points in money evolution: Barter, Commodity money, fiat and electronic payment systems. I still missing the description of this evolution through transaction friction cause i still not sure how to approach it (suggestions are very welcome !) because it's a key concept for the whole work. Basing a good explanation about the evolution of money through transaction friction makes it very obvious what are the advantages of technologies such as bitcoin. The thing that guides me is imagining a simple chart (as below) where the y's are trisection friction and the x's is time. as time goes by and money technology becomes more advanced, transaction friction is reduced.

Any suggestions and comments are very welcome !!!!!

https://i.imgur.com/mwMG6Xt.png