Bitcoin Forum

I was wondering whether Bitcoin, when adopted en-masse, will really liberate merchants from fees that are currently hurting them. Right now it's definitely cheaper, but won't the same necessary security-costs that are placed on the current system be placed on Bitcoin somehow? All these Bitcoin start-ups will need to make money somehow. That means they have to charge either merchants or customers for their services, no matter how innovative and frictionless they make the cryptocurrency use.

Here's a quote I read (from Goldman Sachs, I believe):

"Much of the cost of the current payment system is attributable to security and legal requirements that Bitcoin providers will eventually need to confront."

I'm an advocate for Bitcoin and crypto in general, but I want to tackle this from all angles and learn as much as I can :)

Yeah, I've been saying that for a while. But the cultists don't like hearing it, so don't expect your post to get any (more) positive replies.

Don't use a service if you don't like its fees. People are always going to want their cut but it's about how much they take. If companies start getting greedy what would the point of using them? People can still send bitcoins amongst themselves freely anyway and that will never change.

goldman sachs ... who have manipulate CDS to generate artificial money on premier supply like orange juice, cereal stock or gold change ?

I know businesses that are already saving money using BTC. So, yes.

Yeah, them. So what? I just want to debate their particular argument, which seems to hold some sort of truth.

the cost ?
bitcoin is free for everyone ... miner do the security job and transaction verification.

it's like compare :

http://static.ddmcdn.com/gif/cell-phone-old.jpg to this ... http://cdn.chv.me/images/thumbnails/mugnVJva.jpg.thumb_400x400.jpg

And how is that relevant to the veracity of that particular quote? Does their immoral behavior make them stupid? Does it make everything they say invalid?
GS just pointed out the obvious. It's obvious to everyone but BTC cultists.

BTC will never go mainstream, since there's no will to put in place a reliable, user-friendly, trustworthy infrastructure. Such an infrastructure costs money. It would have to consist of reliable third parties that could be prosecuted if they misbehaved.

for me it is yes
i bought some stuffs using BTC, cheaper than using paypal ;D

Bitcoin is the best thing eer invented for some companies the answer to your question has already been answered. YES companies are already saving money by using Bitcoin and it only takes a little looking around to find out this.

So far no comment has addressed the opening quote.

How can Bitcoin stay cheap once the services required to support it are layered on top of it?

All the hundreds, if not thousands, of bitcoin start-ups will need to make money somehow. They aren't altrustic ventures even though many make them up to be.

https://blockchain.info/charts/cost-per-transaction


Bitcoin transactions are far from being free right now. The question is can the network scale to the point where that cost is negligible.

I'd let them worry about how they're going to make money. And nobody could give you a specific answer as there are and will be countless different businesses with different business models. Some will make money off adverts; others from commissions etc, but if they become too pricey it'll defeat the actual purpose of using them at all. Also, payment processors like Bitpay seem to be operating just fine at the moment with minimal fees.  

Donot agree with that! Some tech companies build useful,reliable infrastructure for btc application and run for a long time, such as blockchain, coinbase. In spite of the expense for building it, they are still making profit. They donot need to misbehave.I think more and more applications for BTC will come out.

It can't. Bitcoin use will eventually become just as expensive as credit card use. Maybe even more expensive.

That's a laugh.

OP, Bitcoin will in all likelihood become quite cheap, easy and efficient to use as money, more so than it is now even.  Bitcoin is fundamentally technology and that historically happens over time. Look at the television, airplane, car, telephone, cellphone, computer etc. All of these things started out as clunky toys for only the rich. Over time common people gained easy access. It's simply how technology evolves.

Bitcoin is still a baby and is already capable of saving people money and increasing the security of their transactions against fraud (contrasted to 190 billion annual credit card fraud (http://www.forbes.com/sites/haydnshaughnessy/2011/03/24/solving-the-190-billion-annual-fraud-scam-more-on-jumio/)) because spending authorization (like card numbers) is never out in the open, and things like multisignature wallets will make super strong coin security easy.

Banks and credit cards were here before the Internet existed. If you redesigned the entire financial system from scratch you would probably get something that looks more like Bitcoin. Instead all the world's financial infrastructure rests upon that built up, clunky, inefficient, legally hypocritical (http://www.bloomberg.com/news/2012-07-16/hsbc-aided-money-laundering-by-iran-drug-cartels-probe-shows.html), fraud and privacy vulnerable (http://www.huffingtonpost.com/2014/02/12/target-hack_n_4775640.html) system.

Bitcoin is technology built with the benefit of hindsight, entering a space which hasn't seen innovation in over 50 years. If you're someone betting against it (looking at you exocytosis) good luck.

This is something people keep ignoring. With centralized systems, all of the costs are taken care of by a company spending tens of millions a year. With P2P (BTC, etc.) it is spread out among the users. This is a HUGE cost reduction.

Companies do still pay for legal teams, dealing with compliance with laws, etc., but the mining process cuts back on a LOT of costs otherwise seen. Especially in the fraud department.

But I feel there might be a problem with the miners themselves. The current trend is that a few entities own a very large amount of the network hashrate. That kind of centralization beats the very idea of decentralization that bitcoin was meant to be. And if you have more and more businesses accepting bitcoin,and there is no government access at all to these entities,they have effectively become the new custodians of your money. I think that's more scary than government control because of the utter lack of accountability.

If you're the victim of credit card fraud, you get a refund from the card company. If you're the victim of Bitcoin fraud, you get nothing. And the perpetrator walks away scot-free.

To this you'll reply: "Only stupid people keep their BTC on exchanges or other BTC service providers in the first place! Smart people keep all of their BTC in super-cold storage!"

True. Cold storage is a good solution for the nerds, the geeks and the BTC cultists.
But the Average Joe is stupid. Cold storage isn't user-friendly enough for the Average Joe. That's why BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate.

This right here. Circle is offering insurance on their deposits, but even that is questionable (because users, in general, can't keep up their security). Someone would need a truly innovative way to simplify the process for the average person.

Why do we like credit cards? We can pay anyone and everyone and do a chargeback if we're unhappy with the results. There's no risk involved.

We really need to stop clamoring for regulation. It is like asking permission for doing something that we don't need permission to do. Trusted and transparent entities will emerge that will resolve many of these issues

This is where it gets tricky. Regulation, in moderation, isn't necessarily bad. It's overregulation that's bad. Cryptos are pseudo-anonymous, and that opens the doors to a lot of problems we otherwise wouldn't face. A legitimate company can form, run for years, and then disappear without a trace and nobody can do anything about it.

What about the merchant? The merchant receives a chargeback and eats the cost, which means cost indirectly does get passed back to consumers. Also victims of credit card and identity fraud can suffer damage to credit history which is tedious and sometimes impossible to recover from.


If you read my earlier post you'll see my emphasis is on technology evolving. The way Bitcoin was experienced in the previous five years will not be how it's experienced in the next five. One thing I think we'll see is hybrid solutions like BitGo (http://www.coindesk.com/facebooks-ben-davenport-leaves-bitcoin-startup-bitgo/) where the user essentially partners with an online service to manage their coin security. Such companies, being based completely on technology, don't need much to operate; even less than Amazon.com, for example, which while building physical warehouses absolutely destroyed traditional brick-and-mortar retailers.

As for regulation/compliance that is still shaking out, but things are not as arduous as you make out. For the U.S. at the federal level, a business only needs to register with FinCEN which is simple. Individual states are slowly making their positions known, but Texas for example says no additional regulatory burden applies, so long as no fiat is involved. Previously two other states (I forget which, something like WY and MT I think) had no MSB licensing which remains the same for Bitcoin. California recently adopted Bitcoin favorable legislation and NY is working on a 'Bit license'. So we may find completely above board business compliance for Bitcoin is quite workable for enterprising entrepreneurs, especially funded ones, after all.

I agree with the fact that Bitcoin is cheap to use today (because there are very few services on top of it), but as pointed out:

"...BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate."

So what is still unclear to me, in the long run, how can bitcoin companies be profitable without adding direct or indirect costs to the system?

They will do it the same way companies do it now. They will pass any business cost along to the customers in the form of a markup. Bitcoin isn't free to use right now. In fact it's relatively expensive. If you mine them there is a heavy equipment cost that you may never ROI. If you buy them their are exchange fees on both sides of the transaction plus a fee to send the transaction quickly if you're using "fresh" coins.

I still don't understand what costs you are talking about.
Sure, when a companie wants to sustain it has to make profits. That's one thing, but that hasn't really much do to with Bitcoins, because this profit is made by selling something for more money that it costs.
The costs we are talking about, is e.g. the fee Paypal takes. If you don't use PayPal than there is no fee(for example you meet and pay with cash).
What fees are there with Bitcoin? You have the transaction fee, which is pretty small. You might have a fee, when you exchange BTC for another currency, but this fee is not that big either. You might also want to use an escrow service, I don't know what that costs.
I think, when you add this fees up, it is still way less, than the Paypal fee.

The reason is because technology itself makes things so much more workable and efficient. That results in cost saving which can be passed directly to users.

As for tech company profitability it goes a bit off the subject of Bitcoin, but currently volume (eyeballs) alone is enough to result in exceedingly high valuations. For example look no further than Twitter. How much are users charged there? Yet Twitter recently IPO'd at 24.9 billion (http://www.businessweek.com/articles/2013-11-18/what-we-learned-from-twitter-s-ipo-the-value-of-innovation-is-at-an-all-time-high). Similarly, the WhatsApp chatting application was bought by Facebook (http://money.cnn.com/2014/02/19/technology/social/facebook-whatsapp/) for 19 billion. These services boil down to publishing text, for the most part, on the Internet. By the way does Facebook even make a profit yet?

Yet, with Bitcoin you're dealing directly with money, people spending money to be more precise. It would be harder to believe popular Bitcoin services couldn't be valuable.

If you ask me, those valuations are pure bubblespeak if you ask me, very dotcom.

But let's face it, all the millions and millions of dollars going into bitcoin startups have been invested to turn them into billions. That money needs to come from somewhere. And yeah, bitcoin will probably become a much more stable and innovative means of payment thanks to that, but I just can't see how it will be a cheap means of transfer.

So the less educated pay a premium. Whether it is being talked into a loan they can't afford or having to hire an accountant, this is always the case. Why should it be any different with bitcoin. The difference is that those that care to can bypass these third parties. This isn't possible or at least advisable with most other systems.

As with most things it isn't an either or situation. There can be third party services and their costs for those that want the ease or simplicity. And those parties can be bypassed for those that would rather control their own matters. That isn't possible with credit cards or banks.

I agree. As I said it's a bit off the topic but, yes, there are so many dollars sloshing around the system, especially at the top end, we get these kinds of distorted markets. Is it a bubble? Absolutely. It has little to do with dotcom. The whole stock market is in a bubble, which partially popped in the 2008 financial crisis. My point was more that if companies which don't charge and don't even have a profit model can have such valuation, what would the story be for companies with actual valuable money management services?


It will be cheap the same way email is cheaper and in lots of ways replacing snail mail. Digital information is easy to manipulate.

I see your point. I've never paid for a single email, but the companies behind my email accounts do make money... I can see how a brand new technology like Bitcoin (much like email back then) will somehow allow for this to happen again but for finance instead of communication...  but I'm struggling to understand how Bitcoin can avoid the costs that banks have to pay for protecting users, legal stuff, etc. That's what makes up the costs of the current system, isn't it? How will this not apply to Bitcoin if it were to become mainstream?

Somehow, my brain says, the cost of all these new services need to be paid by someone.

I like that you ask these questions, because everyone's secretly worried about them.  Latin House Grill in Miami just said screw it, and went directly with paying them to their wallet.   So no BitPay, nothing.  Right there they cut out most of the "Bitcoin Merchant Fees".

I suppose in the future when you don't need to cash out to Fiat, everyone can just take direct payments.  Therefore the only "security" you need is that of the blockchain, which is fully sufficient. That's why someone aptly pointed out that even BitPay's days are numbered, unless they evolve.

-B-

I think if Bitcoin becomes really popular, it will become an expensive niche product like Wire Transfers (mainly due to scaling limitations).

I think Bitcoin will eventually force the legal requirements to change. For example: whether or not you have to report a transaction often depends on whether or not you are dealing with a "foreign politically exposed person". However, Bitcoin obeys no borders, so such requirements do not make much sense when applied to Bitcoin. Heck, bitcoin does not even require that you are human (https://bitcointalk.org/index.php?topic=53855.0) to work (unlike the traditional banking system where you must prove you are a non-terrorist human)..

funny scenario...

then, transpose this to real world : boss transfer in Cash, the entery of an account ... and run to bahamas.
no trace.  ::)

what the difference with bitcoin ... ?
nothing.

---

and, in real world, a company don't shutdown ... before they emit credit and amount of deficit.
bitcoin can't generate deficit or "late payment".

if you don't have bitcoin ... the client can view this with a simple verification.

It's not like banks are constantly looking to reduce user fees. A typical wire costs $25 or $45 internationally, and can take days to clear. In 2012 ABC News reported (http://abcnews.go.com/blogs/business/2012/09/bank-overdraft-revenue-rises-to-31-5-billion/) bank overdraft revenue rose 3.6% to $31.5 billion. Bank of America was planning to charge users to use their own debit cards until a wave of backlash turned them from it (http://www.nytimes.com/2011/11/02/business/bank-of-america-drops-plan-for-debit-card-fee.html?_r=0).

It may be surprising but the banking system wasn't built up to cater to the little guy. It was built up by stodgy, lazy, greedy financiers looking for any way to extract another penny profit from their privileged position. There is much a fresh crop of tech entrepreneurs can do. If you don't see how a worthwhile impact on finance can be made with cryptocurrencies you don't have to. Just sit back and let the free market (for as long as it can remain that with Bitcoin) do its thing.

Oh I do see how crypto can, and probably will, change the financial landscape forever. All I am concerned with is costs, nothing else is really in doubt here.

Right now Bitcoin is cheap because it doesn't carry the burdens of customer protection and all that jazz. I just hope that it can grow into this 'new paradigm' we all want it to become, without scaling issues that are passed on to customers and merchants, for the sake of bitcoin companies.

But Bitcoin, unlike the banking system, is built up to cater only to the little guy, right?
Everyone in the Bitcoin ecosystem, from Mark Karpeles to Roger Ver, are saints and angels promoting Bitcoin solely for philanthropic reasons ... They can do no wrong. All of them are just trying to make the world a better place for everyone. It's all unicorns and rainbows ... And no one in the Bitcoin industry are "stodgy, lazy, greedy financiers looking for any way to extract another penny profit from their privileged position" ...   ::)

Security is already priced in by mining fees.

The only thing you would have to pay for accepting bitcoin are the mining fees.

If you want to involve 3rd parties, they will take a cut as well, but if you just accept bitcoin directly you will safe money.

someone with 50k btc could transfer $28500000 worth of value for only some cents in transfer costs. i'd say that could save some money.

Bitcoin is fundamentally about the little guy.

It's about empowering people to do for themselves what others do simply because they have a monopoly on moving money, like charging 10-20%, which some would argue is criminal, to move it from point A to point B.


No, Bitcoin exists openly in the world which is full of all kinds of people, including scammers, con men, altruistic (http://seansoutpost.com/) people, etc. I certainly don't say there is anything wrong (http://www.youtube.com/watch?v=3ixjA6popSg) with seeking profit. However, I might question those whose actions toward the poorest people appear more predatory than anything else. Watch the following 5 min video and get back to me:

Bitcoin in Uganda - Empowering People (https://www.youtube.com/watch?v=BrRXP1tp6Kw&app=desktop)

i guess in a way yea but everyone has a different way of thinking

bitcoin in most countries are being classed as assets. thus the regulators don't need to get involved with licensing/regulating bitcoin. this is the big point people miss.. governments are actually doing a good thing by classing bitcoin as an asset.
due to this fact merchants can save alot of money
1. no licence/oversight costs just to accept bitcoin
2. no secured money trucks to pick up bank notes each evening/week
3. no cash counting each evening (save labour costs at end of shift)
4. no banking fee's or insurances.

so when someone pays a merchant with 100 bank notes the average auditing, secured transport costs are 1 bank note
so when someone pays a merchaint with debit cards the average processing fee costs 2.5%

but with bitcoins the average is less then 1000th of the transaction.

as for the guy saying that bitcoin is only for scammers, theives etc. the same was said in the wild west days of gold mining. anything of good value is always going to be a target..
for instance if hackers could break the protocol to mak bitcoin worthless, they would never want to use bitcoin due to the fact it can be broken. yet theives and hackers use bitcoin because they cant attack or get attacked, thus bitcoin is a true usefl and secure store of value.

so if a thief wants it and a hacker cant hack it. everyone should be using it. theives and hackers prov bitcoin is a good value store, and there are not as many nasty people using bitcoins as you think

There are at least three big sources where Bitcoin cost savings will come from, in comparison to the existing financial system.


1)  Bitcoin has a blockchain, which is a fundamentally more efficient financial backend.  Sure, VISA may be more internally efficient, but the blockchain wins hands down for any transaction that needs to cross both countries and companies at the same time.  If we all used one world-wide bank, with one currency, then bitcoin wouldn’t have this advantage.  But the fact is we don’t all use the same mega-bank and the global financial system is highly fractured.  Bitcoin will both fill the gaps and obviate the need to cross them at the same time.  To directly relate this to cost savings:  Sending money across the fractured global financial system involves many interfaces, and each interface introduces friction and cost.  Bypass and eliminate the friction, bypass the cost.

2)  Bitcoin is open and directly accessible to anyone or any company.  As the bitcoin system matures, competition to deliver a layer of consumer services will be fierce.  This will drive down cost.  Compare this to our current financial landscape, where massive amounts of money, permits, and political connections are required to participate at level of banks, insurance, and credit card companies.  More competition drives down costs.

3)  Bitcoin will face lower compliance costs than the financial incumbency.  The current set of laws and regulations surrounding finance is incredibly complex and expensive for payment companies to deal with.  Bitcoin currently avoids much of that burden.  While Bitcoin-specific rules are inevitable, they will most likely be lighter and easier for the new bitcoin companies to comply with than the current morass is for banks.  I am basing this assumption off of the U.S. Governments history with regulating new technology.  Less regulation will equal lower costs.

Some examples are:

Email = less regulated than postal mail
Voice Over I.P. = less regulated than copper phone lines
Internet Retailers = Less regulated than brick and mortar or even catalog mailing merchants
YouTube, Etc. = Less regulated than traditional television

Goldman Sachs is wrong and is spreading FUD because part of their business model is threatened by Bitcoin.

What makes the current payment system expensive is that transactions can be reversed and the system accepts a certain amount of fraud from customers and merchants both. The current payment system has a pre-Internet legacy workflow.

Bitcoin is non-recourse. When Bitcoin becomes the common currency, there will be less need to exchange it into fiat to make or accept a payment.

I know countries where fees of 5-10% to get money into your account is business as usual. I think that many bitcoin companies will go bakrupt when they realise they can't print money like the real banks, and fees will in general become painfully visible. But still a lot of money will be saved.

It'll depend on what the Bitcoin cost will be.

Anyway, I don't think companies with Fiat have made a difference. For instance, did you know that the department that makes the most at Wal-Mart are from the Bank fees at the store? And don't forget the loan, check, and credit card fees.

That is accurate. By comparison to any fiat transaction, sending BTC is relatively free.

"Will bitcoin save money?"
Short answer yes, with an if. Long answer no, with a but.

Your short answer is longer than your long answer.  ;D

I personally believe cryptocurrency is the last stage of capitalism, the transition economy to the end of this neo-feudal society. Toward a better, more just, more humane, more open, less deceptive world.

example you got today . maximum change to dollar in btc-e . dont save in wallet . just worry hacker come and raped

I think bitcoin will save people much money in many industries as well as personally, and maybe even save entire countries from economic collapse caused by banks printing money on their own whim.


I like your thinking and hope you're right.

Will it save money? Sure, but I'm hoping it will actually be the savior of money :o

I doubt anybody would be that stupid to transition their 10,000BTC all at the same time.

Solid trust worthy currency is the key to that. A truly free market changes everything.

It's already saving businesses money and also people in the remittance market.

Hope all the pluses that are came out from decentralization will outbalance all the money spending for security etc.

Some people like that when they buy online with a credit card, and the merchant doesn't deliver, they can ask for their money back from the credit card company. Those people would like a similar service if they pay with Bitcoin. I expect there will be Bitcoin cards that provide it. Someone will have to pay for the implied costs and overheads. Similarly people like knowing that they can store their money in a bank, and be sure of getting it back even if the bank goes bust. Those kinds of guarantees cost money.

What I hope is that these services will be available, but they'll be optional, and it will be the consumers choice whether to use them and pay the fees.

It's also worth noting that Bitcoin fees are currently low because miners currently get paid by the block reward. As the block reward halves, the miners will get less revenue from that source. They may want to increase the transaction fees to compensate. I don't think anyone really knows what is going to happen to fees over the next 5 years.

Yes, definitly!!!

Often times people are forced to use a certain service as it is the only one available to their situation.

One reason that payday lenders can charge so much interest (besides the high risk level involved in payday loans) is the fact that mainstream lenders will not lend money to these types of people.