If you are concerned about your account being frozen, or perhaps a bank run, then by all means, hold your own bitcoins. But this thread is about pitching bitcoin, and most people, rightly or wrongly, are not going to educate themselves about personal computer security. They don't want the responsibility of securing a password that, if lost or stolen, will result in a significant, irreversible loss of wealth. Given that requirement, I would argue that a reputable online wallet is the ideal solution.

If you want to convince the average consumer to adopt bitcoin, you need to convince them that they will benefit from bitcoin even if they don't want to accept any new responsibility or learn about personal computer security. If you lecture them about accepting personal responsibility for their own finances, you may lose a potential bitcoin convert.

You're going to have an uphill battle convincing regular consumers that bitcoin is useful right now, because it is not accepted in very many places. It's like trying to convince people in 1994 that the internet is useful, or trying to convince people in 1999 that Paypal is useful.

Instead, we have to start by convincing the merchants, because, for merchants, bitcoin is all upside and no downside. For example, Coinbase converts bitcoins to dollars immediately for Overstock, so Overstock never sees any volatility. Unlike credit cards, Overstock doesn't have to worry about charge backs, and Overstock pays much lower transaction fees. There is zero downside for Overstock.

Once we are able to get the merchants to accept bitcoin, the merchants will convince consumers for us, because the merchants desperately want to be paid in bitcoin. For example, tigerdirect is offering a $20 discount to bitcoin shoppers: http://www.coindesk.com/tigerdirect-offers-discount-bitcoin-shoppers/

So, after bitcoin usage becomes more widespread, it will be much easier to convince consumers. If a consumer asks, "Why should I use bitcoin?", we'll say "Because bitcoins are accepted everywhere (including places where credit cards are not accepted), merchants will give you discounts for using bitcoins, you don't have to expose your personal information when you spend bitcoins, bitcoins are far more secure than credit cards, and the value of your bitcoins will increase over time (in contrast to the value of dollars, which decreases over time)."


Once bitcoin adoption increases, the volatility will go down. Until that day, if you are an investor looking to make money, volatility is your friend.


All you have to do is find a reputable digital wallet, such as coinbase, which stores the majority of their bitcoins offline in bank vaults. In that case, your bitcoins are as safe as gold bars.

The recent coinbase thefts have made me realize that we are going to have an uphill battle trying to get the average consumer to use bitcoins in place of credit cards. When I use a credit card, I have zero liability, so I am not overly concerned about theft or fraud. Bitcoins, on the other hand, are easier to keep safe, but there is always the possibility, no matter how small, that the password to my offline or cloud-based Bitcoin wallet will be compromised. If that happens, I instantly lose everything in that wallet, and that's scary.

So, I had an idea for how we could have the best of both worlds: What if we had another type of crypto coin that acted as a money substitute for bitcoin? You could call it a 'bitproxy' or a 'bitsubstitute'. This bixproxy would not be mined. Instead, the bitcoin protocol could be modified so that every bitcoin holder could create one, and only one, bitproxy. I could then deposit all of my bitcoins into a bank, and in exchange, the bank would give me bitproxies.

Unlike bitcoins, bitproxy transactions would not be final; they could be reversed by my bank at any time, just like credit card transactions. If someone gets their hands on my phone and steals the contents of my bitproxy wallet, no problem; I just call up my bank, prove that I am who I say I am, and my bank will transfer the bitproxies back to me.

Merchants would readily accept bitproxies, so long as those bitproxies were issued by a reputable bank. Periodically, the banks would finalize the bitproxy transactions by transferring the actual bitcoins to each other in a clearing process. A merchant would know that the transaction he conducted with me is final when the underlying bitcoins have been transferred from my bank to the merchant's bank.

Essentially, I am proposing a full reserve banking system, in which bitcoins act like the gold, and bitproxies act like a bank receipt for that gold. In addition, it would be impossible for a bank to engage in fractional reserve banking, because the bitcoin network would ensure that there is at most one bitproxy for every bitcoin at any given point in time.

Now, monitoring transactions for fraud requires time and resources, so banks will probably charge the merchants a transaction fee every time they accept bitproxies, just like credit cards. But, bitproxies would still be preferable to credit cards, for the following reasons:

• I don't have to reveal my personal information to the merchant
• The merchant does not receive the private key to my bitproxy wallet
• My bitproxies are 100% backed by bitcoins, so their value will not deteriorate as the government inflates the money supply
• I have the same fraud protection as I do with a credit card

This seems like such a great idea, I'm sure I'm not the first one who has thought of it. Does something like this already exist? Or are there some fatal flaws that I haven't thought of?