Bitcoin should not be a currency, but a payment system

[gollum]

Its like swearing in a church when I say: Bitcoin should not be a currency and BTC/USD should be 0$
It would be a lot easier to use bitcoin as a medium of exchange, a payment system, if bitcoin was not used as a currency.

Right now bitcoin is considered a currency, bitcoin is a fiat just like US Dollars and Zimbabwe Dollars (except the inflation), and its price is highly volatile in relation to fiat currencies.
Bitcoin is fiat currency because it is regulated (by math) and not backed by any commodity: "Fiat money is money that derives its value from government regulation or law."

If I want to send or store 100$ in bitcoin at t₀ and get back dollars at t₁ my biggest issue is the stochastic variable BTC/USD.
My 100$ might be worth 1000$ or 10$ next year - who knows? If I want to speculate thats fun, but if I just want to store or send a specific value it dont feels good with that kind of uncertainty.

But if bitcoin instead was only used as a payment system the value of BTC/USD would always be zero.
Instead of sending bitcoin for its own sake, I would send the promise of 100$ through the bitcoin-system, and the bitcoins would be the holder of that contract.
 
The miners would earn money by transaction fees instead of bitcoin value, since bitcoin would always be worth 0$
To guarantee this zero value the system would need to have high inflation for ever to ensure that the system is only used for transactions and not for hoarding.

In this model the stochastic variable is the trust in me, I might become more trustworthy or less trustworthy between t₀ and t₁.
If the trust instead is based on an organization or pool the variation in this variable will be less volatile, and you will with almost 100% certainty expect that when you send 100$ with bitcoin today,
you will receive the same amount tomorrow, next week or next year.

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[edmundedgar]

There might be a use for a peer-to-peer database for tracking contracts between parties identified by public keys, like me promising x dollars to you, advertising it to the world and you confirming that I paid. You wouldn't need much of what Bitcoin does for that though - for example, you wouldn't need a system to resolve double-spends, because there's nothing wrong with making the same promise to two different people.

If you want a peer-to-peer payment system like Bitcoin but without the volatility against other currencies, it might be possible to design a crypto-currency pegged to an existing currency like the dollar, with some rules in the way money is created to stop it moving far from that rate. But the hitch is that you need some trusted organization to tell you the exchange rate. This is probably not impossible - for example, nodes could have a list of exchanges which were trusted to be honest about the exchange rate, and remove the exchanges from that list if they were caught misbehaving. But there would be a lot more to go wrong than there is in the Bitcoin system, where any decisions about who to trust can be resolved purely by the software.

[marhjan]

It sounds to me like you are describing something very much like Ripple.  you might consider looking into it

[GerMG]

It sounds to me like you are describing something very much like Ripple.  you might consider looking into it

yeah seems like it

[gollum]

You wouldn't need much of what Bitcoin does for that though - for example, you wouldn't need a system to resolve double-spends, because there's nothing wrong with making the same promise to two different people.

Thats not correct - if we compare to the offline world:
assume you owe me 100$ and sign me an IOU that money will be paid back in one month.
I need money tomorrow so I sell the IOU to another friend, this practice is legal, an IOU can be sold to third party.

That friend is unfortunately a scammer so he make a copy of that IOU and sell them both to other people.
With bitcoin it would be impossible to copy or double-spend the IOU.

[gollum]

It sounds to me like you are describing something very much like Ripple.  you might consider looking into it

Yes, Ripple is in some aspects a better solution than Bitcoin but it is not open source.

[edmundedgar]

I need money tomorrow so I sell the IOU to another friend, this practice is legal, an IOU can be sold to third party.

Ah, I see what you're getting at. That sounds like quite a useful thing. Isn't that what NameCoin does? I know it's mainly talked about as a p2p version of DNS, but they mention use-cases for bonds and shares. What you're talking about sounds like a bond. (A promise to pay someone x dollars by x date.)

[myhoho]

too late

[Gabi]

This is nonsense. If for something i can buy a smartphone worth 500$, then what i used to pay is worth 500$.

Isn't that what NameCoin does? I know it's mainly talked about as a p2p version of DNS

No, Namecoin is like bitcoin but with added p2p and decentralized version of DNS

[e521]

I agree, this doesn't make much sense to me
If it's not worth n <fiat>, how do you give it a value?
Who and why should accept it?

[Gabi]

Nice question

[edmundedgar]

I agree, this doesn't make much sense to me
If it's not worth n <fiat>, how do you give it a value?
Who and why should accept it?

The way I'm understanding this, skip over his stuff about things being worth 0 (which is confusing if it's right, and may be wrong) and just go with this:

- Somebody trustworthy issues an IOU. For example, a promise to the bearer, on demand, 5 pounds of silver. (Or it could be 5 US dollars, or 5 kilos of wheat, or whatever.)
- This IOU is now tradeable. It's worth about the same as 5 pounds of silver, if we almost completely trust the issuer.
- It can go backwards and forwards between different people in exchange for different stuff as many times as you like, and its value shouldn't vary much in the meantime.
- Eventually someone may take it back to the issuer and ask for their 5 pounds of silver.

What we've described so far is pretty much what a British banknote used to be, back in the days when it was really backed by silver.

The difference is that with gollum's system:
1) We can transfer ownership using a computer, and track who owns the property IOU in a public ledger.
2) We might have a lot of different issuers, of varying degrees of trustworthiness.

Gollum, is this what you're getting at?

[Edit for clarity: property -> IOU]

[bg002h]

If a bitcoin is not worth anything, it would take an awful lot of it to pay someone A valueless bitcoin wouldn't be very useful.

Also, the payment processing network of Bitcoin is the "heavy lifting".  If fees generated by the network (in bitcoin) aren't worth anything, then there is no reason to do the heavy lifting.

The store of value aspect of Bitcoin is by far computationally easier.  Why mess around with a robust payment network that could generate lots and lots of transactions (and associated fees) when you can just take a bigger percentage fee from the occasional massive value transaction the comes through?  You wouldn't have to buy new hardware to run the network.

IMHO, the best path forward for Bitcoin is to be a massive payment processing network where the actual bitcoins being processed are the stored value units.  This whole block reward thing is just to help get us there -- the reward is not most important part -- it's like a government subsidy to pay people to build the processing network.

I certainly hope some day there are enough transactions for the fees to be bigger than the current 25BTC block reward.  But, that'll take lots and lots of transactions. You'd need about 400 tx/sec paying 0.0001 BTC to get to 25 BTC in fees...with the current limit of about 7 tx/sec, you'd need a fee of roughly 60x that, about 0.006 BTC, to get there.  That's about $0.60 at current prices and prohibitively expensive for regular folk if Bitcoin were, say, $10,000 each.

If Bitcoin were designed to truly replicated the credit card industry, though, the fee would be a fixed percentage of the amount transmitted (like how Visa does it) rather than scaling (piecewise) linearly with the size of the transaction (size as in bytes, not bucks).



 

[edmundedgar]

What Gollum is describing is a different thing to what Bitcoin does now, and what Bitcoin does now clearly has its uses, so it's probably better if we read "Bitcoin should do X" as "We should make a thing that has some similarities with Bitcoin that does X".

[gollum]

What Gollum is describing is a different thing to what Bitcoin does now, and what Bitcoin does now clearly has its uses, so it's probably better if we read "Bitcoin should do X" as "We should make a thing that has some similarities with Bitcoin that does X".

Correct Im not suggesting to make a revolution in how bitcoin is functioning, it is accepted as a currency today and shall remain so.
What we need something that complements bitcoin.

[Zeke_Vermillion]

Gollum, I happen to agree with you. I would embellish your statement with the following.

BTC's fundamental value relates to the amount of information one is able to transmit via the blockchain using BTC. BTC is a commodity whose fundamental value comes through the anticipation of all the valuable services that will be built on BTC as a network. In my ideal world, we would get something like killerstorm's "colored coin" implementation, allowing the use of single satoshi payments to uniquely sign transactions in arbitrary assets. Yes this requires TRUST in the issuer. If you accept a colored satoshi representing an ounce of gold, or a TB of cloud memory, you must trust that issuer's pledge to redeem it for the stated asset. Or you rationally trust that other people will trust that it will be redeemed. But this is not like Ripple's over-simplified techno-utopian version of trust embedded in code. It is rather the fundamental economics of human commerce, based on real human relationships. BTC itself will still have significant value, of course, but consumer-level payments could graduate from using the sweet spice directly as a store of value, and rely instead on more human monetary abstractions.

If I may be so bold to make an analogy: crypto currencies will bring back the era of private currencies, just as Sam Adams beer returned the American tradition of regional microbrews. Sure Bud and Miller still exist, but discerning customers prefer to quaff the local brew. Private currencies have many advantages. An economy based on thousands or millions of private currencies supported by an overlapping web of complex contractual relationships and markets I think could plausibly be far more anti-fragile (to use Talebian speak) than an economy that relies on a small number of fiat coins.

[tvbcof]

It sounds to me like you are describing something very much like Ripple.  you might consider looking into it

Yes, Ripple is in some aspects a better solution than Bitcoin but it is not open source.

I just assumed that Ripple was open-source and didn't even notice that it was not in the bit of research I did on it.  Glad I didn't waste a lot of time on it.

[mobile4ever]

It sounds to me like you are describing something very much like Ripple.  you might consider looking into it

How many people control Ripple?


If not many... be very careful.