DWOLLA vs Paypal vs Bitcoin

[Gabi]

Also should be added how bitcoin cannot be stopped by governments. While paypal and dwolla can happily be closed and frozen, like liberty reserve.

[1715114381]

1715114381

[tvbcof]

I find Bitcoin great for making charitable donations.

BOOM! There's a good criteria to add. "Ease of donations".

It's a biggie to me.  In fact, I only found out about Bitcoin when there was an embargo against Wikileaks donations.

I feel strongly that transparency is a healthy thing in the struggle against corruption, and was mighty pissed off that PayPal, Visa, etc were not allowing me to support Wikileaks with what they claim (falsely) to be 'my' own money.

[Matthew N. Wright]

Also should be added how bitcoin cannot be stopped by governments.While paypal and dwolla can happily be closed and frozen, like liberty reserve.

As a payment method, it can't, but as a value liquidizer, it almost certainly can, at least as much as drug abuse can be stopped by governments (read: not very effectively with lots of casualties, but still makes it a pain in the ass to use and most businesses won't touch it at that point).

I'll add it because I think it's a valid point, but as with "transaction limits", I need to put an asterisk because the limit of the USD transaction depends on your ability to liquidate that value, else the value is not accurate. ($50 per coin isn't really $50 per coin if by selling 1 coin it drops to $49).

[Akka]

Well, if you want it "fair" add - ease of use.  Finally something where you can point Bitcoin last mainly due to the detours one has to take to get money in and out of the system. That would be solely for a payment system though, if you use it as a currency the picture is different.

Also micro payments, in which all 3 Suck, but Bitcoin sucks the least  

[Matthew N. Wright]

Well, if you want it "fair" add - ease of use.

Damn straight, and while we're add it "risk of loss due to user error"/reversibility

[Akka]

"risk of loss due to user error"/reversibility

That's a 2 edged sword. I would put it as User responsibility. Meaning how much responsibility for his/her own funds lies at the end user.

Some may see this as a downside (nobody can give you your lost/stolen money back), while others see it as an advantage (I have full control over my money).

I haven't used Dwolla yet, but from my picture of it I would set PayPal with the lowest level of for the end user Dwolla in the middle and Bitcoin the highest.

[Matthew N. Wright]

I haven't used Dwolla yet, but from my picture of it I would set PayPal with the lowest level of for the end user Dwolla in the middle and Bitcoin the highest.

Exactly how I put it.

[EndTheFed321]

"Intergallactic" 

[Blueberry408]

I'm far from the delusional cultist that is somewhat of a norm on these forums as I can clearly see Bitcoin both succeeding and failing at the same time and appreciate (not fear) any and all healthy competitors and innovations in the payments industry brought on by Bitcoin's initial first steps.

That said, I couldn't help but snidely snicker and snort when looking at this DWOLLA spam sent to me this morning and thinking of what that infographic would look like if there were a third column, "Bitcoin". Since I'm looking up currency laws in the UK, any one else want to waste some time on photoshopping this bitch?

{deletia}

To me the difference between Dwolla and Paypal is none of my homies work for Dwolla, but they have an app in the apple app store, so its like the difference between a safe and a wallet. They both take care of your money while you don't need to use it, but each has it's limitations. The wallet only holds so much, but you can carry it around. The safe is too heavy to carry, but holds way more money, and is harder to pickpocket. 

Paypal is an institution, especially beside Dwolla. Bitcoins are like proprietary trades, and wouldn't it be nice if they fit inside wallets and safes?

Well, maybe no, if bitcoin was intended to be the monetary system that allowed token exchange psychology to ascend into the annals of history.

If I go to the sushi bar and buy sushi and pay for it in japanese yen, we are transacting in a virtual reality, since I'm in the states.  All I have to do is establish the virtual reality construct by going to a sushi bar and befriending one of the waitresses. The bar pays taxes in dollars, and pays rent in food service. In the US, federal reserve notes are but one option we have of settling a properly registered debit, and are technically always available as a fall-back debt payment device no matter what.

That is a good strength to have, and since over time Paypal has expanded into institutional finances, they show the strength of their credit in the fees they charge. It is along with the requirements of the federal reserve system, extra assurance that cash would be on hand in the event it was requested by the holders. In terms of antidisestablishmentarianism, BTC would face exponential challenges in that regard.

And those are not even personal political opinions, just finance observations.

How does that one verse go?? Give to Kaisar what is the Kaisar's, give to G-d what belongs to G-d..

[Its About Sharing]

First, really nice job on the breakdown.

Interesting that BTC has nothing to really compare itself to. We are comparing it to payment forms using specific currencies. Where as BTC is it's own currency, which leads me to my point:

BTC as it's own currency throughout the world is going to impact potentially all currencies as it becomes both a store of value AND easily convertible. It is in another class of
currencies - a decentralized and Stateless entity that is DEFLATIONARY. Wow, imagine that. Something that doesn't get inflated out of value. Go down that rabbit hole with some deep thinking and you will come up with some interesting possibilities (to put it mildly). This alone has got to make banks watch their backs regarding the current 0% interest experiment.

I really think the convertibility is going to catch the world by surprise. Imagine people in 3rd world countries, countries with currency problems, etc. who can
just easily keep track of BTC's value in their own land. The dollar is currently the worlds currency, but has some limitations (e.g. - See Argentina banning it's use) and so BTC can easily be
used around any walls on an Android phone (until Apple takes it's bank out of it's...). It will take a bit more time and some more infrastructure but that really looks like it is on the way.

It's about sharing

The convertibility issue (Crypto/Fiat interface) is the unresolved issue that I see. What kind of functional market mechanism do you anticipate people using convert their Crypto to Fiat to make use of their funds "in-country?"

Perhaps I am ignorant but I think it is quite simple. Until stability is reached in BTC, they are going to have to have something in the way of an app on their android cell that converts their currency into BTC. I just see the solution being smart phone based for customers and store keepers alike (though the latter can of course use something larger if possible - but maybe a phone is enough? After all, we are talking 3rd world and countries with currency issues.) Just scanning QR codes as a means of exchange. Going from BTC back to their own currency, I guess that would have to be online, except for those people who wish to have some cash (for whatever reason) and then they can act as exchangers. I really see the local markets finding their own way, but it is in a sense already there. Due to the deflationary aspect it seems that most people would benefit from having BTC and not local currencies, at least once some stability is reached.

Is this what you meant? The mechanism is just some smart phones and apps.

Not really. You are proposing a technology for a transfer but you are not answering the basic questions about how the Fiat side of an exchange plays out. In your example (third world hyper inflationary economies):

A. Commercial Issues
1. Who will "buy" the local currency for Bitcoin knowing that it is rapidly depreciating?
2. Won't everyone want Bitcoin except for their immediate day to day needs -- for which they can use their paychecks or business cash flow?
3. How will they get bitcoin if no one wants to trade for the local currency at scale?
4. In essence, isn't this going to be a one-sided market?

B. Regulatory Issues:
1. Wouldn't you expect the Government of said country to place immediate restrictions on the use of bitcoins as they don't control it -- the same way they do on USD transactions?
2. Won't  that choke off the flow of funds as well?
3. At the grass roots level, can't they can basically arrest merchants for having the "app" on their machines, randomly check phones, etc... this is third world after all?
4. Do you view the Mt. Gox/Dwolla shutdown as a paperwork oversight or a shot across the bow?
5. Isn't the need to obtain money transmitter approvals state by state enough to stop bitcoin exchangers temporarily while more permanent regulations are promulgated?

These are just off the top of my head, and I am certain that I am missing many more important economic issues surrounding the Crypto/Fiat interface. But it's a start. In the absence of significant market share, I still don't understand how Crypto really gets off the ground for Mom and Pop and those wanting to do regulated business.

A:
1 - There is no need to use local currency if they don't want. If it is depreciating then of course they won't use it nor want to. Look at what is happening in Argentina. Big Premiums is my guess but we also need some Robin Hood like help and I'm sure that will be there.
2 - Yes they will and they will buy a fraction if need be. More valuable than their own currency. The idea is to exchange into BTC, any way possible. If in person, rates will be much higher of course.
3 - They will get BTC in a few ways, as mentioned in 2, they will pay a HIGH premium. 2nd - they will have to have access to an online means. Black Market...
4 - This is going to be a BTC sided market. The original idea of BTC. Hopefully not Black.

B:
1 - Yes they would, but when a currency is collapsing their power is going to be next to nil, not to mention they may not want to show their face due to many people who have lost their money, not to mention faith.
2 - Depends how bad things are. No one said this would be easy.
3 - Again, depends on how bad it gets. But if a stable currency helps the people AND country, why would they go to such extremes to stop it? They just want their taxes, bigger problem.
4 - Both but mostly they caught them making a mistake. I think they get fined and that is all. Looks like a genuine mistake. If they get jail time or things get more complicated, then it was more...
5 - Well, I see that happening. Isn't that what places like bitinstant do? I think they have permission in 30 States right now.

Depending on how far this goes, things may not be smooth. BUT, the reason this is even possible and here right now is because the Bankers F'd up. And as their money continues to collapse, BTC seems like a solution and not another problem. They are going to have to deal with this is my guess. Again, may not be easy, but it seems rights have never been given, they have always been fought for.

[SamS]

First, really nice job on the breakdown.

Interesting that BTC has nothing to really compare itself to. We are comparing it to payment forms using specific currencies. Where as BTC is it's own currency, which leads me to my point:

BTC as it's own currency throughout the world is going to impact potentially all currencies as it becomes both a store of value AND easily convertible. It is in another class of
currencies - a decentralized and Stateless entity that is DEFLATIONARY. Wow, imagine that. Something that doesn't get inflated out of value. Go down that rabbit hole with some deep thinking and you will come up with some interesting possibilities (to put it mildly). This alone has got to make banks watch their backs regarding the current 0% interest experiment.

I really think the convertibility is going to catch the world by surprise. Imagine people in 3rd world countries, countries with currency problems, etc. who can
just easily keep track of BTC's value in their own land. The dollar is currently the worlds currency, but has some limitations (e.g. - See Argentina banning it's use) and so BTC can easily be
used around any walls on an Android phone (until Apple takes it's bank out of it's...). It will take a bit more time and some more infrastructure but that really looks like it is on the way.

It's about sharing

The convertibility issue (Crypto/Fiat interface) is the unresolved issue that I see. What kind of functional market mechanism do you anticipate people using convert their Crypto to Fiat to make use of their funds "in-country?"

Perhaps I am ignorant but I think it is quite simple. Until stability is reached in BTC, they are going to have to have something in the way of an app on their android cell that converts their currency into BTC. I just see the solution being smart phone based for customers and store keepers alike (though the latter can of course use something larger if possible - but maybe a phone is enough? After all, we are talking 3rd world and countries with currency issues.) Just scanning QR codes as a means of exchange. Going from BTC back to their own currency, I guess that would have to be online, except for those people who wish to have some cash (for whatever reason) and then they can act as exchangers. I really see the local markets finding their own way, but it is in a sense already there. Due to the deflationary aspect it seems that most people would benefit from having BTC and not local currencies, at least once some stability is reached.

Is this what you meant? The mechanism is just some smart phones and apps.

Not really. You are proposing a technology for a transfer but you are not answering the basic questions about how the Fiat side of an exchange plays out. In your example (third world hyper inflationary economies):

A. Commercial Issues
1. Who will "buy" the local currency for Bitcoin knowing that it is rapidly depreciating?
2. Won't everyone want Bitcoin except for their immediate day to day needs -- for which they can use their paychecks or business cash flow?
3. How will they get bitcoin if no one wants to trade for the local currency at scale?
4. In essence, isn't this going to be a one-sided market?

B. Regulatory Issues:
1. Wouldn't you expect the Government of said country to place immediate restrictions on the use of bitcoins as they don't control it -- the same way they do on USD transactions?
2. Won't  that choke off the flow of funds as well?
3. At the grass roots level, can't they can basically arrest merchants for having the "app" on their machines, randomly check phones, etc... this is third world after all?
4. Do you view the Mt. Gox/Dwolla shutdown as a paperwork oversight or a shot across the bow?
5. Isn't the need to obtain money transmitter approvals state by state enough to stop bitcoin exchangers temporarily while more permanent regulations are promulgated?

These are just off the top of my head, and I am certain that I am missing many more important economic issues surrounding the Crypto/Fiat interface. But it's a start. In the absence of significant market share, I still don't understand how Crypto really gets off the ground for Mom and Pop and those wanting to do regulated business.

A:
1 - There is no need to use local currency if they don't want. If it is depreciating then of course they won't use it nor want to. Look at what is happening in Argentina. Big Premiums is my guess but we also need some Robin Hood like help and I'm sure that will be there.
2 - Yes they will and they will buy a fraction if need be. More valuable than their own currency. The idea is to exchange into BTC, any way possible. If in person, rates will be much higher of course.
3 - They will get BTC in a few ways, as mentioned in 2, they will pay a HIGH premium. 2nd - they will have to have access to an online means. Black Market...
4 - This is going to be a BTC sided market. The original idea of BTC. Hopefully not Black.

B:
1 - Yes they would, but when a currency is collapsing their power is going to be next to nil, not to mention they may not want to show their face due to many people who have lost their money, not to mention faith.
2 - Depends how bad things are. No one said this would be easy.
3 - Again, depends on how bad it gets. But if a stable currency helps the people AND country, why would they go to such extremes to stop it? They just want their taxes, bigger problem.
4 - Both but mostly they caught them making a mistake. I think they get fined and that is all. Looks like a genuine mistake. If they get jail time or things get more complicated, then it was more...
5 - Well, I see that happening. Isn't that what places like bitinstant do? I think they have permission in 30 States right now.

Depending on how far this goes, things may not be smooth. BUT, the reason this is even possible and here right now is because the Bankers F'd up. And as their money continues to collapse, BTC seems like a solution and not another problem. They are going to have to deal with this is my guess. Again, may not be easy, but it seems rights have never been given, they have always been fought for.

I'm just going to respond generally here:

A: What you call big premiums, I call an implied devaluation plus a premium to avoid further devaluation. So, local nationals are between a rock and a hard place on that one. They're likely to be better off buying hard assets than another currency for savings -- prices will adjust. For short term needs, the historical tendency is to spend it as you get it. I don't see anyone selling bitcoins to local nationals except to buy assets -- and surprise surprise there are laws regarding foreign ownership.

B: I think we'll have to agree to disagree here. Surprisingly, devaluations seem to be met stoically for the most part by the populace -- look at  Brazil, Argentina, Ecuador, Dominican Republic, Ukraine, Russia, etc...for example.  It's not like they don't/didn't see it coming. And it's not like they abandoned their own currencies afterwards -- dollarization isn't all that popular. In that regard, the US has been devaluing its currency for generations (most recently with the "Nixon Shock") and we don't see any revolutions springing up. I really don't see the US government giving up control of its currency -- consider the nationalization of gold for example to show how far the US government will go -- absent a systemic collapse. And I think that just about every nation-state will work with the US to avoid that as the likelihood of a global collapse has got to be 100% in that eventuality. To be honest, I'd like to be a conspiracy theorist and believe that Bitcoin is the product of the US government and is meant as a mechanism for seizing control back from the banks. Sadly, I find that implausible.

On the brighter side, I hadn't realized that BitInstant was that far along. It will be interesting to watch them evolve and see what the US government's next move will be. 

[augustocroppo]

I'll start the ball rolling with the actual text (plus some more of my own) of the infographic in a table format as well as the bitcoin column (which I want to fill out with the help of people here).

Hey Matthew, you forgot something like that:

	------ Dwolla ------	------ Paypal ------	------ Bitcoin ------
Transparency and open accountability	No	No	Yes (blockchain)

What are you thoughts?

[Matthew N. Wright]

I'll start the ball rolling with the actual text (plus some more of my own) of the infographic in a table format as well as the bitcoin column (which I want to fill out with the help of people here).

Hey Matthew, you forgot something like that:

	------ Dwolla ------	------ Paypal ------	------ Bitcoin ------
Transparency and open accountability	No	No	Yes (blockchain)

What are you thoughts?

Seperately, not bad! I'll add them!

[Its About Sharing]

First, really nice job on the breakdown.

Interesting that BTC has nothing to really compare itself to. We are comparing it to payment forms using specific currencies. Where as BTC is it's own currency, which leads me to my point:

BTC as it's own currency throughout the world is going to impact potentially all currencies as it becomes both a store of value AND easily convertible. It is in another class of
currencies - a decentralized and Stateless entity that is DEFLATIONARY. Wow, imagine that. Something that doesn't get inflated out of value. Go down that rabbit hole with some deep thinking and you will come up with some interesting possibilities (to put it mildly). This alone has got to make banks watch their backs regarding the current 0% interest experiment.

I really think the convertibility is going to catch the world by surprise. Imagine people in 3rd world countries, countries with currency problems, etc. who can
just easily keep track of BTC's value in their own land. The dollar is currently the worlds currency, but has some limitations (e.g. - See Argentina banning it's use) and so BTC can easily be
used around any walls on an Android phone (until Apple takes it's bank out of it's...). It will take a bit more time and some more infrastructure but that really looks like it is on the way.

It's about sharing

The convertibility issue (Crypto/Fiat interface) is the unresolved issue that I see. What kind of functional market mechanism do you anticipate people using convert their Crypto to Fiat to make use of their funds "in-country?"

Perhaps I am ignorant but I think it is quite simple. Until stability is reached in BTC, they are going to have to have something in the way of an app on their android cell that converts their currency into BTC. I just see the solution being smart phone based for customers and store keepers alike (though the latter can of course use something larger if possible - but maybe a phone is enough? After all, we are talking 3rd world and countries with currency issues.) Just scanning QR codes as a means of exchange. Going from BTC back to their own currency, I guess that would have to be online, except for those people who wish to have some cash (for whatever reason) and then they can act as exchangers. I really see the local markets finding their own way, but it is in a sense already there. Due to the deflationary aspect it seems that most people would benefit from having BTC and not local currencies, at least once some stability is reached.

Is this what you meant? The mechanism is just some smart phones and apps.

Not really. You are proposing a technology for a transfer but you are not answering the basic questions about how the Fiat side of an exchange plays out. In your example (third world hyper inflationary economies):

A. Commercial Issues
1. Who will "buy" the local currency for Bitcoin knowing that it is rapidly depreciating?
2. Won't everyone want Bitcoin except for their immediate day to day needs -- for which they can use their paychecks or business cash flow?
3. How will they get bitcoin if no one wants to trade for the local currency at scale?
4. In essence, isn't this going to be a one-sided market?

B. Regulatory Issues:
1. Wouldn't you expect the Government of said country to place immediate restrictions on the use of bitcoins as they don't control it -- the same way they do on USD transactions?
2. Won't  that choke off the flow of funds as well?
3. At the grass roots level, can't they can basically arrest merchants for having the "app" on their machines, randomly check phones, etc... this is third world after all?
4. Do you view the Mt. Gox/Dwolla shutdown as a paperwork oversight or a shot across the bow?
5. Isn't the need to obtain money transmitter approvals state by state enough to stop bitcoin exchangers temporarily while more permanent regulations are promulgated?

These are just off the top of my head, and I am certain that I am missing many more important economic issues surrounding the Crypto/Fiat interface. But it's a start. In the absence of significant market share, I still don't understand how Crypto really gets off the ground for Mom and Pop and those wanting to do regulated business.

A:
1 - There is no need to use local currency if they don't want. If it is depreciating then of course they won't use it nor want to. Look at what is happening in Argentina. Big Premiums is my guess but we also need some Robin Hood like help and I'm sure that will be there.
2 - Yes they will and they will buy a fraction if need be. More valuable than their own currency. The idea is to exchange into BTC, any way possible. If in person, rates will be much higher of course.
3 - They will get BTC in a few ways, as mentioned in 2, they will pay a HIGH premium. 2nd - they will have to have access to an online means. Black Market...
4 - This is going to be a BTC sided market. The original idea of BTC. Hopefully not Black.

B:
1 - Yes they would, but when a currency is collapsing their power is going to be next to nil, not to mention they may not want to show their face due to many people who have lost their money, not to mention faith.
2 - Depends how bad things are. No one said this would be easy.
3 - Again, depends on how bad it gets. But if a stable currency helps the people AND country, why would they go to such extremes to stop it? They just want their taxes, bigger problem.
4 - Both but mostly they caught them making a mistake. I think they get fined and that is all. Looks like a genuine mistake. If they get jail time or things get more complicated, then it was more...
5 - Well, I see that happening. Isn't that what places like bitinstant do? I think they have permission in 30 States right now.

Depending on how far this goes, things may not be smooth. BUT, the reason this is even possible and here right now is because the Bankers F'd up. And as their money continues to collapse, BTC seems like a solution and not another problem. They are going to have to deal with this is my guess. Again, may not be easy, but it seems rights have never been given, they have always been fought for.

I'm just going to respond generally here:

A: What you call big premiums, I call an implied devaluation plus a premium to avoid further devaluation. So, local nationals are between a rock and a hard place on that one. They're likely to be better off buying hard assets than another currency for savings -- prices will adjust. For short term needs, the historical tendency is to spend it as you get it. I don't see anyone selling bitcoins to local nationals except to buy assets -- and surprise surprise there are laws regarding foreign ownership.

B: I think we'll have to agree to disagree here. Surprisingly, devaluations seem to be met stoically for the most part by the populace -- look at  Brazil, Argentina, Ecuador, Dominican Republic, Ukraine, Russia, etc...for example.  It's not like they don't/didn't see it coming. And it's not like they abandoned their own currencies afterwards -- dollarization isn't all that popular. In that regard, the US has been devaluing its currency for generations (most recently with the "Nixon Shock") and we don't see any revolutions springing up. I really don't see the US government giving up control of its currency -- consider the nationalization of gold for example to show how far the US government will go -- absent a systemic collapse. And I think that just about every nation-state will work with the US to avoid that as the likelihood of a global collapse has got to be 100% in that eventuality. To be honest, I'd like to be a conspiracy theorist and believe that Bitcoin is the product of the US government and is meant as a mechanism for seizing control back from the banks. Sadly, I find that implausible.

On the brighter side, I hadn't realized that BitInstant was that far along. It will be interesting to watch them evolve and see what the US government's next move will be. 

A: I wouldn't focus on the "premiums" part, that is the last resort. Systems will be formed and by the very nature of what we are talking about here, they will be of higher value than what the government is offering with their fiat currencies. If governments in some parts of the world push BTC underground, than that is at the governments expense and that decision affects the people of course, so it is a tricky situation.
It will be interesting to see what happens with laws and such, again, it is of no small matter that governments force people into devalued currencies. I say the governments create their own demise here.

B: I don't necessarily disagree with your assumptions or thoughts of where this will go. I think it is too complicated and involves things outside of economics (like human behavior in new areas, perhaps with not a lot of precedence to go on, considering the world currently.) I do think systems will adjust themselves and governments will mostly be helpless to regulate them if things get bad. I'd say we are hanging on on faith right now. The US is making sure other currencies devalue themselves (by printing more) and that thus far has saved the US Dollar. But the Chinese currency has moved from 8:1 to 6:1 recently and is gaining on the dollar the whole time. So, you have to consider countries like China, Russia and maybe even parts of Europe, supporting the BTC and putting pressure on the USD in ways we can't imagine (almost). Look at American regulators going after Dwolla and now LR. It does look like they are going after funding mechanisms, but that seems to be increasing the price of BTC. Will the USD depreciate downwards against BTC, while other currencies appreciate only reasonably? Can you say "US policies are backfiring"?     (The bitcoinchannel.com guy has a great piece on that now).

Interesting Conspiracy theory (they sure are fun) but I agree with you. They can only wish to get control of it, and even then, it is deflationary - BIG Problem...

[600watt]

following

[SamS]

First, really nice job on the breakdown.

Interesting that BTC has nothing to really compare itself to. We are comparing it to payment forms using specific currencies. Where as BTC is it's own currency, which leads me to my point:

BTC as it's own currency throughout the world is going to impact potentially all currencies as it becomes both a store of value AND easily convertible. It is in another class of
currencies - a decentralized and Stateless entity that is DEFLATIONARY. Wow, imagine that. Something that doesn't get inflated out of value. Go down that rabbit hole with some deep thinking and you will come up with some interesting possibilities (to put it mildly). This alone has got to make banks watch their backs regarding the current 0% interest experiment.

I really think the convertibility is going to catch the world by surprise. Imagine people in 3rd world countries, countries with currency problems, etc. who can
just easily keep track of BTC's value in their own land. The dollar is currently the worlds currency, but has some limitations (e.g. - See Argentina banning it's use) and so BTC can easily be
used around any walls on an Android phone (until Apple takes it's bank out of it's...). It will take a bit more time and some more infrastructure but that really looks like it is on the way.

It's about sharing

The convertibility issue (Crypto/Fiat interface) is the unresolved issue that I see. What kind of functional market mechanism do you anticipate people using convert their Crypto to Fiat to make use of their funds "in-country?"

Perhaps I am ignorant but I think it is quite simple. Until stability is reached in BTC, they are going to have to have something in the way of an app on their android cell that converts their currency into BTC. I just see the solution being smart phone based for customers and store keepers alike (though the latter can of course use something larger if possible - but maybe a phone is enough? After all, we are talking 3rd world and countries with currency issues.) Just scanning QR codes as a means of exchange. Going from BTC back to their own currency, I guess that would have to be online, except for those people who wish to have some cash (for whatever reason) and then they can act as exchangers. I really see the local markets finding their own way, but it is in a sense already there. Due to the deflationary aspect it seems that most people would benefit from having BTC and not local currencies, at least once some stability is reached.

Is this what you meant? The mechanism is just some smart phones and apps.

Not really. You are proposing a technology for a transfer but you are not answering the basic questions about how the Fiat side of an exchange plays out. In your example (third world hyper inflationary economies):

A. Commercial Issues
1. Who will "buy" the local currency for Bitcoin knowing that it is rapidly depreciating?
2. Won't everyone want Bitcoin except for their immediate day to day needs -- for which they can use their paychecks or business cash flow?
3. How will they get bitcoin if no one wants to trade for the local currency at scale?
4. In essence, isn't this going to be a one-sided market?

B. Regulatory Issues:
1. Wouldn't you expect the Government of said country to place immediate restrictions on the use of bitcoins as they don't control it -- the same way they do on USD transactions?
2. Won't  that choke off the flow of funds as well?
3. At the grass roots level, can't they can basically arrest merchants for having the "app" on their machines, randomly check phones, etc... this is third world after all?
4. Do you view the Mt. Gox/Dwolla shutdown as a paperwork oversight or a shot across the bow?
5. Isn't the need to obtain money transmitter approvals state by state enough to stop bitcoin exchangers temporarily while more permanent regulations are promulgated?

These are just off the top of my head, and I am certain that I am missing many more important economic issues surrounding the Crypto/Fiat interface. But it's a start. In the absence of significant market share, I still don't understand how Crypto really gets off the ground for Mom and Pop and those wanting to do regulated business.

A:
1 - There is no need to use local currency if they don't want. If it is depreciating then of course they won't use it nor want to. Look at what is happening in Argentina. Big Premiums is my guess but we also need some Robin Hood like help and I'm sure that will be there.
2 - Yes they will and they will buy a fraction if need be. More valuable than their own currency. The idea is to exchange into BTC, any way possible. If in person, rates will be much higher of course.
3 - They will get BTC in a few ways, as mentioned in 2, they will pay a HIGH premium. 2nd - they will have to have access to an online means. Black Market...
4 - This is going to be a BTC sided market. The original idea of BTC. Hopefully not Black.

B:
1 - Yes they would, but when a currency is collapsing their power is going to be next to nil, not to mention they may not want to show their face due to many people who have lost their money, not to mention faith.
2 - Depends how bad things are. No one said this would be easy.
3 - Again, depends on how bad it gets. But if a stable currency helps the people AND country, why would they go to such extremes to stop it? They just want their taxes, bigger problem.
4 - Both but mostly they caught them making a mistake. I think they get fined and that is all. Looks like a genuine mistake. If they get jail time or things get more complicated, then it was more...
5 - Well, I see that happening. Isn't that what places like bitinstant do? I think they have permission in 30 States right now.

Depending on how far this goes, things may not be smooth. BUT, the reason this is even possible and here right now is because the Bankers F'd up. And as their money continues to collapse, BTC seems like a solution and not another problem. They are going to have to deal with this is my guess. Again, may not be easy, but it seems rights have never been given, they have always been fought for.

I'm just going to respond generally here:

A: What you call big premiums, I call an implied devaluation plus a premium to avoid further devaluation. So, local nationals are between a rock and a hard place on that one. They're likely to be better off buying hard assets than another currency for savings -- prices will adjust. For short term needs, the historical tendency is to spend it as you get it. I don't see anyone selling bitcoins to local nationals except to buy assets -- and surprise surprise there are laws regarding foreign ownership.

B: I think we'll have to agree to disagree here. Surprisingly, devaluations seem to be met stoically for the most part by the populace -- look at  Brazil, Argentina, Ecuador, Dominican Republic, Ukraine, Russia, etc...for example.  It's not like they don't/didn't see it coming. And it's not like they abandoned their own currencies afterwards -- dollarization isn't all that popular. In that regard, the US has been devaluing its currency for generations (most recently with the "Nixon Shock") and we don't see any revolutions springing up. I really don't see the US government giving up control of its currency -- consider the nationalization of gold for example to show how far the US government will go -- absent a systemic collapse. And I think that just about every nation-state will work with the US to avoid that as the likelihood of a global collapse has got to be 100% in that eventuality. To be honest, I'd like to be a conspiracy theorist and believe that Bitcoin is the product of the US government and is meant as a mechanism for seizing control back from the banks. Sadly, I find that implausible.

On the brighter side, I hadn't realized that BitInstant was that far along. It will be interesting to watch them evolve and see what the US government's next move will be. 

A: I wouldn't focus on the "premiums" part, that is the last resort. Systems will be formed and by the very nature of what we are talking about here, they will be of higher value than what the government is offering with their fiat currencies. If governments in some parts of the world push BTC underground, than that is at the governments expense and that decision affects the people of course, so it is a tricky situation.
It will be interesting to see what happens with laws and such, again, it is of no small matter that governments force people into devalued currencies. I say the governments create their own demise here.

B: I don't necessarily disagree with your assumptions or thoughts of where this will go. I think it is too complicated and involves things outside of economics (like human behavior in new areas, perhaps with not a lot of precedence to go on, considering the world currently.) I do think systems will adjust themselves and governments will mostly be helpless to regulate them if things get bad. I'd say we are hanging on on faith right now. The US is making sure other currencies devalue themselves (by printing more) and that thus far has saved the US Dollar. But the Chinese currency has moved from 8:1 to 6:1 recently and is gaining on the dollar the whole time. So, you have to consider countries like China, Russia and maybe even parts of Europe, supporting the BTC and putting pressure on the USD in ways we can't imagine (almost). Look at American regulators going after Dwolla and now LR. It does look like they are going after funding mechanisms, but that seems to be increasing the price of BTC. Will the USD depreciate downwards against BTC, while other currencies appreciate only reasonably? Can you say "US policies are backfiring"?     (The bitcoinchannel.com guy has a great piece on that now).

Interesting Conspiracy theory (they sure are fun) but I agree with you. They can only wish to get control of it, and even then, it is deflationary - BIG Problem...

A. I think the Betamax/VCR standards fight is relevant here. Betamax was the better technology but it didn't win out in the end. By the same token, Bitcoin may be the better technology for the storage of value and payment processing but it has fierce competition in the form of every government and existing payment processor in the world. I'm not saying it can't be done, but I do find it unlikely given the information to hand at this stage. As I understand your argument, you think Bitcoin will succeed as a result of organic/grass roots adoption. That's certainly possible. I would counter that by arguing that it is much more likely to be coopted by TPTB if it begins to make significant inroads.

B. On a long term view, I agree that the USD is heading for another significant devaluation. That's no surprise as other countries have become more competitive and the US has responded by frittering away much of its balance sheet on silly wars, bailouts, regulatory capture, reduced investment in research and real education, etc... Whether or not that occurs with a whimper or a roar is another matter. I'm more inclined to the whimper school of thought as education has been watered down to such an extent that the general populace is unable to understand what is happening. Moreover, the media has been captured by various special interest groups who put out their own propaganda on each event.

How does the above relate to bitcoin? Clearly the "out with a bang" school of thought allows for a system reset -- although at great societal cost. Should it go that way, I agree that bitcoin would have a chance of becoming a larger player in a new order. It's just as likely that the US would outlaw all crypto-currencies for legal tender and just issue the "new" Dollar though.

In the case of "out with a whimper," I could argue that Bitcoin might evolve as a successful micro-payments system that could infiltrate the larger economy. Unfortunately, I don't see that development is heading this way yet. People are still working on wallet security, scalability, the crypto/fiat interface (exchanges), etc... with an eye towards competing with other payment processors in the first instance and acting as a long term store of value in the second instance. To me, that looks hard as there is a lot of competition. However, taking a small slice of a large existing market is often viewed as more likely to succeed than trying to create an entirely new market.

C. With respect to regulation and Bitcoin value, I think the current regulatory actions are less important than the investment(s) by VC firms in maintaining bitcoin's value. People are placing long-term bets on bitcoin and there isn't a lot of liquidity to sop up that level of demand right now. It's also thinly traded -- think penny stock dynamics here. Now whether these are smart bets or not is another matter. VC's pumped a ton of money into solar and look where that got them...(so far).

As you said, it's complex and there is no simple calculus here.  Thanks for a fun conversation.

[TippingPoint]

... education has been watered down to such an extent that the general populace is unable to understand what is happening.

There is more than one contributing factor, but education is certainly one of them.

Good post.

[Its About Sharing]

A. I think the Betamax/VCR standards fight is relevant here. Betamax was the better technology but it didn't win out in the end. By the same token, Bitcoin may be the better technology for the storage of value and payment processing but it has fierce competition in the form of every government and existing payment processor in the world. I'm not saying it can't be done, but I do find it unlikely given the information to hand at this stage. As I understand your argument, you think Bitcoin will succeed as a result of organic/grass roots adoption. That's certainly possible. I would counter that by arguing that it is much more likely to be coopted by TPTB if it begins to make significant inroads.

B. On a long term view, I agree that the USD is heading for another significant devaluation. That's no surprise as other countries have become more competitive and the US has responded by frittering away much of its balance sheet on silly wars, bailouts, regulatory capture, reduced investment in research and real education, etc... Whether or not that occurs with a whimper or a roar is another matter. I'm more inclined to the whimper school of thought as education has been watered down to such an extent that the general populace is unable to understand what is happening. Moreover, the media has been captured by various special interest groups who put out their own propaganda on each event.

How does the above relate to bitcoin? Clearly the "out with a bang" school of thought allows for a system reset -- although at great societal cost. Should it go that way, I agree that bitcoin would have a chance of becoming a larger player in a new order. It's just as likely that the US would outlaw all crypto-currencies for legal tender and just issue the "new" Dollar though.

In the case of "out with a whimper," I could argue that Bitcoin might evolve as a successful micro-payments system that could infiltrate the larger economy. Unfortunately, I don't see that development is heading this way yet. People are still working on wallet security, scalability, the crypto/fiat interface (exchanges), etc... with an eye towards competing with other payment processors in the first instance and acting as a long term store of value in the second instance. To me, that looks hard as there is a lot of competition. However, taking a small slice of a large existing market is often viewed as more likely to succeed than trying to create an entirely new market.

C. With respect to regulation and Bitcoin value, I think the current regulatory actions are less important than the investment(s) by VC firms in maintaining bitcoin's value. People are placing long-term bets on bitcoin and there isn't a lot of liquidity to sop up that level of demand right now. It's also thinly traded -- think penny stock dynamics here. Now whether these are smart bets or not is another matter. VC's pumped a ton of money into solar and look where that got them...(so far).

As you said, it's complex and there is no simple calculus here.  Thanks for a fun conversation.

A. I agree with you on the Beta example, but I would apply it to BTC being first (and maybe not the best), much like VHS. (But the porn industry was partly responsible there I hear.)
Actually, I think if BTC succeeds it will do so because it is the quickest way currently to save businesses and people lots of money in fees. It is moving forward as we type with a fair amount of VC money behind it. It really has a huge advantage there.
I do agree that TPTB will make a fight out of it. And BTC was technically designed for that. We have to do our part.

B. It is scary knowing that traditionally a way out of hyperinflation is war. And when you look at the US situation and them assisting in Syria, wanting to get in Iran, etc. it is worrying. Luckily there are cool heads in the military with families and they don't just "listen to orders" so to speak.  Agreed on education. If you want to find the root causes there is an incredible incredible podcast regarding the makings of dumbing down education. (titled Ultimate History Lesson with John Taylor Gatto). Hour 1 of 5 - http://podbay.fm/show/170612809/e/1318190220  Here are the 5 video on youtube http://www.youtube.com/playlist?list=PL463AA90FD04EC7A2   If you ever give it a listent, PM me and tell me your thoughts.

I guess in the end BTC might just be the catalyst to change and in that we "lose" our "investment" but we really win then. On the other hand it succeeds and we win 2X, 3X, etc. over.

C. It is interesting, if we weren't worried about governments/banks getting involved here, we would have a sure fire success, game changing thing. But we will have to "fight" for it. Funny, I've thought of the penny stock similarity before, but you got to say it's a global one.  

Likewise, thanks for the fun conversation...
A lot of that around here.