What problem does bitcoin solve?

[v-tim]

Hi.
Just curious about what problem bitcoin solves.

If I should setup a service in I2P and have people pay to use it, bitcoin isn't anonymous enough.
As soon as I use any of my I2P-bitcoins outside of I2P, I'm outed.
And anyone who wants to buy things from me would have a paper-trail linking their purchase from me to their regular account.

And if I setup a service on the regular internet, why should I bother with bitcoin and not just use VISA/Paypal/anything-else.

I'm trying to see a justification for bitcoin, but I just don't see it. Please educate me.

Tim

[SmokeTooMuch]

And if I setup a service on the regular internet, why should I bother with bitcoin and not just use VISA/Paypal/anything-else.

no fees. no charge-backs. no third party involved = no freezing.
to tell only a few advantages.

[grondilu]

You seem to see bitcoin only as a method of paiement.  Bitcoin is more than that.  It's a currency.  And it's a currency that has no central issuer.

[Timo Y]

Bitcoin is more that just a payment method. It's also a currency.

Other payment methods such as Visa, Paypal, Liberty Reserve, Pecunix, etc. are not currencies. They need to denominate their payments in some external currency that they have no control over.

Bitcoin as a currency solves the problem of the need for a corruptible third party (eg. central bank) to mint the currency.  Compared to gold and silver, it solves the problem that it's hard to send gold over long distances and it's expensive to store securely.

Bitcoin as a payment method is irrevocable like Liberty Reserve but unlike credit cards and paypal. Many here see this as an advantage because revocable payment methods are often abused for chargeback fraud.

It also solves the problem of needing to trust a "bank" to hold your wealth. Liberty Reserve for instance could go bankrupt, become rogue, be shut down by government, etc.  Your bitcoins are stored in the network and you retain full control over them.

Also, anonymity will improve as the economy grows, and more and more people can offer their work/services/goods directly for Bitcoin without relying on exchanges. As long as you only purchase and sell virtual goods full anonymity is possible.

 

[Stephen Gornick]

no fees. no charge-backs. no third party involved = no freezing.
to tell only a few advantages.

And immediate settlement -- the minute a transfer is made to you, those funds can then be spent.  i.e., no 3-day holds on your "deposits", no restrictions applying to new users, etc.

[Anonymous]

I read this interesting article today about bitcoin...(I dont know who posted it)
http://permalink.gmane.org/gmane.comp.finance.gold-silver-crypto/21949

Bitcoin does have inherent value, it is valuable for it's utility. We can use it to communicate value. That
is something that we need, therefore is valuable.

It's not fiat money, of course, it holds value because the users declare it to, not some evil regime. Since it
can be traded for goods, services, other currencies and even precious metals, it does communicate value.
It is money.

I think a lot of people were put off by the nonsense that bitcoin was worth the value of the electricity spent
to mine it into existence. As it turns out, this misunderstanding sprang from the truth that people would
stop mining the coins if their value in trade was less than the cost of the electricity used in mining. Lots
of people don't understand what money is and from that came this silly idea that bitcoin is worth spent
electricity. Of course, spent electricity is worth nothing.

[Cryptoman]

As soon as I use any of my I2P-bitcoins outside of I2P, I'm outed.
And anyone who wants to buy things from me would have a paper-trail linking their purchase from me to their regular account.

Someone might be able to see that you have some bitcoins, but how would they know how you obtained them?  Eventually, as a sufficient number of people start using bitcoin, trades will stay within the bitcoin system, i.e., there won't be much of a need to do exchanges.  There will also be services like the Bitcoin Laundry (http://bitcoinlaundry.com/).

[hugolp]

Bitcoin solves the problem of central banking.

[v-tim]

Thank you for your answers. I still don't quite get it though.
Ok, so bitcoin isn't just a payment method, it's a currency. And it doesn't have a central bank, the bank is seen as a problem here.
That would draw some libertarians, not many others.
And some technocrats would be interested in the implementation. For me, I don't see any big benefit yet.

The way I  see it.
Fees, too small to warrant switching form a well established currency.
Chargebacks, solveable by insurance.
Freezing, a problem if you're wikileaks, not for many others. Don't keep all money in one place and you should be fine.

Here's where I see some benefit.
Full anonymity is possible if you're only doing virtual things?  But not if I mix the two. When I buy my first pizza for my bitcoins they can link that to my I2P-website.
Is there somewhere I can read about how to be fully anonymous? I'm thinking of ways to reward those who provide valuable services to I2P, nothing illegal. Just to be clear about that. Some things might be questionable though. Supporting a I2P-torrenttracker might be one of those.
However the person running such a service has no real use of the coins, other than pushing it around the I2P network. Right?

For regular services on the internet I would not accept Bitcoin. Too insecure. Not possible to insure against value fluctuations. Among other things.
It does have some benefits, but it's no "killer app".
Find some place where bitcoin "fits" and build a community there. Perhaps the anonymous networks, perhaps somewhere else. I'm afraid bitcoin will never take off, just existing as a fun thing for the libertarians and anarchists. :-)
I would love to be wrong though.

[kiba]

Thank you for your answers. I still don't quite get it though.
Ok, so bitcoin isn't just a payment method, it's a currency. And it doesn't have a central bank, the bank is seen as a problem here.

Hyperinflation, trust, and integrity are HUGE problem. Bitcoin virtually eliminate the need to trust bankers not to abuse the printing machine.

Fees, too small to warrant switching form a well established currency.
Chargebacks, solveable by insurance.

The uncertainty of people chargebacking you is still real. Insurance is more fees you have to pay.

I'm afraid bitcoin will never take off, just existing as a fun thing for the libertarians and anarchists. :-)

The historical record indicates that we are growing and continue to grow. Just this month, we broke just about every forum record. Obviously, past performance doesn't mean future performance will continue...but it is clear at this point that our community is growing beyond the slashdotting stage.

[Timo Y]

Thank you for your answers. I still don't quite get it though.
Ok, so bitcoin isn't just a payment method, it's a currency. And it doesn't have a central bank, the bank is seen as a problem here.
That would draw some libertarians, not many others.

If I was holding EUR in a bank account in Greece, Spain, or Portugal, I would have reasons to be seriously worried at the moment, even if I was an "ordinary person" who doesn't know what a libertarian is.

The risk of the Euro breaking apart as a result of bad central bank policies is very real at the moment.  It is not some theoretical dystopian wet dream in the minds of libertarian philosophers.
I know lots of hands-on people who are working in the finance industry and some of them think that the risk of a EUR collapse by 2013 is 50%.

Your EUR in the Greek bank would then probably be converted to Drachmes, and god knows how far these would devalue.  Even in a German bank account you will be facing uncertainty. How would the central bank set the EUR / Deutsche Mark / EUR2.0 / whatever exchange rate?

Skepticism about centralised fiat currencies is very much in the Zeitgeist at the moment, even among ordinary people. That skepticism will draw some of them to Bitcoin.

You think I am being paranoid? Well, you don't have to take my word.

The Swiss Franc/ Euro exchange rate has recently reached a historic high. (the Swiss Franc is seen as a safe haven currency because the Swiss central bank is not quite as incompetent as the others). The market doesn't lie.

It does have some benefits, but it's no "killer app".

I agree, ordinary web merchants are no killer app.

Some have suggested decentralised p2p file storage as a killer app. This is an example where you can only utilise a decentralised currency. Or at least, if you utise a third party payment method, that third party has the power to shut down the entire storage network at will. This would be seen as a weakness and would increase the risk of data loss from a user's perspective.

Another killer app that has been suggested is a p2p DNS fused into the blockchain of Bitcoin.

[casascius]

To me, Bitcoin solves the same problem that gold solves, without the fuss of having to transport it from point A to B, and without every recipient having to assay it to make sure the gold is there.

[ShadowOfHarbringer]

Hi.
Just curious about what problem bitcoin solves.

Bitcoin solves multiple problems. It is quite a reVolutionary invention.

1. Problem of government breaking down money using printing them or manipulating them in other way.
2. Problem of centralization - too much power corrupts people too much. In bitcoin, that is not a problem, as there is no central authority.
3. Problem of single point of failure - bitcoin will work as long as internet will work. Destruction of multiple banks or data centres will not bring bitcoin down.
4. Problem of anonymous transactions (when used properly).
5. Problem of divisibility: You can divide bitcoins up to .8 decimal point, like 0.00000001 bitcoins. Actually the protocol allows dividing even to smaller pieces.
6. Problem of creating gold standard currency which can be easily sent over the internet.
7. Problem of creating an electronic virtual currency, that would not be virtual and would be a "hard" currency. Each Bitcoin has an inherent intelectual value, because it holds a solution to complex mathematical problem. And REAL work needs to be input to produce a bitcoin, just like you need real work to mine gold out of ground.

If I should setup a service in I2P and have people pay to use it, bitcoin isn't anonymous enough.
As soon as I use any of my I2P-bitcoins outside of I2P, I'm outed.

I don't think you are understanding the conception of bitcoin properly. If you would, you would also know that bitcoin can be quite anonymous when used properly.

And anyone who wants to buy things from me would have a paper-trail linking their purchase from me to their regular account.

Why would there be any paper trail ?
1. Somebody buys bitcoins somewhere - probably on some exchange or market using credit card. Trail starts.
2. It sends them to your one-time generated anonymous bitcoin address (yes, Bitcoin supports it) , trail breaks.

So how does the trail pinpoint you if nobody knows that the final address belongs to you ?

[mtgox]

I think to most people the benefit over other payment methods is:
no fee
ability to do micro transactions
anyone can use it

Most people won't care about the austrian economic/libertarian aspects.

[grondilu]

Let my try this comparaison :

Bitcoin is to Paypall what email is to telegraphy.

Now it's obvious that email is better than telegraphy, but I'm pretty sure that 15 years ago we could have found people saying that email has no future and that telegraphy is better.

[Cryptoman]

How about Bitcoin is to Paypal as email is to fax.  They are both electronic transmission methods, but Bitcoin and email are lower in cost (nearly free). 

[grondilu]

How about Bitcoin is to Paypal as email is to fax.

Yeah, sounds better indeed.

[just a man]

It does have some benefits, but it's no "killer app".
Find some place where bitcoin "fits" and build a community there. Perhaps the anonymous networks, perhaps somewhere else. I'm afraid bitcoin will never take off, just existing as a fun thing for the libertarians and anarchists. :-)
I would love to be wrong though.

You don't get it yet, it's a store of value, that's where it fits. As it's such a good way to store and transact value, it's not going to go away until the internet does. How easy it is to buy a loaf of bread with it at this point is of no more importance then how easy it is to buy a loaf of bread with lumps of silver.

The secondary growth potential is enormous, I'm reading this forum and seeing the creation of whole new service industries, it's a self-reinforcing feedback loop. For me bitcoins have already arrived as a valued commodity that is actively traded and actively hoarded. No one's giving more than 0.05 of them away for free. Not being able to spend them directly is entirely irrelevant.

Think of it like classic cars, there' a market for that, there are people who think of classic cars, or classic shoes, or 'art' as safe place to put their money. No one cares if they can't always swap their classic car directly for something else and have to use dollars or pounds instead.

Difference here is that bitcoins are easy to change hands directly, and you can spend their value fractionally, for things smaller than the cost of a full classic car. Right now the bitcoin economy is probably the size of about a hundred chevrolets. lol.

[hugolp]

I would not accept Bitcoin. Too insecure. Not possible to insure against value fluctuations.

I will never get this. A government currency is always more insecure than a non-government currency, yet people keep thinking otherwise Study history. Governments always try to steal their citizens by debasing the currency.

In reality is very simple, a government currency is backed by force. A non-government currency will only take off if it offers a quality currency, otherwise people have no reason to use it. A government currency is imposed by force, there is no incentive to offer a quality currency because people has to accept it anyways and therefore its always debased.

Government currencies are always more dangerous than voluntary currencies.

[Mike Hearn]

I don't really understand why you think the Wikileaks thing doesn't apply to you.

There are two things you overlook.

The first is you seem to care a lot about anonymity via I2P which rather implies you don't want somebody to know who you are or what you're doing. Yet your solution to account freezing is just "don't store all your money in one place". How do you propose to have multiple bank accounts that can't be tied together and all frozen simultaneously if you piss off the wrong people?

The second is that Wikileaks did not have their accounts frozen. Instead payments to them were blocked. That's rather different and is not solved by simply keeping funds in multiple places .... after all, if nobody can send you money, almost by definition you have no funds to spread around.