Bitcoin Spending and Improving the Bitcoin Economy

[colinistheman]

I just had a realization while reading a thread here.

A lot of people are hoarding/investing bitcoin, correct? They are doing this because they see long-term profit potential and don't want to lose this. I don't blame them at all. And secondly: hoarding bitcoin is not very helpful to the bitcoin economy, correct? Regardless of these first two points, I'm sure we ALL want bitcoin to flourish-- especially hoarders/investers.

We all have one point in common: WE ALL WANT BITCOIN TO INCREASE IN VALUE AND BECOME WIDELY ACCEPTED.

What about this idea to help us all:

Regardless whether or not you are saving some bitcoin as an investment, what if everyone did this: Try to find AS MANY THINGS AS POSSIBLE IN YOUR DAILY LIFE THAT YOU *CAN* BUY WITH BITCOIN. Then, using fiat, purchase the bitcoins necessary to buy these normal expenses. The great part of this plan is they are things you would have had to buy ANYWAY! Except by doing it this way, it converts US dollars (or whatever your currency is) into bitcoin and supports Bitcoin merchants, thereby encouraging bitcoin marketplaces and therefore growth of the bitcoin economy. This sure seems far better than ONLY hoarding bitcoin.

You can even make a separate wallet just for your daily living bitcoin expenditures. This keeps it separate from all other bitcoin you might not want to spend. Simple enough.

The good thing about this solution is it allows those who still want to hoard bitcoin to continue doing so. If they just buy what they need with bitcoin and then re-purchase what was spent in fiat, then they are still helping and not losing their "hoard" investment.

I don't blame anyone for wanting to make some longterm investment money with Bitcoin. But this way we can both play the longterm money making game AND we can help bitcoin grow (which in turn helps our long term investments!)

It's a game like: how much stuff in our daily life can we buy with bitcoin? I bet a lot if we really tried. Heck, gift cards purchased with bitcoin pretty much make anything possible, right? I bet we can buy groceries and daily living supplies with btc.

What do you guys think about this plan?

I'm going to start doing this immediately. I think it will be fun to see how much I can buy that I was already buying with US Dollars anyway. Why not give bitcoin a boost in the process?

I really am for doing all we can as individuals to promote the growth of bitcoin as a successful replacement to fiat. I REALLY don't like how our governments handle and control money. And I really don't like the control it puts over us, without our consent or choice in the matter. And I really don't like how our hard-earned money can be devalued by just printing more at someone's whim. And I really like supporting a currency (bitcoin) that gives a middle finger to all these things. Don't you?

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[The Bitcoin Co-op]

It's not a bad plan. At Meet Up events, we see a lot of Bitcoiners who insist on paying fiat because they want to maintain their crypto balance. If we ask them why they don't just buy new coins, they will say the exchange fees and spreads make it cheaper to pay in fiat than to do that. We are starting to experiment with getting discounts at venues for guests who pay in bitcoins, to see if that encourages Bitcoin spending. Personally, I think that will be one of the most effective ways to grow the Bitcoin economy. If the resulting volume is sufficient, the business still profits. But then businesses have to agree to this, and not all businesses are are interested in Groupon-like deals.

One problem with your idea is that it is unnecessary in many cases. For example, at Meet Ups, Bitcoiners who pay fiat are still there, paying money, and they are there because of Bitcoin. Theoretically, we could voluntarily choose to get goods and services from those who accept bitcoins, but still pay with fiat, and they still get support from the Bitcoin community. They are likely to notice changes in their sales, even if the sales are in fiat and they are an online or widespread business. Another issue might be the fact that most businesses who accept Bitcoin have them converted to fiat upon doing so, meaning that upon paying them in bitcoins, we are effectively selling them for fiat, driving down the value of a bitcoin. If we buy as many as we spend, there is no net effect on the price, and now we are losing money from exchange fees if Bitcoin is not going up fast enough.

The latter is only a big issue, however, if your immediate goal is to raise the value of bitcoins as fast as you can. A better strategy in the long run would be to grow the stable value of a bitcoin if there were no hoarders, and the only way to do so is by making the currency more useful so that the public adopts it. Bitcoin losses that occur at retail support long-term growth because those sales encourage merchant adoption, which encourages consumer adoption. If the consumers are made to believe that Bitcoin will not die, and that inevitably it will reach a market value many orders of magnitude higher than today's, they will not be phased by short-term fluctuations in bitcoin price. It will always be easier when the price is going up, though.

[doof]

Another problem is your adding 2% or what ever exchange rate, plus transaction fee to the product.  Good idea, and i tell all my mates to pass wealth between us using btc only.

[gambit1]

Very good idea.

[Zangelbert Bingledack]

This is a good plan.

Not to detract from that, but I have to point out that hoarding is extremely good for the Bitcoin economy: it raises the price of Bitcoin, which generates mainstream interest. As the last few months have shown, higher prices are by far the fastest way to boost the Bitcoin economy. The mainstream attention has introduced many, many new people who are now starting businesses and transacting.

[gambit1]

There is some logic in what you say but hoarding is far better for bitcoin as an asset class than a currency. For it to work as a currency people need to use it. Its not either save or spend. Save most of your bitcoins but use a few Satoshi's now and then to show willing and keep the real bitcoin economy going. Thats all.

The OPs post actually suggested not touching your bitcoin savings or "hoard" and instead converting fiat to bitcoin to spend when you want to buy something which is a great idea.

[colinistheman]

There is some logic in what you say but hoarding is far better for bitcoin as an asset class than a currency. For it to work as a currency people need to use it. Its not either save or spend. Save most of your bitcoins but use a few Satoshi's now and then to show willing and keep the real bitcoin economy going. Thats all.

The OPs post actually suggested not touching your bitcoin savings or "hoard" and instead converting fiat to bitcoin to spend when you want to buy something which is a great idea.

Yes, I believe that it is totally fine to save Bitcoin. In fact, I have some saved up myself. But having the mindset that you are only saving them might prevent some people from EVER spending, which is silly because we want this to be a currency that everyone USES.

So if we just buy some additional bitcoin and spend those (not our savings) then we can have the best of both worlds and help the bitcoin economy even more than just holding onto them.

[alp]

Hoarding isn't that bad.  Hoarding is a sign that someone thinks something will be more valuable in the future than it is now.  This reduces supply now and raises supply in the future.  Think about the following scenario:

There is a hurricane that hits Florida and destroys the food and water supplies.  What happens to the price of food and water in Florida (assuming no meddling)?  The price simply goes up.  This means people will conserve food and water (probably much fewer showers than normal, no watering of lawns, etc...).  It also is a signal to the market that water and food are in short supply in Florida compared to other places in the country.  The natural response is "greedy" people trying to make profits driving trucks of food and water to Florida to take advantage of the potential profits.  The trucks arrive, and supplies increases, and the price goes down.  A crisis averted.  Rather than seeing very high prices until they can supply themselves food and water, prices level out (probably still higher than normal due to costs of transportation, but still much lower than if nothing was done).

Speculation is a very similar problem, but instead of using distance as a way of signalling where things are more valuable, time is the entity that is used.  Rather than driving a truck to Florida, people are simply storing Bitcoins in the present so that they can use them in the future.  This reduces supply now, and potentially increases it in the future.  Those who are hoarding must pay some cost.  They would much rather have a big screen TV or a car now than in 10 years, but if they can get a return on investment, they would prefer to forgo that spending and instead get it in the future with a bonus (increased price).  Hoarders are simply transporting Bitcoins to the future, where they are more valuable, no different than those who make profits helping a crisis.

The basic economics of this is easy to show what happens.  Supplies drop now (and demand increases if people are expecting gains long term), raising the price much earlier than it would have before.  As the price rises, you see more sell-off, and the supply decreases.  You end up with stable prices much faster than before.  The fact we have $90-100 Bitcoins now with such little activity shows that the increased usage in the future is already being accounted for.  You end up with more stable prices and an auto-correcting system where even if the distribution mechanism (mining release rate) doesn't match what is actually optimal, hoarding and profit taking takes this very close to optimal.

Hoarders are a great thing for the Bitcoin economy, much like those who transport goods from areas that have surpluses to those that have shortages.

[The Bitcoin Co-op]

Hoarding is only bad to the extent that it prevents economic use. If people always spend in fiat because they don't want to repurchase their coins, then nobody will ever bother to accept bitcoins, and Bitcoin cannot go mainstream. The percentage of coin-holders who are pure investors dedicated to not spending them must decrease over time for this all to work. As groups like our Cooperative go about signing up venues, we have to constantly worry about things like this. At restaurants, it's a bit easier, because if Bitcoiners go there and spend fiat, they still went there, and spent money, and we can usually make that clear. But what about online marketplaces, and businesses where it's not clear where the customer came from? Now the incentive to accept bitcoins is falling, and therefore the rate at which it will be adopted by the public is also falling.

[alp]

Hoarding is only bad to the extent that it prevents economic use. If people always spend in fiat because they don't want to repurchase their coins, then nobody will ever bother to accept bitcoins, and Bitcoin cannot go mainstream. The percentage of coin-holders who are pure investors dedicated to not spending them must decrease over time for this all to work. As groups like our Cooperative go about signing up venues, we have to constantly worry about things like this. At restaurants, it's a bit easier, because if Bitcoiners go there and spend fiat, they still went there, and spent money, and we can usually make that clear. But what about online marketplaces, and businesses where it's not clear where the customer came from? Now the incentive to accept bitcoins is falling, and therefore the rate at which it will be adopted by the public is also falling.

People spending bitcoins doesn't help them go mainstream.  What helps them go mainstream is use cases where they are vastly superior to use, or trivially easy to obtain.  There are limited usecases where that is true at the present time (I believe this will change in the future, but it isn't true now unless you are using Silk Road).

We need to focus on use cases where Bitcoins are vastly superior to the alternatives at the present time, and give people a compelling reason to use them other than "they are cool".  Remittance, greymarkets, reducing trust, etc... are all valid use cases for this.  Getting a bunch of merchants to basically immediately exchange them through BitPay doesn't do much other than put more available on exchanges, lowering the price, and inducing panics.  It is no different than selling on an exchange first, then using fiat to pay for something.

Find those killer apps and use cases where it crushes.  Invest in those areas.  Show how it IS superior instead of a toy for geeks.  Silk Road has already done this.  We need more places where you don't need to convince someone how great it is, the results speak for themselves.  If you can send money to Kenya and give people there better results, people will start using it.  If you can use it to play poker without risking seizure or fraudulent companies, do it.  People will follow if they can see the benefits.  Forcing them to imagine them will never work, and someone who sees a "Bitcoin Accepted Here" sign won't make them adopt it unless it gives them a better experience.

[The Bitcoin Co-op]

Hoarding is only bad to the extent that it prevents economic use. If people always spend in fiat because they don't want to repurchase their coins, then nobody will ever bother to accept bitcoins, and Bitcoin cannot go mainstream. The percentage of coin-holders who are pure investors dedicated to not spending them must decrease over time for this all to work. As groups like our Cooperative go about signing up venues, we have to constantly worry about things like this. At restaurants, it's a bit easier, because if Bitcoiners go there and spend fiat, they still went there, and spent money, and we can usually make that clear. But what about online marketplaces, and businesses where it's not clear where the customer came from? Now the incentive to accept bitcoins is falling, and therefore the rate at which it will be adopted by the public is also falling.

People spending bitcoins doesn't help them go mainstream.  What helps them go mainstream is use cases where they are vastly superior to use, or trivially easy to obtain.  There are limited usecases where that is true at the present time (I believe this will change in the future, but it isn't true now unless you are using Silk Road).

We need to focus on use cases where Bitcoins are vastly superior to the alternatives at the present time, and give people a compelling reason to use them other than "they are cool".  Remittance, greymarkets, reducing trust, etc... are all valid use cases for this.  Getting a bunch of merchants to basically immediately exchange them through BitPay doesn't do much other than put more available on exchanges, lowering the price, and inducing panics.  It is no different than selling on an exchange first, then using fiat to pay for something.

Find those killer apps and use cases where it crushes.  Invest in those areas.  Show how it IS superior instead of a toy for geeks.  Silk Road has already done this.  We need more places where you don't need to convince someone how great it is, the results speak for themselves.  If you can send money to Kenya and give people there better results, people will start using it.  If you can use it to play poker without risking seizure or fraudulent companies, do it.  People will follow if they can see the benefits.  Forcing them to imagine them will never work, and someone who sees a "Bitcoin Accepted Here" sign won't make them adopt it unless it gives them a better experience.

Actually, so far the clear majority of venues we've signed up so far keep their money in Bitcoin. Also, Bitcoin acceptance does grant a better experience, because one can acquire discounts for doing so at this stage of the game--they are getting exclusive access to a market, unless there's another Bitcoin merchant next door, and the fees are lower. But that's besides the point.

Remittances, grey markets and Silk Road are not and never will be motivations for primary consumers in 1st world countries. Those things are driving acceptance rapidly in economies where the government is foolish with the money supply (in a way so obvious as to wake up the public), or where the economy is still developing. And, of course, drug users and libertarians. But here in Vancouver, at least, nobody cares about those things (they can easily get drugs in person in BC), and their lack of knowledge about Bitcoin comes from the fact that you can't use it for the things we need or want every day. That is easily the most common complaint we see about bitcoins. And they will never start using Bitcoin until they can do those things. We hype its awesome economic and political properties--it's easy to tell somebody this fights big banks and big government, and they love that--but then when they ask where they can spend them, and we say "nowhere," they look at us like we are stupid and walk away. And until "Bitcoin Accepted Here" signs are more prominent, this will always be true, not because the sign teaches them what Bitcoin is, but because the sign teaches them that bitcoins are not useless.

This is what has to happen if we want to overtake the dollar's position, anyways. Things we used the dollar for must be done with Bitcoin, or obviously the dollar is still dominant. These use cases, such as remittances, Silk Road and the developments in Kenya are stepping stones to that point. We take one industry/region/economy at a time, starting with the ones where it is most useful, and graduate towards standard usage. Then it will be a currency, which is the whole point. If bitcoins are only used in certain advantageous scenarios, then they are more like an asset than a currency, which should be directly exchangeable for anything in the economy by definition. Maybe a better way for you to phrase it would be, "Spending bitcoins doesn't help them go mainstream YET," but there's no reason we should not be laying the foundation for that final stepping stone already.

[alp]

Actually, so far the clear majority of venues we've signed up so far keep their money in Bitcoin. Also, Bitcoin acceptance does grant a better experience, because one can acquire discounts for doing so at this stage of the game--they are getting exclusive access to a market, unless there's another Bitcoin merchant next door, and the fees are lower. But that's besides the point.

I fail to see how this is a clear advantage for anyone other than those accepting funds.  And of course, there is benefits in accepting many types of payments (different credit cards, different national currencies, etc...).  If the hassle is too much (only small number of customers would use it and you have to exchange it, etc..)

Remittances, grey markets and Silk Road are not and never will be motivations for primary consumers in 1st world countries. Those things are driving acceptance rapidly in economies where the government is foolish with the money supply (in a way so obvious as to wake up the public), or where the economy is still developing. And, of course, drug users and libertarians. But here in Vancouver, at least, nobody cares about those things (they can easily get drugs in person in BC), and their lack of knowledge about Bitcoin comes from the fact that you can't use it for the things we need or want every day. That is easily the most common complaint we see about bitcoins. And they will never start using Bitcoin until they can do those things. We hype its awesome economic and political properties--it's easy to tell somebody this fights big banks and big government, and they love that--but then when they ask where they can spend them, and we say "nowhere," they look at us like we are stupid and walk away. And until "Bitcoin Accepted Here" signs are more prominent, this will always be true, not because the sign teaches them what Bitcoin is, but because the sign teaches them that bitcoins are not useless.

Which is why Bitcoin is not terribly widespread other than for speculating in 1st world countries.  It's not able to provide significant advantages yet.  Why would anyone jump through tremendous hoops to buy bitcoins for fiat just to spend Bitcoins to possibly get a small discount, when they could have used fiat to begin with?  The only case you have is when you want to pay an individual with Bitcoins and he balks because it's too hard to spend it.  If some store near you started accepting Pokemon cards as payment alongside dollars, and gave a 1% discount, but you had to collect them all to be able to pay it, it would be stupid to think you would pay in Pokemon cards.  Sure, collectors of Pokemon cards might think this is a great deal for them, but no one is going to care.  If Bitcoins made these transactions significantly better (5% discount with Bitcoin), etc... you would have people who might get interested, and maybe the cost of obtaining Bitcoins would be worth the discount.  Still, a lot of hoops to save a few pennies.

That's why remittance will be awesome for Bitcoins.  There is a potential to make a huge impact, not just save pennies.  That's why Silk Road is huge.  That's why Satoshi Dice is huge (although part of that might be boredom of hoarders).

This is what has to happen if we want to overtake the dollar's position, anyways. Things we used the dollar for must be done with Bitcoin, or obviously the dollar is still dominant. These use cases, such as remittances, Silk Road and the developments in Kenya are stepping stones to that point. We take one industry/region/economy at a time, starting with the ones where it is most useful, and graduate towards standard usage. Then it will be a currency, which is the whole point. If bitcoins are only used in certain advantageous scenarios, then they are more like an asset than a currency, which should be directly exchangeable for anything in the economy by definition. Maybe a better way for you to phrase it would be, "Spending bitcoins doesn't help them go mainstream YET," but there's no reason we should not be laying the foundation for that final stepping stone already.

There are scenarios between "no one using it" and "widespread domination" that are successes for Bitcoin.  There may be certain applications where it is highly useful and others where it's painful, and it still would be a success. 

While seeing a lot of places that accept Bitcoins as payments might make someone think they are useful, they need to realize they are useful *for them*.  And to do that, it needs to be a better experience than fiat.  And presently, it's not even close.  That doesn't mean it won't be in 10 years.

[The Bitcoin Co-op]

We're giving a 30% discount on ladies night. I am thinking 10-15% when the discounts are for everyone. Convincing these venues to give concessions is easier than you believe, if you make friends with the owners. I don't think making every restaurant accept Bitcoin will make it a currency, but I think it's a part of what has to happen to make it a currency. The mainstream will never care about bitcoins they can't use for regular things. I have been using a set of social groups I administrate with thousands of members to recruit Bitcoin newbies, and trust me, this is the way they think. You're giving a logical argument for the way they will interpret its usefulness, but people are not logical. Everything is sensational and viral and in real life, people care about that more than they do about what is practical to use. Just look around you at some of the products and services people use. a Beanie Baby, for example, should never have been worth more than $200, but I've sold one for as much. Of course, Beanie Babies are gone now, but there are all kinds of examples. I was gonna use Apple products, but there might be Apple fans somewhere around here.

You argued in the last paragraph I was using black and white thinking, but so are you. The importance of remittances (which I accept) in no way detracts from the importance of tackling the regular consumer industry. I think it's silly of you to dismiss the registration of venues so blatantly. It is necessary and important, but one piece of what is necessary and important. I think the only logical reason one would have to disagree is that they are hoarding lots of Bitcoins, they fear venues who are converting payment to fiat, and they are extremely focused on what prevents the downtrend right now, rather than what will raise the stable price down the road. Why would you do this at the expense of Bitcoin's future market share? You do not WANT bitcoins to spread to the mainstream consumer economy? Why should you purposely relegate it to uses that are niche and obscure? Maybe you believe it's impossible to do? I disagree. Once some kind of campaign makes regular people buy Bitcoins, and enough people have them, it will take root. It's like Facebook: not as good as Google+, but we have to use what everyone else is using. That's why we still use dollars. It should end.

[Synethstesia]

Good idea...

[alp]

Why would you do this at the expense of Bitcoin's future market share? You do not WANT bitcoins to spread to the mainstream consumer economy? Why should you purposely relegate it to uses that are niche and obscure? Maybe you believe it's impossible to do? I disagree. Once some kind of campaign makes regular people buy Bitcoins, and enough people have them, it will take root. It's like Facebook: not as good as Google+, but we have to use what everyone else is using. That's why we still use dollars. It should end.

I have no idea why you think this has anything to do with doing this at the expense of market share.  I think Bitcoins are great, but when you have a disruptive technology, you need to give a superior experience.  I'm not relegating anything, consumers will (and have).

If Google+ had a significant advantage over Facebook, it would win out.  Same reason why Bitcoin is not winning the fight.  People need to focus on areas where it is WAY better, instead of not really any better (or worse).

[BitChick]

I thought a good way to do this might be to just start buying Gift Cards with GYFT.  If enough people in the Bitcoin community started doing that it would help.  I was hoping that Target would be one of the locations but it is not unfortunately.  Not yet anyways.  There is CVS though and several restaurants and some large stores.  It is just that I could buy groceries at Target which would be useful and something that could be done regularly.

[colinistheman]

I thought a good way to do this might be to just start buying Gift Cards with GYFT.  If enough people in the Bitcoin community started doing that it would help.  I was hoping that Target would be one of the locations but it is not unfortunately.  Not yet anyways.  There is CVS though and several restaurants and some large stores.  It is just that I could buy groceries at Target which would be useful and something that could be done regularly.

Yes, this is the simplest way to do it currently (with gift cards). And if you buy bitcoin at the time of purchase of your gyft card, then there is not any depreciation value of your bitcoin since you are spending it instantly. We could buy practically everything we need in our daily lives with bitcoin that way. Heck, I already shop for half of what I need on Amazon. What's one step further to getting a gift card on amazon to buy those things? Not very hard! And then I'm really utilizing bitcoin where I wasn't at all before.

Then, (as the others in this thread have been debating over), when technology comes around that makes the use of bitcoin as EASY as using US Dollars (perhaps things such as hard wallets), it will become mainstream. But I want to do what I can do NOW to support bitcoin to grow to what it will become even sooner.

Technically, the fees of bitcoin should be less than credit card processing fees so this should add a benefit to both merchants (allowing lower priced items) and customers who can get items for less.