Another Noob perspective - drawbacks and potential growth opportunities

[tomcollins]

Disclaimer: I am new to BitCoin and am trying to learn.  If I say anything incorrect, I'd like to know and learn.

I first heard about BitCoin a while ago, but didn't investigate any further.  It was recently brought back up so I decided to look further and wanted to get involved somehow.  I didn't know how or what I would do, but I wanted to do something.

BitCoin has a ton of useful features in currencies.  However, it's missing one absolutely huge feature (that is not a flaw with BitCoin)- lack of usefulness.  There aren't that many things I can buy with BitCoins.  This means even if I use BitCoins to store some of my wealth, I have to convert it back to a currency other people want in order to trade.  However, this process is not straightforward and reasonably expensive, especially for a lot of transactions.

Right now I've found the following paths in and out of BTC.
1)  Buy/sell from a friend in person. Drawbacks- Have to find someone who wants to trade in person.
2)  Paypal - Drawbacks - pretty expensive.  7% fee is huge and will destroy you.  It might be reasonable for a few transactions here and there, but going back and forth often is super expensive.
3)  Liberty Reserve - not commonly used.  This requires most people to set up an account.  Then there also are fees.  Some people might be scared to use some "unknown" site.  I was a former user of Neteller and even though they were trustworthy, I was a bit nervous to get going.  I've been through a few other E-Wallets, and some have closed out US users and even confiscated funds.  Not cool.  I try to do my homework before putting my money in such a place, and even then its risky.
4)  Mining - pretty much useless now for the casual user.
5)  Visa gift cards - expensive for what you get, lose a lot in the transaction costs.

So right now, using BitCoin is a pretty risky or expensive venture for the noob casual user.  I definitely want to see BitCoin succeed, but if it's so hard for a noob who is motivated to get going, how hard is it for an unmotivated casual user?  I'd like to increase adoption (this would benefit all BitCoin users, so there is a big incentive for users to work to this goal).

So how can we get to making this easier for a casual user to use?  Why would someone want to start using BitCoin?

1) Geeks/anarchists/political proponents of BitCoin.  These people will just use it/get involved because it's cool.
2)  People where the tangible benefits of BitCoin are greater than costs.  The benefits of anonymity and distributed nature may make it ideal for people participating in illegal activities.  I fear that this becomes the main use, which will lead to a much harder path for mainstream adoption.
3)  Speculators.  People who see potential, want to get in on the ground floor, hope it makes them money.  Miners probably fall into this category as well.

Some reasons why casual users might want to use BitCoin if we can solve these problems.

1) Convenience - if it becomes easier to use, or at least as easy to use as a credit card, casual users will use it.
2) Cheaper - if you can save money by using BTC, people might be tempted to adopt it, especially if its easy to integrate with traditional monetary systems
3) Necessity - if the only way to purchase certain goods and services is through bitcoin, people will have to use them


I don't think we can get to #3 any time soon.  #2 is something the BTC community could do.  #1 is also something that can be improved as well.

More thoughts later.  Until then, any ideas?

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[RodeoX]

It seems to me that even your #3 is achievable if there were a desirable product that could *only be purchased in BTC.  Wish I had that product/service idea.

[tomcollins]

#3 is certainly doable on a small scale.

But think from the merchant's perspective, why would they ever require this?

1)  Cheaper for them than processing credit card transactions
2)  Government mandate (lol @ governments mandating bitcoins)
3)  Merchant is advocate for BitCoin, values this more than getting business
4)  Merchant requires anonymity or other BitCoin advantage (selling something illegal?)

Am I missing anything else why a merchant would *only* take BitCoins?  Or even charge "less" for using them?

[RodeoX]

I wonder about an option for business to just stick a toe in the water. For example: a box on the website that displays an item(s) of the week available in BTC. That way a stor does not risk turning all their stock into bitcoin. That could be scarry for some owners.

[Jered Kenna (TradeHill)]

#3 is certainly doable on a small scale.

But think from the merchant's perspective, why would they ever require this?

1)  Cheaper for them than processing credit card transactions
2)  Government mandate (lol @ governments mandating bitcoins)
3)  Merchant is advocate for BitCoin, values this more than getting business
4)  Merchant requires anonymity or other BitCoin advantage (selling something illegal?)

Am I missing anything else why a merchant would *only* take BitCoins?  Or even charge "less" for using them?

Biggest one is going to be illegal products / products people want to buy anonymously.
If you want some LSD or butt plugs you're going to try and avoid either showing up on your credit card.
Also a lot of people want to donate anonymously.

I think if you only accept bitcoins you can create a fanbase for your product. It's small at this point but it could help.
I'm planing on selling a few things for bitcoins soon but I'll take USD too just because I need to eat.

[tomcollins]

Biggest one is going to be illegal products / products people want to buy anonymously.
If you want some LSD or butt plugs you're going to try and avoid either showing up on your credit card.
Also a lot of people want to donate anonymously.

I think if you only accept bitcoins you can create a fanbase for your product. It's small at this point but it could help.
I'm planing on selling a few things for bitcoins soon but I'll take USD too just because I need to eat.

In terms of going from a niche audience to mainstream, this does not seem like a winning direction.  I'm mainly looking at trying to figure out what will get BitCoin from the niche audience (which right now is either geeks or illegal activities) to a mainstream audience, or at least identify the gaps needed to get it there.

Anyone who has a large wallet of BitCoins benefits by the more use it gets.  Deflation is their friend.  Widespread use is their friend.  A high BTC/$ ratio is their friend.

So it might be worth taking a temporary hit to promote BitCoin in order to benefit more in the future by moving to mainstream adoption.  For example, eating transaction costs may be one way to do it.  Offering discounts in BitCoin would be another.

[Jered Kenna (TradeHill)]

Biggest one is going to be illegal products / products people want to buy anonymously.
If you want some LSD or butt plugs you're going to try and avoid either showing up on your credit card.
Also a lot of people want to donate anonymously.

I think if you only accept bitcoins you can create a fanbase for your product. It's small at this point but it could help.
I'm planing on selling a few things for bitcoins soon but I'll take USD too just because I need to eat.

In terms of going from a niche audience to mainstream, this does not seem like a winning direction.  I'm mainly looking at trying to figure out what will get BitCoin from the niche audience (which right now is either geeks or illegal activities) to a mainstream audience, or at least identify the gaps needed to get it there.

Anyone who has a large wallet of BitCoins benefits by the more use it gets.  Deflation is their friend.  Widespread use is their friend.  A high BTC/$ ratio is their friend.

So it might be worth taking a temporary hit to promote BitCoin in order to benefit more in the future by moving to mainstream adoption.  For example, eating transaction costs may be one way to do it.  Offering discounts in BitCoin would be another.

I don't think the transaction costs are that bad if you have an account on an exchange and just change them over.
Say you charge 1usd for something and the rate for the day puts that at 1.2 btc so they pay you 1.2btc.
Then you put that on the exchange and turn it in to dollars. No real loss.

As far as going from niche to mainstream.. I'm guessing the obvious advantages over paypal will draw people in. Lower / almost no fee and non reversable.
That works both ways though, great for business but can scare individuals off. I use paypal a lot for business and I've paid a fortune in fees.
If I could have used BTC the whole time I would have. I could offer a 1% discount to BTC and save money on fees. It's not a lot but I could see people happily using btc if it saves them 1%. Plus I think it's easier to use and I don't trust paypal to not reach in to my account when I don't want them to.

Obviously it has downsides too though other than lack of users / economy.

[tomcollins]

I don't think the transaction costs are that bad if you have an account on an exchange and just change them over.
Say you charge 1usd for something and the rate for the day puts that at 1.2 btc so they pay you 1.2btc.
Then you put that on the exchange and turn it in to dollars. No real loss.

As far as going from niche to mainstream.. I'm guessing the obvious advantages over paypal will draw people in. Lower / almost no fee and non reversable.
That works both ways though, great for business but can scare individuals off. I use paypal a lot for business and I've paid a fortune in fees.
If I could have used BTC the whole time I would have. I could offer a 1% discount to BTC and save money on fees. It's not a lot but I could see people happily using btc if it saves them 1%. Plus I think it's easier to use and I don't trust paypal to not reach in to my account when I don't want them to.

Obviously it has downsides too though other than lack of users / economy.

No real loss?  What exchange does not have huge fees?  I haven't seen any yet, so I'd be curious here.  Maybe I haven't looked in the right places.  Of my options above, all were pretty pricey or annoying (creating a special exchange account... turns out I had to set up ANOTHER exchange account just to get money to it).  So what am I missing? 

The BTC to BTC transactions are a huge advantage.  The problem is the usefulness of having BTC is not that great right now.  I will spend 99.99% of all of my spending in USD, and going back and forth is expensive.  Unless BTC is rising in value at a rate to match those fees, what use is saving money on the BTC to BTC transactions if I get hammered even harder going through traditional means to go to USD?

I'm a noob and if I'm wrong, I'd LOVE to know!  Or if not, try to find a way to make it easier/better/cheaper.

[Jered Kenna (TradeHill)]

I don't think the transaction costs are that bad if you have an account on an exchange and just change them over.
Say you charge 1usd for something and the rate for the day puts that at 1.2 btc so they pay you 1.2btc.
Then you put that on the exchange and turn it in to dollars. No real loss.

As far as going from niche to mainstream.. I'm guessing the obvious advantages over paypal will draw people in. Lower / almost no fee and non reversable.
That works both ways though, great for business but can scare individuals off. I use paypal a lot for business and I've paid a fortune in fees.
If I could have used BTC the whole time I would have. I could offer a 1% discount to BTC and save money on fees. It's not a lot but I could see people happily using btc if it saves them 1%. Plus I think it's easier to use and I don't trust paypal to not reach in to my account when I don't want them to.

Obviously it has downsides too though other than lack of users / economy.

No real loss?  What exchange does not have huge fees?  I haven't seen any yet, so I'd be curious here.  Maybe I haven't looked in the right places.  Of my options above, all were pretty pricey or annoying (creating a special exchange account... turns out I had to set up ANOTHER exchange account just to get money to it).  So what am I missing? 

The BTC to BTC transactions are a huge advantage.  The problem is the usefulness of having BTC is not that great right now.  I will spend 99.99% of all of my spending in USD, and going back and forth is expensive.  Unless BTC is rising in value at a rate to match those fees, what use is saving money on the BTC to BTC transactions if I get hammered even harder going through traditional means to go to USD?

I'm a noob and if I'm wrong, I'd LOVE to know!  Or if not, try to find a way to make it easier/better/cheaper.

Have you looking in to MT-GOX? or is that where you were talking about the special exchange account?
Also there are people on here trading BTC all the time. It can get confusing if you've never used PGP and you're trying to do the web of trust etc.
I'd find someone really reputable like Madhatter and ask if you can trade 200USD or whatever you want to do.
That's not going to have any fees at all just whatever rate you agree on.

[tomcollins]

Have you looking in to MT-GOX? or is that where you were talking about the special exchange account?
Also there are people on here trading BTC all the time. It can get confusing if you've never used PGP and you're trying to do the web of trust etc.
I'd find someone really reputable like Madhatter and ask if you can trade 200USD or whatever you want to do.
That's not going to have any fees at all just whatever rate you agree on.

That's the first place I went.  I have .06 BTC, so I can't transfer that onto my mtgox account.  So I need to start with USD.  But to get USD on MTGOX I need either PayPal (7% fee, yuck!), or LibertyExchange.

Private trades look promising.  But clearly not mainstream.  PGP means nothing to me.

If I were to trade with someone like Madhatter, I assume I contact him, ship him $200 on PayPal or something equivalent (I send first since he's a reputable guy and I'm an unknown).  Then he ships me BTC afterward.  I don't use PayPal much, but there's a way to ship money on PayPal for free if you say you know the guy, right?  If this is correct, why don't the exchanges just support this (mtgox for example)?  Could I make a "competing" exchange that does this, and my reputation (once I got established) would make people trust me.

[N12]

I agree with you in most points and hope that you can help Bitcoin going from here, but you have to consider that those PayPal fees have a very good reason: Fraud.
You can’t chargeback Bitcoins, but PayPal money you can, and PayPal is unlikely to cooperate with the seller in this fraud scenario. In addition to this, there are people with stolen credit cards wanting to buy Bitcoins. For these reasons, the current limitation in amount and fee are totally understandable (see http://coinpal.ndrix.com/).

You would have a real advantage if you could sort that out with PayPal though, so that you as a seller can prove you’re right and get the money back.

[tomcollins]

I agree with you in most points and hope that you can help Bitcoin going from here, but you have to consider that those PayPal fees have a very good reason: Fraud.
You can’t chargeback Bitcoins, but PayPal money you can, and PayPal is unlikely to cooperate with the seller in this fraud scenario. In addition to this, there are people with stolen credit cards wanting to buy Bitcoins. For these reasons, the current limitation in amount and fee are totally understandable (see http://coinpal.ndrix.com/).

You would have a real advantage if you could sort that out with PayPal though, so that you as a seller can prove you’re right and get the money back.

You can't chargeback personal transactions on PP done with bank accounts, right?  I'm very naive on this subject.

Maybe this already exists, but is there a network of personal transactions on PayPal for reputable people (avoiding the need for worrying about fraud).

BTW- where'd you get your avatar?  I know the original creator of it.

[Jered Kenna (TradeHill)]

A lot of people hate accepting paypal for that reason. You're almost always screwed if the buyer decides to chargeback.

Have you looked at coinpal?

There are some fees but I don't remember it being that bad.

Another option depending on your bank / his bank would be to do a wire transfer, it could possibly be cheaper (or free) and dodges paypal.
In that case you would just be getting the exchange rate assuming he doesn't want to charge a premium.
I'm pretty sure you can wire transfer in to MT-GOX then just transfer your BTC out, I haven't personally dealt with MT-GOX though, just know it's worked well for others.

[tomcollins]

A lot of people hate accepting paypal for that reason. You're almost always screwed if the buyer decides to chargeback.

Have you looked at coinpal?

There are some fees but I don't remember it being that bad.

Another option depending on your bank / his bank would be to do a wire transfer, it could possibly be cheaper (or free) and dodges paypal.
In that case you would just be getting the exchange rate assuming he doesn't want to charge a premium.
I'm pretty sure you can wire transfer in to MT-GOX then just transfer your BTC out, I haven't personally dealt with MT-GOX though, just know it's worked well for others.

Fees on coinpal are 5.5 to 10% depending on order size.  Pretty huge.

Wire costs $15 (plus whatever my bank charges).

Works for the committed BTC user, not for the casual.

[Jered Kenna (TradeHill)]

A lot of people hate accepting paypal for that reason. You're almost always screwed if the buyer decides to chargeback.

Have you looked at coinpal?

There are some fees but I don't remember it being that bad.

Another option depending on your bank / his bank would be to do a wire transfer, it could possibly be cheaper (or free) and dodges paypal.
In that case you would just be getting the exchange rate assuming he doesn't want to charge a premium.
I'm pretty sure you can wire transfer in to MT-GOX then just transfer your BTC out, I haven't personally dealt with MT-GOX though, just know it's worked well for others.

Fees on coinpal are 5.5 to 10% depending on order size.  Pretty huge.

Wire costs $15 (plus whatever my bank charges).

Works for the committed BTC user, not for the casual.

Didn't realize coinpal was so high.
One of my banks does free transfers so it's not as bad for me.
If you're doing a good size trade then the $15 isn't that bad, but if it's just for 100 or 200 it's pretty rough.

Taking off for the day, good luck.

[kiba]

Didn't realize coinpal was so high.
One of my banks does free transfers so it's not as bad for me.
If you're doing a good size trade then the $15 isn't that bad, but if it's just for 100 or 200 it's pretty rough.

Taking off for the day, good luck.

If people didn't try to defraud bitcoin exchange services, it wouldn't be so hard to convert dollars into bitcoin.

[tomcollins]

Didn't realize coinpal was so high.
One of my banks does free transfers so it's not as bad for me.
If you're doing a good size trade then the $15 isn't that bad, but if it's just for 100 or 200 it's pretty rough.

Taking off for the day, good luck.

If people didn't try to defraud bitcoin exchange services, it wouldn't be so hard to convert dollars into bitcoin.

Absolutely, so there is an opportunity to prevent fraud more cheaply.

I don't know enough about the network of trust or how that works, but it seems like an opportunity.  I come from a gambling background so there is a lot of similar types of transactions (rather than trading USD for BitCoin, they trade money on a poker site for USD, or money on site A for site B).  People get scammed, but having a feedback system and a method of tracking trustworthiness is a way to prevent being scammed.

I don't know enough about PayPal to know its limitations, but I do know I have a friend of mine send me cash on PayPal without fees through his bank account, so I'm thinking this could be expanded somehow.  But if PayPal still allows chargebacks in this case, it's a huge possibility for fraud.  If not, then it's just a "buyer beware".

I'm mainly trying to brainstorm ideas on how we could make the USD (or any other currency) to BTC transactions more useful.  I know Neteller had a way that you could use a "credit card" linked to your account to spend money, that would be useful for a BTC eWallet as well.

The road to widespread adoption seems to be this:



BitCoin is pretty clearly left of the chasm right now.  Innovators got in early.  Early adapters are starting to get in now.  But there's a huge gap before things really take off.  Trying to figure out how to get across that gap is an important part of the process.

The biggest challenges I have seen are 1) Currency conversion and 2) speed of transactions.  If we can solve those, more people can easily adopt BTC.

[Cusipzzz]

If you come from a gambling background, then you know how hard it is to move money from/to certain jurisdictions and the issues with processors used to try to shield such activities. Bitcoin solves that.

As far as speed of transactions, ~10 minutes per confirm is not a big deal at all.

The efficiencies of Bitcoin as a platform compared to servicing in local currencies can be seen on a variety of sites/applications.

For gambling, BTCSportsBet.com is a full service sportsbook that only accepts Bitcoin. 

[tomcollins]

If you come from a gambling background, then you know how hard it is to move money from/to certain jurisdictions and the issues with processors used to try to shield such activities. Bitcoin solves that.

As far as speed of transactions, ~10 minutes per confirm is not a big deal at all.

The efficiencies of Bitcoin as a platform compared to servicing in local currencies can be seen on a variety of sites/applications.

For gambling, BTCSportsBet.com is a full service sportsbook that only accepts Bitcoin. 

I'm well aware of the difficulties.  I'm also aware of how quickly a lot of the betting dried up after depositing became incredibly difficult.

BitCoin as a currency in this arena is awesome.  However, having casual users being able to easily and cheaply purchase BitCoins in order to deposit is very important for such businesses.

Yesterday I saw it take 2+ hours for my transactions to complete.  I don't know how long it actually took since I went to bed before it actually worked.  I did one transaction with a transaction fee, and 1 without.  Both took over 2 hours.

If I was making a gambling website, I would want people to deposit on impulse and waiting 2 hours would not be acceptable.  But I see the potential and hopefully that issue gets better.

I love the idea of BitCoin as this currency.  But until I can buy groceries with BTC, pay my mortgage with BTC, etc..., I'm going to need USD for a lot.  And for people who make their money in USD, they are going to need easy ways to get that into BTC.  Perhaps in the future BTC becomes something more where I won't need to convert, but to get there, transfers need to become more efficient.  I'm new to the game, so I am still learning what's being done, how things work, etc...  So figuring out what challenges remain and trying to brainstorm on any solutions and perhaps even implementing some could help grow the BTC economy.

[ribuck]

Fees on coinpal are 5.5 to 10% depending on order size.  Pretty huge.

That's about the same fee as for the purchase of foreign currency (in tourist quantities), although the exchangers present that as a "spread" rather than as a "fee". So I don't think it's too high at all.

What's missing from current Bitcoin exchanges is convenience, not cheapness.