Will Bitcoin Really Save Money?

[ranlo]

Bitcoin is still a baby and is already capable of saving people money and increasing the security of their transactions against fraud (contrasted to 190 billion annual credit card fraud)

If you're the victim of credit card fraud, you get a refund from the card company. If you're the victim of Bitcoin fraud, you get nothing. And the perpetrator walks away scot-free.

To this you'll reply: "Only stupid people keep their BTC on exchanges or other BTC service providers in the first place! Smart people keep all of their BTC in super-cold storage!"

True. Cold storage is a good solution for the nerds, the geeks and the BTC cultists.
But the Average Joe is stupid. Cold storage isn't user-friendly enough for the Average Joe. That's why BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate.

This right here. Circle is offering insurance on their deposits, but even that is questionable (because users, in general, can't keep up their security). Someone would need a truly innovative way to simplify the process for the average person.

Why do we like credit cards? We can pay anyone and everyone and do a chargeback if we're unhappy with the results. There's no risk involved.

[Ron~Popeil]

Bitcoin is still a baby and is already capable of saving people money and increasing the security of their transactions against fraud (contrasted to 190 billion annual credit card fraud)

If you're the victim of credit card fraud, you get a refund from the card company. If you're the victim of Bitcoin fraud, you get nothing. And the perpetrator walks away scot-free.

To this you'll reply: "Only stupid people keep their BTC on exchanges or other BTC service providers in the first place! Smart people keep all of their BTC in super-cold storage!"

True. Cold storage is a good solution for the nerds, the geeks and the BTC cultists.
But the Average Joe is stupid. Cold storage isn't user-friendly enough for the Average Joe. That's why BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate.

We really need to stop clamoring for regulation. It is like asking permission for doing something that we don't need permission to do. Trusted and transparent entities will emerge that will resolve many of these issues

[ranlo]

Bitcoin is still a baby and is already capable of saving people money and increasing the security of their transactions against fraud (contrasted to 190 billion annual credit card fraud)

If you're the victim of credit card fraud, you get a refund from the card company. If you're the victim of Bitcoin fraud, you get nothing. And the perpetrator walks away scot-free.

To this you'll reply: "Only stupid people keep their BTC on exchanges or other BTC service providers in the first place! Smart people keep all of their BTC in super-cold storage!"

True. Cold storage is a good solution for the nerds, the geeks and the BTC cultists.
But the Average Joe is stupid. Cold storage isn't user-friendly enough for the Average Joe. That's why BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate.

We really need to stop clamoring for regulation. It is like asking permission for doing something that we don't need permission to do. Trusted and transparent entities will emerge that will resolve many of these issues

This is where it gets tricky. Regulation, in moderation, isn't necessarily bad. It's overregulation that's bad. Cryptos are pseudo-anonymous, and that opens the doors to a lot of problems we otherwise wouldn't face. A legitimate company can form, run for years, and then disappear without a trace and nobody can do anything about it.

[acoindr]

Bitcoin is still a baby and is already capable of saving people money and increasing the security of their transactions against fraud (contrasted to 190 billion annual credit card fraud)

If you're the victim of credit card fraud, you get a refund from the card company. If you're the victim of Bitcoin fraud, you get nothing. And the perpetrator walks away scot-free.

What about the merchant? The merchant receives a chargeback and eats the cost, which means cost indirectly does get passed back to consumers. Also victims of credit card and identity fraud can suffer damage to credit history which is tedious and sometimes impossible to recover from.

To this you'll reply: "Only stupid people keep their BTC on exchanges or other BTC service providers in the first place! Smart people keep all of their BTC in super-cold storage!"

True. Cold storage is a good solution for the nerds, the geeks and the BTC cultists.
But the Average Joe is stupid. Cold storage isn't user-friendly enough for the Average Joe. That's why BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate.

If you read my earlier post you'll see my emphasis is on technology evolving. The way Bitcoin was experienced in the previous five years will not be how it's experienced in the next five. One thing I think we'll see is hybrid solutions like BitGo where the user essentially partners with an online service to manage their coin security. Such companies, being based completely on technology, don't need much to operate; even less than Amazon.com, for example, which while building physical warehouses absolutely destroyed traditional brick-and-mortar retailers.

As for regulation/compliance that is still shaking out, but things are not as arduous as you make out. For the U.S. at the federal level, a business only needs to register with FinCEN which is simple. Individual states are slowly making their positions known, but Texas for example says no additional regulatory burden applies, so long as no fiat is involved. Previously two other states (I forget which, something like WY and MT I think) had no MSB licensing which remains the same for Bitcoin. California recently adopted Bitcoin favorable legislation and NY is working on a 'Bit license'. So we may find completely above board business compliance for Bitcoin is quite workable for enterprising entrepreneurs, especially funded ones, after all.

[khme88]

I agree with the fact that Bitcoin is cheap to use today (because there are very few services on top of it), but as pointed out:

"...BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate."

So what is still unclear to me, in the long run, how can bitcoin companies be profitable without adding direct or indirect costs to the system?

[QuestionAuthority]

I agree with the fact that Bitcoin is cheap to use today (because there are very few services on top of it), but as pointed out:

"...BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate."

So what is still unclear to me, in the long run, how can bitcoin companies be profitable without adding direct or indirect costs to the system?

They will do it the same way companies do it now. They will pass any business cost along to the customers in the form of a markup. Bitcoin isn't free to use right now. In fact it's relatively expensive. If you mine them there is a heavy equipment cost that you may never ROI. If you buy them their are exchange fees on both sides of the transaction plus a fee to send the transaction quickly if you're using "fresh" coins.

[turvarya]

I agree with the fact that Bitcoin is cheap to use today (because there are very few services on top of it), but as pointed out:

"...BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate."

So what is still unclear to me, in the long run, how can bitcoin companies be profitable without adding direct or indirect costs to the system?

I still don't understand what costs you are talking about.
Sure, when a companie wants to sustain it has to make profits. That's one thing, but that hasn't really much do to with Bitcoins, because this profit is made by selling something for more money that it costs.
The costs we are talking about, is e.g. the fee Paypal takes. If you don't use PayPal than there is no fee(for example you meet and pay with cash).
What fees are there with Bitcoin? You have the transaction fee, which is pretty small. You might have a fee, when you exchange BTC for another currency, but this fee is not that big either. You might also want to use an escrow service, I don't know what that costs.
I think, when you add this fees up, it is still way less, than the Paypal fee.

[acoindr]

I agree with the fact that Bitcoin is cheap to use today (because there are very few services on top of it), but as pointed out:

"...BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate."

So what is still unclear to me, in the long run, how can bitcoin companies be profitable without adding direct or indirect costs to the system?

The reason is because technology itself makes things so much more workable and efficient. That results in cost saving which can be passed directly to users.

As for tech company profitability it goes a bit off the subject of Bitcoin, but currently volume (eyeballs) alone is enough to result in exceedingly high valuations. For example look no further than Twitter. How much are users charged there? Yet Twitter recently IPO'd at 24.9 billion. Similarly, the WhatsApp chatting application was bought by Facebook for 19 billion. These services boil down to publishing text, for the most part, on the Internet. By the way does Facebook even make a profit yet?

Yet, with Bitcoin you're dealing directly with money, people spending money to be more precise. It would be harder to believe popular Bitcoin services couldn't be valuable.

[khme88]

I agree with the fact that Bitcoin is cheap to use today (because there are very few services on top of it), but as pointed out:

"...BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate."

So what is still unclear to me, in the long run, how can bitcoin companies be profitable without adding direct or indirect costs to the system?

The reason is because technology itself makes things so much more workable and efficient. That results in cost saving which can be passed directly to users.

As for tech company profitability it goes a bit off the subject of Bitcoin, but currently volume (eyeballs) alone is enough to result in exceedingly high valuations. For example look no further than Twitter. How much are users charged there? Yet Twitter recently IPO'd at 24.9 billion. Similarly, the WhatsApp chatting application was bought by Facebook for 19 billion. These services boil down to publishing text, for the most part, on the Internet. By the way does Facebook even make a profit yet?

Yet, with Bitcoin you're dealing directly with money, people spending money to be more precise. It would be harder to believe popular Bitcoin services couldn't be valuable.

If you ask me, those valuations are pure bubblespeak if you ask me, very dotcom.

But let's face it, all the millions and millions of dollars going into bitcoin startups have been invested to turn them into billions. That money needs to come from somewhere. And yeah, bitcoin will probably become a much more stable and innovative means of payment thanks to that, but I just can't see how it will be a cheap means of transfer.

[TopherB]

Bitcoin is still a baby and is already capable of saving people money and increasing the security of their transactions against fraud (contrasted to 190 billion annual credit card fraud)

If you're the victim of credit card fraud, you get a refund from the card company. If you're the victim of Bitcoin fraud, you get nothing. And the perpetrator walks away scot-free.

To this you'll reply: "Only stupid people keep their BTC on exchanges or other BTC service providers in the first place! Smart people keep all of their BTC in super-cold storage!"

True. Cold storage is a good solution for the nerds, the geeks and the BTC cultists.
But the Average Joe is stupid. Cold storage isn't user-friendly enough for the Average Joe. That's why BTC never can go mainstream -- unless reliable (and regulated) third parties emerge. And such third parties can only operate at a cost, i.e. basically the same way the banks and credit card companies operate.

So the less educated pay a premium. Whether it is being talked into a loan they can't afford or having to hire an accountant, this is always the case. Why should it be any different with bitcoin. The difference is that those that care to can bypass these third parties. This isn't possible or at least advisable with most other systems.

As with most things it isn't an either or situation. There can be third party services and their costs for those that want the ease or simplicity. And those parties can be bypassed for those that would rather control their own matters. That isn't possible with credit cards or banks.

[acoindr]

If you ask me, those valuations are pure bubblespeak if you ask me, very dotcom.

I agree. As I said it's a bit off the topic but, yes, there are so many dollars sloshing around the system, especially at the top end, we get these kinds of distorted markets. Is it a bubble? Absolutely. It has little to do with dotcom. The whole stock market is in a bubble, which partially popped in the 2008 financial crisis. My point was more that if companies which don't charge and don't even have a profit model can have such valuation, what would the story be for companies with actual valuable money management services?

... And yeah, bitcoin will probably become a much more stable and innovative means of payment thanks to that, but I just can't see how it will be a cheap means of transfer.

It will be cheap the same way email is cheaper and in lots of ways replacing snail mail. Digital information is easy to manipulate.

[khme88]

It will be cheap the same way email is cheaper and in lots of ways replacing snail mail. Digital information is easy to manipulate.

I see your point. I've never paid for a single email, but the companies behind my email accounts do make money... I can see how a brand new technology like Bitcoin (much like email back then) will somehow allow for this to happen again but for finance instead of communication...  but I'm struggling to understand how Bitcoin can avoid the costs that banks have to pay for protecting users, legal stuff, etc. That's what makes up the costs of the current system, isn't it? How will this not apply to Bitcoin if it were to become mainstream?

Somehow, my brain says, the cost of all these new services need to be paid by someone.

[BittBurger]

I was wondering whether Bitcoin, when adopted en-masse, will really liberate merchants from fees that are currently hurting them. Right now it's definitely cheaper, but won't the same necessary security-costs that are placed on the current system be placed on Bitcoin somehow? All these Bitcoin start-ups will need to make money somehow. That means they have to charge either merchants or customers for their services, no matter how innovative and frictionless they make the cryptocurrency use.

Here's a quote I read (from Goldman Sachs, I believe):

"Much of the cost of the current payment system is attributable to security and legal requirements that Bitcoin providers will eventually need to confront."

I'm an advocate for Bitcoin and crypto in general, but I want to tackle this from all angles and learn as much as I can

I like that you ask these questions, because everyone's secretly worried about them.  Latin House Grill in Miami just said screw it, and went directly with paying them to their wallet.   So no BitPay, nothing.  Right there they cut out most of the "Bitcoin Merchant Fees".

I suppose in the future when you don't need to cash out to Fiat, everyone can just take direct payments.  Therefore the only "security" you need is that of the blockchain, which is fully sufficient. That's why someone aptly pointed out that even BitPay's days are numbered, unless they evolve.

-B-

[phillipsjk]

Here's a quote I read (from Goldman Sachs, I believe):

"Much of the cost of the current payment system is attributable to security and legal requirements that Bitcoin providers will eventually need to confront."

I think if Bitcoin becomes really popular, it will become an expensive niche product like Wire Transfers (mainly due to scaling limitations).

I think Bitcoin will eventually force the legal requirements to change. For example: whether or not you have to report a transaction often depends on whether or not you are dealing with a "foreign politically exposed person". However, Bitcoin obeys no borders, so such requirements do not make much sense when applied to Bitcoin. Heck, bitcoin does not even require that you are human to work (unlike the traditional banking system where you must prove you are a non-terrorist human)..

[Meuh6879]

This is where it gets tricky. Regulation, in moderation, isn't necessarily bad. It's overregulation that's bad. Cryptos are pseudo-anonymous, and that opens the doors to a lot of problems we otherwise wouldn't face. A legitimate company can form, run for years, and then disappear without a trace and nobody can do anything about it.

funny scenario...

then, transpose this to real world : boss transfer in Cash, the entery of an account ... and run to bahamas.
no trace.  

what the difference with bitcoin ... ?
nothing.

---

and, in real world, a company don't shutdown ... before they emit credit and amount of deficit.
bitcoin can't generate deficit or "late payment".

if you don't have bitcoin ... the client can view this with a simple verification.

[acoindr]

...  but I'm struggling to understand how Bitcoin can avoid the costs that banks have to pay for protecting users, legal stuff, etc. That's what makes up the costs of the current system, isn't it? How will this not apply to Bitcoin if it were to become mainstream?

Somehow, my brain says, the cost of all these new services need to be paid by someone.

It's not like banks are constantly looking to reduce user fees. A typical wire costs $25 or $45 internationally, and can take days to clear. In 2012 ABC News reported bank overdraft revenue rose 3.6% to $31.5 billion. Bank of America was planning to charge users to use their own debit cards until a wave of backlash turned them from it.

It may be surprising but the banking system wasn't built up to cater to the little guy. It was built up by stodgy, lazy, greedy financiers looking for any way to extract another penny profit from their privileged position. There is much a fresh crop of tech entrepreneurs can do. If you don't see how a worthwhile impact on finance can be made with cryptocurrencies you don't have to. Just sit back and let the free market (for as long as it can remain that with Bitcoin) do its thing.

[khme88]

If you don't see how a worthwhile impact on finance can be made with cryptocurrencies you don't have to. Just sit back and let the free market (for as long as it can remain that with Bitcoin) do its thing.

Oh I do see how crypto can, and probably will, change the financial landscape forever. All I am concerned with is costs, nothing else is really in doubt here.

Right now Bitcoin is cheap because it doesn't carry the burdens of customer protection and all that jazz. I just hope that it can grow into this 'new paradigm' we all want it to become, without scaling issues that are passed on to customers and merchants, for the sake of bitcoin companies.

[exocytosis]

It may be surprising but the banking system wasn't built up to cater to the little guy. It was built up by stodgy, lazy, greedy financiers looking for any way to extract another penny profit from their privileged position.

But Bitcoin, unlike the banking system, is built up to cater only to the little guy, right?
Everyone in the Bitcoin ecosystem, from Mark Karpeles to Roger Ver, are saints and angels promoting Bitcoin solely for philanthropic reasons ... They can do no wrong. All of them are just trying to make the world a better place for everyone. It's all unicorns and rainbows ... And no one in the Bitcoin industry are "stodgy, lazy, greedy financiers looking for any way to extract another penny profit from their privileged position" ...   

[zimmah]

Security is already priced in by mining fees.

The only thing you would have to pay for accepting bitcoin are the mining fees.

If you want to involve 3rd parties, they will take a cut as well, but if you just accept bitcoin directly you will safe money.

[DannyElfman]

someone with 50k btc could transfer $28500000 worth of value for only some cents in transfer costs. i'd say that could save some money.