What does really set bitcoin apart?

[VEscudero]

Bitcoin is a pseudonymous, decentralized electronic currency, and it has been designed in such a way that it functions similarly to physical commodity money, such as gold or a fiat currency like the Euro.

Bitcoin shares most of the properties that 'good money' should have:

• Divisibility: money should be easily divisible into arbitrary units of value in order to handle all sizes of transactions.
• Durability: in order to be a reliable store of value, money must stand the test of time.
• Fungibility (interchangeability): each unit is identical to every other unit. One kilogram of gold is equivalent to another one.
• Scarcity: it holds its value and does not steal value through arbitrary inflation or deflation.

These are all interesting properties that we usually take for granted, but they are not the only ones. In fact there are some other 'features' that really set bitcoin apart:

• No chargebacks: irreversible transactions after an hour.
• Low transaction fees: most transaction fees are free of charge, or nearly so and they will be kept low forever.
• Pseudonimity: bitcoin restores privacy to electronic payments.
• Openness: The bitcoin project itself is open souce. The protocol and the code is open to public scrutiny and analysis.
• Decentralization: bitcoin puts us in control of our own money, no need to trust in financial institutions or issuing authorities.

Nobody knows if bitcoin will be able to survive in the long term, but right now its appealing characteristics makes it a perfect choice for international trading.

Source: https://www.vescudero.net/2012/06/what-really-sets-bitcoin-apart.html

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[FreeMoney]

I used to explain to people how gold was good money because it has divisibility, easily identifiable etc.... and now.. compared to Bitcoin it's just like, just no.

I still keep gold though, because it is shiny.

[Stephen Gornick]

• Openness: The bitcoin project itself is open souce. The protocol and the code is open to public scrutiny and analysis.

Though this one point about openness wouldn't mean much without the others, the others wouldn't mean much without openness.

Mass collaboration plus open systems changes everything.   Six years ago Don Tapscott pointed this out in Wikinomics, where mass collaboration was "changing the way businesses communicate, create value, and compete in the new global marketplace".

While Square, which was formed after bitcoin had already been started, has amassed a hundred million dollar warchest to build and operate its payment system, it does not benefit from the community plugging away at improving their system the way that Bitcoin has.  When PayPal became a Square competitor, Square's efforts are only for the benefit of Square.  PayPal's efforts are only for the benefit of PayPal.

With Bitcoin,  ... we are all building these things together.   We are all collaborating in the Bitcoin ecosystem.  There are tens of thousands of stakeholders in bitcoin.  There is either no barrier to entry or a low barrier, depending on the topic.   Look at some of the innovations arriving in the past few months.  Lots of improvements to the Bitcoin.org software and other clients.  Then Coinapult's SMS wallet -- bitcoin's version of M-Pesa (for U.S. and Canada only, for now).  And the multiple new bitcoin sellers and cash-out services.  And SatoshiDICE (see how large Mem's List has gotten http://bitcointalk.org/index.php?topic=75883.0 ).  Look what is happening on mobile, with Paytunia and the others ( http://en.bitcoin.it/wiki/Category:Mobile ).   And also GLBSE (v2) ... just like how "crowdfunding" broke the mold and became signficant, this "cyber-equities" is a whole 'nother category for the financial world to discover.

I could go on and on,

These aren't being built on venture capital, or necessarily a whole lot of angel / seed money.  The innovation is coming from individuals, sometimes very young (e.g., Zhou tong/Bitcoinica, Forrest Voight/P2Pool), sometimes very skilled, technical, disciplined and dedicated (e.g., DeathAndTaxes, Cypherdoc,  and the developers of clients including those listed on http://bitcoin.org/about.html ) and others just happened into this after trying something new.

But not a one of these is taking marching orders from the Bitcoin strategy and central planning organization (because there is none).   It is a self organizing, living, thriving, meritocratic ecosystem forming.  This is not much unlike what the web looked like roughly 20 years ago.

Bitcoin's ecosystem can evolve and progress even faster than the web did though.  Bitcoin is not only universal (the data is usable, no matter what language, location, time zone, etc.) it gets stronger with each additional bit of involvement as well.  The network effect will start to have a greater impact on the number of bitcoin-related goods and services in the Bitcoin ecosystem.

This doesn't happen on such a large scale without the combination of mass, global collaboration using an open system.

[VEscudero]

• Openness: The bitcoin project itself is open souce. The protocol and the code is open to public scrutiny and analysis.

Though this one point about openness wouldn't mean much without the others, the others wouldn't mean much without openness.

I agree with you, completely.

[Gladamas]

I still keep gold though, because it is shiny.

I wish, after mining for Bitcoins and finding a block we could be like, OOH SHINY!! (I guess if you converted it into Casasicus physical coins...)

On a more serious note, thanks for this thread Vescudero, now I can point newbies to this and hopefully explain to them how Bitcoin is better than fiat or gold.

[sunnankar]

There are tens of thousands of stakeholders in bitcoin.

Actually, the way I explained bitcoin to a couple of VCs about two years ago is that each bitcoin is like a share of bitcoin stock and Bitcoin has the opportunity to have a market cap larger than Facebook's. So not only does Bitcoin have thousands of stakeholders but also hundreds of thousands of 'shareholders'. Imagine if you could of had stock in Wordpress or Linux, Wikipedia, etc.

Truly fascinating.

[Cluster2k]

These are all interesting properties that we usually take for granted, but they are not the only ones. In fact there are some other 'features' that really set bitcoin apart:

• No chargebacks: irreversible transactions after an hour.

That's good for the merchant, but not the customer.  I have had to issue charge backs against a handfull of merchants over the years who took the money and ran.  Easy and pretty simple process.  Who do I contact to get my bitcoins back?  We can't assume that every merchant who deals in bitcoins is completely trustworthy.  If an intermediary is used (like Mastercard/Visa/et al) but for Bitcoins, they'll no doubt add their own service charges in for every transaction.  Which brings me to my second point...

• Low transaction fees: most transaction fees are free of charge, or nearly so and they will be kept low forever.

Every time I've had to send bitcoins to MtGox I've paid a transaction fee.  For who are most transactions free of charge, and how much can be transfered?  I send relatively small amounts (5 to 10btc) to MtGox and get charged over 1% in fees by the network.  The BTC client declares the transaction is complex and I must pay up to support the network, or not transfer BTC at all.

[Stephen Gornick]

So not only does Bitcoin have thousands of stakeholders but also hundreds of thousands of 'shareholders'. Imagine if you could of had stock in Wordpress or Linux, Wikipedia, etc.

Yup, I was including those holding bitcoins as stakeholders.  I guess 'hundreds of thousands" is probably a better estimate than just than the "thousands" I referred to.  Thinking of them as stakeholders isn't a new concept though.  Those in the U.K. use British sterling pounds.  They are all stakeholders in their national currency.  When one U.K. company grows and increases the level of commerce, those holding pounds will benefit from that.  They are all stakeholders.   The difference though is that government will grow in response and there will be no net benefit to the currency-holder from the economic gains this company's growth provided.  

Bitcoin does not have this property.  Economic growth in the Bitcoin economy translates directly into a higher exchange rate, benefiting those who hold the currency.

For who are most transactions free of charge, and how much can be transfered?  I send relatively small amounts (5 to 10btc) to MtGox and get charged over 1% in fees by the network.  The BTC client declares the transaction is complex and I must pay up to support the network, or not transfer BTC at all.

If you are mining and have payouts set to wasteful levels, then yes, your transactions will take up a relatively large amount of data storage be expensive to send.  For the rest of the world (i.e., typical usage), a transaction cost 0.0005 BTC or no fee at all (if coins are old enough and the amount comes from just a few inputs).  It doesn't matter if you are sending 2 BTC, or 2,000 BTC, the fee is tiny.  (0.0005 BTC is a fraction of a penny).

[Foxpup]

These are all interesting properties that we usually take for granted, but they are not the only ones. In fact there are some other 'features' that really set bitcoin apart:

• No chargebacks: irreversible transactions after an hour.

That's good for the merchant, but not the customer.  I have had to issue charge backs against a handfull of merchants over the years who took the money and ran.  Easy and pretty simple process.  Who do I contact to get my bitcoins back?  We can't assume that every merchant who deals in bitcoins is completely trustworthy.  If an intermediary is used (like Mastercard/Visa/et al) but for Bitcoins, they'll no doubt add their own service charges in for every transaction.  Which brings me to my second point...

Escrow services already exist, and they do charge their own fees. But so what? It's a competitive market, so the fees will always be very reasonable. In any case, even without chargebacks, Bitcoin is in many ways safer than credit card transactions, since it impossible for a merchant to charge more than the customer agrees to pay, cannot charge the customer at a later date for a subscription service the customer never intended to sign up for, and (at least in cases where a shipping address is not required) cannot use the customer's details to commit identify fraud. The absolute worst thing that can go wrong with a bitcoin transaction is that the customer doesn't get the goods he paid for, which shouldn't be much of an issue when reputable companies and escrow services are involved.

• Low transaction fees: most transaction fees are free of charge, or nearly so and they will be kept low forever.

Every time I've had to send bitcoins to MtGox I've paid a transaction fee.  For who are most transactions free of charge, and how much can be transfered?  I send relatively small amounts (5 to 10btc) to MtGox and get charged over 1% in fees by the network.  The BTC client declares the transaction is complex and I must pay up to support the network, or not transfer BTC at all.

In order for a transaction to be allowed for free, it must have no outputs less than 0.01 BTC, and it must be "high priority". Priority increases with the age and value of the transaction inputs: if you have only recently received your bitcoins before spending them, or if you are spending bitcoins which you received in a large number of small transactions (say, from various free bitcoin sites), your transaction will be considered "low priority" and require a fee.

There is also an optional fee on transaction data size, which affects whether your transaction will be accepted into a block which is already close to full (at least, I think that's how the transactions size fee works). Again, if you received your bitcoins in a large number of small transactions, transactions spending those coins will require a large amount of data, and attract a higher fee, if your client mandates the size fee (which the standard client does not).

On the other hand, if you receive a moderately large amount of bitcoins in a small number of transactions, and you don't spend them immediately, you will probably not have to pay a fee to spend them later.

The moral of the story: free bitcoins aren't so free when you actually want to spend them.

[Fuzzy]

• Durability: in order to be a reliable store of value, money must stand the test of time.

There is still the issue of losing Bitcoins, like forgetting a password or losing the wallet file.

I'm on the fence as to whether this even matters, as it just makes the remaining coins more valuable, but I have a feeling it'll come back down as a problem of some form. 

[Grouver (BtcBalance)]

A friend asked me: 'If you had 100.000 dollars to spend to either gold or bitcoins. Which one should you choose?' 
I actually have no idea. In my opinion gold is a more secure and solid investment compared to Bitcoins.
Though, bitcoins is like the internet back in the 90's. It's on the edge of becoming the next big thing.

What do you guys think?

[Polvos]

I will add:

- Bitcoin allows you to concentrate your wealth. You can store a lot of money in a USB stick or even in a brainwallet. That can't be done with other commodities.

- Bitcoin allows to prove address ownership by signing a message with the public key but keeping the anonimity.

[Polvos]

A friend asked me: 'If you had 100.000 dollars to spend to either gold or bitcoins. Which one should you choose?' 
I actually have no idea. In my opinion gold is a more secure and solid investment compared to Bitcoins.
Though, bitcoins is like the internet back in the 90's. It's on the edge of becoming the next big thing.

What do you guys think?

answer:

50%/50%

[Grouver (BtcBalance)]

A friend asked me: 'If you had 100.000 dollars to spend to either gold or bitcoins. Which one should you choose?' 
I actually have no idea. In my opinion gold is a more secure and solid investment compared to Bitcoins.
Though, bitcoins is like the internet back in the 90's. It's on the edge of becoming the next big thing.

What do you guys think?

answer:

50%/50%

"either gold or bitcoins" You need to choose.
Thats the hardest part. :p

[DeathAndTaxes]

That's good for the merchant, but not the customer.  I have had to issue charge backs against a handfull of merchants over the years who took the money and ran.  Easy and pretty simple process.  Who do I contact to get my bitcoins back?  We can't assume that every merchant who deals in bitcoins is completely trustworthy.  If an intermediary is used (like Mastercard/Visa/et al) but for Bitcoins, they'll no doubt add their own service charges in for every transaction.  Which brings me to my second point...

Reputation matters.  It is far easier for consumers to pick reputable merchants than merchant to try and guess which of their tens of thousands of orders are fradulent.  

The price of everything paid in VISA/MC includes a hidden surcharge for fraud, abuse, and fees.  Online ~ 1% of all CC tx are fraud and merchant rates are ~3%.  So add up 4% of everything you ever bought online. Is it greater than the amount you would have lost those few instances you needed to make a chargeback?

Every time I've had to send bitcoins to MtGox I've paid a transaction fee.  For who are most transactions free of charge, and how much can be transferred?  I send relatively small amounts (5 to 10btc) to MtGox and get charged over 1% in fees by the network.  The BTC client declares the transaction is complex and I must pay up to support the network, or not transfer BTC at all.

That is a problem but hopefully as Bitcoin market depth becomes deeper and prices less volatile there is risk in just holding BTC.  As more goods and services are available in BTC there is less need to convert back to fiat.  Bitcoin has lower fees than VISA now (if you are smart about it) and that includes 100% fiat -> BTC -> fiat.  It can't get more than 100% double conversion.  As that % declines Bitcoin only becomes more efficient.

[cbeast]

Nice post. This belongs where newbies will find it.

[notme]

There are tens of thousands of stakeholders in bitcoin.

Actually, the way I explained bitcoin to a couple of VCs about two years ago is that each bitcoin is like a share of bitcoin stock and Bitcoin has the opportunity to have a market cap larger than Facebook's. So not only does Bitcoin have thousands of stakeholders but also hundreds of thousands of 'shareholders'. Imagine if you could of had stock in Wordpress or Linux, Wikipedia, etc.

Truly fascinating.

I like the analogy, but I'd alter it slightly.  One satoshi is like a share of bitcoin.  1 bitcoin is divisible and shares are not.

For those who don't know, a satoshi is 0.00000001 BTC and is the smallest amount bitcoin can track at the moment.  However, if a satoshi ever becomes too valuable we can do a "stock split" and extend the number of decimals.

[Roger_Murdock]

Excellent short list. I also really like sending people this article from Erik Voorhees.  It's an excellent primer on what bitcoin is and why it matters. I can't recommend it highly enough.

http://evoorhees.blogspot.com/2012/04/bitcoin-libertarian-introduction.html

[Roger_Murdock]

However, if a satoshi ever becomes too valuable we can do a "stock split" and extend the number of decimals.

That will be a very good day.