What problem does Bitcoin solve?

[casascius]

to be fair, having only 2 decimal places isn't an inherent feature of government currencies; it's simply the way banks and other institutions store amounts.

there's no reason why a pack of gum couldn't cost $0.4529839 if being paid for electronically.

In theory, yes. In practice, we are heavily dependent on tons and TONS of bank & payment infrastructures, with billions of different standards and implementations.
It's indeed the way the banks work, as you already mention, and there's no simple way around them if you want to stick with euros and dollars.

It would be virtually IMPOSSIBLE to get $ 0.000001 units actually working in practice, and would at least take many many many years of development, insane debugging / hacking / workarounds, deciphering tons of spaghetti code on crummy old systems, and disentangling a plethora of highly non-standardized finance processing programs, modules and servers. Not gonna happen.

Bitcoin, on the other hand, is very clear about this in its protocol specifications (theory) AND it's been implemented perfectly in every client (practice). So, there's one problem that Bitcoin solves.

There is no demand for sub-penny units in USD because sub-penny units will always be worth less than the cost of caring about them.  They are rounding errors.

The only reason they matter in BTC is the expectation that the BTC will appreciate to the point that these small units will be of significant worth.

That said, divisibility past hundredths is not a flagship feature of bitcoin or why someone would want to use it instead of dollars.  Freedom from the banking industry and government control of money is the reason why to use it.

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[Kazimir]

To mention another problem that Bitcoin solves, which I consider much more important: independence of banks, or governments, or other institutes that we have to "trust" (which they have proven to be unworthy of numerous times).

And, as a followup, is there sufficient demand for the solution that is Bitcoin?

Check out the news on the recent Barclays bank fuss in the UK. People are getting more and more fed up with these corrupt, fraudulent banks. Yes, I think the market is ready desperately waiting for an alternative.

The biggest remaining obstacle to date, is that Bitcoin is just quite not mature enough yet to be adopted by the general public. But that's only to be expected, revolutions like this cost time. Watch what happens over the next 3, 4, or 5 years.

[Kazimir]

That said, divisibility past hundredths is not a flagship feature of bitcoin or why someone would want to use it instead of dollars.  Freedom from the banking industry and government control of money is the reason why to use it.

I most definitely agree

Just addressing the guy above who brought up the divisibility issue, but you're absolutely right! Power & control: away from banks & governments, to the users. Yay!

[ghostcheck]

Please don't take this question wrong.  I'm a big proponent of digital and cryptographic currency.  One of the problems for years and why efforts such as DigiCash failed has been the lack of a clear problem that digital currency was solving.* I'm just trying to see what people on this board think,  what problem is Bitcoin solving, in your eyes?  And, as a followup, is there sufficient demand for the solution that is Bitcoin?


*Digicash failed for many reasons, such as the bad business decisions of David Chaum but even if he had done things right, there is no guaranteed that it would have succeeded. 

Bitcoin offers everything that cash offers:
No doublespend,
Difficult(if not impossible) to fake,
Cannot reverse a transaction unless both parties agrees.

and in addition to that, bitcoin is borderless. This is something cash cannot offer. It is very
difficult to tranfer money across huge distances easily.
Bitcoin just adds the borderless factor. This is a HUGE deal. that makes it almost like cash, except its easy to
do transactions.
Being electronic, it can be easily stored.

being decentralized is also a big win. no one can control where the money is going and to whom.
people(specifically govt) cannot shut down peoples accounts at will.

[JackieOrgasm]

I would suggest that the biggest problem solved is one experienced by merchants rather than private individuals.  In particular the ability to receive electronic payments with much smaller transaction fees in comparison to the current common solutions (Visa, Mastercard, Discover, American Express, Paypal, etc).  As well as protection from fraud perpetrated by individuals who would take advantage of the "charge-back" feature of most of the common solutions.

This is why I use it.

[payb.tc]

Cannot reverse a transaction unless both parties agrees.

only the receiver has to 'agree'

[Foxpup]

Cannot reverse a transaction unless both parties agrees.

only the receiver has to 'agree'

Not if the sender used an e-wallet service and thus the receiver has no idea what address to send the refund to.

[Meni Rosenfeld]

*Digicash failed for many reasons, such as the bad business decisions of David Chaum

I would argue that Digicash failed not because of anyone's bad business decisions, but because it had someone doing business decisions, i.e. it was centralized.


Anyway, while this may not be a clear definition of the problem Bitcoin is solving, here is a list of advantages it has (adapted from http://www.bitcoin.org.il/אז-למה-בכלל-צריך-את-זה/).

1. Easy to send payments internationally without fees.
2. No chargebacks.
3. International.
4. Easy to get started with receiving bitcoins.
5. Possibility of microtransactions.
6. No inflation.
7. No single point of failure.
8. Payment is done via digital signatures rather than giving away your password.
9. Objective public record of payments made in case of disputes.
10. An option for small countries without a viable currency of their own.
11. No need to rely on financial institutes with poor service.
12. A powerful scripting language that allows more advanced transactions than "A is paying X to B", and derivatives of the technology such as Namecoin.
13. Privacy.
14. No restrictions on whom you can pay.

[punningclan]

to be fair, having only 2 decimal places isn't an inherent feature of government currencies; it's simply the way banks and other institutions store amounts.

there's no reason why a pack of gum couldn't cost $0.4529839 if being paid for electronically.

In theory, yes. In practice, we are heavily dependent on tons and TONS of bank & payment infrastructures, with billions of different standards and implementations.
It's indeed the way the banks work, as you already mention, and there's no simple way around them if you want to stick with euros and dollars.

It would be virtually IMPOSSIBLE to get $ 0.000001 units actually working in practice, and would at least take many many many years of development, insane debugging / hacking / workarounds, deciphering tons of spaghetti code on crummy old systems, and disentangling a plethora of highly non-standardized finance processing programs, modules and servers. Not gonna happen.

Bitcoin, on the other hand, is very clear about this in its protocol specifications (theory) AND it's been implemented perfectly in every client (practice). So, there's one problem that Bitcoin solves.

There is no demand for sub-penny units in USD because sub-penny units will always be worth less than the cost of caring about them.  They are rounding errors.

The only reason they matter in BTC is the expectation that the BTC will appreciate to the point that these small units will be of significant worth.

That said, divisibility past hundredths is not a flagship feature of bitcoin or why someone would want to use it instead of dollars.  Freedom from the banking industry and government control of money is the reason why to use it.

I have to disagree, Bitcoin's precision is absolutely essential, it allows tiny fees and deals with the ability to allow potentially infinite devisions as the halving mounts up. Bitcoin couldn't really exist, as stated, without micro payments.

[casascius]

I have to disagree, Bitcoin's precision is absolutely essential, it allows tiny fees and deals with the ability to allow potentially infinite devisions as the halving mounts up. Bitcoin couldn't really exist, as stated, without micro payments.

Bitcoin simply won't scale to support micropayments on a worldwide scale.  There is no feasible way your internet connection and computer will have enough bandwidth to receive and store a half kilobyte of data each time anybody anywhere reads a news article or clicks on a banner ad or buys a pack of gum.

[abitcoinblog]

THE major problem that bitcoin solves, is the unsustainable nature of centrally issued fiat currencies as debt, payed for with compounding interest.

The entire global financial system is predicated on an unsustainable model. If you were to invent something that replaced fossil fuel you would have invented something of equal importance. Of course the world will function for some time on both the existing economic model as well as fossil fuel, but not for too much longer.

As well, the current global financial economic model functions primarily to enrich those who developed and maintain this business model at the expense of those who use their product. Put another way, current monetary technology is incredibly expensive to use, for everyone who uses it.

In addition this monetary model  is often if not always enforced militarily, or with the threat of military force.

Bitcoin solves this by providing a sustainable monetary model.


http://abitcoinblog.com

[Meni Rosenfeld]

I have to disagree, Bitcoin's precision is absolutely essential, it allows tiny fees and deals with the ability to allow potentially infinite devisions as the halving mounts up. Bitcoin couldn't really exist, as stated, without micro payments.

Bitcoin simply won't scale to support micropayments on a worldwide scale.  There is no feasible way your internet connection and computer will have enough bandwidth to receive and store a half kilobyte of data each time anybody anywhere reads a news article or clicks on a banner ad or buys a pack of gum.

Lightweight clients.

[4EverMaAT]

to be fair, having only 2 decimal places isn't an inherent feature of government currencies; it's simply the way banks and other institutions store amounts.

there's no reason why a pack of gum couldn't cost $0.4529839 if being paid for electronically.

In theory, yes. In practice, we are heavily dependent on tons and TONS of bank & payment infrastructures, with billions of different standards and implementations.
It's indeed the way the banks work, as you already mention, and there's no simple way around them if you want to stick with euros and dollars.

It would be virtually IMPOSSIBLE to get $ 0.000001 units actually working in practice, and would at least take many many many years of development, insane debugging / hacking / workarounds, deciphering tons of spaghetti code on crummy old systems, and disentangling a plethora of highly non-standardized finance processing programs, modules and servers. Not gonna happen.

Bitcoin, on the other hand, is very clear about this in its protocol specifications (theory) AND it's been implemented perfectly in every client (practice). So, there's one problem that Bitcoin solves.

+1

Here's where the major discrepancy between cash vs credit comes in.  The major disadvantage/challenge to bitcoin is showing all those who 'love' credit (usually Western consumers) and all of the 'protections'  that it affords the buyer.  From secondary school on up, you are taught that credit is the best thing since sliced bread.  "Look at all these social programs that those 3rd world countries don't have...." etc, etc.  And credit offers convenience to the consumer.  Zero liability, near-unlimited chargebacks ability, and the 'convenience' of receiving your product ahead of having to pay.  Who can beat that offer?  Chargebacks aren't so bad....but 120-180 days to "take back" your purchasing decision? Someone has to eat that cost.  It's either going to be the bank, the payment processor or merchant vendor, or the merchant.  Credit really permeates a good portion of the entire infrastructure of the Westernized country.  Social programs were already mentioned, but public education, transportation, telecommunications, trucking industry, printed money, housing, etc; just about everything you see is a result of a credit transaction.

In societies where cash is the primary medium of exchange in banking transactions (like Thailand and most of SE Asia, Russia, etc), bitcoin can catch on much faster because they are already used to in-person or longer-distance cash transactions via direct deposit.  In fact, Thai banks (for example) have CDMs (cash deposit machines) in most major shopping mall branch locations or attached to their stand alone bank locations; and anyone can deposit cash without a debit card nearly 24 hours a day to anyone with account # for a nominal fee (roughly $0.33 for every $330, with $0.67 minimum)  So your savings account could actually be in the 'open' (advertised on merchant website) and its not a huge security deal because without the ATM card or going in person with the passbook/photo id for the account, you cannot access the account.  Plus, merchant could simply have a second account and immediately transfer their funds into that account.  And most utilities are either prepaid or postpaid, but prepaid options are accessible.  In these countries, it's a cultural thing to take responsibility for your purchases (and actions in general) ahead of time.

The common problems amongst Eastern and Western (or wherever-ern) monetary systems are usually rooted the reliance on the central authority.  Each perceived benefit comes with strings attached from that authority.  The authority can be corrupted, make mistakes, and impose certain restrictions that make it difficult to cover .  In the mean time, there are real costs that need to be covered.  If you already have a large cash reserve, such as larger businesses, especially those who are debt-free, then you may not be so offended by the inefficiency of the credit/banking system (you already have the 'cash is king' advantage)  But for small-mid size businesses and sole proprietors, you need a method where you can get cleared, transparent payment for little upfront cost.  And there are no restrictions either locally or internationally.  Individuals who value their own sovereignty obviously benefit from decentralized payment methods to pay for their goods/services without 3rd party interference. 

Other payment processors, including "gold-based" processors like e-gold have attempted to fill this void, but even if the underlying currency is legitimate, that trust in the central authority can easily be broken for the same reasons as any other corporation:  bankruptcy, incompetence, another authority sabotaging/intervening with the currency, etc.  Bitcoin is the only form of currency that can be used as long as an internet connection is present long enough to validate the transaction, which can be done with a dial-up connection if necessary.  And all those 'check cashing' places, or places that accept western union/money gram can just as easily exchange bitcoin without too much additional investment in equipment (can re-use existing modern computers and internet connection).

Bitcoin will NOT replace all forms of fiat currency. Credit will still be 'needed' for those who do enjoy the social programs and other privileges that are only possible with credit. It will actually improve the credit system, by allowing credit to be used where it is best suited, and bitcoin (or cash) to be used where it makes the most sense.  Instead of a strict one-size-fits-many blanket approach to economics; consumers will have the choice (and the associated responsibility) to make their own choices on their own terms.

[xBTCbuyerx]

decentralized, and its security are the two pros IMO

[coyotama]

1) All fiat currencies are garbage to begin with

2) Paypal was never really an option

3) Accepting credit cards is prohibitively expensive

4) State corruption and incompetence disrupts the entire free market

5) Centralize authorities are vulnerable to being raided at gunpoint

6) The credit system is ridiculously insecure and protected merely by bookkeeping

7) The state and coerced taxation (nuff said)

[luicon]

the main problem is banks can still speculate with bitcoin

they could start acting same way they are doing it right now with money, just creating it from debt.

the could give you a paper representative of a bitcoin value, and so on... just like today.

[cbeast]

Banks gamble poorly and inflate fiat currency to cover their losses. Bitcoin will make banks responsible for investing wisely like they were intended.

[punningclan]

I have to disagree, Bitcoin's precision is absolutely essential, it allows tiny fees and deals with the ability to allow potentially infinite devisions as the halving mounts up. Bitcoin couldn't really exist, as stated, without micro payments.

Bitcoin simply won't scale to support micropayments on a worldwide scale.  There is no feasible way your internet connection and computer will have enough bandwidth to receive and store a half kilobyte of data each time anybody anywhere reads a news article or clicks on a banner ad or buys a pack of gum.

I guess you must have seen this already:

https://en.bitcoin.it/wiki/Scalability