The 'all or nothing' fallacy

[dissipate]

A number of times I have seen people say: with Bitcoin it is going to be 'all or nothing'. In other words, Bitcoin is either going to displace and put out of business all fiat currencies or it is going to 0. However, when people say this they don't really give any support for the statement. I think this is wrong right off the bat. Bitcoin could easily have a market cap of billions of USD on 3 use cases alone: black market/grey market products (e.g. Silk Road), gaming tokens (e.g online Bitcoin casinos), and international transfers (e.g. all the Bitcoin exchanges across the world). Another use case would emerge after Bitcoin had a large market cap and stable price from those 3 markets: long term wealth storage. Wealthy individuals who want to stash away a significant amount of wealth that can't be confiscated by governments or otherwise stolen could put BTC into cold storage for as long as they wanted. They could travel the world and sell their coins to local Bitcoin dealers for the local fiat currency.

In any event, I would like to hear some arguments from people who believe Bitcoin is going to either be 'all or nothing'. Perhaps there is a good argument that I have not heard yet.

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[niko]

Sorry to disappoint you, but there is no counter-argument I could offer. 

[Mageant]

Because both currencies and payment systems (Bitcoin is both) become more useful when more people use them. In other words, the more people you can potentially pay with the system the better it gets.

So over time the one system that people prefer to use becomes ever more dominant and the others ever more marginal. This is also called the 'Network Effect'.

That is why you have so few credit cards other than VISA/Mastercard and only Paypal is the relevant payment processor of its kind. Also you basically currently have only one worldwide used currency, which is the US Dollar. A totally different example is online social networks (Facebook).

If Bitcoin becomes really useful and dominant in those niche markets then because of the positive feedback loop it will spread from there to other markets.

[anu]

Don't think it will be 'all or nothing' either, imho it will slowly gain popularity and in about 7 years will be the default internet payment system.

It  seems to me that if Bitcoin passes a certain threshold of user adoption, it will be like the WWW. There have been alternatives in the early days, but they are all gone.

But then, Bitcoin may be scalable to one Million TX/s, but what if you have e-butlers, doing many fully automated micro payments for you? Bitcoin may have to scale 2 orders of magnitude higher.  If Bitcoin is not up to that, it obviously can't be the only game in town.

Similar if Bitcoin is outlawed. It will not go away - it may even grow faster. But if outlawed, it will stay underground.

[EDIT]: The only "nothing" scenario I see is if the Net is locked down to unprecedented levels. Like every computer comes shipped with spyware, every payment must be processed through the government and violations of law carry really harsh punishments - in short, a HiTech North Korea.

[ElectricMucus]

I fully agree on OPs conjecture.


Bitcoin will remain very successful as the motor for a niche economy. It will grow as much as it's initial design allows it but it will not surpass the limitations initially set. It will never appeal to people who believe in an inflation driven environment and certain technical limits will stop it from replacing existing payment processing systems. Bitcoin excels in driving it's own market, the one that itself has created. This market will grow over time but never surpass its fundamental limits. In order to do that the idea behind the system has to evolve into something more profound than just the transfer of tokens.

[thezerg]

And it does not have an advertising budget... so it may not do so well in POS or mobile applications (and other massive deployment idiot-proof install type apps) unless a major player adopts it (and why would you when you can profit by charging 2% to make your own).  But its future is bright for small to mid-sized international payments -- i.e. wire transfer and paypal replacement! 

Its a good thing... if "people" really thought the Euro and USD would be gone in 5 years with BTC reigning over all it would be squashed before it became useful enough to resist.

The best thing for BTC is to grow "under the radar" to dominate a legal niche market so it gains legitimacy and a following of powerful individuals who would fight for its continuation...

[dissipate]

Because both currencies and payment systems (Bitcoin is both) become more useful when more people use them. In other words, the more people you can potentially pay with the system the better it gets.

So over time the one system that people prefer to use becomes ever more dominant and the others ever more marginal. This is also called the 'Network Effect'.

That is why you have so few credit cards other than VISA/Mastercard and only Paypal is the relevant payment processor of its kind. Also you basically currently have only one worldwide used currency, which is the US Dollar. A totally different example is online social networks (Facebook).

If Bitcoin becomes really useful and dominant in those niche markets then because of the positive feedback loop it will spread from there to other markets.

I agree it would spread to other markets, but I don't think the use cases I listed could possibly be better served by a non-cryptocurrency. Facebook credits etc. would all be heavily regulated and taxed by governments. Any centralized currency like e-gold etc. risks being shut down. Visa and Mastercard being used on Silk Road? Not in this lifetime. The network effect breaks down when we are talking about niches that simply cannot be served by regulated currencies.

[sunnankar]

I agree it would spread to other markets, but I don't think the use cases I listed could possibly be better served by a non-cryptocurrency. Facebook credits etc. would all be heavily regulated and taxed by governments. Any centralized currency like e-gold etc. risks being shut down. Visa and Mastercard being used on Silk Road? Not in this lifetime. The network effect breaks down when we are talking about niches that simply cannot be served by regulated currencies.

Exactly. Everything they can do Bitcoin can do but everything Bitcoin can do they cannot necessarily do. For example, from the Food and Drug Administration:

Current Drug Shortages Index
 

The information provided in this section is provided voluntarily by manufacturers.  FDA cannot require firms to report the reason for shortage or duration of the shortage or any other information about shortages. 

Want those life saving pharmaceuticals for a sick relative like your mother?

It is well established that price controls, not even natural disasters like hurricanes, lead to shortages and shortages lead to rationing. The root cause for the current shortage of about 100 critical life saving pharmaceuticals is that the government has put in price controls. You are not going to be able to acquire them with Visa, Mastercard or Facebook credits.

It will be interesting to see if governments continue to maintain any semblance of legitimacy among the general populous while larger and larger numbers of innocent people suffer and die because of their inane policies like these price controls on pharmaceuticals or roads.

[FreeMoney]

I agree it would spread to other markets, but I don't think the use cases I listed could possibly be better served by a non-cryptocurrency. Facebook credits etc. would all be heavily regulated and taxed by governments. Any centralized currency like e-gold etc. risks being shut down. Visa and Mastercard being used on Silk Road? Not in this lifetime. The network effect breaks down when we are talking about niches that simply cannot be served by regulated currencies.

Exactly. Everything they can do Bitcoin can do but everything Bitcoin can do they cannot necessarily do. For example, from the Food and Drug Administration:

Current Drug Shortages Index
 

The information provided in this section is provided voluntarily by manufacturers.  FDA cannot require firms to report the reason for shortage or duration of the shortage or any other information about shortages. 

Want those life saving pharmaceuticals for a sick relative like your mother?

It is well established that price controls, not even natural disasters like hurricanes, lead to shortages and shortages lead to rationing. The root cause for the current shortage of about 100 critical life saving pharmaceuticals is that the government has put in price controls. You are not going to be able to acquire them with Visa, Mastercard or Facebook credits.

It will be interesting to see if governments continue to maintain any semblance of legitimacy among the general populous while larger and larger numbers of innocent people suffer and die because of their inane policies like these price controls on pharmaceuticals or roads.

It's easier to stay loyal to something that is killing you, friends, and/or family when it's 'just the way it is' and other realities are only imagined. When other people stop dying and suffering because the black market can get them their drugs via bitcoin it's a lot harder to justify.

If there is nothing technically wrong or an early and thorough gov crackdown it has to grow, maybe not to 'all' but so much bigger than now.

[fcmatt]

All or nothing is so extreme. I do not recall such debates and people taking them seriously.

[ElectricMucus]

All or nothing is so extreme. I do not recall such debates and people taking them seriously.

Here in the speculation forum? Cuz it doesn't get any more extreme than here 

[mp420]

I honestly do not think Bitcoin will ever be big enough to be the "standard web payment system".

It might grow enough to be actually useful for some niche use cases, such as small scale import/export businesses. If it's going to be stable enough, it might replace SDR in some applications that SDR is being used for. Actually, it doesn't even need to replace SDR, the price might be in SDR but the transaction could be made in BTC.

Inside one currency region making payments in Bitcoin does not make sense. Contrary to popular belief, debit card payments are actually very cheap when processed in bulk. In EU I think retailers pay something like .29% provision. A bitcoin payment processor needs to be hella efficient to beat that. And SEPA transfers inside the eurozone are mostly FREE. (Okay, businesses pay some pennies per transaction but it's almost as good as free.)

[Scott J]

Quick, low cost remittance has the potential to be Bitcoin's killer app.

I just hope someone like the guys at Bitinstant are working on it.

[finkleshnorts]

Quick, low cost remittance has the potential to be Bitcoin's killer app.

I just hope someone like the guys at Bitinstant are working on it.

 Actually, it's kind of already built in, just needs some publicity. For instance, if the airport currency exchange desks accepted bitcoin, then there you have it. Remittance. Because bitcoin is unique from every other currency on the ticker in that sending/receiving is built in.

I know this is all common sense, but I agree with you and I have been thinking about how remittance payment networks could work. It took me a while to put 2 and 2 together ^^.  Before bitcoin becomes so widespread, a map of people who announce that they buy and sell large volumes of bitcoin for their local currency will have to suffice.

I would think it very redundant to use a bitinstant-type intermediary for remittances. It would be no different than western union, because if you think about they would be sending coins back and forth internally, which equals to not moving coins around at all. All western union does is transmit money, bitcoin takes care of that.

For bitcoin to be useful for low-cost remittance, it's going to have to be a DIY kind of thing.

^^I know I basically said the same thing over and over but I wasn't sure if I was clear or not.

[FreeMoney]

Bitcoin is like an open source remittance network. Set up a BTC<-->Peso kiosk in Mexico City and now anyone with BTC can remit to Mexico, you are automatically in the network. When it gets bigger it will get bigger which will make it get bigger, limiter is... I don't know.

[finkleshnorts]

Bitcoin is like an open source remittance network. Set up a BTC<-->Peso kiosk in Mexico City and now anyone with BTC can remit to Mexico, you are automatically in the network. When it gets bigger it will get bigger which will make it get bigger, limiter is... I don't know.

What he said

[ethanblack]

The ceiling on 'all' is that a government that would tolerate bitcoin would also tolerate gold and silver, much more tried and true currencies that would limit bitcoin's market share.

[nedbert9]

In many sanctuary cities around the US the barrios will have a number of small remittance offices within gas stations.

My thought is what is the incentive for remittance operations to provide lower cost transfers.  The answer is they don't have one.

So, I agree with DIY being the likely method to reform remittance.  Though, is there a barrier to DIY remittance in low income immigrant communities?  I have a feeling that generally the groups that remit to their home countries most often lack the sophistication and/or computer resources for DIY remittance.

That leaves non profit organizations that cater to these communities to help reform remittance.  Religious organizations.

[niko]

Bitcoin is like an open source remittance network. Set up a BTC<-->Peso kiosk in Mexico City and now anyone with BTC can remit to Mexico, you are automatically in the network. When it gets bigger it will get bigger which will make it get bigger, limiter is... I don't know.

Most of remittance flow between the US and Mexico is in the direction of Mexico. Your kiosk in Mexico City would run out of Pesos fast. The local market price of btc would decline. Now they need to sell their btc elsewhere (in the US, for example). They need to either buy Pesos in the US and move them across the border, or move USD across the border and exchange them to Pesos.
We are back to old-fashioned fiat remittance business. Bitcoin only made it more complicated and more expensive: you need to have means of moving fiat internationally anyway, so why bother with bitcoins?
The only way btc remittance would ever work is if btc already is reasonably adopted in both countries (exchanges or ideally goods/services). The market can then absorb btc remittance without being moved significantly, and when it does you'll rely on arbitrage players to take care of things. Remittance can therefore never be a killer app for Bitcoin - it can only thrive where a diverse btc economy is already established. I can vouch it works between the US and Canada right now. I use it by simply exchanging between virtex and gox. No need for "remittance businesses".

[mp420]

Sadly, the killer app for Bitcoin seems to be none other than regional-level mail order illegal drug trade. Because of escrow services it's much safer for all participants than just about every other alternative.

I am not against drug trade as such but even that functionality suffers if it's the main thing bitcoins are used for.