It isn't like the internet because electronic ledger technology and instant money transmission services already exist, and indeed are used by basically everyone that BTC is accessible to. If using the conventional banking system occasionally seems like mailing floppy disks to people, the hurdles to effortless universal payments are regulatory rather than technological
"Access to news, music and videos in minutes from anywhere in the world with a computer modem" is a much more revolutionary pitch to the consumer than "but see, not only is blockchain technology better than those old mainframes your bank uses... it's decentralised... here's a CATO institute article.... yeah, and you can convert it back to dollars too"
You're right in the sense that distributed ledgers are effectively an end run around regulations and trusted parties who we pay for centralized ledgers today. I think you're underestimating how important that is.
Transaction fees are going to zero.
Markets are moving to blockchains: securities markets, eBay-style markets for goods, Uber-style markets for services.
Markets that have been regulated out of existence will now thrive. Drug markets get all the press, but prediction markets will change the world. (http://augur.net/)
We currently pay banks to keep our money safe and to make it digital so we can swipe a card or enter some numbers to send money. Distributed ledgers combined with current and future software do that for free. Today, everyone's money has to be in a bank, so they get to keep almost all the profit from your money. In the near future, your money will be safe, digital, and controlled by you. When you decide to lend it to other people, you'll get paid more to lend your money out.
Most countries have currencies that harm their economies and/or decrease in value rapidly. Distributed ledgers and the financial derivatives that can be built on top of them will give the whole world stable currency. This outcome isn't just an end run around regulations or trusted parties: it's a new thing that just wasn't possible before. We have better technology to build currencies now.
It's definitely harder to pitch blockchains to consumers as revolutionary, but if you think about it for a while and still conclude that it's not going to have a huge impact on the world, I think you've missed something.
I am aware that I am not the only one convinced that Bitcoin will fail. Maybe the Bitcoin price will even stop falling and rise again once more, but finally it will fail. See the linked comment for my reasoning.
They argued about the exact numbers but they did by no means show that the argument is invalid. Bitcoin has no important advantages over credit cards or PayPal, besides the claimed low transaction costs. And this argument is not true, not now and it is not obvious that it will become true in the future.
The number one innovation from bitcoin is not its low transaction cost. Its the blockchain, that is to say the possibility for two people to make a transaction without a centralized third party involved.
I said advantages, not innovations. Nobody cares about whether there is a centralized authority or not. I never ordered something on Amazon and was secretly concerned that paying with my credit card involves some central authorities. It may be a nice goody but it is nothing average people care about and therefore no reason for them to adopt Bitcoin.
Innovations never look like huge advantages or more than "nice goody" until people start using them in practical way. People used to say that the internet was a nice goody but that fax was good enough. Yeah, right.
But the Internet really made some things orders of magnitude easier or faster or possible at all. But what could the advantages of having no central authority be? There are some rare scenarios like the economy of a country collapsing where being independent could be useful. Or when banks are socialized. But do these scenarios justify all the hassle? Or am I missing something? Where or when else is it advantageous?
Right now all other electronic payment networks require the extension of credit somewhere in the system. Credit card companies offload the risk of managing this to payment gateways, but it is still there. This leads to expensive things like PCI-compliance requirements and chargebacks-for-profit.
By eliminating the need for credit, bitcoin eliminates an entire horizontal layer in the payments industry. The first uses are thus obviously biased towards high-risk transactions, but it will be surprising if a lot of high-cost merchants like airlines aren't accepting bitcoin in 2-3 years, if only because 2-3% of a 3000 USD ticket is a lot of cash to pay a middleman if the consumer trusts you enough to handle the transaction directly.
Credit is a feature rather than a bug in the existing system
And Bitcoin actually adds a horizontal layer: the average person needs to go to an exchange to get BTC[1]. Assuming they don't want to wait for the funds to clear, they're relying on credit to obtain the BTC (otherwise they're speculating on the price of an extremely volatile asset whilst they wait, which is hardly an improvement). They then pay the BTC to an entity that almost certainly converts them instantly back to USD via Coinbase/BitPay which again involves the extension of credit and acceptance of counterparty risk. The transaction may well involve more intermediaries than doing it in dollars.
Sure, converting between regular currency and BTC currently involves lower spreads/fees than mainstream payment processors. But that's not the magic of the blockchain revolution; that's the exchanges' having an altogether different approach to risk management, regulation and near-term profitability than the mainstream processors
[1]Or they could buy ASICs, I suppose, or go work for a funky startup that pays bonuses in BTC. But for everyone else, there's MasterCard
It is a bug having to ask for permission to collect money electronically. And assuming you get permission, it is a bug to get charged more than a penny or two for having your transaction processed. It's a bug not being able to receive/send cash anonymously, or to be censored because... because... what crime did Wikileaks commit?
Credit is a bug if you're an offshore company that can't find a payment processor or has your payments held for three months before release because the War on Terror means offshore companies are now suspect. It's a bug when your business sounds high-risk or illegal but actually isn't. It's a bug because the people who get employed managing this risk don't do a good job themselves and are often complicit in gaming the system. And it is a bug when you're in an industry where credit card fraud is rampant, because now the inability of the industry to handle data security means you pay twice, once when you're ripped-off by the customer and then a second-time when you get ripped-off by your bank with the chargeback.
The need for credit is a huge bug in the way it forces companies to be PCI-compliant (why should we be devoting massive economic resources to this?). And it is a bug in that it requires people to have credit cards, which requires them to have credit records, which brings up another set of problems....
Your complaint seems to be mostly that you don't have bitcoin and it would take you a single extra transaction to get it (something already easier than applying for a credit card, and/or paying your bills and frankly getting easier). But if you think bitcoin is more difficult than the alternatives, think as a conceptual exercise of programming a machine to buy and sell things with a credit card and pay its bills automatically. And once the tech is in place, apply for a credit account for the machine....
They have to have content to which they can attach ads. Apparently not enough people are willing to pay for their rather expensive premium memberships.
> The core Bitcoin developers are cypherpunks who do what they do because they don’t trust governments or the global banking system and are trying to build a distributed and autonomous system, one that is impervious to regulation and meddling by anyone at any time.
I don't think that's an accurate description the the core Bitcoin developers. I know Gavin Andresen, Gregory Maxwell and Mike Hearn aren't like that, at least.
There's really a lot of people in the Bitcoin community who are just interested in the technology.
Why do people keep repeating this myth that Bitcoin is "efficient"? It's not, even hardcore bitcoiners like Peter Todd admit this. [1] And the most important point is, it cannot be, this is a mathematical fact underlying trustless systems based on the blockchain.
If I give a $100 to you, a centralized entity like my bank just has to subtract 100 from a database which contains my my account balance and 100 to your account balance. And now the transaction is complete. In the case of bitcoin, you still have to do this, but you also need to run a proof-of-work competition among a whole bunch of miners. This proof-of-work competition has to cost significant money in comparison to the amounts being transacted on the network, because if it didn't, a 51% attack would become easy.
Suppose for the sake of argument that the cost of a bitcoin transaction, by which I mean the money invested in mining equipment and cost of electricity of the the mining network, is $1. Assume for simplicity that there's only one transaction per block. Now suppose I'm a malicious actor who just paid you $1000 through the bitcoin network and would now like to execute a double-spend attack. Amassing more hashpower than the rest of the network and "overtaking" the longest chain after 6 confirmations is, on average, only going to cost me 7 * $1.01. In other words, this network with a cost per transaction of $1 is insecure for transacting amounts like $1000. The point is, the mining rewards + transaction fees on the btc network, which in turn are equal or slightly greater than the the cost per transaction block, have to be roughly similar to the amounts being transacted on the network for it to be secure.
The TLDR is this: for a secure btc-like network, transaction cost ~ O(transaction amount). For a centralized ledger (bank): transaction cost ~ O(1). By no means can you call this "efficient."
I'm not saying bitcoin is useless. It is a very clever trustless distributed ledger, but this trustlessness comes at a significant cost.
The organization that administers the centralized ledger could be bribed with a value greater than the transaction amounts. One could say "yes, but regulators..." - then one has to add the cost of the regulators, courts, jails, etc... It would be interesting if it turned out that the technical cost of a safe bitcoin network was the same as the human cost for a centralized network. I'm going to think about this some more.
No, there's a big difference between your bribing experiment and the thought-experiment I described. The value 7 * 1.01 is the amount it costs me to conduct the attack. I don't need anybody to collude with me.
The bribe is an unknown quantity that has to be greater than the revenue the operators of the centralized ledger forgo when they decide to collude with me and attack their other users.
The equivalent to the bribing the centralized ledger would be me trying to bribe the top 5 or so pools to conduct a 51% attack on my behalf. This is obviously going to cost me a lot of money because the pools have little interest in becoming accomplices in my criminal conspiracy.
I think the reason people call Bitcoin efficient is because transactions actually happen much faster than through regular banks. In a real bank typically you need to wait one workday to get the money transferred, whereas in Bitcoin timescale is in the range of minutes.
"It feels a lot to me like when we were arguing over ethernet and token ring -- for the average user, it doesn’t really matter which we end up with as long as in the end it’s all interoperable. What’s different is that there is more at stake"
These big debates seem to be so critically important only from perspective of today. I'm pretty sure that people arguing about technology are always convinced that their discussion and goals are crucial for the future. But from the perspective of time they aren't because the world and technology keep going forward and once strategical debate comes out as just another milestone.
To date, crypto currency remains a technology topic. If you want to change finance, first understand it. Take your corporate finance, capital market, macro economics classes, and understand government's role in currency and economy. Learn about the history of how commercial banking, investment banking, currency and payment worlds have evolved over the last 100 years.
In short, figure out how bank and capital flows work before prescribing any solutions like Bitcoin, otherwise it will just prove the rightful criticism - that crypto may point to the right problem, but it in itself is just a technology looking for a problem to solve, and that even if it eventually finds its purpose, the chance that the problem will be small or a better, simpler solution comes by remains high.
Financial system as it's built today is an equally sophisticated system vis-a-vis the digital world. Most of those system designers (from say Banking Act of 1933) have left this world. Tech-hackers are many, finance-hackers are fewer. Even fewer understands both. This is why if you ask the view on crypto, you will have very conflicting views between the tech and the finance worlds. And rest to be sured, we are dealing with a problem that's more finance (including financial regulatory) than tech.
Almost anyone on hacker news understands how a full stack software system works. But do you understand how a financial "full stack" works? If you're interested in tackling the problem in a new way, we are hiring and welcome your input.
32 comments
[ 5.1 ms ] story [ 81.3 ms ] thread"Access to news, music and videos in minutes from anywhere in the world with a computer modem" is a much more revolutionary pitch to the consumer than "but see, not only is blockchain technology better than those old mainframes your bank uses... it's decentralised... here's a CATO institute article.... yeah, and you can convert it back to dollars too"
Transaction fees are going to zero.
Markets are moving to blockchains: securities markets, eBay-style markets for goods, Uber-style markets for services.
Markets that have been regulated out of existence will now thrive. Drug markets get all the press, but prediction markets will change the world. (http://augur.net/)
We currently pay banks to keep our money safe and to make it digital so we can swipe a card or enter some numbers to send money. Distributed ledgers combined with current and future software do that for free. Today, everyone's money has to be in a bank, so they get to keep almost all the profit from your money. In the near future, your money will be safe, digital, and controlled by you. When you decide to lend it to other people, you'll get paid more to lend your money out.
Most countries have currencies that harm their economies and/or decrease in value rapidly. Distributed ledgers and the financial derivatives that can be built on top of them will give the whole world stable currency. This outcome isn't just an end run around regulations or trusted parties: it's a new thing that just wasn't possible before. We have better technology to build currencies now.
It's definitely harder to pitch blockchains to consumers as revolutionary, but if you think about it for a while and still conclude that it's not going to have a huge impact on the world, I think you've missed something.
EDIT: Read that [1] for my reasoning instead of blindly down voting opinions you don't like or at least point out where I am wrong.
[1] https://news.ycombinator.com/item?id=8905475
http://bitcoinobituaries.com/
Bitcoin closely resembles a strictly finite physical resource. Paypal does no such thing. Bitcoin is money. Paypal is a system for sending money.
By eliminating the need for credit, bitcoin eliminates an entire horizontal layer in the payments industry. The first uses are thus obviously biased towards high-risk transactions, but it will be surprising if a lot of high-cost merchants like airlines aren't accepting bitcoin in 2-3 years, if only because 2-3% of a 3000 USD ticket is a lot of cash to pay a middleman if the consumer trusts you enough to handle the transaction directly.
And Bitcoin actually adds a horizontal layer: the average person needs to go to an exchange to get BTC[1]. Assuming they don't want to wait for the funds to clear, they're relying on credit to obtain the BTC (otherwise they're speculating on the price of an extremely volatile asset whilst they wait, which is hardly an improvement). They then pay the BTC to an entity that almost certainly converts them instantly back to USD via Coinbase/BitPay which again involves the extension of credit and acceptance of counterparty risk. The transaction may well involve more intermediaries than doing it in dollars.
Sure, converting between regular currency and BTC currently involves lower spreads/fees than mainstream payment processors. But that's not the magic of the blockchain revolution; that's the exchanges' having an altogether different approach to risk management, regulation and near-term profitability than the mainstream processors
[1]Or they could buy ASICs, I suppose, or go work for a funky startup that pays bonuses in BTC. But for everyone else, there's MasterCard
Credit is a bug if you're an offshore company that can't find a payment processor or has your payments held for three months before release because the War on Terror means offshore companies are now suspect. It's a bug when your business sounds high-risk or illegal but actually isn't. It's a bug because the people who get employed managing this risk don't do a good job themselves and are often complicit in gaming the system. And it is a bug when you're in an industry where credit card fraud is rampant, because now the inability of the industry to handle data security means you pay twice, once when you're ripped-off by the customer and then a second-time when you get ripped-off by your bank with the chargeback.
The need for credit is a huge bug in the way it forces companies to be PCI-compliant (why should we be devoting massive economic resources to this?). And it is a bug in that it requires people to have credit cards, which requires them to have credit records, which brings up another set of problems....
Your complaint seems to be mostly that you don't have bitcoin and it would take you a single extra transaction to get it (something already easier than applying for a credit card, and/or paying your bills and frankly getting easier). But if you think bitcoin is more difficult than the alternatives, think as a conceptual exercise of programming a machine to buy and sell things with a credit card and pay its bills automatically. And once the tech is in place, apply for a credit account for the machine....
I don't think that's an accurate description the the core Bitcoin developers. I know Gavin Andresen, Gregory Maxwell and Mike Hearn aren't like that, at least.
There's really a lot of people in the Bitcoin community who are just interested in the technology.
If I give a $100 to you, a centralized entity like my bank just has to subtract 100 from a database which contains my my account balance and 100 to your account balance. And now the transaction is complete. In the case of bitcoin, you still have to do this, but you also need to run a proof-of-work competition among a whole bunch of miners. This proof-of-work competition has to cost significant money in comparison to the amounts being transacted on the network, because if it didn't, a 51% attack would become easy.
Suppose for the sake of argument that the cost of a bitcoin transaction, by which I mean the money invested in mining equipment and cost of electricity of the the mining network, is $1. Assume for simplicity that there's only one transaction per block. Now suppose I'm a malicious actor who just paid you $1000 through the bitcoin network and would now like to execute a double-spend attack. Amassing more hashpower than the rest of the network and "overtaking" the longest chain after 6 confirmations is, on average, only going to cost me 7 * $1.01. In other words, this network with a cost per transaction of $1 is insecure for transacting amounts like $1000. The point is, the mining rewards + transaction fees on the btc network, which in turn are equal or slightly greater than the the cost per transaction block, have to be roughly similar to the amounts being transacted on the network for it to be secure.
The TLDR is this: for a secure btc-like network, transaction cost ~ O(transaction amount). For a centralized ledger (bank): transaction cost ~ O(1). By no means can you call this "efficient."
I'm not saying bitcoin is useless. It is a very clever trustless distributed ledger, but this trustlessness comes at a significant cost.
https://twitter.com/petertoddbtc/status/513195104023359488
The bribe is an unknown quantity that has to be greater than the revenue the operators of the centralized ledger forgo when they decide to collude with me and attack their other users.
The equivalent to the bribing the centralized ledger would be me trying to bribe the top 5 or so pools to conduct a 51% attack on my behalf. This is obviously going to cost me a lot of money because the pools have little interest in becoming accomplices in my criminal conspiracy.
These big debates seem to be so critically important only from perspective of today. I'm pretty sure that people arguing about technology are always convinced that their discussion and goals are crucial for the future. But from the perspective of time they aren't because the world and technology keep going forward and once strategical debate comes out as just another milestone.
In short, figure out how bank and capital flows work before prescribing any solutions like Bitcoin, otherwise it will just prove the rightful criticism - that crypto may point to the right problem, but it in itself is just a technology looking for a problem to solve, and that even if it eventually finds its purpose, the chance that the problem will be small or a better, simpler solution comes by remains high.
Financial system as it's built today is an equally sophisticated system vis-a-vis the digital world. Most of those system designers (from say Banking Act of 1933) have left this world. Tech-hackers are many, finance-hackers are fewer. Even fewer understands both. This is why if you ask the view on crypto, you will have very conflicting views between the tech and the finance worlds. And rest to be sured, we are dealing with a problem that's more finance (including financial regulatory) than tech.
Almost anyone on hacker news understands how a full stack software system works. But do you understand how a financial "full stack" works? If you're interested in tackling the problem in a new way, we are hiring and welcome your input.
HN sn = Gmail sn