Bitcoin would be a clear step forward as a payments system if people actually used it to pay for things. But they don't. The people who have bitcoins don't use them, and the people who don't have them don't want them. Indeed, a new survey finds that 79 percent of people have never used a cryptocurrency, and never want to.Atlantic Business
But there's an easy fix. Just ask yourself why sellers are so happy to accept Bitcoin. It's not just that there are no fees. It's that merchants can instantly turn their bitcoins into dollars thanks to startups like Bitpay. Sure, that means paying a fee, but it's lower than what they'd have to pay the credit card companies—and it means they don't have to worry about Bitcoin's incredibly volatile value.
Bitcoin needs the same thing for buyers. It needs a company that can immediately turn a buyer's dollars into bitcoins and then immediately turn a seller's bitcoins back into dollars—all for a lower fee than traditional intermediaries charge. In other words, Bitcoin needs to stop trying to be a currency and start being a financial architecture.
Bitcoin Is Broken—Here's a Simple Plan to Fix It
Matthew O'Brien
11 comments:
Well this has clearly been the direction the Bitcoin phenomenon has been moving since its inception.
But guess what? If the whole point is to put dollars in on one end of the transaction and take dollars out on the other end, there is an even more efficient and friction-free way of doing it: conduct the transaction in dollars. The dollar is already a digital currency with global reach that is conveyed on a wide variety of digital payment platforms with robust correspondence relationships. It also comes in handy paper and metal forms for those occasions when digital isn't convenient.
Once you have a small industry of private companies charging service fees for conversion of existing currencies into and out of Bitcoin, then the whole idea that Bitcoin provides some free alternative to banks probably goes out the window.
However, it is true that it is a little more difficult to buy heroin or traffic humans with dollars as compared to bitcoins.
Very large firms can negotiate lower rates than smaller, and for smaller firms, the transaction fee through customarily used services is considerably higher than with using Bitcoin — so far anyway. Ebay's PayPal is ~3%. If financial institutions step up to compete by lowering their fees, so much the better for everyone.
The challenge for a dollar based peer-to-peer crypto payment system is how to compensate the peers that provide the computing power but aren't involved in transactions. In bitcoin, the computing horsepower (negative externality) that enables everyone to stay ahead of criminals is paid for by new bitcoin issuance (to miners). Owners of bitcoins pay for their (positive externality) of security through (inflation) bitcoin issuance.
I'd argue that a dollar network could be truly peer to peer without paying miners because the dollar network could instantly scale and once scaled, everyone has an interest in ensuring the system is secure and could provide a small amount of computing to pay for their own security with the Fed and Government itself providing a very large crypto operation to anchor it at no cost except they too capture value from more currency users.
The Fed would be absolutely stupid not to take the source code from bitcoin and adopt it to dollars. The problem is that the banking system and economists HATE the idea of non-fractional reserve banking with "high powered money" and all the normal goofy half thought out rhetoric over rates, inflation and what not.
Dan Kervick:
The point is to put "currency" in one end and get "currency" out on the other end. Neither side has to be dollars. This is one use case that allows for less friction in currency exchange. Everyone use bitcoins, then convert to whatever their local currency is. All of a sudden, global commerce becomes just a little easier.
Why use the bitcoins in the first place, if you are simply trying to avoid them? There is no magic in the btc and as the solutions become more difficult as the solutions get more difficult, so does the motivation for cooperative cheating. As in all human endeavors, we work together to build a system, then lie, steal, cheat and corrupt the system.
Ben, its very easy to convert dollars and other state currencies into one another, so if the payee first uses dollars to buy bitcoins, then wires the bitcoins, and the recipient then uses the bitcoins to buy euros, where does the extra ease come from? Why not just have the payee wire dollars that the recipient converts to euros, or have the payee buy euros that the recipient then takes as is? In all three cases there are transaction fees. Unless people are willing to hold and save in bitcoins, then the bitcoins just add another totally unnecessary link to the transaction chain.
In addition, you lose all the benefits that come from having a regulated third party liability as an exchange medium. The "crypto" part of a crypto-currency doesn't just hide the identity of two exchangers from third-party view, but it hides all the recoverable information about the transaction that is required in order to create an enforceable legal record of its details.
Property rights, which libertarians profess to love and honor as the foundation of our economy, can only exist in a functioning legal context. If you take away the ability of the state to enforce those property rights, then the property rights themselves become less meaningful and effective. They become mere informal moral aspirations, at best rather than a sophisticated social institution. The only recourse at that point to disputes over contracts and transfers of property is for people to hire private muscle to enforce claims outside of any procedurally verifiable facts, adjudication and due process.
its very easy to convert dollars and other state currencies into one another, so if the payee first uses dollars to buy bitcoins, then wires the bitcoins, and the recipient then uses the bitcoins to buy euros, where does the extra ease come from? Why not just have the payee wire dollars that the recipient converts to euros, or have the payee buy euros that the recipient then takes as is? In all three cases there are transaction fees. Unless people are willing to hold and save in bitcoins, then the bitcoins just add another totally unnecessary link to the transaction chain.
Transaction cost and convenience matter. Even apparently quite minuscule amounts owing to the transaction volume and need for increased speed. Of course conventional systems can easily address this by competing, i.e., forgoing rents, but will they without competition. Probably not.
"but it hides all the recoverable information about the transaction that is required in order to create an enforceable legal record of its details."
Dan, Have you found case law that dismissed transactions because they were conducted in BitCoin?
I've been keeping an eye on case law but everything I've seen so far has been supportive of the currency. The transaction records on the currency are great, every peer keeps a complete record of all transactions so I think, for courts, there won't be any problem for a buyer and seller to prove that they have sent/received payment. Additionally because the currency is far more traceable than cash, regulators can watch for illicit activity and simply leave a peer active anywhere on the network to perform surveillance on specific Wallets associated with a target.
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