Facepalm. I can pick 20 small cap stocks that have outperformed the dollar over the past year. That only makes them a good savings vehicle in hindsight.
Confusing short-term speculation with sustainable added value here.
Can you pick 20 small cap stocks which have outperformed the dollar over four years? Are there tens of thousands of merchants that will accept said stocks as payment for their products? Are there payroll systems and employees eager to accept these stocks as wages?
The fact that my post is even controversial is kind of silly if you think about it. All you're saying is, "Yeah, but!"
> So chargebacks due to fraud simply wouldn't be there.
That is far from the only reason there is credit card fraud. Actually most credit card fraud is linked to identity fraud (a hacker stealing someone's financial credentials or posing as them on an online/offline store).
Most of the credit card information stolen from Target and Home Depot is not used but sold as quickly as possible on underground forums to "the greater fool" who is willing to take a risk to use it (if it still works).
Because of the chargeback system, those millions of credit cards stolen are not a huge issue for consumers because they can immediately lock down their card. Cards are replaceable keys. If you believe that you've been compromised, chargeback for whatever amount was stolen from you and change cards. It's a pretty incredible system for consumers when you think about it.
Contrast that to bitcoin. Your third-party bitcoin storage service gets hacked, your bitcoin are gone forever. You choose to store your bitcoin locally and you're exposed to physical theft (like keeping cash under your mattress).
Bitcoin does not solve the fraud/theft problem. I facepalm every time I hear that argument. Chargebacks are omnipresent today because they protect consumers because theft has always been and will always be part of any financial/payments system — simply because thieves don't target "how" you pay (push vs pull doesn't matter) but target where you store your wealth.
> thieves don't target "how" you pay (push vs pull doesn't matter) but target where you store your wealth.
I wasn't arguing against this. Your credit card is where your wealth is stored, if it can be used to purchase things. And your wealth is stored with Target if they have your CC info. So places like that seem a likely target for attacks.
> Contrast that to bitcoin. Your third-party bitcoin storage service gets hacked, your bitcoin are gone forever.
M-of-N key schemes will prevent this in the future. Also not the only option.
> You choose to store your bitcoin locally and you're exposed to physical theft (like keeping cash under your mattress).
I don't see how. If your stuff is encrypted or your devices locked, then they would not be susceptible to theft from your mattress. They'd have to be stolen from your hand while unencrypted or device unlocked.
Not sure that I buy that most CCs are somehow gotten through a means other than 3rd parties who have them.
Another point is that if you get your info stolen, why should the merchant take the loss? They've already given out the product. It's your money to be responsible for, if the merchant doesn't hold the means to charge it, which they wouldn't with bitcoin. This realization will lead to more secure systems, since consumers would not be able to charge back willy-nilly.
> Your credit card is where your wealth is stored.
Your credit card is just a means of payment (a key). Your wealth is stored at your bank.
All these merchants may have your bank keys, but they can't use it to charge you illegally because they will incur costs (a chargeback fee and then some). It a great system in which both the consumer and the merchant are incentivized to behave correctly...
1. Check out Stellar and Ripple who solve this better than BTC.
2. Is a volatile virtual currency powered by market speculation the best alternative for inflation-ridden currencies? I facepalm every time I hear this argument.
3. and 4. Agreed. Bitcoin is great for merchants. Unfortunately economic demand comes from consumers. More merchants accepting bitcoin does not imply more consumers adopting it, in particular because those same merchants accept traditional payment methods in parallel (credit cards). That's a big red flag for me.
Well numbers prove you wrong. A year ago 1 bitcoin was worth $125 and is now worth $480. A year ago 1 ARS was worth $0.17 but is now worth $0.12. One currency appreciated, the other lost value. Clearly an Argentinian would have been better off putting an investment in Bitcoin than in the Argentine peso.
Bitcoin certainly is volatile (down from $1000+), but on the long term, if you hold it for at LEAST 1 year, it seems to at least keep value, if not gain value.
Large retailers like Amazon don't save on their margins if they start accepting BTC because 1) BTC won't be used by any significant number of their users 2) they already get special discounts for CC processing from companies like Visa and Mastercard because of the huge volume they handle.
Fraud is as applicable to credit cards as to bitcoin. You store bitcoin with a third party service means you rely on them to keep their servers secure and hope that hackers don't obtain your credentials/identity information to log in and steal your bitcoin. I would argue it's even worse with BTC because their is no fraud protection.
Chargebacks are an issue for merchants, but a huge advantage for consumers. Ultimately the economic demand comes from the consumer and not the merchant, that is why chargebacks are still omnipresent in ecommerce today.
Two areas bitcoin could have addressed are remittances and smart contracts, yet better systems are emerging to solve those problems (Ripple, Stellar, Ether).
Your arguments could be valid in a world where everyone uses bitcoin and doesn't touch fiat. This is not the case. Bitcoin is a great technology in theory but its practical applications are quite limited.
Large retailers like Amazon don't save on their margins if they start accepting BTC
For point 1, obviously wrong. Any sale they make in bitcoin is one they save on their margins. Just because it's not applicable to 100% of sales doesn't mean it has no effect.
On point 2, that's true but is the discount 0? Because BitPay processes bitcoin payments at 0% right now (and has billion-dollar clients like Newegg already), with enterprise options. Point is, whatever discounts CC can make to large clients, bitcoin processors can do, too. Only more, because an average bitcoin order is inherently cheaper.
Fraud is as applicable to credit cards as to bitcoin
Absolutely, but there's obviously different levels of security. e.g. say I tell you 'let's move from checks to creditcards, it's much safer'. It'd be pretty silly to say 'no, creditcards also have fraud'. Yes, but checks are worse. Why? Due to its inherent design.
The inherent design of creditcards (1950s technology, by the way) is writing all the security details (i.e. your money-vault password) on a plastic card. And handing over that information to anyone you're paying, and then they can (and often do) keep that information on file.
Imagine you want to pay with cash at a supermarket and have to hand over your wallet to the company. And when you're done paying and leave, they still have access to your wallet for years.
It's a security nightmare. Bitcoin is different in that you don't send access to your money to a business, you just send money. It's by design more secure.
That's not to say the bitcoin ecosystem is a secure paradise, far from it. But I do truly believe that bitcoin's properties allow an ecosystem with less fraud. Things like multi-sig can create (in fact, already exist) third-party custodians who have no exclusive access to your money and just act as a signing counterparty, for example.
Chargebacks are an interesting topic that I'd be willing to talk about more if you want to know. But it's not a key issue. If it does turn out that chargebacks are wanted by customers, they can be built into the bitcoin ecosystem through third parties like today, keeping all the other benefits of bitcoin. But more importantly, chargebacks as they exist today are pretty shitty, invite fraud, create huge costs, paid for by the customer, and are barely needed. If you want to know the arguments, let me know I'll write them up for you, wall o text already.
yet better systems are emerging to solve those problems (Ripple, Stellar, Ether)
I disagree on the point of remittance, but I'm keeping an eye out for sure! These three are definitely exciting. All three projects by the way see themselves co-existing with bitcoin, check out the bitcoin talks by the CEO of stripe who launched Stellar, but you're probably familiar already.
This is something they unfortunately do not address, but it's the biggest problem with such systems and a major part of the reason Ripple hasn't caught on.
If your money transfer model includes gateways, then trust is involved. You have to trust the gateways (local banks or exchanges) to make the conversion.
The gateways on each end would also want to take a fee.
Add to that the (MASSIVE) cost of compliance globally, and the costs of the model described by Stripe may not be much better than that of existing services (TransferWise, Western Union, etc.).
It's just an absolutely mind-bogglingly large, long, and costly endeavor, and the end results may not be worth it.
And the Alienware promotion? Alienware is used primarily for video gaming. There's quite an overlap between the demographics that play video games and own bitcoin ("geeks").
What will the government do with Bitcoin the day a report comes out that American citizens have been killed in a terrorist operation financed by bitcoin?
And yet a little "https" logo smiles at me in the address bar as we speak.
Point being that the government can't and doesn't ban everything that can be used for evil, be it from incompetence or rationality. Bitcoin will probably be heavily monitored though, as it is very suitable for that purpose.
HTTPS was crippled, since Netscape shipped only 40-bit RC4 internationally.[1]
PGP's source code was printed so it would fall under First Amendment protections, since binaries weren't legal for export.[2] (See also DJB's Bernstein v. United States)[3]
OpenBSD/OpenSSH is still based in Canada to avoid being subject to the laws.
Isn't it conceivable that the government would implement a similarly short-sighted (and ineffectual) policy if Bitcoins were seriously used to harm the US? :-P
If you want freedom, learn how to algorithmically trade Forex.
Edit: Downvote? I'm serious about this. Trading is the only activity I know that gives you
1) income
2) no boss to report to
3) no employees to take care of
4) location freedom (e.g. can be done from anywhere)
5) relatively low starting costs
6) low starting risk (you don't need to work 2+ years to figure out if your company will actually make money)
7) a market you know will always be there
8) an ability to be totally hands off with
algorithmic trading
Most people think this is a pipe dream — perhaps that explains the downvotes. It's not. I live off semi-algorithmic Forex trading and know many others who do too.
"Second, because convert-transmit-unconvert still bypasses many of the painful aspects of other money transfer mechanisms."
Using a credit card online or 1-click checkout isn't painful.
"Both buyer and seller only interact with entities they trust (coinbase and their bank)"
Pretty sure most people trust the bank that issued their credit card.
"no credit cards (and associated fees, chargebacks, and headaches)"
No chargebacks may be good for merchants, but not for consumers (no protection). Most of the CC fees are reimbursed to the customer in the form of rewards. In France for example, usual debit card fees are 0.5%, and credit cards with rewards are 2%-4%. In Australia, the government intervened and all card fees are < 0.5%. This was good for merchants but customers now don't get rewards/cashback/points on their card.
"the transmission process in the middle uses bitcoin in lieu of ACH or similar (avoiding many potential risks, reversals, and the various Bad Things that can usually happen if you pay directly from a bank account)"
Not sure what those "many bad things" are. I recently received subpar merchandise from a merchant; called my bank that morning, the transaction was reversed, almost no questions asked. There was a follow-up "investigation" that was in my favor. The fact that I can reverse transactions gives me peace of mind, otherwise known as consumer protection.
It's just seeming more and more to me that companies in the bitcoin merchant space are trying to find infinitesimally small optimizations they want to address in the current credit card system using bitcoin. It seems that they're trying to find (or sometimes create) a problem to fit bitcoin, instead of using bitcoin to solve an already existing problem.
I think they'll slowly find out, as Coinbase may be with this new feature, that bitcoin is actually not a good currency to be used directly, but rather as an efficient value transfer mechanism, under the hood. In other words, that the real value is in the blockchain, not in bitcoin itself. But I may be wrong.
In any case, I'm sticking to my credit card (and soon, tap-tap mobile wallet). Bitcoin doesn't really solve a problem for consumers in consumer-to-merchant transactions; mainly because, well, there really isn't a problem to solve to begin with.
But the point is that there isn't a bit coin economy-- your suppliers don't accept it. So you have to pay fees to convert it into local currency, which you have ignored. (And the customer also has to pay to convert from local currency)
> The problem is the complete lack of benefits for customers.
Costs of acquisition and spread will decrease as bitcoin adoption rises as it is a competitive market. And then low margin merchants will actively encourage bitcoin usage with discounts.
Why would they encourage bitcoin usage with discounts? They want people to use bitcoin to improve margin so why would they turn around and immediately cut into that?
Also with cash back on so many cards now the discount would have to be >2%. Probably more like 3-5% for people to switch. The savings from not accepting credit cards won't make up for that.
Side note. Why did you create a throw away account just to comment on this topic?
"Using a credit card online or 1-click checkout isn't painful."
I've heard this from a number of people as an argument for why Bitcoin isn't needed. It only holds true for a very limited world view though. That being people who are well off and have a credit card.
Consider that something like 30% of _Americans_ don't have a credit card. How do you suppose they buy things on Amazon in 1-click? What happens if you live in a area known for high rates of credit card fraud so merchant's refuse to send credit card orders to your address? There are an infinite number of scenarios where credit cards don't work for people Bitcoin solves a lot of them. Bitcoin is like the long tail of financial products.
> How do you suppose they buy things on Amazon in 1-click?
Have you tried going to a gas station, Wal-Mart, or convenience store in poor America? They sell pre-paid credit cards that are usable (with a few extra hoops) for online banking.
Of course, pre-paid cards are, like all things used predominantly by the poor, susceptible to poor regulation of fees and penalties, but then the 30% of Americans without credit cards are also not the ones able to keep a wallet.dat secured...
How do you suppose they are buying Bitcoin? I expect the ones doing transactions with Amazon are mostly using debit cards or buying prepaid cards somewhere.
It's a nice hypothetical use of a distributed transaction system, but it's not how the people you are talking about are accessing the financial system, they are much more likely to either not buy things from Amazon or to get a prepaid card at Walmart.
That's the point. Accepting bitcoin opens up new markets an online business that weren't accessible before because of deficiencies in the available payment systems. If you have a history of financial difficulty then you probably can't get a credit card or debit card let alone a bank account. Have you ever looked at the fees on a pre-paid card? Many if not most are highly exploitative.
Yes I agree that bitcoin could be useful to the unbanked or in high inflation countries. I don't have enough knowledge of those markets to elaborate.
I was answering the author who was advocating bitcoin's ease of use as compared to credit cards.
Credit card use is not a limited world view though. Credit card networks are pervasive all over the world. And in the areas they aren't, I don't think a volatile digital asset is at the forefront of people's minds when it comes to payments. A lot of innovation is being put in place to eliminate card use and opt instead for the mobile phone/wallet, connected directly to a bank account in fiat, government-regulated currency.
It would be useful to know why those 30% of Americans don't have a debit/credit card. Is it an infrastructure problem? Is going online and buying things part of their day-to-day activities?
And for those areas of high credit card fraud, what do merchants do now? Accept checks, cash, ACH? And what do consumers do if they receive subpar merchandise? Etc.
"And for those areas of high credit card fraud, what do merchants do now?"
Nothing, they lose out on the sale.
"It would be useful to know why those 30% of Americans don't have a debit/credit card."
Typically because of past financial difficulties. If you've got a bad credit record, or have a history of over drafting your bank account banks will refuse to work with you.
As an aside if you subscribe to the idea that Bitcoins transaction mechanism is the valuable aspect of it then the value of a Bitcoin is going to have to rise enough to handle the value of the transactions that pass through it. It can't be worth zero and still work.
Using a credit card online isn't painful but it's more painful than using Bitcoin. For one, I don't need to memorize an arbitrary 16 digits + CVV2 + Expiry Date. Nor do I have to enter my billing address for virtual goods or deal with chargebacks and replacing my card if the merchant loses my card information. One time my bank just canceled my card without giving me any reason besides 'security' and mailed me a new one. What would I have done if I were traveling at the time or needed to buy something in the meantime?
Besides that, if you've ever tried doing anything online besides the straight purchase of a good or service (think forex trading, gambling, remittances) you'd agree Bitcoin is light-years ahead of the prevailing payment methods.
> One time my bank just canceled my card without giving me any reason besides 'security' and mailed me a new one. What would I have done if I were traveling at the time or needed to buy something in the meantime?
What would you do if your wallet.dat were obtained, unlocked and emptied out while traveling? Being able to call your bank while you're traveling to get stuff sorted out is a feature, not a bug.
Of course, you'd probably just point out that you're not dumb enough to use a simple passphrase and that you can protect your wallet.dat.
But that's not going to apply to the majority of people who currently shop online, which is why the current system, where merchants and banks cooperate to detect fraud in many cases even without consumer help, is so important.
You can't do that at all when running your own Bitcoin payments, and if you use an exchange to do so on your behalf then you leave yourself liable to being irreversibly MtGox'ed.
Bitcoin certainly didn't invent fraud and embezzlement but it doesn't make people immune from that either, and Bitcoin-using schemes which fail to account for that are dead-men walking.
Yeah I mean those are some problems but they're 1) not huge and 2) I don't think creating and adopting a volatile virtual currency is necessarily the best solution to those problems.
"I don't need to memorize an arbitrary 16 digits + CVV2 + Expiry Date"
Most times, you enter that information once (1-time mental cost) and the platform saves that info for you. Think Uber, Amazon, Venmo, and others. Also soon with your mobile wallet, the experience will only get more streamlined.
Also, if you think about it, how do you pay using bitcoin today? First you set up a wallet (with Coinbase, Bitpay, or someone else). Then you get verified. Then you purchase bitcoin, hoping to get it at a good price.
Then you browse the web hoping your merchant integrates with Coinbase/Bitpay. If not, they'll display a bitcoin address, that you'll then have to paste into your wallet, enter the correct amount, etc.
Even if we do argue that this will only get better, it's not gonna get much better than tapping "Buy" on your mobile wallet, that's already connected to your bank account/card. User experience is not an area where bitcoin adds value.
"deal with chargebacks and replacing my card if the merchant loses my card information"
Chargebacks are a form of consumer protection. Eliminating them benefits the merchant, at the expense of the consumer.
"One time my bank just canceled my card without giving me any reason besides 'security' and mailed me a new one. What would I have done if I were traveling at the time or needed to buy something in the meantime?"
Yes, that sucks. But how often does that happen? How big is this problem? And is adopting bitcoin (already a huge cost: mental adjustment, buying bitcoin, etc.) really a good solution to this problem? Or is it just switching to a bank with better customer service? Simple, BOA (in my experience), etc.
"Besides that, if you've ever tried doing anything online besides the straight purchase of a good or service (think forex trading, gambling, remittances) you'd agree Bitcoin is light-years ahead of the prevailing payment methods."
Yes, forex trading and gambling are absolutely fantastic to do with bitcoin. But this reinforces the argument that bitcoin is a speculative financial asset, rather than a currency used in day-to-day activities.
The remittance market is ripe for disruption, but a gateway model such as the one offered by Ripple would better fit this problem, in my opinion.
> Chargebacks are a form of consumer protection. Eliminating them benefits the merchant, at the expense of the consumer.
I wouldn't have to do any chargebacks or get my card replaced if I'd made my purchase with Bitcoin instead of sending my credit card details to a merchant which subsequently gets hacked. Also, competitive merchants would have to pass on the cost savings.
> Yes, that sucks. But how often does that happen?
Seems to happen pretty often. Target, Sony, etc all pretty recent.
> Yes, forex trading and gambling are absolutely fantastic to do with bitcoin. But this reinforces the argument that bitcoin is a speculative financial asset, rather than a currency used in day-to-day activities.
I don't mean trading or holding bitcoin. There are many people who trade forex (like oanda.com) and gamble on sports or poker (like betfair.com) every day. The current payment methods make it difficult and expensive to deposit and withdraw on those types of sites because of VISA and MasterCard's rules and duopoly.
I guess your argument is then about security. Your funds are as secure as whoever is holding them, whether it be in bitcoin or regular fiat through CC.
If you place your bitcoin on Coinbase, Bitpay, an exchange, or even on your own local wallet/cold storage, and one of these gets hacked (e.g. a hacker gets access to your private key), your funds are gone forever.
If you give your credit card info to a merchant and they betray your trust and charge you, you will 1) not lose your funds because you'll just charge them back, 2) they will be blacklisted by their credit card provider if chargebacks are too high. So this incentivizes merchants to not charge you illegally if they want to stay in business.
The Target, Sony hackings were indeed unfortunate, but they are exceptions rather than the norm. And they can also be likened to the many exchanges and wallets that have been hacked in the bitcoin world. Except in the latter case, consumers could not get their money back.
"There are many people who trade forex (like oanda.com) and gamble on sports or poker (like betfair.com) every day. The current payment methods make it difficult and expensive to deposit and withdraw on those types of sites because of VISA and MasterCard's rules and duopoly."
Yes I agree with this. Trading and gambling is really easy to do with bitcoin. And yes it's a nightmare with fiat. But I think most of these issues are due to government regulation (which is expected for these activities).
The Target, Sony hackings were indeed unfortunate, but they are exceptions rather than the norm.
No, they're just the high-profile. Credit card hacks are happening constantly. A quick Google search shows crafts store Michaels (3 million CCs), White Lodging Services and Creathe Group (5 million CCs), all just announced since March. Last year, Adobe lost more than 100 million CCs.
There was $11 billion in CC fraud just in 2012!
And they can also be likened to the many exchanges and wallets that have been hacked in the bitcoin world.
Exchanges are not comparable, the only people who need to keep money there are traders.
As for wallets, that's true, but the difference is that there's only a single place with the data, instead of dozens or even hundreds of retailers each with a copy of a single CC. You'll probably never have a single wallet service with dozens of millions of accounts, such as Target, Sony and Adobe had.
Except in the latter case, consumers could not get their money back.
Anyone who thinks that comes for free is naive. You're paying, alright. Just indirectly.
---
This doesn't mean Bitcoins are the answer. For example, here in Portugal, we have had sane push-based payment mechanisms for years, and requiring credit cards is thankfully rare. But I've never seen such a service work internationally.
Bitcoin solves the microtransaction problem with credit cards. Due to high fees, one can't buy things on the internet for less than $0.50 using a credit card.
Many are moving to a subscription model per month (simple and predictable pricing) — think Spotify, Wall St Journal, etc.
But curious, what kind of things would you like to buy at 50cents or less online and that you really can't right now (either as part of a larger bundle or a subscription)?
Also, the blockchain is not particularly good at managing micro-payments. First because of miner fees and second because micro-payments without fees open the door to blockchain spam. Most of the bitcoin micro-transactions done today are centralized off-the-blockchain transactions.
Your article is from 2000. Consumer behavior and internet technology have changed massively since then.
Subscriptions can be ok but many don't want to pay $10/month for something they don't use $10 of (true of pretty much all services besides Netflix and spotify).
All digital content can make use of Bitcoin micropayments. Off-chain works too as there are still essentially no fees (again compared with the prohibitive $0.30 + 3% fee with credit cards).
Why watch an ad for 30sec when you can pay a fraction of a penny in Bitcoin and watch instantly? Onarbor, https://onarbor.com proposes exactly this.
There are many more recent articles on the same topic — internet technology may have changed a lot, but consumer behavior hasn't. Consumers still want simple and predictable pricing.
When's the last time you paid at a paywall? It's just that the mental cost of calculating how much I'm spending when I'm spending loads of fractions of pennies everywhere is pretty big. To cancel your ads, just pay the monthly $10. It's simple, predictable, and covers you for all ads all the time.
Isn't a large part of the problem with micropayments that they are complicated for the user with the current state of online transactions? I've read the article and it does posit other reasons, but it seems to be purely hypothetical.
Confusing short-term speculation with sustainable added value here.