6 ms·

Why Bitcoin Can't Help the Poorest, Yet

37 points by kennethologist 11y ago

fiatmoney 11y ago
Bitcoin or its relatives is an excellent way to drive down the cost of sending remittances. The US poor do not depend on them, but in many areas they are a substantial part of the local economy. Initial retail liquidity isn't as much of a problem as you'd think if you have the equivalent of wholesalers making a market. But yes, in general the existence of new cash-like asset classes isn't that helpful to people with ~no cash assets.
- joosters 11y ago
  Bit coin simply doesn't help with remittances: https://www.saveonsend.com/blog/bitcoin-money-transfer/ https://www.saveonsend.com/blog/bitcoin-money-transfer/
  - circlecrimson 11y ago
    Bitcoin helped me with servicing my loan in my home country when I was earning in another currency. I escaped foreign exchange fees. Its a use case that a lot of people have but it's unfortunate that the most vocal people telling us bitcoin can't do something are those who don't seem to have that need for its use.
  - CyberDildonics 11y ago
    There is no truth to that and I'll tell you why - a bitcoin ATM in one country and a bitcoin ATM in another country are all you need. If the combined spread is less than a money transmitter, then you save money. It is very simple. Many exchanges have around a %1 spread. Many remittance services are 10% or more. This is not rocket science and the article you linked to is from a service threatened by cypto-currencies.
bduerst 11y ago
The author is ignoring the fact that there are no refunds with bitcoin. He talks about predatory banking, but the finality of bitcoin transactions and lack of competitive insurance makes it even easier to scam the "unbanked". Bitcoin is also only pseudo-anonymous, and is more complicated to use than cash. The Bill & Linda Gates backed M-Pesa fits most of the criteria laid down in the article, much more than bitcoin, but seeing as that is a competitor of Freemit (the author is the CEO), I don't think they're going to go into it.
- nadaviv 11y ago
  The multi-signature feature in the bitcoin scripting language allows to add a refund process into bitcoin transactions. Bitrated, which I founded, provides consumer protection using that mechanism and a marketplace for dispute resolution service providers.
  - bduerst 11y ago
    Multisig escrow doesn't solve the refund use cases and isn't new/unique to bitcoin. There are plenty of use cases where a refund is needed just a day after the transaction is complete (defective items, economic hold up, etc.). It can also be gamed if the additional parties are in on the scam, which requires a level of trust that the article says the unbanked do not have.
    - DennisP 11y ago
      Credit cards can be gamed if Mastercard is in on the game, but that not something anyone worries about. Multisig escrow doesn't do away with the need for a trusted adjudicator, it just makes it possible to have one for Bitcoin.
    - CyberDildonics 11y ago
      If you want to mimic credit cards, just have a company hold the money for 30 days, take %3, and take away any disputed transactions from the business.
afreak 11y ago
Why do people assume that Bitcoin is going to revolutionize the banking sector when it cannot even scale? Why would we want to subject the poorest to a system that won't be able to handle at best more than a handful of transactions per second? Bitcoin is literally a bottom-tier system and suggesting that we use it to help those who are financially not-well-off is insulting.
- drcross 11y ago
  Bitcoin can, and is in the process of scaling.
  - McGlockenshire 11y ago
    Transactions per second are bound to the block size. The mining groups in China are against raising the block size because of bandwidth and other realistic concerns. The core developers, many of whom are employed by a company that has a business model that has a higher chance of success if bitcoin does not raise the block size, can neither agree that the block size needs to be increased, nor how to perform the increase, nor to what size to increase it to. Even if they could agree, the Chinese miners wouldn't update their software, and we'd end up with a forked blockchain. The primary places where bitcoin is discussed are moderated by a single individual that considers things like XT and implementations of BIP-101 to be altcoins and actively shuts down discussions about them and other block size increases. It seems to me that bitcoin isn't in the process of scaling at all.
    - bduerst 11y ago
      It's tragedy of the commons. Bitcoin is designed for having rational actors as miners. The miners profit less from the larger block sizes, and since they control the block size it's not going to happen. Bitcoin users who think the miners will do it "for the good of bitcoin" don't realize that the entire bitcoin ecosystem is built on the miners acting in their own best interest, not bitcoin's.
      - 11y ago
jrochkind1 11y ago
What does "bitcoin is illiquid in the poorest countries" mean?
- mgraczyk 11y ago
  It is not easy to exchange Bitcoin for spendable currency in those countries.
  - KMag 11y ago
    Specifically, there are several quantitative measures of liquidity, and they're generally correlated. In particular, the average bid-ask spread (the time-weighted or trade-volume-weighted average between the lowest asking price from local BTC sellers and highest bid from local BTC buyers) and the average daily trade volume (add up the number of BTC exchanged to or from local currency in an average day). Low liquidity generally means wide spreads and low trade volumes. As a result, if you want to convert BTC into local currency in the morning to buy chickens in the market and convert your chicken soup earnings back into BTC in the afternoon, you're going to either buy high and sell low crossing the bid-ask spread each time, or you're going to wait a long time for someone else to cross the spread and fill your orders. Of course, you can offer price improvement, allowing a whole range of price-time tradeoffs, but time is going to be expensive all along the tradeoff curve.

Bitcoin or its relatives is an excellent way to drive down the cost of sending remittances. The US poor do not depend on them, but in many areas they are a substantial part of the local economy. Initial retail liquidity isn't as much of a problem as you'd think if you have the equivalent of wholesalers making a market. But yes, in general the existence of new cash-like asset classes isn't that helpful to people with ~no cash assets.

joosters 11y ago
Bit coin simply doesn't help with remittances: https://www.saveonsend.com/blog/bitcoin-money-transfer/ https://www.saveonsend.com/blog/bitcoin-money-transfer/
- circlecrimson 11y ago
  Bitcoin helped me with servicing my loan in my home country when I was earning in another currency. I escaped foreign exchange fees. Its a use case that a lot of people have but it's unfortunate that the most vocal people telling us bitcoin can't do something are those who don't seem to have that need for its use.
- CyberDildonics 11y ago
  There is no truth to that and I'll tell you why - a bitcoin ATM in one country and a bitcoin ATM in another country are all you need. If the combined spread is less than a money transmitter, then you save money. It is very simple. Many exchanges have around a %1 spread. Many remittance services are 10% or more. This is not rocket science and the article you linked to is from a service threatened by cypto-currencies.

bduerst 11y ago

The author is ignoring the fact that there are no refunds with bitcoin. He talks about predatory banking, but the finality of bitcoin transactions and lack of competitive insurance makes it even easier to scam the "unbanked". Bitcoin is also only pseudo-anonymous, and is more complicated to use than cash. The Bill & Linda Gates backed M-Pesa fits most of the criteria laid down in the article, much more than bitcoin, but seeing as that is a competitor of Freemit (the author is the CEO), I don't think they're going to go into it.

nadaviv 11y ago
The multi-signature feature in the bitcoin scripting language allows to add a refund process into bitcoin transactions. Bitrated, which I founded, provides consumer protection using that mechanism and a marketplace for dispute resolution service providers.
- bduerst 11y ago
  Multisig escrow doesn't solve the refund use cases and isn't new/unique to bitcoin. There are plenty of use cases where a refund is needed just a day after the transaction is complete (defective items, economic hold up, etc.). It can also be gamed if the additional parties are in on the scam, which requires a level of trust that the article says the unbanked do not have.
  - DennisP 11y ago
    Credit cards can be gamed if Mastercard is in on the game, but that not something anyone worries about. Multisig escrow doesn't do away with the need for a trusted adjudicator, it just makes it possible to have one for Bitcoin.
  - CyberDildonics 11y ago
    If you want to mimic credit cards, just have a company hold the money for 30 days, take %3, and take away any disputed transactions from the business.

afreak 11y ago

Why do people assume that Bitcoin is going to revolutionize the banking sector when it cannot even scale? Why would we want to subject the poorest to a system that won't be able to handle at best more than a handful of transactions per second? Bitcoin is literally a bottom-tier system and suggesting that we use it to help those who are financially not-well-off is insulting.

drcross 11y ago
Bitcoin can, and is in the process of scaling.
- McGlockenshire 11y ago
  Transactions per second are bound to the block size. The mining groups in China are against raising the block size because of bandwidth and other realistic concerns. The core developers, many of whom are employed by a company that has a business model that has a higher chance of success if bitcoin does not raise the block size, can neither agree that the block size needs to be increased, nor how to perform the increase, nor to what size to increase it to. Even if they could agree, the Chinese miners wouldn't update their software, and we'd end up with a forked blockchain. The primary places where bitcoin is discussed are moderated by a single individual that considers things like XT and implementations of BIP-101 to be altcoins and actively shuts down discussions about them and other block size increases. It seems to me that bitcoin isn't in the process of scaling at all.
  - bduerst 11y ago
    It's tragedy of the commons. Bitcoin is designed for having rational actors as miners. The miners profit less from the larger block sizes, and since they control the block size it's not going to happen. Bitcoin users who think the miners will do it "for the good of bitcoin" don't realize that the entire bitcoin ecosystem is built on the miners acting in their own best interest, not bitcoin's.
    - 11y ago

jrochkind1 11y ago

What does "bitcoin is illiquid in the poorest countries" mean?

mgraczyk 11y ago
It is not easy to exchange Bitcoin for spendable currency in those countries.
- KMag 11y ago
  Specifically, there are several quantitative measures of liquidity, and they're generally correlated. In particular, the average bid-ask spread (the time-weighted or trade-volume-weighted average between the lowest asking price from local BTC sellers and highest bid from local BTC buyers) and the average daily trade volume (add up the number of BTC exchanged to or from local currency in an average day). Low liquidity generally means wide spreads and low trade volumes. As a result, if you want to convert BTC into local currency in the morning to buy chickens in the market and convert your chicken soup earnings back into BTC in the afternoon, you're going to either buy high and sell low crossing the bid-ask spread each time, or you're going to wait a long time for someone else to cross the spread and fill your orders. Of course, you can offer price improvement, allowing a whole range of price-time tradeoffs, but time is going to be expensive all along the tradeoff curve.