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It's for the same reason that no one wanted to touch zimbabwe dollar back in 2007, if the value of the medium of exchange differs from breakfast to lunch it's n

by vxNsr 9y ago

It's for the same reason that no one wanted to touch zimbabwe dollar back in 2007, if the value of the medium of exchange differs from breakfast to lunch it's not really a good medium of exchange. Doesn't matter if value is appreciating or depreciating, currency needs to have a reasonably stable value to be useful.

testvox 9y ago
It seems like the main issue is transaction fees are close to $20, so even simple operations like refunding users for a incorrect or incomplete transaction is infeasible.
- Klathmon 9y ago
  The "$20 transaction fee" was an absolute top, and when that happened it was the single most congested the bitcoin network has ever been. It's nowhere near that right now. The total cost for your "median" transaction right now (at 226 bytes) is about $4.30 USD (at 150 sat/byte). Even if you double that to 300 sat/byte you are still at ~$9. Edit: I'm not saying even $4 fees are okay, just pointing out that it's not $20. I agree with steam's decision here, and it's something that Bitcoin needs to solve before it can really be useful as a payment system.
  - niij 9y ago
    When did $4.30 transaction fees become even close to acceptable. I thought high TX fees was one of the things Bitcoin was purported to solve.
    - Klathmon 9y ago
      I'm not saying they are acceptable, i'm saying that $20 fees per average transaction isn't true in all cases except once in the history of bitcoin.
      - ceejayoz 9y ago
        Is there reason to believe that sort of congestion won't reoccur?
        mrgordon 9y ago
        Every major blockchain is working on scalability (sharding, offchain transactions, and various other solutions are in the works) So ideally there will be more traffic but less congestion
        Tepix 9y ago
        I think Bitcoin has maneuvered itself into a corner where the remaining dev team doesn't dare to do any hardforks in the future even if they are important to keep Bitcoin competitive.
        Klathmon 9y ago
        There is zero reason to believe that, and I'd even go so far as to say it WILL happen again, and probably soon. There are solutions being worked on, but they are not ready for primetime yet.
    - eterm 9y ago
      My bank charges nothing for instant transfers of up to £10,000. That's both cheaper than and faster than bitcoin. (And this isn't a cost hidden in a perk of a monthly fee, there's no monthly account fee either.) I'm pretty sure if Satoshi re-appeared "he" would be lamenting those artificially keeping the blocksize small. The 2MB limit was put in as a temporary solution to a problem of too many worthless transactions. Bitcoin has the opposite problem now.
      - emj 9y ago
        Does that stand for transfers over (nation) state borders as well?
        patrickk 9y ago
        Yes, at least in the SEPA area (EU, plus countries in the EU orbit): https://en.wikipedia.org/wiki/Single_Euro_Payments_Area#Coverage https://en.wikipedia.org/wiki/Single_Euro_Payments_Area#Cove... As a means of payment in the SEPA region, Bitcoin is far worse on cost (free vs $5-10 in my experience), and sometimes worse on speed (1 - 1.5 business days for SEPA to clear). So in this geographic area, Bitcoin is literally losing to a combination of the legacy banking system, and a huge, multi country, multi lingual, somewhat unwieldy bureaucracy.
        emj 9y ago
        That is still an EU payment system, which has improved a lot since the start of Bitcoin. I just need to transfer money to strange places and banks are pretty often crappy at that stuff, best solution I have is to send my credit card around the world.
        patrickk 9y ago
        > That is still an EU payment system, which has improved a lot since the start of Bitcoin. Which shows how pathetic the main development team behind Bitcoin is (the core team). The fact that they haven't managed to fix problems that are years old and steadily getting worse is inexcusable. It should be a walk in the park for them to out compete a massive, political entity like the EU and the traditional banking sector. I hear you on the "strange places", that was where BTC was supposed to shine. It hasn't made any inroads into underserved markets that I'm aware of, e.g. less well-off countries and unbanked people. That is a pipe dream as long as the fees are so high to move funds around.
    - speedplane 9y ago
      It will certainly be interesting if bitcoin fails because it is less efficient than humans.
  - bigtunacan 9y ago
    How are these transaction fee amounts even determined? With something like credit cards, PayPal, or EFT the fees are deterministic. With Bitcoin it seems fees are both ridiculously high, plus I can't even tell what I am going to be charged?
    - Klathmon 9y ago
      When you make a bitcoin transaction, it gets put into a "mempool". Basically you send your TX to a node, that shares it with other nodes on the network, and they all hold it in memory. Once a block is found, the miner that found the block will pull as many transactions as possible from the mempool and put them into that block and sign it on the blockchain forever. Since TX fees go to miners, they are incentivized to pick the transactions with the largest "fee per size" to include first to maximize their profit (though they aren't required to do so). So basically you can envision all transactions as a stack, with the highest fees at the top. Once a block is found, it takes the top ~1MB worth of transactions, and the cycle repeats. [0] is a good visual representation of this. Unfortunately this means there isn't an easy way to determine what fee will absolutely get you included in a block before it's mined, since if thousands of transactions show up with higher fees than yours after you (but before a block is mined) yours might not make it in the next block (even if your fee was the highest when you made the transaction). It's a tough problem to solve, but there are some solutions being worked on to help solve this problem for the vast majority of bitcoin transactions. [0]https://core.jochen-hoenicke.de/queue/#24h https://core.jochen-hoenicke.de/queue/#24h
      - simpsond 9y ago
        I don’t understand why miners wouldn’t include all pending transactions in their block. Seeing as how pow is a guessing game, there are plenty of permutations of the Merkle tree to generate plenty of roots. I guess to dissencentivize free loaders so miners can continue to make money once Coinbase txns are no longer a thing? It’s certainly not free to mine!
        Bootvis 9y ago
        The number of transactions that can be included in a block is limited. A block is generated on average 10 minutes (a bit quicker due to increasing hash rate) so the number of transactions in an hour is also limited. Naturally the transactions that pay most to the miners are getting selected by them and included in these blocks.
  - Kelbit 9y ago
    Meanwhile, Visa is about 1.5-2% plus $0.10 flat interchange. To break even with BTC against Visa, we're talking an average transaction of over $200. That's not feasible for the vast majority of merchants. Not to mention that the currency's extreme volatility means that when you sell it to convert it to greenbacks (the currency your investors actually care about) it probably won't be the same amount you were paid for.
    - Klathmon 9y ago
      Yes, but at the same time Visa requires you to hand over your payment information to each and every merchant you transact with, and they are able to pull as much money from your card as they want, and they are able to charge you multiple times at any point in the future. But there are some really cool solutions being worked on right now for this problem in bitcoin that can make it scale to a similar way to Visa. But they aren't here yet (and some might turn out to be nonviable). Lightning network would allow Visa levels of transactions per second, at basically zero or next to zero fees per transaction for the majority of them.
      - blibble 9y ago
        cardholders are not liable for unauthorised transactions by merchants any merchant that commits that sort of fraud repeatedly will have their account terminated
        em3rgent0rdr 9y ago
        Thankfully we have nice companies like equifax which help secure our details /s.
        darpa_escapee 9y ago
        Online wallets and exchanges are similar points of failure. Many users have uploaded their picture IDs, banking and tax information to sites like LocalBitcoins.
  - s73ver_ 9y ago
    But it still happened, and there's really nothing in place to stop it from happening again. And Valve would have no control over it.
- XR0CSWV3h3kZWg 9y ago
  I've had to pay tx fees of ~$5 twice recently. The second $5 fee was to move my coins to a segwit address. Now the fees are under $1 again, i.e. actually viable for many real world txs again.
danielhooper 9y ago
But this was true when Steam decided to start accepting bitcoin. There has to be some kind of profit motive behind making this decision at this point in time. I could only guess that they've forecasted a significant decline in bitcoin's value, whether it be the value of the coin itself or the costs of doing business with it.
- falcolas 9y ago
  It could be as simple as “the hassle was not worth the benefits” There’s just a lot more steps in converting bitcoins into something they can pay their bills with.
- disordinary 9y ago
  They don't hold the bitcoin, they use a payment gateway who processes it into dollars instantly. They stay clearly why they're not supporting bitcoin, it's because the time that it takes to mine the blocks means that often the transaction is processed after the payment gateway times out. And the mining fee is too high to make it viable for consumers.
janoc 9y ago
The volatility alone wouldn't be a huge problem if the transactions were quick, apart from having to constantly re-price the goods (not a big deal with an automated system selling digital downloads, even though it is a real PITA for the accounting afterwards!). However, getting the transaction confirmed can take many hours at the times of high demand and then it still fails because thanks to the volatility, the transaction fees have gone up in the meantime. That is creating unsustainable problems for the customer support and makes BTC unusable for actual payments. I think this is what will ultimately bring Bitcoin down (and with it the entire cryptocurrency goldrush, even though the problems are mostly with BTC). Once the currency is impossible to exchange for actual goods or other currencies due to being more trouble to handle than it is worth, it stops being a currency. What good is that one BTC is $12k+ now if you can't actually buy anything with that? People pouring money into this today and talking about BTC being a "store of value" are being seriously nuts ...
- colordrops 9y ago
  > I think this is what will ultimately bring Bitcoin down People have been saying that for years. It serves purposes other than buying and selling goods, and in fact almost no one uses it to buy things.
  - i_cant_speel 9y ago
    What other purposes is it used for?
    - efdee 9y ago
      Gambling.
      - posterboy 9y ago
        gambling is a good, a bad good, mostly, but nevertheless.
    - deleted 9y ago
      [deleted]
modeless 9y ago
BitPay handles the volatility for them by guaranteeing the conversion to dollars, so it's not an issue for Valve directly. Volatility wouldn't be a big issue for payments if transactions were instant and free. The addition of slow transactions and high fees on top of volatility is what's causing problems for Valve's customers, which ultimately comes back to Valve as customer service issues. And there's nothing a retailer hates more than customer service issues.
Al-Khwarizmi 9y ago
Doesn't matter if value is appreciating or depreciating I'd say it does, but the thing is that if the value is rapidly appreciating today, it might as well be rapidly depreciating tomorrow.
- thaumasiotes 9y ago
  The claim is that (1) if the value of a currency is unstable, it won't be useful as a medium of exchange, and that (2) whether it's unstable because it's rising or because it's falling does not affect the validity of (1). The reason for (2) is that an exchange has two parties. If the value of your currency is cratering, it won't work as a medium of exchange because vendors won't accept it, which prevents trade from happening. If, on the other hand, the value of your currency is rocketing, it still won't work as a medium of exchange because customers won't spend it. That prevents trade just as effectively.
  - iopq 9y ago
    It doesn't prevent trade just as effectively. Trips to Seoul don't pay for themselves. What do I care if my BTC might be worth more later? In the long run, we're all dead. I want to go on a vacation NOW.
    - thaumasiotes 9y ago
      What does a vendor care if your BTC might be worth less later? He's hungry NOW.
wyager 9y ago
People didn’t want to touch the ZWD because it was going down, not because it was changing.
ArchD 9y ago
That's what bitcoin futures can be used for, to hedge your BTC position, and you don't have to wait for 10 minutes for your trade to complete. For example, if you own 5 BTC and want to hedge the USD value of your portfolio against BTCUSD fluctuation, you can short 1 CME bitcoin contract (http://www.cmegroup.com/trading/equity-index/us-index/bitcoin_contract_specifications.html http://www.cmegroup.com/trading/equity-index/us-index/bitcoi...). If BTCUSD decreases, the USD value of your 5 BTC decreases while you gain the same amount of USD on the short futures position, so you have no net profit or loss in terms of USD. If you acquire a bigger BTC position, you can maintain your hedge by increasing your futures short position. For a big merchant like Steam, at least theoretically, they could accept BTC directly and hedge their BTC position using the futures. Although the granularity of 5 BTC is rather high, for a high-volume merchant that can increase or decrease their BTC holdings relatively quickly, hedging like this should be quite feasible. For example at BTCUSD=15000, 5BTC=75000USD. That means while waiting to accumulate an additional 5BTC=75000USD of revenue so that they can hedge with another BTC futures contract, they are exposed to exchange rate risk. How long does it take Steam to accumulate 75000USD of sales? Their 2016 revenue is said to be 3.5bn (https://www.statista.com/statistics/547025/steam-game-sales-revenue/ https://www.statista.com/statistics/547025/steam-game-sales-...). That amounts to about 5 hours per 5BTC. BTCUSD could change a lot in 5 hours, but if you're a payment processor with 10x larger scale than Steam or think that the up and down fluctuation should roughly even out over the long run, maybe it's still not too risky to accept BTC.
- cfontes 9y ago
  It's a good option and it's sure used in stocks and commodities but do they want all that extra work? Managing that is a pain and what is the upside of doing it? depending on the amount of bitcoins they handled against fiat currency it probably didn't make sense.
fergie 9y ago
And that feeds into the wider question of whether bitcoin is a medium of exchange or a commodity. At this point in time it is clearly the latter. You wouldn't swap a lump of copper for a game on Steam, so it makes no sense to swap a lump of bitcoin either
folli 9y ago
So if Bitcoin is unusable as currency (i.e. for exchange), what's its use-case then? Hoarding?
- speedplane 9y ago
  Putting aside all the nefarious ways bitcoin can be exchanged, I still see it as a great way to transfer huge sums of money without a typical chain of custody. For example, suppose you need to transfer $10M from the US to China, you'll need a prominent and trustworthy bank on each side of the transaction that will ensure it gets from point A to B. Transfers of this nature often take several days, and each bank will take a nice cut for that peace of mind. Bitcoin can potentially allow that same money to be transferred in minutes without huge banks on either side.
  - fb03 9y ago
    I agree, but one has to consider that in this example, since Bitcoin acceptance in businesses isn't that widespread, the receiving side would still need a gateway to convert that money back into fiat currency, and would also incur some sort of fee. So essentially in these use cases you are just offsetting the chain of custody a few steps later.
    - speedplane 9y ago
      You're removing a huge link in the chain of custody, on that is likely the most fraught with fraud and security: the cross-border transaction part. It does not solve the problem all together, but it makes moving large sums around far easier and faster.
- puranjay 9y ago
  Wasting electricity.

by vxNsr 9y ago

testvox 9y ago

It seems like the main issue is transaction fees are close to $20, so even simple operations like refunding users for a incorrect or incomplete transaction is infeasible.

Klathmon 9y ago
The "$20 transaction fee" was an absolute top, and when that happened it was the single most congested the bitcoin network has ever been. It's nowhere near that right now. The total cost for your "median" transaction right now (at 226 bytes) is about $4.30 USD (at 150 sat/byte). Even if you double that to 300 sat/byte you are still at ~$9. Edit: I'm not saying even $4 fees are okay, just pointing out that it's not $20. I agree with steam's decision here, and it's something that Bitcoin needs to solve before it can really be useful as a payment system.
- niij 9y ago
  When did $4.30 transaction fees become even close to acceptable. I thought high TX fees was one of the things Bitcoin was purported to solve.
  - Klathmon 9y ago
    I'm not saying they are acceptable, i'm saying that $20 fees per average transaction isn't true in all cases except once in the history of bitcoin.
    - ceejayoz 9y ago
      Is there reason to believe that sort of congestion won't reoccur?
      - mrgordon 9y ago
        Every major blockchain is working on scalability (sharding, offchain transactions, and various other solutions are in the works) So ideally there will be more traffic but less congestion
        Tepix 9y ago
        I think Bitcoin has maneuvered itself into a corner where the remaining dev team doesn't dare to do any hardforks in the future even if they are important to keep Bitcoin competitive.
      - Klathmon 9y ago
        There is zero reason to believe that, and I'd even go so far as to say it WILL happen again, and probably soon. There are solutions being worked on, but they are not ready for primetime yet.
  - eterm 9y ago
    My bank charges nothing for instant transfers of up to £10,000. That's both cheaper than and faster than bitcoin. (And this isn't a cost hidden in a perk of a monthly fee, there's no monthly account fee either.) I'm pretty sure if Satoshi re-appeared "he" would be lamenting those artificially keeping the blocksize small. The 2MB limit was put in as a temporary solution to a problem of too many worthless transactions. Bitcoin has the opposite problem now.
    - emj 9y ago
      Does that stand for transfers over (nation) state borders as well?
      - patrickk 9y ago
        Yes, at least in the SEPA area (EU, plus countries in the EU orbit): https://en.wikipedia.org/wiki/Single_Euro_Payments_Area#Coverage https://en.wikipedia.org/wiki/Single_Euro_Payments_Area#Cove... As a means of payment in the SEPA region, Bitcoin is far worse on cost (free vs $5-10 in my experience), and sometimes worse on speed (1 - 1.5 business days for SEPA to clear). So in this geographic area, Bitcoin is literally losing to a combination of the legacy banking system, and a huge, multi country, multi lingual, somewhat unwieldy bureaucracy.
        emj 9y ago
        That is still an EU payment system, which has improved a lot since the start of Bitcoin. I just need to transfer money to strange places and banks are pretty often crappy at that stuff, best solution I have is to send my credit card around the world.
        patrickk 9y ago
        > That is still an EU payment system, which has improved a lot since the start of Bitcoin. Which shows how pathetic the main development team behind Bitcoin is (the core team). The fact that they haven't managed to fix problems that are years old and steadily getting worse is inexcusable. It should be a walk in the park for them to out compete a massive, political entity like the EU and the traditional banking sector. I hear you on the "strange places", that was where BTC was supposed to shine. It hasn't made any inroads into underserved markets that I'm aware of, e.g. less well-off countries and unbanked people. That is a pipe dream as long as the fees are so high to move funds around.
  - speedplane 9y ago
    It will certainly be interesting if bitcoin fails because it is less efficient than humans.
- bigtunacan 9y ago
  How are these transaction fee amounts even determined? With something like credit cards, PayPal, or EFT the fees are deterministic. With Bitcoin it seems fees are both ridiculously high, plus I can't even tell what I am going to be charged?
  - Klathmon 9y ago
    When you make a bitcoin transaction, it gets put into a "mempool". Basically you send your TX to a node, that shares it with other nodes on the network, and they all hold it in memory. Once a block is found, the miner that found the block will pull as many transactions as possible from the mempool and put them into that block and sign it on the blockchain forever. Since TX fees go to miners, they are incentivized to pick the transactions with the largest "fee per size" to include first to maximize their profit (though they aren't required to do so). So basically you can envision all transactions as a stack, with the highest fees at the top. Once a block is found, it takes the top ~1MB worth of transactions, and the cycle repeats. [0] is a good visual representation of this. Unfortunately this means there isn't an easy way to determine what fee will absolutely get you included in a block before it's mined, since if thousands of transactions show up with higher fees than yours after you (but before a block is mined) yours might not make it in the next block (even if your fee was the highest when you made the transaction). It's a tough problem to solve, but there are some solutions being worked on to help solve this problem for the vast majority of bitcoin transactions. [0]https://core.jochen-hoenicke.de/queue/#24h https://core.jochen-hoenicke.de/queue/#24h
    - simpsond 9y ago
      I don’t understand why miners wouldn’t include all pending transactions in their block. Seeing as how pow is a guessing game, there are plenty of permutations of the Merkle tree to generate plenty of roots. I guess to dissencentivize free loaders so miners can continue to make money once Coinbase txns are no longer a thing? It’s certainly not free to mine!
      - Bootvis 9y ago
        The number of transactions that can be included in a block is limited. A block is generated on average 10 minutes (a bit quicker due to increasing hash rate) so the number of transactions in an hour is also limited. Naturally the transactions that pay most to the miners are getting selected by them and included in these blocks.
- Kelbit 9y ago
  Meanwhile, Visa is about 1.5-2% plus $0.10 flat interchange. To break even with BTC against Visa, we're talking an average transaction of over $200. That's not feasible for the vast majority of merchants. Not to mention that the currency's extreme volatility means that when you sell it to convert it to greenbacks (the currency your investors actually care about) it probably won't be the same amount you were paid for.
  - Klathmon 9y ago
    Yes, but at the same time Visa requires you to hand over your payment information to each and every merchant you transact with, and they are able to pull as much money from your card as they want, and they are able to charge you multiple times at any point in the future. But there are some really cool solutions being worked on right now for this problem in bitcoin that can make it scale to a similar way to Visa. But they aren't here yet (and some might turn out to be nonviable). Lightning network would allow Visa levels of transactions per second, at basically zero or next to zero fees per transaction for the majority of them.
    - blibble 9y ago
      cardholders are not liable for unauthorised transactions by merchants any merchant that commits that sort of fraud repeatedly will have their account terminated
      - em3rgent0rdr 9y ago
        Thankfully we have nice companies like equifax which help secure our details /s.
        darpa_escapee 9y ago
        Online wallets and exchanges are similar points of failure. Many users have uploaded their picture IDs, banking and tax information to sites like LocalBitcoins.
- s73ver_ 9y ago
  But it still happened, and there's really nothing in place to stop it from happening again. And Valve would have no control over it.
XR0CSWV3h3kZWg 9y ago
I've had to pay tx fees of ~$5 twice recently. The second $5 fee was to move my coins to a segwit address. Now the fees are under $1 again, i.e. actually viable for many real world txs again.

danielhooper 9y ago

But this was true when Steam decided to start accepting bitcoin. There has to be some kind of profit motive behind making this decision at this point in time. I could only guess that they've forecasted a significant decline in bitcoin's value, whether it be the value of the coin itself or the costs of doing business with it.

falcolas 9y ago
It could be as simple as “the hassle was not worth the benefits” There’s just a lot more steps in converting bitcoins into something they can pay their bills with.
disordinary 9y ago
They don't hold the bitcoin, they use a payment gateway who processes it into dollars instantly. They stay clearly why they're not supporting bitcoin, it's because the time that it takes to mine the blocks means that often the transaction is processed after the payment gateway times out. And the mining fee is too high to make it viable for consumers.

janoc 9y ago

The volatility alone wouldn't be a huge problem if the transactions were quick, apart from having to constantly re-price the goods (not a big deal with an automated system selling digital downloads, even though it is a real PITA for the accounting afterwards!). However, getting the transaction confirmed can take many hours at the times of high demand and then it still fails because thanks to the volatility, the transaction fees have gone up in the meantime. That is creating unsustainable problems for the customer support and makes BTC unusable for actual payments. I think this is what will ultimately bring Bitcoin down (and with it the entire cryptocurrency goldrush, even though the problems are mostly with BTC). Once the currency is impossible to exchange for actual goods or other currencies due to being more trouble to handle than it is worth, it stops being a currency. What good is that one BTC is $12k+ now if you can't actually buy anything with that? People pouring money into this today and talking about BTC being a "store of value" are being seriously nuts ...

colordrops 9y ago
> I think this is what will ultimately bring Bitcoin down People have been saying that for years. It serves purposes other than buying and selling goods, and in fact almost no one uses it to buy things.
- i_cant_speel 9y ago
  What other purposes is it used for?
  - efdee 9y ago
    Gambling.
    - posterboy 9y ago
      gambling is a good, a bad good, mostly, but nevertheless.
  - deleted 9y ago
    [deleted]

modeless 9y ago

BitPay handles the volatility for them by guaranteeing the conversion to dollars, so it's not an issue for Valve directly. Volatility wouldn't be a big issue for payments if transactions were instant and free. The addition of slow transactions and high fees on top of volatility is what's causing problems for Valve's customers, which ultimately comes back to Valve as customer service issues. And there's nothing a retailer hates more than customer service issues.

Al-Khwarizmi 9y ago

Doesn't matter if value is appreciating or depreciating I'd say it does, but the thing is that if the value is rapidly appreciating today, it might as well be rapidly depreciating tomorrow.

thaumasiotes 9y ago
The claim is that (1) if the value of a currency is unstable, it won't be useful as a medium of exchange, and that (2) whether it's unstable because it's rising or because it's falling does not affect the validity of (1). The reason for (2) is that an exchange has two parties. If the value of your currency is cratering, it won't work as a medium of exchange because vendors won't accept it, which prevents trade from happening. If, on the other hand, the value of your currency is rocketing, it still won't work as a medium of exchange because customers won't spend it. That prevents trade just as effectively.
- iopq 9y ago
  It doesn't prevent trade just as effectively. Trips to Seoul don't pay for themselves. What do I care if my BTC might be worth more later? In the long run, we're all dead. I want to go on a vacation NOW.
  - thaumasiotes 9y ago
    What does a vendor care if your BTC might be worth less later? He's hungry NOW.

wyager 9y ago

People didn’t want to touch the ZWD because it was going down, not because it was changing.

ArchD 9y ago

That's what bitcoin futures can be used for, to hedge your BTC position, and you don't have to wait for 10 minutes for your trade to complete. For example, if you own 5 BTC and want to hedge the USD value of your portfolio against BTCUSD fluctuation, you can short 1 CME bitcoin contract (http://www.cmegroup.com/trading/equity-index/us-index/bitcoin_contract_specifications.html http://www.cmegroup.com/trading/equity-index/us-index/bitcoi...). If BTCUSD decreases, the USD value of your 5 BTC decreases while you gain the same amount of USD on the short futures position, so you have no net profit or loss in terms of USD. If you acquire a bigger BTC position, you can maintain your hedge by increasing your futures short position. For a big merchant like Steam, at least theoretically, they could accept BTC directly and hedge their BTC position using the futures. Although the granularity of 5 BTC is rather high, for a high-volume merchant that can increase or decrease their BTC holdings relatively quickly, hedging like this should be quite feasible. For example at BTCUSD=15000, 5BTC=75000USD. That means while waiting to accumulate an additional 5BTC=75000USD of revenue so that they can hedge with another BTC futures contract, they are exposed to exchange rate risk. How long does it take Steam to accumulate 75000USD of sales? Their 2016 revenue is said to be 3.5bn (https://www.statista.com/statistics/547025/steam-game-sales-revenue/ https://www.statista.com/statistics/547025/steam-game-sales-...). That amounts to about 5 hours per 5BTC. BTCUSD could change a lot in 5 hours, but if you're a payment processor with 10x larger scale than Steam or think that the up and down fluctuation should roughly even out over the long run, maybe it's still not too risky to accept BTC.

cfontes 9y ago
It's a good option and it's sure used in stocks and commodities but do they want all that extra work? Managing that is a pain and what is the upside of doing it? depending on the amount of bitcoins they handled against fiat currency it probably didn't make sense.

fergie 9y ago

And that feeds into the wider question of whether bitcoin is a medium of exchange or a commodity. At this point in time it is clearly the latter. You wouldn't swap a lump of copper for a game on Steam, so it makes no sense to swap a lump of bitcoin either

folli 9y ago

So if Bitcoin is unusable as currency (i.e. for exchange), what's its use-case then? Hoarding?

speedplane 9y ago
Putting aside all the nefarious ways bitcoin can be exchanged, I still see it as a great way to transfer huge sums of money without a typical chain of custody. For example, suppose you need to transfer $10M from the US to China, you'll need a prominent and trustworthy bank on each side of the transaction that will ensure it gets from point A to B. Transfers of this nature often take several days, and each bank will take a nice cut for that peace of mind. Bitcoin can potentially allow that same money to be transferred in minutes without huge banks on either side.
- fb03 9y ago
  I agree, but one has to consider that in this example, since Bitcoin acceptance in businesses isn't that widespread, the receiving side would still need a gateway to convert that money back into fiat currency, and would also incur some sort of fee. So essentially in these use cases you are just offsetting the chain of custody a few steps later.
  - speedplane 9y ago
    You're removing a huge link in the chain of custody, on that is likely the most fraught with fraud and security: the cross-border transaction part. It does not solve the problem all together, but it makes moving large sums around far easier and faster.
puranjay 9y ago
Wasting electricity.