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> It has been a decade since bitcoin was born, yet consumers hardly use it—or the hundreds of other cryptocurrencies—to pay for things. And why would they? Add

by runeks 7y ago

> It has been a decade since bitcoin was born, yet consumers hardly use it—or the hundreds of other cryptocurrencies—to pay for things. And why would they? Adding two extra steps to paying someone -- the buyer converting local currency to bitcoin, and then the seller converting bitcoin to local currency -- can never compete with just transferring local currency directly. Cryptocurrency was meant to be much more than just a payment system. Cryptocurrencies will not succeed until they close the loop: people receive their wages in cryptocurrency, which they use to pay for consumer goods in retail stores that accept only cryptocurrency (because their suppliers would pay their employees in cryptocurrency). This is where cryptocurrency would shine, ie. by creating a global credit market, since the unit of account could be the same for e.g. Turkey, Nicaragua and Vietnam. A global cryptocurrency-credit market could arise, in which savers finance e.g. consumer goods on the shelves of retail shops. This would incentivize savers to purchase cryptocurrency in order to earn a low-risk return on their money -- something which is not possible to do in most Western economies with short-term interest rates at zero or below. PS: If anyone is interested in creating the software infrastructure to make this happen, please let me know.

deleted 7y ago
[deleted]
tikkabhuna 7y ago
Couldn't my employer then see what I'm spending money on? If they know the address of the wallet they're putting money into, they know where that money then goes? Also, with a distributed ledger and billions of transactions a day, how is anyone supposed to actually index and understand all the transaction data? I like how Bitcoin I can actually sync all the data and (potentially) see stuff, but that was GBs of data and no where near as widely used. Cryptocurrencies have a place, but they are a solution to a small subset of problems while creating others. There's a reason why people still use cash over cards.
colechristensen 7y ago
You probably can't have a stable global cryptocurrency without a central bank. Bitcoin fundamentally cannot work for credit because the risk to the lender is ridiculous. Macroeconomics doesn't work in diverse economies if you can't partition off areas of the globe and create friction at the borders for trade (with monetary policy). The same products and services need to have location based costs to ensure local economies can function. Now complete isolation is worse that perfect free trade, but there must be a balance. Lack of balance brings wealth concentration, poverty, starvation, and war.
- narrator 7y ago
  "Bitcoin fundamentally cannot work for credit because the risk to the lender is ridiculous." Kind of like this startup founder who wanted to buy property with a SAFE. I told him get a bank loan. He said: "That's risky!"
pjc50 7y ago
Arguably there already is a global dollar-denominated credit market, it's just highly intermediated. And the risk history of p2p credit shows why the intermediaries are useful. > in order to earn a low-risk return on their money How does the economics of this work - you're claiming lower risk and higher return, but cryptocurrency does nothing to help with default risk?
- runeks 7y ago
  > Arguably there already is a global dollar-denominated credit market, it's just highly intermediated. Correct. However, the fact that the Federal Reserve can underbid everyone (with regards to interest) on short term credit causes a destabilization of interest rates (which is why they've been falling for the past ~40 years). There's no point in saving dollars when you can't protest against a too-low rate of interest -- a bank can always tap into the Fed's credit and underbid you. This can't happen with non-centrally produced money. So the "killer app" here is money for which no central party can control the interest/discount rate. > How does the economics of this work - you're claiming lower risk and higher return, but cryptocurrency does nothing to help with default risk? I'm not claiming lower risk. I'm claiming a higher return by not competing with a party (the Fed) that can always underbid you on short-term credit. The low risk comes from financing consumer goods in high demand sitting on the shelves of retail stores (ie. Bills of Exchange). Unless people suddenly stop eating food, you ought to get your money back (plus the prevailing discount rate).
  - pjc50 7y ago
    > This can't happen with non-centrally produced money. As cryptocurrency investors keep finding out the hard way, you can create credit in bitcoin very easily, every exchange balance is a credit; what the lack of a central bank means is that when there is a bank run or "liquidity event" you definitely can't get your money back. The Tether people have been very effective at centrally producing decentralised money too. > I'm claiming a higher return by not competing with a party (the Fed) that can always underbid you on short-term credit. OK, so what does the other side of this equation look like: what's the advantage to the borrower in taking out more expensive credit? Even worse, they're taking out credit in a currency that's appreciating against the dollar?
skohan 7y ago
As someone with a split existence between North America and the Euro Zone, I was sincerely hoping that cryptocurrency would at a minimum be a reliable medium of exchange: i.e. a way to convert dollars into euros and vice-versa in a matter of minutes with very low fees. I never needed it to be an investment vehicle. Unfortunately, bitcoin's utility in that respect seems to have gotten worse since I was playing around with it 5 years ago. I haven't been following recently so maybe it's changed, but during the bubble there was a move towards high fees and less liquidity, with plenty of horror stories of exchanges locking people out of their wallets during big price moves. IMO bitcoin would be much more useful if it had remained a niche tool for people to buy drugs on the internet rather than the pure speculative instrument it seems to have turned into.
- runeks 7y ago
  > As someone with a split existence between North America and the Euro Zone, I was sincerely hoping that cryptocurrency would at a minimum be a reliable medium of exchange: i.e. a way to convert dollars into euros and vice-versa in a matter of minutes with very low fees. You're not looking for a new currency, you're looking for a regular currency exchange. Whatever fees your currency exchange charges for going from EUR to USD (and back) can only increase if you need to involve another exchange (for the bitcoin-conversion).
  - skohan 7y ago
    So the promise of Bitcoin when I started reading up about it was that the fees could be close to zero. It's become less of an issue, because there are some traditional currency exchange services out there which have reasonable flat-rate offerings nowadays, but I would still be happy to pay less.
    - runeks 7y ago
      > So the promise of Bitcoin when I started reading up about it was that the fees could be close to zero. I don't see why this would be the case. Neither when talking blockchain-fees nor exchange-fees.
shtack 7y ago
I had a similar idea about closing the loop a couple of years ago. I actually built the buying half you mention (olodolo.com) and it is still used by a small handful of happy customers. On top of it I imagined an Uber-like app where you're paid in tokens along with fiat currency, thus closing the loop, but never got further along than that thought.
nradov 7y ago
There's no way to close the loop unless governments also agree to accept tax payments directly in cryptocurrency (not just a conversion). And that's never going to happen, at least not in any major industrialized country.
- runeks 7y ago
  The idea would be to start with less developed countries -- who lack both strict taxation rules and retail financing.

by runeks 7y ago

deleted 7y ago

[deleted]

tikkabhuna 7y ago

Couldn't my employer then see what I'm spending money on? If they know the address of the wallet they're putting money into, they know where that money then goes? Also, with a distributed ledger and billions of transactions a day, how is anyone supposed to actually index and understand all the transaction data? I like how Bitcoin I can actually sync all the data and (potentially) see stuff, but that was GBs of data and no where near as widely used. Cryptocurrencies have a place, but they are a solution to a small subset of problems while creating others. There's a reason why people still use cash over cards.

colechristensen 7y ago

You probably can't have a stable global cryptocurrency without a central bank. Bitcoin fundamentally cannot work for credit because the risk to the lender is ridiculous. Macroeconomics doesn't work in diverse economies if you can't partition off areas of the globe and create friction at the borders for trade (with monetary policy). The same products and services need to have location based costs to ensure local economies can function. Now complete isolation is worse that perfect free trade, but there must be a balance. Lack of balance brings wealth concentration, poverty, starvation, and war.

narrator 7y ago
"Bitcoin fundamentally cannot work for credit because the risk to the lender is ridiculous." Kind of like this startup founder who wanted to buy property with a SAFE. I told him get a bank loan. He said: "That's risky!"

pjc50 7y ago

Arguably there already is a global dollar-denominated credit market, it's just highly intermediated. And the risk history of p2p credit shows why the intermediaries are useful. > in order to earn a low-risk return on their money How does the economics of this work - you're claiming lower risk and higher return, but cryptocurrency does nothing to help with default risk?

runeks 7y ago
> Arguably there already is a global dollar-denominated credit market, it's just highly intermediated. Correct. However, the fact that the Federal Reserve can underbid everyone (with regards to interest) on short term credit causes a destabilization of interest rates (which is why they've been falling for the past ~40 years). There's no point in saving dollars when you can't protest against a too-low rate of interest -- a bank can always tap into the Fed's credit and underbid you. This can't happen with non-centrally produced money. So the "killer app" here is money for which no central party can control the interest/discount rate. > How does the economics of this work - you're claiming lower risk and higher return, but cryptocurrency does nothing to help with default risk? I'm not claiming lower risk. I'm claiming a higher return by not competing with a party (the Fed) that can always underbid you on short-term credit. The low risk comes from financing consumer goods in high demand sitting on the shelves of retail stores (ie. Bills of Exchange). Unless people suddenly stop eating food, you ought to get your money back (plus the prevailing discount rate).
- pjc50 7y ago
  > This can't happen with non-centrally produced money. As cryptocurrency investors keep finding out the hard way, you can create credit in bitcoin very easily, every exchange balance is a credit; what the lack of a central bank means is that when there is a bank run or "liquidity event" you definitely can't get your money back. The Tether people have been very effective at centrally producing decentralised money too. > I'm claiming a higher return by not competing with a party (the Fed) that can always underbid you on short-term credit. OK, so what does the other side of this equation look like: what's the advantage to the borrower in taking out more expensive credit? Even worse, they're taking out credit in a currency that's appreciating against the dollar?

skohan 7y ago

As someone with a split existence between North America and the Euro Zone, I was sincerely hoping that cryptocurrency would at a minimum be a reliable medium of exchange: i.e. a way to convert dollars into euros and vice-versa in a matter of minutes with very low fees. I never needed it to be an investment vehicle. Unfortunately, bitcoin's utility in that respect seems to have gotten worse since I was playing around with it 5 years ago. I haven't been following recently so maybe it's changed, but during the bubble there was a move towards high fees and less liquidity, with plenty of horror stories of exchanges locking people out of their wallets during big price moves. IMO bitcoin would be much more useful if it had remained a niche tool for people to buy drugs on the internet rather than the pure speculative instrument it seems to have turned into.

runeks 7y ago
> As someone with a split existence between North America and the Euro Zone, I was sincerely hoping that cryptocurrency would at a minimum be a reliable medium of exchange: i.e. a way to convert dollars into euros and vice-versa in a matter of minutes with very low fees. You're not looking for a new currency, you're looking for a regular currency exchange. Whatever fees your currency exchange charges for going from EUR to USD (and back) can only increase if you need to involve another exchange (for the bitcoin-conversion).
- skohan 7y ago
  So the promise of Bitcoin when I started reading up about it was that the fees could be close to zero. It's become less of an issue, because there are some traditional currency exchange services out there which have reasonable flat-rate offerings nowadays, but I would still be happy to pay less.
  - runeks 7y ago
    > So the promise of Bitcoin when I started reading up about it was that the fees could be close to zero. I don't see why this would be the case. Neither when talking blockchain-fees nor exchange-fees.

shtack 7y ago

I had a similar idea about closing the loop a couple of years ago. I actually built the buying half you mention (olodolo.com) and it is still used by a small handful of happy customers. On top of it I imagined an Uber-like app where you're paid in tokens along with fiat currency, thus closing the loop, but never got further along than that thought.

nradov 7y ago

There's no way to close the loop unless governments also agree to accept tax payments directly in cryptocurrency (not just a conversion). And that's never going to happen, at least not in any major industrialized country.

runeks 7y ago
The idea would be to start with less developed countries -- who lack both strict taxation rules and retail financing.