8 ms·

"All the naysayers keep harping on about how bitcoin will never gain mainstream acceptance in the US. They're partially right. The mainstream US is not the targ

by rick888 15y ago

"All the naysayers keep harping on about how bitcoin will never gain mainstream acceptance in the US. They're partially right. The mainstream US is not the target market. Bitcoin will probably enjoy some mainstream acceptance in the US, but it will probably be a long time from now and occur well after it enjoys mainstream success in some foreign market." Without mainstream success, why would I want to accept bitcoin for my services if I can't convert it to the US dollar or any other type of currency (and if you do this, you will need the help of a bank)? We also can't forget the huge fluctuations in value that happens on almost a daily basis (I just sold an ipod for $100 in bitcoin and now it's worth $15) and no protection from the government or bank means no oversight or regulation. With these sorts of risks, I just can't see myself putting any of my money in bitcoin. I know I'm not alone. It's interesting because naturally, it seems like bitcoin will become centralized through wallet services or exchanges. They will essentially become banks, by a different name.

malandrew 15y ago
You don't need banks or wallets. You just need reputation management. Users can trade amongst themselves if every user in a market has visibility into the reputation of their counterparties. Even using untraceable pseudonyms, there is economic value in having a high trading reputation. Oftentimes companies on eBay and in other markets are able to command a price premium over their competitors based largely on their reputation. B&H PhotoVideo is a perfect example of this. They don't have the lowest prices, but they have easily the best reputation on the web, especially among professionals and consumers that purchase the types of products they sell. They are extremely successful and many people I know purchase from them based largely on their reputation. The general equation that would govern whether counterparty A would defraud counterparty B would basically be: if the value of price premium of Counterparty A's reputation multiplied by trading volume is greater than the transaction amount then they have an economic incentive to remain honest. Of course this equation isn't that simple. For example, the reputation damage from one fraudulent transaction committed by Counterparty A would not ripple through the system immediately. This means that if Counterparty A wanted to extract the maximum value from his reputation at the cost of torpedoing his reputation, he would be able to commit as many fraudulent transactions as his daily transaction volume multiplied by the number of days it takes for fraud to be reported in the reputation system. So long as the "speed of fraud reporting" is small, Counterparty A can enjoy very little economic value from torpedoing his reputation, expect in the case that the transaction amounts are very very high. One way to increase the amount that could be transacted solely on reputation would be to apply relationship data to reputation. i.e. my reputation helps/hurts the reputation of those that I vouch for and vice versa. Such a system would greatly reduce the incentive to defraud others, because you'd have to hurt those that placed their trust in you. This system is of course vulnerable to Bernie Madoff types that take advantage of the trust of their in-group, but then again everyone who put their money in with Bernie Madoff are idiots who are in deniable about their financial stupidity.

by rick888 15y ago

malandrew 15y ago

You don't need banks or wallets. You just need reputation management. Users can trade amongst themselves if every user in a market has visibility into the reputation of their counterparties. Even using untraceable pseudonyms, there is economic value in having a high trading reputation. Oftentimes companies on eBay and in other markets are able to command a price premium over their competitors based largely on their reputation. B&H PhotoVideo is a perfect example of this. They don't have the lowest prices, but they have easily the best reputation on the web, especially among professionals and consumers that purchase the types of products they sell. They are extremely successful and many people I know purchase from them based largely on their reputation. The general equation that would govern whether counterparty A would defraud counterparty B would basically be: if the value of price premium of Counterparty A's reputation multiplied by trading volume is greater than the transaction amount then they have an economic incentive to remain honest. Of course this equation isn't that simple. For example, the reputation damage from one fraudulent transaction committed by Counterparty A would not ripple through the system immediately. This means that if Counterparty A wanted to extract the maximum value from his reputation at the cost of torpedoing his reputation, he would be able to commit as many fraudulent transactions as his daily transaction volume multiplied by the number of days it takes for fraud to be reported in the reputation system. So long as the "speed of fraud reporting" is small, Counterparty A can enjoy very little economic value from torpedoing his reputation, expect in the case that the transaction amounts are very very high. One way to increase the amount that could be transacted solely on reputation would be to apply relationship data to reputation. i.e. my reputation helps/hurts the reputation of those that I vouch for and vice versa. Such a system would greatly reduce the incentive to defraud others, because you'd have to hurt those that placed their trust in you. This system is of course vulnerable to Bernie Madoff types that take advantage of the trust of their in-group, but then again everyone who put their money in with Bernie Madoff are idiots who are in deniable about their financial stupidity.