Wednesday, January 22, 2014

Silicon Valley Players: Bitcoin is a Money Transfer System, Not a Money

Bloomberg reports:
Entrepreneurs from Silicon Valley to Wall Street say they don’t care much for Bitcoin as a currency to supplant the U.S. dollar. As a payment technology they could use to undercut Visa Inc. (V), Western Union Co. (WU) or Citigroup Inc. (C), they say they like it a lot more.

As Bitcoin’s value gyrates, these investors have said that the headlines about its price and chatter about which retailers accept it obscure the real merit of what Satoshi Nakamoto, the name given to the anonymous person or people who created Bitcoin, delivered five years ago.

“At some point, I had an ‘aha!’ moment and realized that Bitcoin was best understood as a new software protocol through which you could rebuild the payments industry in ways that are better and cheaper,” Chris Dixon, a partner at Menlo Park, California-based venture capital firm Andreessen Horowitz, wrote in a blog post.

Here is the big hurdle for Bitcoin. Bloomberg writes:
Merchants pay about $48 billion in fees to banks for their customers’ payment-card use and banks pay much of that to Visa and MasterCard, according to Aite Group.[...]Remittance providers such as Western Union Co. reap about $37 billion in fees each year from people sending money home, according to the World Bank.
That's nearly $100 billion in fees, annually! The current entrenched consumer financial transaction sector is not going to give up on $100 billion in fees, easily. They will lobby congress and government agencies to make the adoption of Bitcoin transactions very difficult or impossible.

10 comments:

  1. There is a lot a tension between retailers and the banks who own master card and visa because of the fee they take from the retailer. It is a a teeter totter arrangement: technology is relentlessly pushing down costs on anything digital, and yet the legacy institutions like the banking cartel are trying hard to prop up digital transaction costs through state power. An alternative to the existing racket would be nice for both merchants and customers.

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    1. Taking a wild ass guess on how it might develop, as the big money crony's move to codify Bitcoin into obscurity, the Bitcoin head honchos(Winklevoss's, core developer that is saying working with gov't is welcomed, etc.) will be given an exit before Bitcoin is co-opted/turned into a Napster version of a money transfer system(using dollars of course!) that charges the same transfer fees as everyone else and becomes relegated to Napster like status:

      Everyone will remember how "cool" it was before gov't clamped down, Bitcoin developers will play ball to save what is left(to have access to exchanges),and then it will become just like the others.

      As an interesting side note to the whole affair, notice Apple, out of respect for IP rights, avoided the Napster problem and built a successful, long lasting business model for music.

      I figured I'd go ahead and post that too so I get all the hate mail all at once.

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  2. Tell yourself whatever you want Robert.

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  3. I don't agree that bitcoin is a money transfer system. It's a transfer system, period.

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    1. I agree.
      The whole concept of money was to solve the problem of transferring/trading things... it's only natural to move that concept into the digital world... which has been done with credit cards, but then BitCoin is the creditcard killer because it eliminates the banking cartels transaction fee!

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  4. The paper US dollar was once simply a convenient transfer system for precious metal. The utility was popular and not terribly abused long enough that it achieved its own lasting value in public perception. Can't Bitcoin follow a similar path to 'money status'?

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    1. The problem with your argument is that the dollar has had precious metal backing of some sort from 1834 up to 71' with a few brief suspensions.

      As a result of that backing, government was able to give the dollar a foothold as a result of the division of labor, in that the entire country(and much of the world!) being based on it, to the point that it still functions(less effectively every day though) even though it has no backing.

      Bitcoin will never overcome the 180 years of division of labor reliance upon the dollar unless the dollar itself is crushed by forces outside the control of the US government. That means Bitcoin can not succeed on it's own merit as far as it becoming "money" goes(and I'm not addressing regression theory, which is certainly something that should be considered)

      No one here likes that the gov't is so powerful, but let us not kid ourselves, it still wields monumental power. Best to avoid & evade it, not confront it. Unfortunately Bitcoin has landed on gov't radar...so there is no more "avoiding" or "evading" now....some people come here and claim otherwise.

      I truly hope they are right, but they underestimate the power of the state IMHO. I've placed my evasion strategies elsewhere.

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    2. Simply resist and do not comply with the tyranny of the Banking Cartel. BitCoin is freedom from the cartel. If BitCoin dies... long live ZeroCoin! Competition is essential to promote efficiency in the free market. Don't put all your eggs in one basket.

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  5. The fact that credit cards are an expensive, insecure and inefficient payment system is not an argument in their favor over other payment systems. I did not see Sears and JC Penny stop Amazon. They tried (requiring out of state sales tax) but they are being beat. Crony capitalism is not strong enough to stop progress, particularly in the modern connected world. Lets see, the Internet destroyed magazines, newspapers, cable companies, swaths of retail, is destroying entrenched higher education, and I expect we will soon learn it is about to destroy giant banks. Banks are after all information processing institutions.

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    1. Great comment Douglas. I totally agree.

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