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Comment by lingben | Hacker News Reader

this is ignoring several key costs associated with bitcoin:

1) knowledge (the average person needs to invest time to learn what bitcoin is, how to use it, how to protect themselves from fraud, etc.)

2) hidden cost of buying and selling bitcoin (bid ask gap) that is, no one really uses bitcoin, they barter with it between currency transactions with real currencies like USD or Euro, this cost is appx. 2-3%

3) the cost of loss due to fraud, theft, etc. and zero recourse when that happens (there have been so many examples, I'll just leave you to google specific cases)

In the end, when you calculate these implicit and explicit costs, bitcoin comes out to cost about the same or more than existing transaction options. But with the added 'advantage' of having zero recourse if anything goes wrong (libertarian wet dream) and requiring your Aunt Judy to learn fun new things like blockchains, hashes, encryption, etc.

Yay!

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Completely agree that my post is ignoring those things. The post is an extremely forward looking one. Bitcoin could crash and burn before anyone gets a chance to implement something like this. It could be replaced by a second generation cryptocurrency that doesn't have a public ledger. There's a lot of scenarios here where nobody ever gets to do what I was talking about.

I opted to focus entirely on the costs of transmitting the money. If we did a full analysis, we'd also have to look at chargebacks, figure out how to set a value on the speed of the transaction, and deal with the fact that sometimes Western Union just 'loses' your money and isn't sure where it is. Not all of these costs would be paid by the same person, but they do all add up to a systemic cost.

But that's not actually the primary point. There's plenty of reason to believe (besides transaction cost) that cryptocurrency and smart contracts have a long future ahead of them. I'm simply trying to point out that there are business models here that aren't yet being explored.

I believe the point of the article is largely to raise questions and discussion about a couple of things:

1. Potential disruptive impact of alternative currencies with respect to transaction fees -- people want easy ways to exchange money, for commercial or personal reasons, that aren't cost-prohibitive. Can alternative currencies present a legitimate challenge to traditional payment providers in this arena? Can traditional providers learn from it by finding (sustainable) ways to better serve consumer/merchant demands?

2. Whether payment providers, of any kind, can profit and compete on consumer behavior data as an offset to higher transaction fees, and how much consumers are willing to tolerate it. We haven't seen this play out yet for Bitcoin and its ilk. jusben1369 pointed out LevelUp here.

The article does not propose a conclusion that Bitcoin is appropriate for your Aunt Judy today. That's probably been beaten to death by coverage all over.

The bid-ask spread will shrink as (if) the currency stabilizes, and you won't need to round-trip as (if) the currency becomes more widespread. It's not really any different in these respects than any other currency - if, say, I decided I wanted to pay someone in Baht or Rubles or something, it's just that there is not presently much of a market dealing primarily in bitcoin.

I'm not going to push any notion that bitcoin has no issues, and these are issues in the short term, but these particular issues - cost especially - aren't anything like insurmountable.

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