Bitcoin starts to make more sense when you realise that it is an open protocol for transferring and manipulating wealth, in the same way that HTTP is an open protocol for transferring and manipulating data.
I would like to use Bitcoin for micro-payment transactions in Mexico.
The toy plan I drafted starts with a "broker" (my service) printing and selling "cards" for certain amount of money (say USD$50). Each card is linked to a specific account maintained by the "broker" which knows how much money has the individual spent.
When a user wants to pay using bitcon, the amount of bitcoins are converted to USD$ and then reduced from the card's account, plus a small commission (the profit point).
The user sees all the transactions in USD$ (or MXN$) while the transaction between the "broker" and the seller is done in Bitcoins.
This will help "popularize" Bitcoins, and will allow people in Mexico to do payments without having a bank card, and use micropayments.
One of the many issues is the distribution of such point cards. But on the other hand, sellers do not get tied to a closed payment system.
Of course such type of plans have to be thought quite deeply as there will be a lot of issues to solve. But I think in Mexico it would be good business because currently the options to accept micropayments (e.g., SMS payment or by phone, etc) do not exist (or are not profitable for sellers) and credit cards are not really used by the majority of the population.
Why? The long term stability of the currency is irrelevant if you're just using bitcoins as a temporary intermediary, as the exchange rate only has to be remain constant for the time taken to verify a transaction.
But that would only be a problem if you wanted to move large amounts of wealth infrequently. If you only wanted to move small amounts of wealth frequently (like Paypal), then there wouldn't be any problem.
I did, and I stand by my statement. You are arguing that it's viable if you move small amounts of money. That means it only works with toy amounts, any large amount of money will influence the price because demand is shallow. Thus, you argue if you move small amounts frequently it would work, but then it is subject to the same volatility. This is why it's a toy 'currency' because it only works with tiny amounts of money.
So, in your opinion Paypal, credit cards, and physical cash are all toys because they're designed for moving small amounts of money?
Or are you saying that the potential threat of a sudden market crash precludes using bitcoin as a reliable way of transferring wealth?
Let's take a look at the economics of the latter. Let's assume that over the course of the year, a modest $1 million worth of money passes through my dollar-to-bitcoin and bitcoin-to-dollar gateways, and as I'm charging 1% on each (2% total), I'm making a $20,000 profit.
Then bitcoin market suddenly crashes, and 99% of bitcoin's value is lost. What a disaster! I'll lose all of... well... assuming I wait 1 hour to confirm transactions, I'll lose $100 dollars on average. If I waited 10 minutes, then I'd lose only $16 dollars.
So whilst bitcoin might be volatile, the odd market crash doesn't actually affect people who want to bitcoin as a protocol for transferring wealth, rather than storing it.
Paypal, credit cards and physical handle large amounts infinitely better than bitcoin. Look at mtgoxlive and see how much money it really takes to move the market a good amount. $10,000 would move it 20 cents on the buy side which is a 7% move because the demand is shallow. It's a toy currency. Paypal can handle 5 figure transactions without blinking (maybe even 6, havent heard of anyone try but I've seen 5 figure transactions).
My point is, you can't even move a good chunk of money without influencing the value of the market. It doesn't help that you can't store value in it either because of its volatility.
If you're using bitcoin as a mechanism for transferring wealth, the volatility doesn't matter if your revenue stream is relatively constant, because only a small percentage of your revenue will exist as bitcoins at any instance in time.
Volatility only matters if you're interested in storing wealth, or if your transactions are both infrequent and large relative to the bitcoin market. These are the only conditions where a sizeable proportion of your capital would have to exist as bitcoins at one time, and therefore the only conditions where you'd care about volatility.
So sure, using bitcoins to pay for a house or an expensive car is probably not a good idea, but it seems, well, utterly bizarre to dismiss bitcoins just because it's currently unsuitable for a small segment of the market.
And personally, I'd view physical cash as being wholly unsuitable for purchases over $10,000, due to the risk of manually transporting that much money. If I had a choice solely between paying someone $10,000 in physical cash, or $10,000 in bitcoins, then I'd think seriously about using bitcoins. Does this mean that physical money is just a "toy currency"?
$10,000 in cash or at a bank is the same. If you tried to move $10,000 into bitcoins you would move the market a substantial amount just to try and convert your money/bitcoins.
Volatility matters in a greater sense, because you cannot simply say it's only for wealth transfer since it is trying to act as a pseudo currency as well. The characteristics that make it suitable (in your mind) for wealth transfer are because it's being used as a pseudo currency. By utilizing it to transfer wealth, you are also affecting the currency side - which matters. If it became only a method to transfer wealth (no wealth stored), then there should be no demand for it. At most the interest in it would be the difference of transferring money in regular currency. But it's not used that way currently, but its market is so small that people who try to use it to transfer wealth could/do in fact manipulate its value even in real time.
Even though its the same currency, there are some very obvious differences between money transferred between banks and money transferred via physical currency.
> If it became only a method to transfer wealth (no wealth stored), then there should be no demand for it.
You don't seem to understand how this works.
Wealth would still be stored, but only temporarily. For example, Alice wants to pay $10 to Bob. To do this, Alice gives $10 (plus fee) to a broker, which immediately buys $10 of bitcoins at the current market rate from an exchange. These bitcoins are then sent to Bob's broker, which sells the bitcoins instantly and deposits $10 into Bob's account.
There would still be demand, because brokers need someone selling bitcoins in order to buy, and if demand for using bitcoins as a wealth transfer mechanism rises, so would demand for bitcoins.
> its market is so small that people who try to use it to transfer wealth could/do in fact manipulate its value even in real time
It wouldn't be worth it, because brokers would only have a relatively small amount of wealth tied up in bitcoins at any one time. Pushing the price several percentage one way or another wouldn't be cover the cost when you're dealing with small amounts.
If you're using bitcoin as a way of transferring relatively small sums on a frequent basis, you're effectively immune to short-term volatility. The only thing you care about is long term trends.
So it only works moving very small amounts of money, toy currency. We're back where we started. I understand very well how it works, I don't even know what your point is anymore. It works for moving tiny amounts of money, I am not disagreeing with this statement, it's just silly in my mind and it's not solving anything new nor is it scalable in its current form, in fact it has some very obvious weaknesses which make it a terrible idea for any real amount of money. Then again, I think bitcoins are a joke to begin with, it's programmers reinventing currency and realizing that hundreds of years of finance actually did solve some of the big problems.
> So it only works moving very small amounts of money, toy currency.
The small size of the bitcoin economy means that it is currently only practical for transferring amounts of a few thousand dollars at most. We both seem to agree on this.
What I can't understand is why you think this makes it a "toy currency". Physical cash is very rarely used for payments of over $1000, yet you haven't explained why greenbacks are somehow real money, and bitcoins are just toys.
For that matter, most consumer purchases are under $1000. The largest companies in the world make their money off of selling sub-$1000 goods. But apparently, a payment mechanism that could be used for 99% of consumer goods is just "a toy". I simply don't understand this argument. Its utterly bizarre.
Just because there are a lot of transactions at a low level doesn't preclude the possibility of larger transactions with cash and the USD. The credit card systems, banks and all other parties can handle transactions up to enormous sizes (I am not sure if/what the limit even is) and all that happens without affecting the USD. There are other currencies I would consider toys as well used by real countries. Many of the smaller ones that don't allow you to convert them freely are basically toy currencies as well. They are models, they work in small scale, but for whatever reasons are very limited (in those cases the limitation is often governments cant handle foreign exchange and speculators). Bitcoin is a toy because it can't handle size to the extreme.
I think at this point we're just disagreeing over what constitutes a toy. I have credit cards with credit limits under $10,000, but I wouldn't consider these to be toys, even though I couldn't use them to, say, buy a house. But even though your definition seems odd, I guess I can't really say it's wrong.
