I just don't see a currency working as a unit of account or store of wealth with such oscillation in value. Maybe as a medium of exchange, but then you're making every transaction cross an FX exchange (btc/usd) and I doubt that's possible at scale for less than what a scaled payment network (e.g. Visa) charges.
Bitcoin is already cheaper as a medium of exchange than credit cards and pretty much all international remittance providers.
Coinbase Exchange has a $0.01-$0.02 spread and charges 0.25% for removing liquidity.
Stripe costs 3% + $0.30 and Western Union / Wire Transfers are multiples of that.
Disclosure: I work for Coinbase
Stripe is an expensive acquirer. I'm working with Heartland and we're getting a hair over 2.1%. I suspect this is going to fall even farther as EMV gains wide acceptance and skimming/other forms of fraud become a thing of the past.
I'll admit, that's a tighter market than I thought (CB exchange) but I'm still having a hard time seeing how those economics work long-term without tons of VC. You'd have to get below 2% on an ongoing basis and with all the fraud/rewards/other stuff cards provide, 2% still seems cheap.
2.1% isn't your whole acquisition cost. You will have to eat the inevitable chargebacks and associated fees too (which is not an issue with Bitcoin).
> You'd have to get below 2% on an ongoing basis
I'm not sure what you mean by this. We've never charged more than 1% for merchant processing and I doubt we ever will.
> with all the fraud/rewards/other stuff cards provide, 2% still seems cheap.
Why would I use my 1% cashback credit card at a trusted merchant when I can get a 2% rebate from the merchant instead? I'm not alone in this thinking, many Americans choose the 'cash price' when pumping gas every day.
You make some good points about cash back and gas, but you can't deny there's value in the extra layer of protection between you and the merchant provided by the credit card. I don't know whether it's worth 1%, but it's not worth zero. BTC payment is more like handing a stack of notes, not payment via card.
That's how transaction costs are so low.
I bought and sold bitcoin and paid for things with bitcoin, but the associated paperwork to account for the gains and losses incurred by the inherently fluctuating price was onerous.
I believe in the premise of bitcoin, and still own some, but it's way easier to pull out my credit card to buy a cheeseburger than it is to use bitcoin and then compute the capital gains tax owed on my cheeseburger the following spring.
You can already hold USD at Coinbase and send USD to BTC addresses with an on-the-fly conversion (although it will run you 1% today). Or conversely, generate a BTC address for your USD wallet and have all incoming BTC converted on-the-fly (also 1%).
For a local cheeseburger in your own country it's never going to make sense to use Bitcoin but there are plenty of other applications where it already makes a lot of sense (remittances, online purchases, goods and services with a high risk of payment fraud, etc.)
With the fall of the Soviet Union as a guide for crumbling monetary systems/empires, guns and food are nice to have around, but the best currencies by far are vodka, cigarettes, and other drugs. The are portable, liquid (heh) assets that are useful in barter and also (crucially) prized as bribes by the groups of armed men, in or out of uniform, who will make or break your survival strategy. You can always trade drugs for food but hardly ever the other way around.
My favorite Vietnam-era strongman, General Tuan Shi-Wen, said it best:
"... an army must have guns, and to buy guns you must have money. In these mountains, the only money is opium." [0]
And very few people have the size mattress necessary to store the kind of money that anyone making noticeable investment in T-bills is trying to store.
It seems disingenuous of the government to continue their claim of low inflation. I understand that their basket of goods used for measurement can't be perfect, but it appears that it is gamed quite a bit.
Substituting ground chuck for steak, or using technological increases (e.g. CPU speeds) as criteria is blatantly misleading. But the biggies aren't even taken into account. Rent and home prices have gone exponential in many areas, health care and tuition prices go up about 10% / year, property tax rates are pushed up, road tolls added, red light cameras installed, etc.
So I guess if you're a 65 year old on medicare and social security, with a long-ago paid off mortgage tied to a legally fixed property tax (e.g California) and no commuting and child-care expenses, the fact that the price of eggs or Frosted Flakes hasn't increased in the last year might support an argument for low inflation.
Not so much if you're of working age and still dealing with school loans, rent / home prices, commuting, etc.
What do you think could be driving the acceleration of inflation you mention? The mainstream story is inflation is driven by wage gains when the economy starts to overheat. This increase in wages is then passed onto the consumer, who to afford the increased prices asks for a wage increase and the cycle continues. I don't know think there is currently a general overabundance of jobs in the U.S. economy driving large wage increases.
If you don't want to give the money to the treasury where else do you put it? Your options are probably under your mattress or in a bank. Any bank has higher default percentage than the treasury.
I'm not sure what is distorted or artificial about what the FED does. They try to stabilize the growth of the money supply so that we have near constant inflation, and full unemployment. If the Fed were to keep rates artificially low we would see inflation, if they kept them artificially high we would see unemployment. Right now because of the zero lower bound we are seeing much more of the latter than the former.