Bitcoin should be seen as a currency first and a payment system second. Nothing should prevent the current banking system from adopting it as a currency while keeping all their existing checks in place. Credit cards could support BTC denominated payments and still have all of their chargeback policies in place.
In that world, doing a large Bitcoin transaction would be the analogous of moving trucks of cash around and keeping a large amount of Bitcoin would be like hiding tons of cash in under your mattress (reserved for experts). The majority of payments would be "off chain" while still allowing for people to opt out.
You might ask what's the point of Bitcoin then? Well, I think it would still have a couple of benefits over traditional currencies like USD:
- Supply of currency not controlled by any government or entity
- Easier to "opt out" from system than with physical cash
- Transparency (institutions that wish to do so could use the blockchain to be transparent about their finance)
- Efficiency (though there's been a lot of criticism about the energy consumption of Bitcoin mining, think of all the human capital, real estate and transportation cost that goes into physically moving and securing cash)
This doesn't apply if many of the transactions happen "off chain" to offer the reversibility benefits you mentioned before.
Basically, to get all of the trust benefits of the banking system, you are saying we have to essentially not actually use bitcoin, which makes me wonder what the point is. At that stage, why not have gold denominated credit cards? Less technology to depend on and the government still doesn't control supply.
I guess a similar gold vault problem is possible with private key control, but that is the same as verifying if the bank still has the keys to their gold vault, a much smaller problem.
In the EU: 2.5% of the value of your deposits the banks own in bonds.
In the US: complex, but let's give a simple, not that wrong answer : up to 10%.
In Australia: 0% required, but in practice the banks have a little bit.
That's all the banks have. In our current Bretton-woods economic systems, banks create (and destroy) money.
Large institutions as in banks for example who do make "on chain" transactions but I agree this was not the strongest argument. It is correct that transparency goes out the window as soon as your transactions are "off chain".
> Basically, to get all of the trust benefits of the banking system, you are saying we have to essentially not actually use bitcoin, which makes me wonder what the point is.
Yes, in the same way that you are not using "federal reserve notes" when using any of those services (Paypal, credit cards, wire transfers, etc.). Yet you seem to still see the point in USD, the currency.
> At that stage, why not have gold denominated credit cards? Less technology to depend on and the government still doesn't control supply.
It was the case for a long time that fiat currencies were backed by gold. To be honest, I'd be somewhat happy with that but I believe Bitcoin has several properties that make it superior to gold (e.g. it's digital).
Well not these guys: $81M was stolen from the Bangladesh Bank via the SWIFT network in February https://en.wikipedia.org/wiki/2016_Bangladesh_Bank_heist
> And second, there are humans in the loop
There sure are!
The IRS Seized $107,000 From Store owner for "structuring" http://www.foxnews.com/politics/2015/05/12/nc-store-owner-on...
MasterCard Cuts Off Wikileaks, Assange's Bank Account Frozen http://gawker.com/5707851/mastercard-cuts-off-wikileaks-assa...
DOJ's 'Operation Choke Point' May Be Root of Porn Star Bank Account Closings http://reason.com/blog/2014/04/28/doj-operation-chokepoint-a...
Nearly all of which was later recovered.
> The IRS Seized $107,000
> DOJ's 'Operation Choke Point'
Those are political problems, not problems with the banking system. If the government decides to fuck with you, then you're fucked no matter what the banking system looks like.
> MasterCard Cuts Off Wikileaks
This is a real problem, and it a result of what is IMHO the main unaddressed flaw in our current system: banking is conflated with money transfer. Bitcoin does address this problem, but IMHO it doesn't do it very well. The risks and costs are too high.
Citation needed.
> Those are political problems, not problems with the banking system. If the government decides to fuck with you, then you're fucked no matter what the banking system looks like.
I disagree. Has any government shut down a Bitcoin address for "structuring", or publishing pornography?
Sorry, $951M was stolen. All but $81M was recovered.
http://www.reuters.com/article/us-usa-nyfed-bangladesh-malwa...
But let's put this in perspective. MtGox lost BTC600k. As a fraction of the primary money supply, that loss was comparable to a USD loss of about $35 billion (M0=$1.2 trillion). So even before most of the Bangladesh money was recovered it was only 1/30th the size of the MtGox loss. And MtGox wasn't even a theft, it was simple mismanagement. Imagine the attacks people would start to mount if they could net the equivalent of $35 billion (or more) risk-free.
Yes, I agree: Bitcoin is probably easier to steal from people who don't know what they're doing. (And yes there is probably is smaller chance of the thief being caught).
But as of now, properly secured Bitcoin can't be stolen by any criminal, government, or bank. Even if they have physical access to the owner's shit!
The same cannot be said for any modern national/fiat electronic monetary system.
The 'tech' is, more or less, the easy part. The hard part is all the people involved, and getting them to follow the rules. Sure, you make the tech more resilient to human 'error', but things like MtGox (or Bangladesh Bank) still happened.
Just like using a bank account in the real world involves not divulging your account #, bank website passowrd, SSN, birthday, etc.
He got it back eventually plus $20k costs http://www.cato.org/blog/lyndon-mclellan-finally-beats-irs
Although this is true, the fact is that in practice this is rarely occurring. No system needs to be absolutely perfect to compete reasonably with the legacy financial banking system. As you point out yourself, the banking system has flaws, and yet it kind of works. Ditto for Bitcoin: it's not perfect, but it works quite well at solving certain real-world problems.
I think theft of Bitcoin private keys is a more serious problem than accidentally sending coins to the wrong address, however this is being solved by hardware wallets, N-of-M transactions, etc.
Mainly because wallet spoofing is not yet lucrative enough for hackers to put a lot of effort into it. If BTC really does start to get major traction, then it is only a matter of time before the web will be flooded with bitcoin wallet spam and phishing attacks.
If you look at it from high above, it would be like replacing the implementation of the current banking system with a more modern stack, but still leaving a similar human interface with the same level of features.
Would this make sense?
There are some people arguing in this direction, with the construction of settlement blockchains, but obviously the proof-of-waste system would have to be discarded.
I think the Right Answer is to have an auditable public ledger maintained by a trusted third party. This could be the government, or it could be a private party, but the key to making it work is to make electronic money storage and transfer a commodity provided by what is essentially a public utility.
What problem does bitcoin solve for banks?
Maybe im being totally naive.. but how about a second blockchain called the "rollback" blockchain.. Suppose you put a "timer" in the bitcoin blockchain for a period lets say 48 hrs..
So when the timer expires, the first blockchain(the coin blockchain), would check for a "rollback transaction" in the second one.. if its not there, the transaction on the first blockchain would be confirmed, and the funds would go to te right account, in a completely automated way, with all the trust garantee that the blockchain tech can give.
Is this a stupid idea? (i just gave a quick tought about this)
OBS: of course, say goodbye to instant payment.. but with double check security sugar on top of it.
https://en.wikipedia.org/wiki/Smart_contract
And for a cryptocurrency-specific implementation, see http://nashx.com/HowItWorks
But the coin blockchain would at least to have a little context about the second one, the "smart contract" one.. binding/linking the transactions in the second blockchain to itself.
So i dont know what parameters would be the best giving a certain context..
Of course you could try, but (I predict) you will fail. The problems I've cited are fundamental problems that are built in to the bitcoin protocol by design. You can't patch your way around them.
For example:
> which has nice UI and double checks everything
How exactly are you going to "check everything"? Remember, you have to get it 100% correct. Failures are completely unacceptable because failures are completely unrecoverable.
AFAIK, most of the errors happen because users mistype the address or confuse the commission fee/amount fields, etc. UI could possible introduce some validations for fee/amount issue and probably require to retype the address or something else to avoid the other issue. Another issue is fraud, but it is a unavoidable product of such system, otherwise we end up with same problems traditional banking has. Fraud check means someone might deny the transaction even if your transaction is completely legit, for example, just because you are a citizen of a blacklisted country (my experience).
It is easy to dismiss bitcoin when you are a citizen of 1st world country -- because you are insider and have full privileges, but when you are outsider, it gets very complicated and things like bitcoin give some promise.
Indeed.
> It is easy to dismiss bitcoin when you are a citizen of 1st world country -- because you are insider and have full privileges
That is a very good point, and very easy for someone like me to lose sight of. Nonetheless, I think the answer is not to hand over the final arbitration authority to an algorithm, but rather to design a system where there is an open market in trust. Starting a bank should be as easy as starting a blog. The trick is to come up with a system of checks and balances so that someone who runs a crooked bank can be immediately and unambiguously called out.
There are two things that make the current banking system robust: first, because anonymity is limited, most of the actors in the system are honest. Trying to pull a fast one is risky, and that prevents most people from trying. And second, there are humans in the loop that you can appeal to when things go wrong. Most of the time this keeps the system humming along despite the fact that under the hood it's all held together with spit and baling wire.
Bitcoin is the exact opposite. Because it provides greater anonymity than the traditional banking system, it attracts dishonest actors. For example, bitcoin has made ransomware more economically viable than it was before. And second, if something goes wrong with a bitcoin transaction, you are totally hosed. Your bitcoin payment is only as safe as your ability to reliably bind a bitcoin address to an intended recipient. If you get it wrong, there's no recourse. If you accidentally send some bitcoin to the wrong address, you are hosed. If you lose your private key, you are hosed. Period, end of story.
If I have to choose between bitcoin and traditional banking I'll take the latter simply because it's generally more robust and forgiving of everyday human foibles. But I'll continue to wish for (and work towards) a system that gives us the best of both worlds.