The only party benefitting from the cashback scheme is, of course, the middleman. By offering it, they give you an incentive to use the card more, which in turn gives the vendors more incentive to accept it. More card use equates directly to more money for them.
One of the hugely compelling benefits of cryptocurrencies is they entirely eliminate the necessity for such middlemen taking a cut and driving up costs for the parties actually partaking in the transaction.
But clearly people want this type of guarantee so I think the cryptopunk dream of having every human being owning a bitcoin wallet aligns poorly with what real world human beings want.
Everytime I read about long term adoption of cryptocurrency by the masses I always end up asking myself the same question: "Why would a random person for whom money is not a political statement care about any of that? What's the added value?" As far as I'm concerned I still haven't found a satisfactory answer to this question.
Except that fluctuations in the conversion rate make this very touchy, especially if you're talking about a significant sum of money. Also, sending crypto anywhere outside of a handful of developed nations is fraught with difficulty because recipients need to be able to convert bitcoin into spendable money which often involves risky in-person meetups and gigantic markups on the conversion rate.
Also, having options is better than not having them. Sure, there's the international wire system, but it wouldn't hurt to give it some competition.
One day there will be no need to convert to fiat.
The GP was talking about the marketing (cash back / rebates, discount rates, travel insurance) aspects of credit cards. These aren't insurance in any meaningful way. They are marketing expenditures designed to persuade credit card end-users to stay with a credit card brand. It's not unlike the Apple / Google / Amazon walled gardens for their {devices, paid apps, paid downloads, DRMed content}.
It's not "insurance". Banks and credit cards are regulated by government, so their offerings must meet the standards of the regulations. If cryptocurrencies become widely used for purchases, they, too, will likely become subject to tighter regulation. Additionally, contracts with other parties (cryptocurrency exchangers, retailers, etc) will need to ensure a certain amount of "insurance" of some sort in order to gain wider market acceptance.
The reason you don't get "cash back" from cryptocurrency (or cash) transactions is because there is no (hidden from the end user) 2.5%+ (sometimes 4%+) transaction fee paid by the merchant. That means the merchant passes on that cost onto the end user in the form of higher prices. Their merchant contracts with the credit card systems restrict how they can message this to the end user, so it's an opaque cost. When the Bitcoin protocol change dust settles, Bitcoin transactions will again be far lower than comparable credit card transaction fees.
The only reasonable aspect of credit card purchases that could be considered some form of "insurance" are the protections granted by state governments in the form of consumer protections for retailer purchases (in the form of returns, warranties, etc). Presumably these exist in the same form whether you purchase via cash, plastic, or cryptocurrency. The trick is that these protections are limited if you purchase anything outside of your state (like international transactions).
Do you think thinks will be different for bitcoins? Because if I end up having to pay the same price in BTC as I would with cash or Visa and on top of that I have to pay the bitcoin fee then as a consumer I'm not exactly better off.
>if cryptocurrencies become widely used for purchases, they, too, will likely become subject to tighter regulation.
I thought the whole point was to make a currency that could not be regulated by governments? If my coins are stolen what can the government do? It's as difficult to track as cash (if not more difficult) and it's completely immaterial like a credit card number. It's the perfect tool for thieves, as this ICO hack demonstrates. If the thieves are a bit patient and take the time to split and move their money around to hide their tracks they might never be found.
Me too. What's better: people are now trying to take advantage of this uselessness beyond money using ETH. every idea for an etherium-based app I've come across seems better served by a real institutional intermediary.
Don't all bitcoin transactions require a transaction fee in order to get processed these days?
The basic protocol allows you to move bitcoins between two entities without putting every single transaction on the chain - only 2 blockchain transactions are needed for unlimited Lightning Network transactions.
Then, on top of this, there's a framework for moving money through the network - I send money to someone I have a Lightning Network payment channel with, they send it to someone they have a channel with, etc, until it gets to you. The great thing about this is that I can prove everyone isn't cheating, and if they are, I can immediately reverse my transaction - I haven't lost any money.
So the result of this is the creation of a network of payment channels which have very very low costs to process payments, aren't embedded in an industry that's difficult to get into (you or I could process payments just by joining the network), and have no ability to try and take a larger cut under the guise of a "points" or "cashback" system as you can easily switch to a different channel which takes a smaller cut.
In practice, a ledger of every transaction that is copied to the hard drives of a sufficient amount of bitcoin users is a terrible idea. It doesn't scale, at all. We need better solutions. Lightning Network is one that's potentially viable in the short term - and we're seeing more people play with radically different cryptocurrency designs (e.g. Iota) in the long term.
Cryptocurrency transaction fees are just very direct, but it's the same deal. The difference is that clearly inefficient transaction costs, like centralised middlemen with limited competition skimming a cut from all transactions, can be eliminated. Remember that bitcoin transaction fees are a completely open market.
There's an efficiency trade-off here, and I think for at least many of the older crypto currencies, the amount of work to process transactions is literally unsustainable without some additional tech or service layer.
Which often leads us right back to clearly inefficient transaction costs.
The only reason that Visa and Mastercard have such high fees is because it's a duopoly.
Bitcoin makes the user deal with fraud, with predictable results.
The transaction fee is based on the byte size of the transaction, not the monetary amount, so in it's current form it doesn't make sense to use Bitcoin for low-value transactions.
Edit: I'm wrong, it's complicated.
Aren'y all bitcoin transaction really close to the same size? The amount being transferred doesn't change the size an integer contain 1 and another container 1,000,000,000 take the same amount of space (32 or 64 bits) because the spec says so.
I thought transaction fees encouraged miners to include your block in a transaction.
If you're paying for your £3 coffee by transfering small amounts from many addresses, it's a big transaction.
Address fragmentation happens when your coins are distributed across many addresses, and can be caused by things like spending coins, because all transactions actually spend everything at an address and just route the "change" elsewhere. Buy two cups of coffee too close to each other and your next transaction is going to cost twice as much in fees, whoops!
Unfortunately it's generally advised to use a new receiving address for every bitcoin transaction to make it harder to trace how much money you have and how you earn and spend it (most wallet craft a new address for every receive transaction) so it's very common to end up with your assets split up across dozens or even hundred of addresses.
Imagine two wallets each with a total of 1 BTC. One wallet just received a single transaction with 1 BTC and the other is funded with 10 transactions of 0.1 BTC. The wallet with 1 BTC as an input only needs that single proof to send the whole BTC, while the wallet with 10 0.1 BTC inputs needs to submit all of those proofs to transfer the 1 BTC, effectively 10x the data.
So obviously there's going to need to be a credit backed middle man to guarantee your transaction so the seller doesn't get screwed by a double spend.
Eth is slightly better, but it still takes something on the order of 10m to confirm a transaction, and it doesn't look like it can get anywhere near the speed needed for a coffee purchase.
Bitcoin is the largest and most prevalent, so it has become the currency most often used to exchange to fiat. Usually the transaction fees are still mostly negligible because these are larger transactions than the faster altcoins when they're used to make purchases.
Essentially no barrier to entry, and some federation could happen.
Of course, what you end up doing is creating banks, but hey they're not regulated by the government if you are behind 5 proxies? "Hobbyist bankers" might be fun.
The ultimate frustration of bitcoin is that it can occupy the entire range of decentralization, but the community compares everything to the logical limits of "the Federal Reserve will defeat math and generate BTC" and "I don't even have to trust my own computer to do this transaction!".
It's the seller that would care about confirmations in that case. Hopefully they do something hilarious like have a bitcoin corral for people to wait in while their payments clear.
I really don't think this is as big of a problem as you are making it out to be.
Without more efficient means of off-chain transactions (such as payment channels) the cost of on-chain cryptocurrency transactions is typically much more expensive than credit card transactions (except for very large amounts, as credit card transactions charge a percentage, and cryptocurrency transactions have a fee not related to the amount transacted).
For some of the cryptocurrencies those fees are currently somewhat hidden, as you don't directly pay them as transaction fees, but as miners get a block reward that contributes to inflation. If you include the miner revenue a Bitcoin transactions currently costs about $20 in average: https://blockchain.info/charts/cost-per-transaction
A credit card transaction costs me 2$ (which is used to provide me great service, including insurance against unauthorized use): Somehow this is a bad thing?
Yes, if the recieving bank won't honour a cash-back then it will come out of card processing fees, but that's more like insurance than anything else. I wouldn't say that insurance is without worth.
Also, BitCoin has transaction fees. Except rather than being used for insurance, they provide a (very poor) profit motive for miners to continue keeping the network hashing rate high. The reason it's clearly a poor profit motive is that the popular markets around BitCoin are secondary markets (selling graphics cards rather than doing the mining yourself).
Which is why so many of the business “accepting” cryptocurrency do so only through a middleman who converts it immediately back to national currency for the business, charging a fee for the service.
As long as there is no difference between the cash price and card price, it's rational for a customer to use a card with rewards. And I have never seen anything outside of gas with differential pricing. And you know what? I just avoid those gas stations as much as possible, because I can pay a similar price at another station and get my cash back.
So if you buy a $1 soda, that mom and pop store just lost 30% of their revenue, plus 3%, and maybe sold that soda at a lost to you.
For places like McDonalds, they negotiate much better credit card processing fees and I don't care - plus they make a lot of money anyways.
> 5.4.2.3
> Minimum Transaction Amount – US Region and US Territories
> In the US Region or a US Territory, a Merchant must not establish a minimum Transaction amount as a condition for honoring a Visa Card, except for a Transaction conducted with a Visa credit Card issued in the US Region or a US Territory. The minimum Transaction amount must not be greater than USD 10 and must not be discriminatory between Issuers or between Visa and another payment network.
So, in the US, it doesn't look like there are any rules. Outside of the US, it looks like a minimum is fine as long as it's not more than $10
1. The only party benefitting from the cashback scheme is, of course, the middleman. While prices will go up in the long term, consumers who use cash-back cards do benefit in the short term over those who don't. If you make a transaction in cash or with a debit card which you could have made with a cash-back card, you are leaving 3% on the table. I am extremely skeptical that an individual boycott will be effective. Maybe take your 3% and pool it to lobby for better banking regulations?
2. they entirely eliminate the necessity for such middlemen taking a cut - AFAIK, all cryptocurrency includes some sort of transaction fee.
The beneficiary of this scheme, as with most schemes to lower prices to undercut the competition, is me.
1) It costs them money to use 2) No cashback
It would be interesting to test a cryptocurrency where the recipient payed the fee, and could optionally send cashback. I'm not exactly sure how this would work, but the incentive structure would more optimally aligned for everyone involved.
edit: On second thought, you are probably right. With the right wallet ui you could just provide a simple discount or cashback that covers the transaction fee + % cashback at the point of purchase that's covered by the recipient via a contract, or via rules that the recipient publishes.
Right now she will only accept the first month payment by credit card. Cash, check, or ACH for recurring payments. ACH costs $.99. If everyone decides to pay credit card she will raise cost by $5 (almost 3% of the charge).
Only if you don't count the online exchanges as middle men. Right now I still pay 3-5% to convert fiat to digital money, depending on where my fiat comes from.
The theoretical future where nobody needs to convert between digital coin and fiat isn't here yet.
So its an extra little 3% tax on the poor, or at least the less financially literate.
Of course it's sad for people who invest money they can't afford to lose, but really "investing" in cryptocurrencies is more like playing roulette than anything else and they should've known better.
I really wonder what cryptocurrencies will look like 10 years from now. Will they still exist? Will they have taken over the world as some predict?
Given how easy it is to irrevocably lose your coins I really have a hard time imagining how this could become mainstream. At best I could imagine using bitcoin through some third party that would take care of your wallet for you. We'd call it a bank or something.
But yeah, technically and economically it's pretty fascinating I think. The only downside is that the very high valuation makes it hard to have a reasonable discussion with people on either side of the fence. It's not longer a fun classroom experiment when billion of dollars are involved.
Like any decent business thinker you don't see the rough edges of your focus. Sometimes when you do it can cripple you. But then again most business fail.
News like this are common for any emerging markets and technologies. Same amount of volatility was probably present in the first years of dollar, and same amount of insecurity was present while banks and credit cards were still being established.
I wonder how much different the crypto-currency conversation would have been if they appeared around the time when dollar lost its gold convertibility.
Take a look at the purchasing power of the US dollar over the last century. http://bit.ly/2ushyfu
I'm not suggesting crypto is a better store of value, but there are surely better alternatives than the U.S. dollar for long term investments.
Even for short term holdings intended to transact with, wouldn't it be nice to not rely on a bloated, corrupt, violent corporation (AKA the US Gov)?
That said this is only true if you have faith in your government.
Obviously cryptocurrencies are sharp tools, but they're stronger financial primitives than what we have. We just need to use them to rebuild the consumer-facing components.
It is a 3000 year old problem.
Trust. In short, is big business.
If given the choice between the whims of banks vs the whims of cryptocurrency speculators, and the potential for wire-fraud vs the potential for wholesale 'hackfraud', I think I'll take the whims of the banks please.
Regarding bank whims, if you're a properly banked person who's never had an issue, great. If you've never had trouble with the IRS or anyone else who can take your money by force- great. But that's not everyone.
https://en.wikipedia.org/wiki/Nixon_shock
to give just 1 example.
Having hard limits on what governments can do is obviously beneficial especially for less informed people.
EDIT: misread! Obviously ETH lost a lot of value.
Which is precisely why you don't leave money sitting in a 0% savings account. You invest it in equity, not a currency. Fiat is designed to lose value through inflation. Thats how the system works.
Expecting to hedge against inflation by dumping your money in another currency is insanity. The only way is through actual economic growth.
Bitcoin has been a great hedge for those who can access it in Venezuela.
For just about everything else, cryptocurrencies are crap, just a worse version of something that already exists. They're not a panacea, you can't throw a blockchain at everything and make it better.
You understand not everyone has that privilege right? Not everybody has access, the capital, or the identification to a first-world bank.
That's right, they don't exist, and this argument is bullshit.
This comment doesn't seem to jive the spirit of Hacker News.
If the poster you're replying to has a valid counter-argument you can expect him to provide it; there's no need to...threaten them to reply? Machismo is one of the least beneficial things you could contribute to this site.
[1] http://www.coindesk.com/united-nations-sends-aid-to-10000-sy...
[2] https://www.bloomberg.com/news/articles/2017-06-13/pot-entre...
Although, I've pretty much always been paid in cryptocurrencies so my situation is rather unique.
2. Not all properties are relevant or even desirable: For example, I could live without POW or a fixed cap.
3. That being said, let me give you an example of a currency that could realistically be adopted by a government: a centrally controlled currency (the central bank is the only miner) but the blocks are validated by the citizens.
Here you could have the inflation rate specified through a smart contract (e.g. 3%). The only way to print more money would be to to ask the nodes to vote on an amount that will be included in the next block.
No. $1 during the gold standard was different than $1 after we left it. Now, our central bank (the "Federal Reserve") aims to inflate our currency at +2%, every year. After 80 years (roughly a US lifetime), $1 at birth is worth $0.20 at death. And central banks can't always keep monetary policy under control.[1]
We just hit $20 trillion in US federal debt. It's set to continue to grow as baby boomers continue retiring. Congress has no spine to make large cuts in spending (for defense, discretionary, or entitlement programs). There are a handful of very large states in the same condition. The debt will continue to grow reasonably fast while the GDP of our economy has lagged.
$1 USD may say "$1" on the front forever, but the purchasing power of a dollar isn't likely to stay as strong as some other currencies. It's worth even less if large, important international transactions (like for oil/gas/weapons) are done less and less with the US dollar (@see "Bretton Woods" and "petrodollar").
If someone steals your gold the logistical complexities are much more onerous to being caught. Again, a 3000 year problem almost entirely solved.
The risk of the medium of value is priced into the medium itself.
If you took some time to figure out the answer, it may be valuable. Or not. You could be right.
> because $1 = $1 like forever
Correct. What about compared to a basket of good?
Without these people, how have Venezuelans got any chance of getting bitcoins in the first place?