The 2 to 3% drag needs to be corrected for increased liquidity, which is difficult to do. People don't use credit cards because they are convenient, people use credit cards because they do not have the extra money, which drives compounded economic growth. If bitcoin succeeds, credit mechanisms will be built on top of it, and they'll behave almost identically to credit cards, including have fraud.
The premise the article presents (essentially a different crypto currency for every business I interact with, as well as loan instruments built on top of btc) is actually not a preferable reality to the current one.
Also his claim that you have no chance of identity fraud is really only relevant to the merchant (and is obviously worse for the consumer). But merchants have already done the calculation: even at 2-5% transaction fee and eating a lot of fraud, they are happy to process credit cards.
I use my credit cards because they don't cost me any more than using cash (I pay off the full amount each month) and I get a lot of various perks in return, like cashback, airmiles and insurance. They are convenient and I use them whenever I can.
That's not true everywhere. I'm not sure if it's US-only behaviour, but in other countries, the majority don't use credit cards for debt - just as a convenient payment mechanism.
Sorry to pull an HN special on you, but do you have any kind of source for that? I've never heard it, though I have heard that debit card usage is much higher in Europe.
Unfortunately, I don't have one. I do live in Israel though and I can tell you that here, at least, most credit cards are used like debit cards (as I understand them). We do technically buy on credit, but pay up at the end of every month.
We do have one thing which, afaik, doesn't exist in the US, which is that we can "split up" a payment when paying for an item. E.g. you buy something for 100$, you can ask to pay in 2 installments of $50. That's pretty common, and usually doesn't cost anything extra for small amounts of installments.
And when you say that merchants find credit cards acceptable in spite of fraud, that doesn't imply that fraud isn't a huge drain on the economy, it just means that credit cards are still a better alternative than cash. But if we could get rid of the fraud, we would still save a huge amount.
And you're right, what implies that fraud isn't a huge drain on the economy is that it comes from massively increased liquidity. Fraud is a biproduct of increased liquidity. I don't know how many times I have to scream this in this thread. If you aren't addressing the increased liquidity offered by cards you are missing a massive part of the equation.
I also don't think the article is necessarily saying that we will have different crypto-currencies for each business, just that we already use a bunch of different payment methods (points, air miles, credit, etc.) and it will be faster and easier to choose which one you use.
How?
Why? One way transactions cut down fraud. It's not inconceivable to have a hardware digital currency wallet that can be used similar to the modern credit card. Banks could issue credit that is spendable in the same way with additional automatic escrow. Why continue to have the fraud ridden system when the alternative exists?
Average household owes $7,115 on their credit cards. Average indebted household owes 15K+.
http://www.nerdwallet.com/blog/credit-card-data/average-cred...
So you think it's better for people to be able to spend money that they don't have and pay usurious interest rates and fees, decreasing the utility of their future income and locking them into perpetual debt?
Maybe it would be better if credit were a bit more difficult to access so that people think about it more before utilizing it.
2) those businesses will need to be paid for their service, and face security risks as well
3) government will regulate
4) some businesses will start wallets/vaults, which will enable you to open a wallet free of charge in exchange for depositing your bitcoins
5) those businesses will use the deposited bitcoins for lending, investments and speculation
hello brave new world...
"And so one way to think about credit card fraud, is credit card fraud is a two-to-three percent drag on the entire economy. It’s an artifact of the fact that credit cards were never designed to be used the way that they’re being used today. Credit cards never anticipated online transactions. Credit cards, by the way, the credit card system, never anticipated malware running inside a cash register at Target. In the 1950s that was an inconceivable idea, which is when credit cards were dreamed up.
And so if you have a payment system like Bitcoin where you don’t have the credential exchange, and you have no risk of identity fraud, and you have no risk of people being able to run transactions on your credit card after the fact, you can basically eliminate that entire category of fraud…"