Guys, I don't doubt that some form of crypto currency exists in the future, and I'm looking for a reason to buy into the BTC vision, in fact I own some BTC. I'm trying to get over the challenges I see, so not trying to bash here, but looking for understanding or someone to point out the flaws in my thinking.
1) It seems as if the main selling point to encourage business adoption is lower transaction fees. What do you guys envision as the real market for BTC? Are we mainly talking about retail consumer purchases?
a) Big corporations - These multinationals move funds all over the world in large amounts, and transaction fees are extremely small. These entities have the treasury capability to manage multiple currencies, however the main function of the treasury group is to minimize financial risk and maintain liquidity. Therefore, adding another currency to the portfolio merely introduces more friction in that the currency risk must be managed or eliminated. Additionally, given the volatility of the currency, no treasurer on earth would keep his job by taking any BTC exposure. To take BTC on the retail end, the corporation must immediately convert to USD or local currency, relegating BTC to an alternative payment method only. As other posters have correctly pointed out, no suppliers or vendors are going to accept BTC, so as a business-to-business settling mechanism, there would not appear to be any benefit.
b) Small businesses - again, their suppliers are not going to accept BTC, so accepting BTC from retail customers will create an asset/liability mismatch and they will need to convert back to USD. I guess this is where the 'lower transaction fee' argument comes in. Having run a small business I understand the cost of accepting credit cards. I have also experienced the complexity of accepting different payment methods (Paypal, Google) and while the cost of these methods aren't materially lower, the back end complexity of managing the various payment methods definitely increases. I was never able to convince myself that I got any incremental sales from the alternative payment methods either (because everyone HAS to have a credit card today. If I don't accept Paypal or Google, they merely pay with their credit card.)
If, however, I accept BTC, and obtain a lower transaction fee, there must be a compelling reason for the consumer to want to pay with BTC. The only way this happens is if the consumer has a financial incentive.
It's not enough to theorize that the retailer's costs go down, so the product cost should go down. The person choosing the currency to use, must be the one that accrues some financial benefit. If the benefit accrues to the retailer, the retailer either keeps the benefit, or passes along to all customers which means the ones that use credit cards accrue benefits from the BTC payer's actions, diluting any benefit to the BTC payer. Sure there are a few people who want to use BTC just because, but to achieve any mass acceptance, there must be a compelling economic reason. Seems to me that there must become some kind of standard discount, maybe 1% for paying with BTC. Let's say this becomes the standard. The credit card companies won't stand still, they'll respond in order to maintain they're business in some fashion, which will close the gap somewhat, reducing the economic incentive for consumers.
2) Confidence - Today, bank accounts are ensured by the FDIC. This gives people confidence to leave they're money with a bank. I think in order to achieve mass acceptance, there will need to be some type of similar backstop. The average Joe is not going to place 100% confidence in some invisible technology, especially with the daily reports of hackers attacking major corporations, credit card companies, etc. I've heard the counter argument that people can store in offline wallets, etc. This places the currency at a disadvantage to mainstream currencies. I can leave $5k in a bank account and pay electronically anytime/anywhere and have the currency guaranteed against loss. Or I can take the same $5k offline in some cold storage location with BTC and it makes it clunky at best to use. (Maybe I don't fully understand the options, but it seems to get the same level of protection afforded to my USD, I loose some practicality/mobility with BTC.)
Again, I'm looking for someone to counter these points or explain the niche BTC participates in 5-10 years from now. I definitely see the potential similar to the internet in the 90's, but I'm to the point that this could be the best or worst investment of my life so looking for some understanding.
1) It seems as if the main selling point to encourage business adoption is lower transaction fees. What do you guys envision as the real market for BTC? Are we mainly talking about retail consumer purchases?
a) Big corporations - These multinationals move funds all over the world in large amounts, and transaction fees are extremely small. These entities have the treasury capability to manage multiple currencies, however the main function of the treasury group is to minimize financial risk and maintain liquidity. Therefore, adding another currency to the portfolio merely introduces more friction in that the currency risk must be managed or eliminated. Additionally, given the volatility of the currency, no treasurer on earth would keep his job by taking any BTC exposure. To take BTC on the retail end, the corporation must immediately convert to USD or local currency, relegating BTC to an alternative payment method only. As other posters have correctly pointed out, no suppliers or vendors are going to accept BTC, so as a business-to-business settling mechanism, there would not appear to be any benefit.
b) Small businesses - again, their suppliers are not going to accept BTC, so accepting BTC from retail customers will create an asset/liability mismatch and they will need to convert back to USD. I guess this is where the 'lower transaction fee' argument comes in. Having run a small business I understand the cost of accepting credit cards. I have also experienced the complexity of accepting different payment methods (Paypal, Google) and while the cost of these methods aren't materially lower, the back end complexity of managing the various payment methods definitely increases. I was never able to convince myself that I got any incremental sales from the alternative payment methods either (because everyone HAS to have a credit card today. If I don't accept Paypal or Google, they merely pay with their credit card.)
If, however, I accept BTC, and obtain a lower transaction fee, there must be a compelling reason for the consumer to want to pay with BTC. The only way this happens is if the consumer has a financial incentive.
It's not enough to theorize that the retailer's costs go down, so the product cost should go down. The person choosing the currency to use, must be the one that accrues some financial benefit. If the benefit accrues to the retailer, the retailer either keeps the benefit, or passes along to all customers which means the ones that use credit cards accrue benefits from the BTC payer's actions, diluting any benefit to the BTC payer. Sure there are a few people who want to use BTC just because, but to achieve any mass acceptance, there must be a compelling economic reason. Seems to me that there must become some kind of standard discount, maybe 1% for paying with BTC. Let's say this becomes the standard. The credit card companies won't stand still, they'll respond in order to maintain they're business in some fashion, which will close the gap somewhat, reducing the economic incentive for consumers.
2) Confidence - Today, bank accounts are ensured by the FDIC. This gives people confidence to leave they're money with a bank. I think in order to achieve mass acceptance, there will need to be some type of similar backstop. The average Joe is not going to place 100% confidence in some invisible technology, especially with the daily reports of hackers attacking major corporations, credit card companies, etc. I've heard the counter argument that people can store in offline wallets, etc. This places the currency at a disadvantage to mainstream currencies. I can leave $5k in a bank account and pay electronically anytime/anywhere and have the currency guaranteed against loss. Or I can take the same $5k offline in some cold storage location with BTC and it makes it clunky at best to use. (Maybe I don't fully understand the options, but it seems to get the same level of protection afforded to my USD, I loose some practicality/mobility with BTC.)
Again, I'm looking for someone to counter these points or explain the niche BTC participates in 5-10 years from now. I definitely see the potential similar to the internet in the 90's, but I'm to the point that this could be the best or worst investment of my life so looking for some understanding.
You are pretty much correct and nobody here can argue your points. Don't compare BTC to the internet. Compare it to torrents.
