I will have to disagree with you on that. I don't think this is the reason, I think the reason is that most companies fail to partner with other established financial institutions. Although this companies, such as transferwise and dwolla do a great job around Europe and US, most of them are not even known in the developing countries, in those countries people still rely on the old fashioned, bank transfers and western union mostly. There is a great opportunity out there for serious people to create great companies, and remittance surely is one of them.
rebit.ph is making a serious attempt at remittances to the Philippines using Bitcon, but have discovered they basically have to become a Bitcoin exchange as not enough people are buying the Bitcoins at the .ph end.
Also, the expensive bit that you're paying Western Union those fees for? Turns out to be the last mile, that a Bitcoin-based remittance company would also have to implement.
This article is correct in stating that trust and reputation is a serious problem for Bitcoin. But I don't think the article diagnoses exactly what is causing it.
After all - there is nothing in all these negative headlines that give you a strong reason to believe that the Bitcoin ecosystem is less reliable overall than more traditional institutions. For every Bitcoin related scandal you can find an enormous number relating to the traditional financial system. The Bernie Madoff ponzi scheme alone was six times the size of the entire Bitcoin market cap at the moment. Yet every Bitcoin related scandal is interpreted by commentators as a sign of the anarchic failure of its central premise; while every scandal relating to the traditional sector does nothing at all to impede its reputation as the default way of doing business.
I presume the explanation for this bias than a deep and abiding fear of distributed consensus - not just in the authorities and institutions that would lose their power; but in the culture at large. What else could it be?
I don't know what you should do to combat that - but it's clear to me that this is the fundamental idea that needs to be targeted.
People who invest tons of cash in schemes like this, or in fact make investments at all, should be doing a lot of due diligence. Investment is not something that Joe Average thinks about much, if he can help it. He doesn't have millions of dollars, he probably has small-scale retirement funds managed by companies he didn't even choose by himself, just some default adopted at some point. Any cash he's sitting on is managed by other people as well, and is protected and insured in a variety of ways.
Joe looks at Bitcoin and sees there have been scams and hacks by the dozen, and that when they happen there is little to no comeback, legal or otherwise. Some of the perps were the people running the services. He's probably also heard about the Silk Road. When it comes down to it he probably doesn't have a clue about computer security so there's no way in hell he's going to keep his cash on his own computer in a file he could lose with a hard-drive crash, that a hacker could steal from an infected machine. And if he's going to trust a third party with his money, why a bitcoin third party? There's no compelling reason to use bitcoin anyway when he has a credit card, and the credit card has the insurance and chargeback facilities that make Joe feel comparatively safe.
I realise that from a technology standpoint most of this stuff is not specific to bitcoin. But where money is concerned I doubt the technically-correct* standpoint is going to win.
I think the fear of distributed consensus might well be there too, but it's probably waaaay down the list of concerns, if most people even have any idea what it is.
I agree that something like what you wrote is likely descriptive (very roughly) of the conscious thoughts of the average punter - but what we need here is an explanation of WHY this is going through the average punter's head. And such an explanation is not necessarily going to be something that is included on their conscious list of concerns (though it might).
What you have reiterated here is just what the article has already said. We already know facts like: - Punter hears about silk road, associates Bitcoin with illegal drug markets. What we want to know is why hearing such a fact causes such an association.
Now you might think that there is no explanation here that is needed beyond how reputations are assigned generally by human societies. You might just think that - well, it's natural to associate a low reputation score to a system when you hear headlines about Silk Road style marketplaces, and so there is nothing more to say here.
I'm saying - no, there is something more going on here than just standard reputation assignment. Why? Well - as I said before - because for every negative headline that is supposed to prove Bitcoin's low reputation, we can produce a fact about the traditional system that completely trumps the negative bitcoin headline.
As another example since you mentioned Silk Road. What is the financial instrument used overwhelmingly by the world's drug dealers to exchange value? It is the U.S. 100 dollar bill. But is the reputation of the U.S. dollar impacted by this? Not at all. The even greater irony is that while the Bitcoin ecosystem overall gets branded as the province of nutbar libertarians that love drug dealers - the U.S. government is renown the world over for fighting the war on drugs. Except the U.S. has done nothing to remove the hundred dollar bills that drug dealers love to use. There is no greater single act the U.S. government could do to fight the drug cartels. It doesn't do it.
So the reputation assignments here are odd to say the least. They certainly aren't consistent. This is something that cries out for explanation.
Speaking as someone who vaguely follows bitcoin, the major success story of bitcoin seems to be only Silk Road.
I can see no personal advantage to using bitcoin for anything, except for illegal transactions. The problem is that while you can find negatives of the normal network, you can't find enough positives for bitcoin. Also, the failures seem much bigger -- when MtGox failed it was the biggest exchange, and everyone lost everything. Such a thing has (in modern times) never happened with the normal monetry system, and couldn't happen (because governments wouldn't let it).
I trust my bank to look after my money more than I trust a bitcoin exchange, or myself not to misplace a vital private key / get my wallet stolen. The idea that bitcoins are largely untraceable and unrecoverable does not to me (I'm afraid) seem like an advantage.
Further, from a technical viewpoint, it seems to me I'm just replacing one series of masters with another -- 2/3 of all bitcoins are already in circulation, so the "1%" (current users) of bitcoin are already extremely wealthy. The idea that bitcoin is uncentralised and uncontrollable seems false, when 2 or 3 (or 1?) large mining groups effectively control the bitcoin network, and can (and have) just "stopped" it for a while to sort out problems.
>> Such a thing has (in modern times) never happened with the normal monetary system, and couldn't happen (because governments wouldn't let it).
Easily trumped once again. Not only have governments let failures happen at a much greater scale - they've facilitated them.
Bear Stearns - when it collapsed was actually relatively well capitalized - it just couldn't get access to the day to day liquidity that all large institutions need access to these days because the markets were spooked. The fed could have just provided them a loan to see them through, and the NY fed were poised to give them funding - but instead at the last moment changed their mind and ordered Bear Stearns to do a deal with JP Morgan to have them bought out. JP Morgan came to the table with an offer of 2 dollars per share. It eventually went up to 10 - but this was a stock that was trading at over a hundred dollars per share not a few months before. Shareholders were effectively wiped out.
Despite this event being part of a catalyst that almost ended modern capitalism as we know it - you state that the failures of Bitcoin seem much bigger. I'm sorry - but this isn't just a matter of perception - this is just false. There were no systemic failures that happened on account of the failure of Mt Gox. People lost money. Trade moved onto the other exchanges. That was it. The fact that you can come to the conclusion that Bitcoin's failures seem bigger somehow proves everything that I've been saying about the absurdity of Bitcoin perception.
The finance system failing has nothing to do with failures of the monetary system, nor of retail banking. If I wanted to point to one of those, I'd say Cyprus.
Gox failed in a remarkably traditional way: a bank run. They didn't have enough reserves to cover their liabilities. It turns out that this was due to fraud and/or insolvency.
It's always possible to say "bitcoin cannot fail, it can only be failed", because the failures are those of its support institutions. However, the support institutions are critical to actually using it and it retaining its value. They're not part of the tech but they're part of the system.
I can't tell if you agree with me or not. We're talking about the institutional systems built on top of the monetary system and our respective trust in each. You seem to say the same at the end of your comment.
But I'm not claiming that the collapse of Bear Stearns was a failure of the traditional monetary system. The fact that the fed can print money at will is the reason why essentially they had it in their power to extend an emergency loan to Bear Stearns. That they chose instead to wipe out shareholders was an institutional failure. It was an institutional failure on a colossal scale - and yet clearly water off a duck's back.
Are you comparing people holding shares in a company to Mt Gox?
No-one (as I understand) whose money was been looked after by Bear Stearns lost any money. Of course shareholders did, shareholders gain and lose money every day, that's part of holding shares. However, my personal view (and perhaps you disagree) was to consider bitcoin more as "money" than "investment" (like shares).
Yeah - I'm making that comparison. Because firstly - Bitcoin is being treated as a commodity by governments around the world (particularly when it comes to taxation policy).
Secondly, we're talking about broad perceptions of trust in institutions and ecosystems - such that even when Bitcoin is compared to non-insured forms of investment (as opposed to FDIC insured forms of deposits), the bitcoin ecosystem still gets a relatively bad rap. The collapse of the commodities brokerage firm MF Global was to the tune of billions of dollars of client and creditor funds. Not insured. Tough luck. Yet no systemic black mark gets recorded.
Thirdly - even if we ARE going to compare the bitcoin ecosystem to currencies as opposed to commodities - we might want to acknowledge that Mt Gox was an exchange - not a bank. There are plenty of Forex brokers which do not have insured deposits for their clients (unless they are also banks themselves). And forex companies dropped like flies during the financial crisis, taking client funds with them. So why is Bitcoin perceived as inferior to normal currency on account of a loss of client funds at Mt Gox? For some reason everyone thinks it's logical to compare MT Gox with FDIC insured banks. Clearly a HIGHER standard is being expected for bitcoin here than for normal currency given the type of comparisons being made.
Fourth - some Bitcoin institutions DO have insurance on deposits. Coinbase, Circle and the like have limited private insurance. Elliptic offers insurance backed by a major private insurer. And while I accept that this insurance doesn't compare to FDIC insurance - note that there hasn't yet been a loss of depositor funds at any of these major VC backed start ups.
Yes - ultimately lack of FDIC insurance is a strong reason not to use Bitcoin. I'm not denying overall that there are good reasons to avoid bitcoin. My point is that the level of distrust and suspicion directed toward bitcoin is not commensurate given appropriate comparisons made with other sectors.
Quite a lot of the proposed advantages of bitcoin are things that non-US banks have provided for a while. US banking is a badly functioning market with regulators who aren't interested in modernising the retail experience.
Also, bitcoin has dropped (it looks like) about 4% day, so as long as my ATM fees are less than 4% of my account, I'm still in profit for the day compared to bitcoin.
>> I'm saying - no, there is something more going on here than just standard reputation assignment. Why? Well - as I said before - because for every negative headline that is supposed to prove Bitcoin's low reputation, we can produce a fact about the traditional system that completely trumps the negative bitcoin headline.
I don't think this is as powerful as you do. Particularly when coupled with the fact that Joe Average uses American Dollars every single day, and has done for his whole life. Trust is conditioned in, it's implicit at that point.
Why should he use a new thing? Especially with all the dodgy stuff he sees around it?
>>So the reputation assignments here are odd to say the least. They certainly aren't consistent.
I don't think humans are consistent or rational all that often, and I do think people are going to be very, very conservative when it comes to money. Don't underestimate the power of incumbency.
The perception of risk is very important. I understand BTC in a way that very few non-technical people can, though probably only around an average level for a techie, and I'm afraid I wouldn't trust it. The protocol, sure, the community and businesses that have arisen from it, my legal protections when using it etc etc? No way in hell.
The point about U.S. dollars being the default is fair - though I personally don't think it can be the whole explanation.
>> Why should he use a new thing?
But this is not actually the same question as the reputation assignment. It's quite possible that the consumer could decide that there was NO positive reason to use Bitcoin without having made the negative reputation assignments that have become common now. I'm not trying to make the case that there are sufficient positive reasons to use it - just that the reasons to not use it aren't rationally assigned.
>> just that the reasons to not use it aren't rationally assigned.
I agree that many of the reasons people stay away aren't rational. However I don't think all are irrational -
Someone might compromise my computer or my wallet provider and get all the money. This has happened repeatedly. There may be nothing I can do about that, technically or legally. While this is a bit like Madoff, I don't have to interact with Madoff to obtain or use dollars.
To obtain and use BTC I pretty much have to take the risk of dealing with the BTC community.
>> just that the reasons to not use it aren't rationally assigned.
What's irrational about not wanting to store your personal wealth in a currency where the value fluctuates constantly, many times by multiple percentages points in a single day?
If you don't keep a wallet with some BTC in it, then what good is it? If you're just using it as a means to transfer dollars around, you're definitely in a niche market -- and it could be argued that the rational one is the guy staying the hell away from BTC.
madoff's scheme worked precisely because people did do due dilligence.
they shouldn't. they should have just asked him how he got the returns, and rejected his offer when he didn't have a compelling answer.
EDIT: someone asked why the paragraphs aren't contradictory. The thing about due dilligence is that to me it sounds like looking into past investors and other things, doing reference checks. The thing about ponzi schemes is that until they crash, they produce lots of high-quality references. In the case of Madoff, people who have received reasonable returns from him for 20 years. He also managed charities' money, as well as contributed civicly.
None of these stuff matters, though, because despite the stellar references (which is what makes ponzi schemes work) there is no underlying way to actually generate returns.
Now explain how those paragraphs aren't contradictory.
Your second paragraph is certainly a reasonable step in a comprehensive appraisal.
edit: Due diligence means understanding the thing you are investing in. For something like investing millions of dollars with Madoff, that includes more than asking his other customers what their returns were.
Further I guess I didn't make things clear - Joe Average (hell, let's say it's me) sees investments, particularly rich-people investments, as a separate class of transaction from his day to day use of money. There is risk involved. You have to take care of what you're doing.
The idea that someone might just run off with his bank account, either through operator fraud or through hacking of a service or his own machine, and there not being much anyone can do about it, is pretty terrifying.
Any kind of new monetary device will attract good and bad people, bitcoin has had a number of very high profile versions of the latter but what seems to be the problem here is that instead of attributing that to the people it is wrongly attributed to bitcoin as an institution. At this point in time even though there isn't anything wrong in particular with bitcoin it is still safe to say the brand has been damaged.
The spirit of Bitcoin is to trust no one and nothing. If that can't be accomplished in practice due to things like interfacing with the real world, you might as well use Stellar and save yourself a lot of mining.
Yup, the spirit of Bitcoin, at least its original spirit, was total distrust, with no authorities needed or wanted, and it was designed specifically to fulfil this function.
The article talks about starting groups of trusted companies, setting up barriers to entry etc etc, in order to build trust. These are authorities.
Arguably Bitcoin is already dependent on trust - collusion between pool operators is entirely possible, they and the developers have already shown that they are an authority (when the various forks and merges have happened).
A crypto-currency with an authority can be done in such a way that mining is unnecessary.
Collusion isn't just possible. It's already been going on for at least two years now. As was said by one pool operator (paraphrasing), "the only people mining are 12 pools".
Bitcoin isn't about distrust. It's about decentralized trust as that is the primary function of the blockchain. Bitcoin as an ecosystem hasn't been about distrust, but decentralized trust, and it has long been moving away from decentralization, which is fundamentally problematic.
In microcosm it demonstrates something I've often thought about libertarian proposals for government-less societies - in fairly short order a class of barons will appear and we're back to feudalism of a sort.
The problem with the Bitcoin "ecosystem" is simply that the people in that ecosystem are the same people who have been attracted to Bitcoin: speculators, opportunists, and wide-eyed idiots.
The biggest problem of Bitcoin is that the problem it solves is not the problem fiat currencies need solving. Bitcoin has no real competitive advantage over traditional currencies, and many drawbacks.
I would disagree that it has no competitive advantages. For people in Venezuela and other places where the state has failed to control inflation, Bitcoin allows people to escape capital controls(Think China). Of course there are still many drawbacks, but there are competitive advantages over 'some' currencies.
I think he makes a valid point on the article, however, I do think all this bad stuff that has happened to it was going to happen anyway, its impossible to stop it from happening, the traditional system does not stop it neither, this is part of human nature where there are large sums of money there will be other people trying to hack into it to benefit themselves and its peers. But the joy of the bitcoin ecosystem, and one that he fails to point out on the article, is that it rewards and encourages players to follow the rules, because in terms of cost of running enough computing power that hacks into the block-chain and a system that mines bitcoins to get the rewards associated with it, the latter is way more viable. I think that the Bitcoin Bloc-Chain is going well, with needs for some updates in the system, as any other software does, but going well so far. What really needs to be done, and the writer recognizes that in the article, is all the businesses built around it must follow best-practices, following the example of established organizations, to increase the overall trust in the ecosystem and people start to accept it more into their daily lives, this is obviously easier said than done, but I think that any serious individual who are starting a Bitcoin related company must have building trust relationship with the rest of the world at its top priority, and to do that he must follow practices that other people know and trust.
There are companies such as https://transferwise.com/ that provide cheap money sending with no Bitcoin involved. Quick, simple and easy to understand.
Bitcoin has many strengths, but remittance isn't one of them.