Funny how apparently the biggest Bitcoin company is a bank for centralized storage and management of Bitcoins, which was the exact opposite goal (according to the idealists) of bitcoins. Next up they'll probably offer interest and loans/mortgages.
Coinbase is just another company in the Bitcoin ecosystem, them being successful does not mean Bitcoin cannot have other faces or uses. Nobody condemns email for being too centralized because Gmail is popular, people who care for decentralization can and do set up their own email server.
I actually think that this comment highlights that centralization can come in quite sneakily.
Email's a great example. You could set up your own email server, but doing so in such a way that you don't harm your ability to get emails into people's inboxes is problematic in all sorts of ways: you've got a good chance of being classified as spam. So even though the system is decentralized, the fact that most users are centralized within a few big players means that those parties can unilaterally impose rules that cut off users who don't participate in the centralized ecosystem.
In short: if Coinbase becomes sufficiently large, they could have the de facto power to disadvantage people who choose to use bitcoin outside of major centralized services.
This isn't to say that a system can't tend more or less to centralization: sure, it can, and Bitcoin could have a strong tendency to make unilaterally enforced centralization hard. But even good technical solutions are vulnerable to social forces, and social forces can be very powerful.
Email is decentralized, that means I can quit Gmail any time I want and use another service. Or even start my own.
Git is decentralized, that means I can quit Github any time I want and use another service to host my repositories.
Bitcoin is the same: I'm not locked into Coinbase, I can switch them for another service, personal wallet on a phone, a hardware wallet, or a combination of them. Move my coins to a company in another jurisdiction etc.
Just the very fact of how easy it is to switch, creates a pressure on your provider and makes them work harder.
US banking is not decentralized. I cannot simply take dollars out to some other service or wallet. Moving them takes a lot of time, there is no privacy, there is suspicious reports and interrogation everywhere, civil forfeiture laws and for another jurisdiction, I have to sell dollars for another currency which incurs fees, risks etc.
In short: Bitcoin is like Git, fiat money and banking is like CVS.
I'm not disputing that you can do those things. But I'm saying that when a particular provider is sufficiently powerful, they have the capability to make those options less appealing, either malevolently or inadvertently.
You could move your open source project away from GitHub, but if GitHub is sufficiently popular that most people don't understand how the patch system works in git, and hence don't know how to contribute without using the affordances that GitHub offers, then you will incur a cost by doing so.
The point I'm making is that if the majority of people using a decentralized system via a centralized wrapper, and if interaction with those people is a priority, then it is possible for the provider of that centralized wrapper to make it harder for you to interact with their customers without yourself using the centralized wrapper. The more they do so, the less value there is to you (the decentralized user) in the millions/billions of people using decentralized service X through centralized wrapper Y, because they're effectively unreachable unless you also use said centralized wrapper.
This can happen by continuing to use the decentralized infrastructure, but penalizing participants who aren't accessing the infrastructure through a popular system. Alternatively, it can happen by having the decentralized infrastructure co-opted, so even though the service to some extent interacts with it, most user interaction actually exists entirely within the centralized system.
I mean, it doesn't seem crazy for me to imagine a world in which (eg) as a Coinbase user there's some monetary advantage to receiving payments from Coinbase members vs the wider Bitcoin world. At which point maybe merchants want you to pay via "Coinbase Send" (or w/e this hypothetical service is called) rather than pure Bitcoin transactions. At which point, sure, Bitcoin is the underlying unit of value, but no-one is actually using Bitcoin transactions (Coinbase is just moving around their internal accounting DB records), and hence the fact that things are counted in Bitcoin is basically a historical artifact.
I have no idea what will happen. My argument is just that I don't think that it is impossible for decentralized systems to be functionally neutered when people mostly interact with them through centralized wrappers.
I'm a little concerned that over time, it is going to become more difficult and less private to move money out of Coinbase. Even now they ask you "where do you send your money? is it another website?" when you try to withdraw. This is unacceptable.
I'm talking about a whole community, not individuals. If some individuals are burned using centralized service, all others can learn from it and move elsewhere or choose more wisely. Not so with banking system which burns everyone and no one can opt out or compete with it.
Could you move more than the FDIC insured amount from Goldman Sachs? Or Lloyds in the UK?
Luckily, with Bitcoin, it's trade what you can lose. Keep the rest by yourself. Yes, there were some losses, but it's a trading platform. Somewhat expected.
If you don't believe me research what happened with the Swiss Franc recently. It has closed a lot of FX trading platforms from sheer losses [1].
This isn't limited to bitcoin — that's a naive and ignorant point of view.
One day blockchain.info stopped working for me (I think they mistakenly banned lots of IPs). And yes, I simply withdrew my money out of it. I just loaded my private key in a mobile wallet and swept the coins.
Apparently Coinbase now offers a multi-signature feature, so people could do the same.
I think you're overstating how much private mail servers are penalized. I've run several on colocated machines, and delivering emails to the major providers has never been a problem. You have to make sure that your colo gives you IP addresses that aren't on any blacklists, but other than that it's fine.
Well said, though, I think there is reason to be concerned about the continued centralization of bitcoin payment processors. In a world where bitpay and coinbase are processing the vast majority of bitcoin payments, it's easy to imagine how a coordinated denial of service attack could temporarily cripple the bitcoin economy from the consumer's perspective.
The big difference is that you don't need to be certified and so it doesn't exclude anyone from getting into this game. Compare that with banking which is basically impossible to even get started with properly.
The interesting thing here is that it's build on an open protocol rather than on legislation and so this I believe will at least give the opportunity to create all sorts of interesting solutions that are currently impossible to do within the current banking system because technology moves faster than legislation.
So even if we are talking centralization or clustering as I like to call it, we are not talking exclusion.
Sure, the barrier to entry is lower, but that may not always be the case, especially once the big players start to push towards regulating competition out of the market.
Even existing regulations are already a show-stopper for any company without the considerable capital necessary to tackle the morass of money transmission laws and licencing concerns that vary from state to state. There is also a big first mover advantage in payment processing because there isn't very much room to innovate beyond lower fees (hard to beat bitpay's 0%) and a reputable brand.
I think there is a real risk that we'll see bitcoin processing completely swallowed up by these big players.
Yes, you can setup wherever you want, but if you want to process payments for U.S. businesses then you need to act in accordance with U.S. money transmission laws, otherwise, nobody will do business with you. Currently, bitcoin payment processors do not fall under the purview of MSB or MTB classification, but that could easily change, especially because cryptocurrencies are still a relatively new concept.
Right, but if US (et al.) merchants are not using your service because using your service means they're not in compliance, you won't be much of a competitor in that field.
The point was that Bitcoin already is regulated pretty much everywhere. If you have pockets deep enough to exploit any of the remaining loopholes it'd likely be cheaper to just get a regular license.
Sure, but then again, it's hard to picture the "consumerization" of bitcoin happening without services like BitPay or Coinbase in the first place. Plus, if there's a future where bitcoin actually has a respectable market share in consumer payments, surely there would be more competing companies in the space trying to get a slice of the pie.
Really? I always assumed that bitcoin would follow pretty much the same path as currency on its way to mainstream adoption (mainstream adoption being more or less a prerequisite of any currency). Banks, loans and mortgages don't exist because of some massive conspiracy, they exist because they are necessary. And they are just as necessary in bitcoins as in any other form of exchange.
yeah i mean the point of Bitcoin is that it's decentralized…on a technical level that's not going to change. also another huge point is that it's natively digital which enables tons of shit. whatever, coinbase is awesome
In what way are Bitcoins "natively digital" that dollars aren't? The vast majority of USD exists only in digital form that is convertible upon request to paper and metal trinkets.
The reason some banks take so long to do transfers is not because USD is somehow analog, it's for institutional reasons that are entirely rectifiable - which is why it's not true of all banks or often, true outside the US.
That's the exact opposite goal of, I would guess, an extremely small number of people, and even a small number of people who would be described as big fans of Bitcoin. I don't even think it's worth mentioning. I'm extremely optimistic about Bitcoin, and I see no reason why offering traditional financial services (including exchange with government currencies) on top of Bitcoin is undesirable.
Different definition of centralization. Coinbase may hold and control a lot of bitcoins, but they don't control the network and can't make fiat declarations if they want to ban/block someone from using bitcoin.
Unless they become a large enough payment provider.
If a sufficient number of businesses integrate coinbase into their sales, it's not just a matter of the paying customer going elsewhere to process the payment: the entity selling the goods also has to move away from coinbase.
Sure, you can still send coins over the network - but given a large enough foothold that doesn't mean you'll be able to pay for the goods you want, at the merchant you want.
It's not scary, and by looking at your comment history it's pretty obvious you have an agenda against Bitcoin, and you are trying to promote your PoS (a flawed concept) altcoins, probably just because you can't stand that someone else invested in Bitcoin before you. Apparently 1,000% gains per year is not enough for some people.
Interesting let stick with the 5 pool controlling the network part, and cut the crap with my comment history it is irrelevant. Start by addressing why is not scary. Just saying it is not scary it is a pretty stupid explanation...
Wasn't Bitcoin always meant to be cash for computers? Bulk of cash belongs in the banks.
Mere possibility of running a node on your own and sending money directly alters the dynamic. You can use a third party service if you like. You have to use a third party to transfer dollars over the Internet.
"Wasn't Bitcoin always meant to be cash for computers?
Bulk of cash belongs in the banks."
I'd say most money lives in banks. Most cash is out in the world.
A downside of having someone else hold onto your BTC on a website is that you can't spend it in the ways that are supposed to make BTC powerful.
On the other hand, you do still reap the benefits of the rock-solid wealth-storage device that is BTC. And where could be a safer place for your BTC than a website on the Internet? Those things never get hacked.
No, it's like saying that it's bad or strange that for example godaddy.com is a large DNS provider. They are just a popular provider of a decentralized service
I believe cash is also decentralized until you have to much to store and it becomes complicated and risky to keep it under your bed.
Keeping your bitcoins inside your computer comes to a cost of security and maintenance with the risk of losing them or getting robbed... Giving them to a bank you trust is the solution if you can't do that on your own.
Well, people are familiar with banks, and they know how to use them. I think that's the only way to get widespread adoption at this stage. Sure, everybody on this site would prefer to see a more decentralized solution, but to get the attention of more people that's the only way. Copy the big guys.
Well, what do you mean by "Bitcoin company"? Are there no retailers larger than Coinbase now accepting Bitcoin? Such companies may not base their entire business around it, but the goal of Bitcoin is meant to be a widely-used medium of exchange. It's not necessarily bring about large companies on its own. And what would a "US Dollar company" be, if not a bank, anyway?
Haha yeah it is ironic. For people who want a bit of nuance (it's certainly true what he said, just not the whole truth) here's some additional thoughts.
One is that the paradox of bitcoin adoption is that it can't take off without a normal banking system. And if you had a decent banking system, you wouldn't need bitcoin in the first place.
That is, fraud is a big issue in online retail. You buy product X online and then you 'charge back' your transaction and end up with a free product. Merchants then have to solve this by starting legal cases and provide evidence that a product was supplied blablabla. Sometimes this costs more than it's worth. Bitcoin faces a lot of these problems, too. How do you acquire bitcoin? You can't through Paypal because of this fraud, everyone charges it back and Paypal mostly ignores evidence that bitcoin was indeed supplied. As a seller you can't really make a case and win.
So you end up with these big companies that act a bit like banks. They require you to verify your identity, your residence, bank account etc. All to prevent fraud. And of course all of that has costs, so they charge you 1%. And then you pay them not through a credit card, that's 2.5% in fees which doesn't work if you pay $100 to get $100 of bitcoin. So you pay through ACH, which takes a few days but is cheap.
So you end up with a service that sells you bitcoin for 1% that takes a few days. Why? Because there's no way to safely send money cheaply and instantly without fraud, which is what bitcoin allows you to do and solves.
So the paradox is, if everyone had bitcoin, it wouldn't be a problem. But they don't, so we need banks. But if banks worked well, we wouldn't need bitcoin.
Over time this becomes less of an issue of course. This is what made Coinbase big, not its storage, but its exchange function for US customers. As a wallet, it's not the biggest, Blockchain.info which does not see your private keys (it's a software layer) has almost a million more wallets. So it's big for its exchange function which has little to do with centralized or decentralized storage of money.
The second part is centralized storage. This is a function of culture and software sophistication. In the early days most bitcoin software wasn't user friendly and not very well written. Today we're seeing changes. In fact, Coinbase has a multi-sig product, which is a software solution allowing you full autonomy over your money, and Coinbase none. That's not centralized storage, users retain full control over their private keys and Coinbase offers the software to facilitate it, much like how an Excel sheet facilitates your personal data analysis but doesn't award Microsoft ownership of your data. Over time we'll see products like this emerge more and more and people will have a choice to move away from centralized storage, and culture may shift towards that, too.
In short though, bitcoin wasn't about 'never use a centralized company'. It's about a protocol layer that's not proprietary, with a currency that can't be forged or printed to fuel political agendas (like militaristic foreign policy). The fact that centralized and decentralized solutions become available on top of that layer is both fine. Much like how a decentralized internet would be awesome despite the fact it would still see centralized repositories of data like Facebook, it's not about which services become most popular as long as the underlying network remains free and open.
This is one of the reasons I co-founded https://www.incoin.io, so you can choose to get paid partly in bitcoin (or not, if you don't want to) without a 1% fee.
Your identity is already verified for tax purposes. It's a straight up facilitator.
As a shameless plug, the other reason is savings. We've implemented splitting your paycheck up into multiple accounts to incentivise savings, and it's working really well.
You are ignoring the cost of the bitcoin network. Someone has to pay for all of those hashes. Currently it is being paid for by block rewards mainly to the miners, and the transaction fees are very low. Taking into account the bitcoins created to pay the miners, the cost per transaction is much higher with bitcoin than with traditional banking.
Nah, they're not linked. That is, if the entire planet had 0 transactions for the next 24 hours, you'd still award bitcoin miners the same block rewards every 10 minutes for the next 24 hours. In other words, block rewards are not a per-transaction cost, they're a systemic cost.
And that cost is dropping. Money supply is just inherent to bitcoin's design to kick it off, but it's dropping to near zero within a few decades, unlike systemic costs of printing fiat which remain endlessly.
The long-term reward are transaction fees, and those are certainly quite cheap. You can move millions of dollars with pennies of fees, or you can make one transaction with thousands of outputs, also for mere pennies. Those fees can stay low as when you get 1.000x more transactions, you can pay for the same security with extremely small fees per transaction. (i.e. securing the system is expensive, again it's a systemic cost, but securing each individual transaction isn't, that's just a cheap process of verifying a signature and storing 1/10th the amount of data of a tweet. So if you get enough transactions going, securing the system can be funded by very many very cheap transaction fees. And if you don't get many transactions going, then bitcoin isn't popular and well used anyway and who cares then if it doesn't work? It's like saying Myspace has technical flaws, nobody cares if it already failed to become popular that it would also have failed for technical reasons.
Bitcoin is imo unlikely to ever let you buy a cup of coffee using a single blockchain transaction (I mean, you can now, I'm talking sustaining this over the long term). Instead, it'll be used as the value network on which financial systems are built that will allow you to do this. Whether that's sidechains or offchains, they'll all use bitcoin's blockchain as a settling mechanism, without forcing low-value transactions on a permanent global ledger.
And you are ignoring a much bigger issue. For instance, the Fed has expanded the USD monetary base by about 4 trillion in the past six years. So why not take that figure, divide it by the total number of transactions in the past six years and call it "the dollar's cost per transaction"?
Every inflationary currency system suffers from the same problem. At least bitcoin has a hard cap on the total number of units that will ever be available.
There's not a ton of research but it's not really a difficult topic to get some superficial answers on cause it's all on the blockchain which is public of course.
For one we have the transaction numbers (again just count transactions on the blockchain) for the past 24 hours. It's been averaging about 100k the past few weeks. (averaging about 70k for 2014 for context).
We also know that every 10 minutes a block is mined and 25 bitcoins are rewarded with a value of $200 per coin. So in 24 hours that's $720k.
In short this puts the average supply of bitcoin at $7 per transaction.
In short, you can't call it a 'cost per transaction' because it's not a marginal cost. i.e. if zero transactions were made, there'd still be a supply of 25 bitcoins every 10 minutes up to $700k per day. Same with if 1 trillion transactions were made. In other words, this is simply a supply function, not a per-transaction cost function.
To put this into perspective, here's an example. e.g. if you build a bridge for $1m and you have 1 million users, the average cost per user is $1. But if only 1 person uses the bridge, it's not like the cost of a bridge is $1 million per user. That would be ridiculous. If we went about reasoning like that nobody would build a bridge at that cost, especially not in places where you get many users because you'd get insanely expensive bridges (1 million users costs 1 million * 1 million!)
Now it's true that someone has to pay for all this hashing which secures the blockchain. But that cost is not to secure each individual transaction. It's a cost to secure the system, a systemic cost. A bit like the cost to build a bridge, a global cost, not a marginal one (i.e. it doesn't cost extra to let 10 persons instead of 1 person to walk over the bridge)
The bridge is a poor example because you can't get unlimited people on the bridge. (there is some marginal cost, i.e. there is a cost difference to building a bridge to move 100 people per hour versus 100 thousand people per hour). In bitcoin this difference is trivial. It's like asking what the cost of a tweet is on twitter's bandwidth or storage, it's very tiny like a tiny fraction of a penny. This cost is paid for in transaction fees.
So to return to the systemic cost, you need to come up with enough money to incentivize miners to act honestly. And we can do that by rewarding them with bitcoin. Today that comes from block rewards, but it doesn't have to be like that. In 10 years, if bitcoin is popular, we can see millions of transactions per block, and if each transaction costs a penny then you can easily cover today's block rewards.
For some example numbers: current security costs about $5k per block, and we've just heard bitcoin's Chief Scientist report on tests that he did with large blocks. His tests showed he can power 200 megabyte blocks on his 2012 home PC. That's enough data for more than 400k transactions, meaning that with 0 block rewards you could get transactions as cheap as 1.2 cents, nothing close to the $7 figure I stated before.
And this ability grows at Moore's, Kryder's and Nielsen's law (cpu, storage, bandwidth) meaning that the ability to power larger blocks grows by 80x every decade or so. If you then fill those larger blocks with 80x transactions, then each transaction can get 80x cheaper. Within a decade we could get to fractions of a penny per transaction.
Then combine that with the fact that 1 transaction can carry a ton of data. i.e. you can send bitcoin to thousands of people with 1 transaction if you wanted. Or you could use bitcoin as a settling system for offchain or sidechain systems, meaning you can settle thousands of trades with only a few transactions making the cost of transactions even cheaper.
In short bitcoin really is very cheap and its cost will not be its downfall. It might fail for other reasons, but I don't perceive costs to be one of its obstacles, rather it's one of its competitive advantages.
Coinbase is about buying bitcoins and taking them as payment. Its primary purpose is not to hold other people's bitcoins. It is an exchange and payment processor. So it's funny that your description is the exact opposite of what Coinbase actually does.
Coinbase is as much about Bitcoin storage as it those other things, lets not pretend otherwise. They didn't just roll out the offline vault with double email confirmations and a two day delay because storage isn't their thing. They are not an exchange, you don't trade on Coinbase. They're a broker, you get coins from them with a markup and delay.
The broker exchange distinction is fair, but everyone who has bitcoins needs to heighten their security to keep them. That doesn't mean that is a service that coinbase is intent on offering though. People may choose to do that, which seems risky to me, but that is a means to an end.
They aren't a storage company, they are a company who facilitates transactions and like any other bitcoin business needs to securely store their btc.
The original comment was about them being similar to a bank which just isn't true at this point, it isn't what their business is about.
> They aren't a storage company, they are a company who facilitates transactions and like any other bitcoin business needs to securely store their btc.
> The original comment was about them being similar to a bank which just isn't true at this point, it isn't what their business is about.
I don't get how you see a bank? As a storage company or money that just sits there doing nothing? Or as a company that facilitates transactions not unlike Coinbase?
They're very much like a bank in that regard. And yes they do also put a big focus on storage, it's not their only thing but they have one of the most popular wallets (2 million), claim to hold the most amount of bitcoin for users, more than any other company in the world, have a multi-sig product, have a vault product, have an insurance on their wallets, have mobile wallets, an SMS wallet, a web wallet.
This idea they're not about storing bitcoin (as well as other things) is ridiculous.
Are they a bank? In some ways, sure. Is that bad? No. A bank just offers financial services, and that's awesome.
And if you offer those financial services in a currency that can't be forged by criminals or printed and debased to fund an illegitimate military adventure, on a network that can't be blocked, is open to all, transparent and requires no permission, and offer products like a multi-sig wallet that put 100% of control with the user and 0% control with Coinbase as a choice to the user, that's awesome.
That may be a bank in that they offer financial services, but it's a lot better to me.
> They aren't a storage company, they are a company who facilitates transactions and like any other bitcoin business needs to securely store their btc.
That's quite simply wrong; they are the most popular online wallet there is. You simply cannot make this claim, it's patently untrue.
> Its primary purpose is not to hold other people's bitcoins
Wrong. There's a reason they call one of their services a "wallet" - because they hold other people's bitcoins. And guess what, they now have a USD wallet too, for storing other people's USD (http://avc.com/2015/01/feature-friday-us-dollar-wallet/)
And as gnaritas said, they are not an exchange, they have a broker service.
Those things are a means to an end, the company doesn't exist to hold people's money. Banks do, since they loan out money at a fractional reserve. Coinbase makes money by btc going through them. Of course they have to hold bitcoin and of course it is more advantageous to hold some USD so people can trade instantly.
The original post was about them being like a bank, which is not true in the context of their business model.
> Those things are a means to an end, the company doesn't exist to hold people's money
Yet. Like the OP said, "Next up they'll probably offer interest and loans/mortgages". Who knows what else they'll divert their attentions to (hint: it's probably where the money is).
Coinbase seems to be going for the Payment Processor route, now with the USD wallet who knows if they'll offer you a CC just like Xapo. Guess who else offers you CCs?
Wallet isn't something Coinbase came up with, it's a Bitcoin term. A wallet, or more specifically a wallet address, is an account number that's used to send and receive Bitcoins.
Even if you just rebuilt banks as they exist today on top of Bitcoin, you'd still get some pretty huge advantages, potentially massively increased security, speed, reduced costs, among others. Another big one is that these banks can service the entire global market, massively increasing competition among and hence quality of banking services.
Banks become forced to compete with an (almost) free and instantaneous method of transferring value (sending bitcoin peer-to-peer without the use of a third party).
It currently costs $40+ for a comparable fiat service (wire transfers).
True, but there's a decent case to be made that (1) transaction fees will have to increase (in general) as the block reward decreases, and (2) transaction fees will have to increase (for these centralized services) if they want to eat the cost of fraud [1].
Without the use of a third party? Bitcoin transactions need to be confirmed in the blockchain which requires third-party miners to exist. Mining costs are relatively high considering the value provided. The blockchain is not at all (and was never intended to be) an efficient way to transfer digital funds. It was created to be decentralized and it serves that purpose, but using it to back a centralized system would be self-defeating, hence this comment thread.
Transferring value in the form of maintaining electronic accounts isn't comparable to wire transfers of fiat where the funds are made available in local currency. Banks don't just track numbers in accounts: providing liquidity and ensuring those numbers actually mean something is not trivial. If bitcoins were globally accepted it would be a more competitive service, but even then there would be the issues of fraud protection and compliance with money laundering legislation that bitcoin doesn't handle well.
"Rest of the world" is a bit of an overstatement, and even then it's only within certain zones. Inter-zone transfer on the global level is still slow and costly, where ever you are.
Speed is not a function of capacity in this particular context. A car with 1 seat driving 500 m/h is faster, don't you think, than a car with 4 seats that drives 50 m/h.
I mean we can argue semantics, but if you want to send $100 from the US to the Philippines, bitcoin is generally a lot faster than your bank, even when you have to buy bitcoin and sell it in the Philippines because of international transactions taking much longer than local ones.
To make a long story short, thousands of transactions per second (Visa averages about 2k) is certainly possible. I'd be more worried about bitcoin adoption (from an interest/tech/growth point of view) as a limit than technical scalability issues as a limit, especially with things like sidechains. (Look at Blockstream's Sidechains for example as a solution, just got a $21m investment.)
It's generally held that it can scale, whether it can grow and become popular and well used remains to be seen (I think it's likely but it's far from certain).
Banks don't transfer money to each other through Visa, they use SWIFT. Transactions usually take 4 business days.
The block size limit is in the process of being changed, but there isn't a rush since blocks are not being filled. If they do get filled, transaction costs will go up and tiny (0.01 USD) micro-transactions won't be viable until the block limit is increased. So the only thing that might happen is transactions of a few cents are temporarily not viable (the transaction cost is larger than the amount sent).
If your wires take you 4 days you need to switch banks. I make regular international transfers and unless I miss business hours they are always in the receiving account the next morning.
