• Flattr FoI: 
Falkvinge &Co. on Infopolicy
BEFORE-FALKVINGE-IF-ANY FALKVINGE &CO. ON
INFOPOLICY
Falkvinge on Infopolicy - Home
»
BitcoinTransactions

Bitcoin’s Four Hurdles: Part Two – Transactions

44

Swarm Economy

Swarm Economy

This is part two in my series about Bitcoin’s Four Hurdles. I have previously addressed usability. Today, I will take a look at transactions. More specifically, transaction volume and the lack of it.

People are discussing whether Bitcoin is a transaction system, a cash equivalent, a store of value, or something else. I believe most people are using it as a store of value right now — an instrument of speculation in anticipation that its full potential will materialize. I have not seen a system with such a potential in a very, very long time. But it still has some way to go to get there.

BITCOIN’S FOUR HURDLES
This is an article in a series on what Falkvinge identifies as Bitcoin’s four hurdles, which will be followed by a series on Bitcoin’s four drivers. This is the second article on transactions. The others are usabilityescrow, and exchanges.

The reason people are not using it as something else than a store of value, I argue, is its lack of usability. There is a strong economic pressure to get the intra-bitcoin transaction volume going. And this, in itself, is the second hurdle that Bitcoin must clear.

Some people have argued that people won’t pay in Bitcoin for as long as it is deflating at this rate. That argument makes no economic sense at all. If I were able to use my disposable income (read “geek toy budget”) using Bitcoin, I would do so immediately. When my paycheck arrived on the last of every month, I would convert my disposable part to Bitcoin, and use it to buy stuff over the course of the month. When I pay for something in the middle of the month, that means I have got two weeks of Bitcoin appreciation-deflation in my back when buying the geek toys. That means more toys for me! Immediate win. The merchant gets the same deflation benefits until change-in and some other, more important benefits, which I’ll be returning to.

Despite the strong business case, this is impossibly hard to pull off today. Therefore, I’ll be ending with some technical proposals.

Somewhat sarcastically, I made this slide as part of a presentation when I wrote this series:

The point is quite clear. There is no Bitcoin economy. It is just used as an instrument of investment, and that is not a sustainable situation.

Then, yesterday, something interesting happened, and I needed to rewrite parts of this article. This image was taken yesterday in Sunnyvale, Silicon Valley, California:

It is quite interesting that the pace of events is so high, that things happen before I get a chance to describe why they will. This development is predicted in the blog post that is scheduled for June 16, which is part three of Bitcoin’s four drivers, but it has already happened. Memory Dealers really nail it:

It’s like cash — it’s free to use and nobody will charge any transaction fees.

Here’s the business case for merchants. Right here. The credit card companies skim about 5% off of every purchase. As do banks handling cash. Every purchase. That’s money that would double the profit margin in a typical business if you could get rid of it. That’s a compelling reason to switch to another payment transaction system, even if you’re basing everything in your business on your local legal tender.

So let’s consider how we can build our bridges from here into the future. As all prices are listed in the legal tender currency, let’s assume that won’t change for the time being. Let’s instead identify the front bowling pin for transaction volume as using Bitcoin as a payment system for the legal tender currency; a payment system with some strong economic side benefits for both buyer and seller, as described. This will be a future driver towards moving more of the financial ecosystem to Bitcoin later on.

I need to be able to pay for a €10 T-shirt with “bitcoin equivalent” just like I can pay for it with “plastic equivalent”.

So what’s lacking here, the way I see it, are some very very simple server-side and client-side components. I need to be able to pay for my new toy with one single click, and the merchant needs to be able to quickly generate a Bitcoin amount server-side (based on the current exchange rate) to pay the item normally listed in the local legal tender, just like the merchant presents a pay-with-Visa form today.

And it needs to be simple and easy.

Technical proposal outline — server side

Assuming a .Net site, this is the amount of code and the level of abstraction that is needed for the transaction volume to take off:

using Bitcoin;
void Application_Start(...)
{
  ...
  Bitcoin.Connect();
  Bitcoin.TransactionReceived +=
    new BitcoinEventHandler (BitcoinReceived);
  ...
}
private string BitcoinPaymentLiteral(ShoppingCart cart)
{
  // This literal is added to the "Pay Now" page
  // in the shopping cart view.

  // Generate address and tie it to this cart
  BitcoinAddress newAddress =
    Bitcoin.CreateAddress (cart.Amount, "EUR", cart);

  // Create the literal

  string literal = String.Format (
    "Click <a href=\"{0}\">here</a> to pay €{1:N2} " +
    "using ฿{2:N2}",
    newAddress.PaymentUrl,
    cart.Amount,
    newAddress.ExpectedAmountBtc);

  return literal;
}
void BitcoinReceived (object sender,
    BitcoinEventArgs eventArgs)
{
  // This event is fired when we receive funds in BTC.
  // It is bound in Application_Start.

  BitcoinAddress address = eventArgs.Address;
  ShoppingCart cart = (ShoppingCart) address.Cookie;
  cart.ProcessReceivedPayment();
}
void Application_End(...)
{
  ...
  Bitcoin.Disconnect();
  Bitcoin.TransactionReceived -= BitcoinReceived;
  ...
}

That’s it for the server side. But noticing that BitcoinAddress.PaymentUrl method, we need something client-side as well. So…

Technical proposal outline — client side

This is a simple proposal that can be implemented in anything from a bitcoin client to a Firefox/Chrome plugin:

When somebody clicks on a link in the bitcoin:amount/address format, use the domain of the page clicked and fetch the square-aspect image at /bitcoinlogo.png, and use it to ask for a confirmation in a dialog: “[image] this shop requests that you pay {amount}. Yes or No?”. If yes, transfer the funds to address.

The address is straightforward. The amount should be human readable, and therefore I suggest the following format for amount:

{amount}[k|m|u]

In a short while, we might see things priced at 0.00141 bitcoin. But typing it in like that by hand — which is certainly going to happen on many webpages in a payment link (think “donate here”) — is a major source of error in getting the decimals wrong, even on proofreading. Therefore, I suggest having prefixes in from the start.

The amount 0.00141 could have been better written as 1.41m (1.41 millibitcoin), or 1410u for those who prefer (1,410 microbitcoin). It makes it much more readable. Readability is strongly preferable. (The k prefix works similarly for kilo and will probably only be used to buy mansions and luxury sports cars. I do not foresee a need for a mega prefix.)

(UPDATE: I actually got the decimals wrong when I first published this, which sort of goes to prove my point…)

You've read the whole article. Why not subscribe to the RSS flow using your favorite reader, or even have articles delivered by mail?

About The Author: Rick Falkvinge

Rick is the founder of the first Pirate Party and is a political evangelist, traveling around Europe and the world to talk and write about ideas of a sensible information policy. He has a tech entrepreneur background and loves whisky.

Liked This?

TRANSLATIONS AVAILABLE
This article is also available in other languages: Spanish, Hungarian.

By participating in the discussion and posting here, you are placing your contribution in the public domain (CC0). If you are quoting somebody else, credit them.

Contributors take own responsibility for their comments.

44

  1. 4

    Falkvinge on Infopolicy: Bitcoin’s Four Hurdles: Part Two – Transactions:
    This is part two in my series a… http://tinyurl.com/3gb2fvx

  2. 5

    http://bit.ly/m0IjNg Bitcoin’s Four Hurdles: Part Two – Transactions: This is part two in my ser… http://bit.ly/mQCqpm #Alliance-Title

  3. 6

    Falkvinge.net – Bitcoin’s Four Hurdles: Part Two – Transactions http://dlvr.it/VFcwZ

  4. 7

    For a futureproof and standardized URI I would suggest
    bitcoin://recipient:[email protected]/sendmoney/0.0015
    This way there is room for new functionality in the future, and it looks like the links we are used to.

    • 7.1
      Rick Falkvinge

      There are many URN schemes that look differently — you are suggesting a mimicking of specifically the http URN.

      But compare others:

      mailto:[email protected]
      callto:+46708303600

      • 7.1.1

        We live in a world where http is king :)

        There’s plenty of URN (sorry I wrote URI, I never learn which is which) schemes, yes, but it makes little sense if we were to add SMS functionality to callto:

        mailto: is like http:// except for the slashes and that it takes all and any parameters as optional (which might be a better setup for bitcoin than my suggestion).

        My point is that it should be as familiar as possible for broad adaption, and flexible enough to be able to request money, send a bill, accept recurring transactions, and more.

        Overall I think you make good points. I look forward to the coming articles!

    • 7.2

      The double slashes are to tell that a file is located on a remote computer. When not specifying a file they make no sense. Bitcoin addresses don’t specify where something is.

      Local file, option 1:
      /etc/passwd
      file:/etc/passwd

      Remote file:
      //example.com/etc/passwd
      ftp://example.com/etc/passwd
      http://example.com/etc/passwd
      https://example.com/etc/passwd

      Local file, option 2, with empty host name:
      ///etc/passwd
      file:///etc/passwd

      It’s good to have something like the “mailto:” URI scheme because it’s simple, and it supports adding a subject line that users will like to log in their accounting. (One click transactions are not one click if you need to type a description for the transaction manually.)

  5. 8

    Bitcoin’s Four Hurdles: Part Two – Transactions – http://bit.ly/lIDqur "a compelling reason to switch to another payment transaction system"

  6. 9
    unemployed

    Can anyone spare some change?
    17qZGGy4Aap9uoP8KV772z29ZU6U9DYz4i

  7. 10

    #Bitcoin’s Four Hurdles: Part Two Transactions – http://bit.ly/lIDqur "a compelling reason to switch to another payment transaction system"

  8. 11

    Someone is already working on a solution for that and the code is already there:
    https://github.com/payload/btcbtn#readme

    Nice to see Bitcoin develop so fast. I just hope it won’t become/stay just an short-term investment plan.

  9. 12

    #Bitcoin’s Four Hurdles: Part One » http://ur1.ca/4cu2d & Two http://ur1.ca/4cu2c v @glynmoody & @hook

  10. 14

    http://bit.ly/k46v1K Bitcoin’s Four Hurdles: Part Two – Transactions: This is part two in my series about Bitcoi… http://bit.ly/mQCqpm

  11. 15

    Bitcoin’s Four Hurdles: Part Two — Transactions: http://bit.ly/lIWH9v

  12. 16
    Christian "bluecmd" Svensson

    There is a pull request queued for URI-support, https://github.com/bitcoin/bitcoin/pull/182

  13. 18
    Lennart Lindgård

    Actually, there is even a Swedish site that accepts Bitcoins as payment. As the currency of the future, it is rather appropriate that a site that is selling HOME ROBOTICS is the first Swedish site (that I know) to accept such an innovative currency: Check out http://www.roboshop.se!

  14. 19
    aura

    Nah. The first Casino Games with bitcoins come out: http://bit.ly/jLDsXe. Its like always Porn and Casino games drive the internet. I see a black cloud hanging over bitcoin…

  15. 20

    #Bitcoin’s Four Hurdles: Part Two – Transactions http://j.mp/mTesw7

  16. 21

    @Bitcoin’s Four Hurdles: Part Two – Transactions | http://ow.ly/5b5yj

  17. 22
    Walter McGrain

    With bitcoin, there’s no such thing as an instant payment that is also guaranteed. Sure, a merchant can accept payment instantly but unless they are willing to wait for the transaction validation tokens to arrive from the network, there’s no guarantee they the bitcions haven’t been spend somewhere else already. This process can take several minutes.

    The only way to achieve instant transactions is to either, risk getting invalid bitcoings, or to use a trusted escrow service that will insure the transaction – but that of course takes a fee.

    • 22.1
      Rick Falkvinge

      While this is technically true, I don’t see it as a problem in practice. The delay between confirming an order and shipping it is usually on the order of at least two hours. Any bouncing payment will have been discovered before merchandise goes out.

      In the case of electronic deliveries, well, ten minutes will have to do, I guess.

      • 22.1.1

        It somewhat resembles another current case. We’re moving to an NFC world, where waving our passes, mobiles etc will be enough to pay for transactions. When faced with the additional delay entering a PIN would ensure the answer seems to be that “small” payments don’t need the extra layer of security.

        In the case of Bitcoin, a merchant would likely only need to wait for confirmation if the value of the goods is reasonably large.

        (I do like the concept of an escrow service taking on the insurance for even the small cases – the fee could end up being very very low and still cover small merchants)

      • 22.1.2

        All online payment systems have the same problem of delay and insecurity during wiring. The minor difference, is that all sorts of commercial and “official” organisations stood up and filled that gap with escrow services.
        Paypal is little more then an escrow; creditcards offer security and so on.

        In .nl we have iDeal, some extremely cumbersome online payment system set up by the banks. Cumbersome for the salesmen and implementors, not for the users. iDeal is guaranteed by the banks to arrive at the merchant. But it will only arrive three days after it was removed from the users account. The money effectively sits in the banks hands during that time. (It gets even worse: banks may, under some conditions -criminal activities- decide to freeze the money, and keep it. Users, however, won’t recieve it back then; ever). Despite all this escrow thieving, about every commerce site in .nl has iDeal implemented. Despite that you can hardly get the technical (API) details (which are /really/ complex to implement) without signing a contract first.

        All bitcoin needs is such insurances or escrows. Client pays to an intermediate corp. That corp immediately sends the BTc to the merchant. Merchant ships her or his digital downloads or whatevers. Intermediate might never recieve funds, in which case it is its loss. Intermediate can work with flatfees, percentages, monthly fees and so on.

        If there is a need, there is a market. And there will be such insurances. Traditional banks and money-wiring has this delay-problem far worse and it was “solved” by that market, not by the “protocol”.

  18. 23

    ZaReason.com accepts Bitcoins.

  19. 24

    Bitcoin’s Four Hurdles: Part Two – by the founder of the Pirate Party http://bit.ly/lZgoaA #bitcoin

  20. 27
    Ilja

    Aren’t you the least bit worried about a possible speculation bubble? Right now the value of Bitcoin is driven up solely by speculation over the rise of its future value. What happens when people start to offload Bitcoin for other, more useful currencies?

    • 27.1
      Rick Falkvinge

      I’m not into this for the weekend, but for the foreseeable future.

      Cryptocurrency is here to stay, whether it’s bitcoin or something else. Right now, bitcoin has the unarguable momentum.

  21. 28
    Brazos

    OMX Helsinki has daily turnover of 400M Euro. Largest #bitcoin exchange has 400k Euro. That exchange has now 1/25 of total volume of Bitcoins. So Bitcoin is not driven by speculation I think.

  22. 29
    Zafolo

    I can understand the fear about a speculation bubble. There have been many spectacular bubbles, including such things like tulips (in Netherlands, there was a tulip mania in 1637 which is still unforgotten).

    However: A currency has dynamics quite different from things like tulips.

    First, while physical goods have a bounded use value, money has none. The value is based on what people agree about it. You can see that clearly by the fact that whole currencies can disappear within days. This means also that money has not bounded value.

    But second, and much more important here: Currencies have overwhelming network effects, just as languages do. If you have

    N=11

    people using the same currency, there are

    N * (N-1) / 2 = 55

    possible trade links. If you have N=15, the number is 105. Currencies link economical networks. So if a currency catches on like Bitcoin, there is a real self-augmenting effect. I think it can even be so strong that it consumes weak currencies by squeezing them out.

    What we have today is a market capitalization of 200 million dollars which has duplicated in just a week, The dynamics is that of a wildfire.

    Exponential growth cannot grow forever: At some point limiting factors kick in. That is why bubbles invariably will break. But the most probable limiting factor which I can think of here is simply saturation of the user base. Or perhaps bottlenecks by technical difficulties. Trust is a matter, but apparently the user community is decided to walk on the water. Selling coins means sharing risk, putting it on more shoulders, and this will be done often in a friendly way. Time and growing capitalization will only help to increase trust.

    The third point: Bitcoin _will_ establish a strong ecomomic network where before there was none. This is because locality does not matter in the internet:

    A poor photographer in Argentinia has no means to sell digital photos to a middle-class Norwegian girl who looks for a birthday gift for her father. By using dollars, Paypal, credit cards, this is just not feasible at all. A musician in Mali might like to sell griot recordings from to people in Massachusetts. How should that go? A boy in Romania might want to send a few coins to a musician publishing for free on Jamendo, the free music website. An architect in China might want a revision of a building plan from a German engineer which is specialized in energy efficiency. A Malaysian businessman might need a statistical analysis from a Hungarian mathematican. A french widow might want to support a civil right activist in Singapur who writes in a blog which is published in Australia, a Chinese painter sells post cards to a Swiss retiree and a school group in Italy might want support a housing project in Brazilia by sending coins.

    It’s an economy of individuals.

    Bitcoin is able to create a network for the economy which is just as effective and swift as TCP/IP for data. Remember also that we are used to see money as something cold and impersonal but a great deal of support is sent from heart to heart. Bitcoin will strengthen a much friendlier and personal economy where trust matters much more than contracts and physical space.

    What I want to stress is: Once this economical network starts growing, it will create so strong and manifold connections that it is impossible to rip it out again.

    And: Electronic currencies are by no means limited to the net. You can go shopping with a credit card, buy train tickets with your mobile, and cellphone-based payment has grown quite important in many parts of Africa.

    • 29.1
      BlueTemplar

      Yup, here’s a long (but interesting) blog post which arrives at a similar conclusion:
      “Due to the rapid growth of mobile communications, a new and possibly unexpected shift is nearly upon us. You know those credit card machines that sit on the counter at every retailer, well you have one in your pocket now”
      http://tradewithdave.com/?p=6582

  23. 30
    You Need Mega

    You DO need Mega if governments and other bankers try to get involved in Bitcoin with their ridiculous amounts of derivatives used to destroy the global economy.

  24. 31
    FrankleyScarlet

    “When my paycheck arrived on the last of every month, I would convert my disposable part to Bitcoin”

    So who exactly gets the ‘disposable’ part?

  25. [...] Four Hurdles: Part One – Usability, Part Two – Transactions, Part Three – Escrow, Part Four – Exchanges. Una serie de artículos de Rick Falkvinge sobre [...]

Add a Comment

− 1 = 3  

On Facebook

Popular Articles

Money cut into pieces - Photo by Flickr user Tax Credits
76

Swarm Economy – Zacqary Adam Xeper

Swarm Economy – Zacqary Adam Xeper

Librep July 12 frame
32

Civil Liberties

Civil Liberties

colorblindflag
22

United States – Zacqary Adam Xeper

United States – Zacqary Adam Xeper

Screenshot from Librep-2014-08-10-take1.mp4
4

Civil Liberties

Civil Liberties

About The Author

Rick is the founder of the first Pirate Party and is a political evangelist, traveling around Europe and the world to talk and write about ideas of a sensible information policy. He has a tech entrepreneur background and loves whisky.

More On Infopolicy

Bottles of Snake Oil - Photo by Jagrap on Flickr
29

Copyright Monopoly – Zacqary Adam Xeper

Copyright Monopoly – Zacqary Adam Xeper

facebook
12

Swarm Economy – Zacqary Adam Xeper

Swarm Economy – Zacqary Adam Xeper

523377_63619557
4

Infopolicy – Henrik Brändén

Infopolicy – Henrik Brändén

photo_10071_20090418-646x363
71

Copyright Monopoly – David Collier-Brown

Copyright Monopoly – David Collier-Brown

National_Security_Agency_headquarters,_Fort_Meade,_Maryland_public_domain_image
150

Infopolicy – Christian Engström

Infopolicy – Christian Engström

"God Hates Signs" next to "God Hates Fags" protesters
8

Freedom of Speech – Zacqary Adam Xeper

Freedom of Speech – Zacqary Adam Xeper

Many different currencies - CC photo by epSos.de
45

Diversity – Zacqary Adam Xeper

Diversity – Zacqary Adam Xeper

le_tresor_rackham_le_rouge_1280x1024
11

Copyright Monopoly – Lionel Dricot

Copyright Monopoly – Lionel Dricot

Valve mechanism
92

Freedom of Speech

Freedom of Speech

Books before copyright
99

Copyright Monopoly – Johnny Olsson

Copyright Monopoly – Johnny Olsson

Collaborative whiteboard at OuiShare 2012, full of wonderful ideas for venture capitalists to ruin - photo by Natalie Ortiz
15

Swarm Economy – Zacqary Adam Xeper

Swarm Economy – Zacqary Adam Xeper

Border Patrol In Montana
25

Activism – Travis McCrea

Activism – Travis McCrea

Spices - Marrakech 09 Souks
58

Swarm Economy

Swarm Economy

Screen Shot 2013-06-27 at 7.23.12 PM
33

Copyright Monopoly – Travis McCrea

Copyright Monopoly – Travis McCrea

An Ouya console and controller
15

Infopolicy – Zacqary Adam Xeper

Infopolicy – Zacqary Adam Xeper

Smári McCarthy
36

Privacy – Christian Engström

Privacy – Christian Engström

1984-ish poster from London's Public Transport
8

Privacy – Loz Kaye

Privacy – Loz Kaye

Man slamming his head on a desk in frustration - CC photo by Flickr user mbshane
36

Privacy – Zacqary Adam Xeper

Privacy – Zacqary Adam Xeper

This publication is protected under the Constitution of the Kingdom of Sweden. Any problem you have with this publication remains exclusively yours. Accountable publisher: Rick Falkvinge.
All text on this site is Public Domain / CC0 unless specifically noted and credited otherwise. Copy, remix, and inspire. (Troll policy.)
Log in | Original theme design by Gabfire themes (heavily modified)