Bit Coin Questions

[Crazyhorse]

@Chronos

Crazyhorse, you still haven’t answered Tastes of Chocolate’s question. Those are all places that accept bitcoins for ordinary purchases, but none of them posts prices in bitcoins. If I walk into that Subway, I can pay $5 for a footlong, or I can pay an amount of bitcoins equivalent to $5 at today’s exchange rate. If I go to the same Subway tomorrow, the price for that footlong will still be $5, but the price in bitcoins will be different, because the exchange rate will be different. Bitcoins are accepted, but the prices are not in bitcoins. Yes, this is the same situation as trying to use euros at an American sandwich shop, but with the euros, I can go to a different sandwich shop somewhere else in the world where the prices are in euros, and where the price in dollars will fluctuate with the exchange rate. Is there anywhere in the world where this is true of bitcoins?

I understand the point but it is irrelevant unless you live in a world where the US dollar is the single only currency.

Suppose you are from Europe and want to buy something online that is priced in US Dollars. Your bank, or a service like Paypal will allow you to pay in Euros based on whatever the current exchange rate is between dollars and euros. You can pay for things based on the current exchange rate between bitcoin and currency X.

All stores don’t list their prices in USD, Euros, Pesos and Pounds - yet you can buy any of the things they have for sale with any of those currencies based on an exchange rate.

Besides that, the sandwich in your example won’t always be $5.00 USD tomorrow, either. The USD price will change based on the costs of materials, labor, the value of the dollar in the world economy and inflation, etc. i.e the things that can be bought with a dollar, or with a bitcoin.

[Incubus]

@Walton_Firm

That’s not security, that’s mitigation of the problem after-the-fact. It’s like the difference between being insured against burglary and having sturdy locks which prevent your house from being broken into in the first place.

The way the credit card system works, it’s like if whenever you want somebody to send you a package, you give them your house key so that they can walk in and place it on the kitchen table. So after a few years there’s hundreds of people who may still be walking around with a copy of your key. “Oh, but it’s hardly a problem at all, I go through my home regularly and if I notice anything missing, I immediately inform my insurance company and most of the time they are very nice about it and they pay up right away!”

Why should you be held liable for even one cent, for a problem which you have basically no control over? I mean, if you’re at a restaurant and the waiter looks particularly shifty-eyed and untrustworthy, I guess you can choose to pay in cash that time, but what are you going to do, perform a security audit on the computer system of every website you might want to shop at?
Depends on how the payment works. Generally when I pay with a debit card at a store, I insert the card into a terminal, it shows me how much I am being asked to pay, I enter my PIN and press ‘OK’. The shopkeeper doesn’t end up with a copy of the card which they could then use to make other payments in my name. I only need to trust my own bank and the company which operates those payment terminals; I don’t need to trust every clerk at every store I shop at. There’s the risk of skimmers of course, but they can be spotted with a bit of vigilance, and they certainly require a lot more technical effort on the side of the crooks than merely writing down a customer’s CC number after he hands you the card.

Here in NL we have iDEAL, which is a payment system developed by a group of banks and supported by most Dutch webshops. When you want to pay, you get redirected to a site operated by your bank, where you confirm the payment by inserting your bank card into a little device and typing in a few numbers. This is a lot safer than CC because again, you only need to trust the iDEAL system and your own bank, you don’t need to trust the operator of every webshop you want to do business with. I’m sure other countries have their own alternatives, but there doesn’t seem to be an international standard yet.

How exactly is this different than credit cards? When I go to a store, I swipe my credit card at a terminal. The employee doesn’t necessarily see the number. I sign my name on the touchscreen and complete my purchase. If there are any issues, its between the merchant and credit card company. If the merchant scammed me, I can request my CC company issue a chargeback.

[Chronos]

Quoth RaftPeople:

I think the things that illustrates are:
1 - Current level of acceptance of bitcoins (small)
2 - Volatility of bitcoins (large)

But what point is that trying to make?

I think that the point is that a currency oughtn’t to be regarded as functional, as a currency, unless the acceptance is sufficiently large and the volatility is sufficiently small that it can be used for price tags.

[Walton_Firm]

@Incubus

How exactly is this different than credit cards? When I go to a store, I swipe my credit card at a terminal. The employee doesn’t necessarily see the number. I sign my name on the touchscreen and complete my purchase.

In that case it’s the same as CC, indeed. You asked “wouldn’t debit transactions be less secure” and I wasn’t sure exactly how things work in the US, so I went into a bit more detail. Can you use debit cards for on-line purchases as well, and if so, does it work by giving the website your card number or is there some kind of challenge-response system involved which allows you to authorize a specific individual payment only?

If there are any issues, its between the merchant and credit card company. If the merchant scammed me, I can request my CC company issue a chargeback.

The only way the merchant should be able to scam you, is by taking your money and then not delivering the good or service you paid for. But with any sane system, it should not be technically possible for a random merchant (either on-line or at the supermarket) to take more money out of your account than the specific payment you have authorized. It should never be possible that some hacker who broke into a on-line store’s database, can make payments in your name just because you bought something at that store once, two years before.

Unfortunately, credit cards fail to meet that rather basic requirement.

[Incubus]

@Walton_Firm

In that case it’s the same as CC, indeed. You asked “wouldn’t debit transactions be less secure” and I wasn’t sure exactly how things work in the US, so I went into a bit more detail. Can you use debit cards for on-line purchases as well, and if so, does it work by giving the website your card number or is there some kind of challenge-response system involved which allows you to authorize a specific individual payment only?
The only way the merchant should be able to scam you, is by taking your money and then not delivering the good or service you paid for. But with any sane system, it should not be technically possible for a random merchant (either on-line or at the supermarket) to take more money out of your account than the specific payment you have authorized. It should never be possible that some hacker who broke into a on-line store’s database, can make payments in your name just because you bought something at that store once, two years before.

Unfortunately, credit cards fail to meet that rather basic requirement.

I’m not sure about the exact nature of the system of making online transactions with debit card vs credit card. But I can tell you that when I pay by credit card, it is first and foremost a transaction between the credit card company and the merchant, which I promise to pay. If I find the transaction contains an error, I can dispute it. At that point I haven’t ‘lost’ any money. Debit might be trickier since if the money came directly out of my checking account I would have to talk my bank in to giving me the money ‘back’.

Credit card transactions in the US make up a huge amount of purchases. Can you provide a cite that indicates the % of CC users who end up paying fraudulent charges? Like I said, my credit card company acts as a buffer against fraud from me. I can call them and tell them the charges are fraudulent, and they resolve the issue quickly without any money leaving my own hands.

[Walton_Firm]

@Incubus

I’m not sure about the exact nature of the system of making online transactions with debit card vs credit card. But I can tell you that when I pay by credit card, it is first and foremost a transaction between the credit card company and the merchant, which I promise to pay. If I find the transaction contains an error, I can dispute it. At that point I haven’t ‘lost’ any money.

But you are still on the hook for the transaction by default, unless you spot it and take active steps to dispute it.

It doesn’t need to be that way; the cryptographic technology needed to let you authorize a transaction without thereby giving the other party (restaurant waitstaff, web shop database administrators) the means to make other payments in your name, has existed for decades. (Bitcoin is much more complex because it attempts to fulfill the additional goals of being fully decentralized and aquiring its own value without being explicitly backed by anything, but that’s not what we’re talking about right now.)

Credit card transactions in the US make up a huge amount of purchases. Can you provide a cite that indicates the % of CC users who end up paying fraudulent charges? Like I said, my credit card company acts as a buffer against fraud from me. I can call them and tell them the charges are fraudulent, and they resolve the issue quickly without any money leaving my own hands.

I could possibly dig up that number, but I don’t think it’s terribly relevant for the following reasons:

1. Even if you get the dispute resolved and the CC company choses not to exercise its right to hold you liable for the first $50, it’s still a hassle which shouldn’t be needed. An ounce of prevention versus a pound of cure, and all that.

2. When a crook uses your CC number to buy something and has already ran off with the goods by the time you notice the transaction and start the dispute procedure, it’s nice that the CC company assumes most of the risk, but somebody still loses money. If it isn’t you, then it’s either the CC company or the merchant. Those losses need to be accounted for somehow, so you end up paying for them, either via higher credit card fees or via higher prices of the stuff you buy. So having a risky insecure payment system makes everybody worse off, no matter who “officially” assumes the risk.

[aldiboronti]

I have to wonder whether Amateur Barbarian was bitten by a bitcoin miner when young. He does seem rather exercised about this matter.

[Sterling_Archer]

I’m still foggy on how the whole bitcoin exchange could successfully start. Who was the first vendor who decided to accept bitcoins in exchange for a good/service instead of dollars? That part makes no sense to me.

[Learjeff]

The first bitcoin exchange was for pizza. Someone who had 10,000 bitcoins passed them to another bitcoin hobbyist, who paid for the pizza using his credit card (or something like that).

Those bitcoins, are worth about US$6M today.

Expensive pizza!

[Chronos]

The key there is that the exchange rate was originally quite skewed, with each bitcoin being worth very little in dollars. So a few people decided to risk a few bucks on them, just in case they caught on.

[Sterling_Archer]

OK so I can imagine enthusiasts trading them for money. (That’s what the pizza exchange really was, IMO) Just like stamp collecting. And I can see how that could create a history of trade to the point where you could set an exchange rate. But I still can’t see a non-enthusiast vendor agreeing to accept them in place of money. That’d be like Amazon accepting stamps or rocks in payment.

[Chronos]

First of all, who says that the vendor wasn’t himself an enthusiast? Second, even if he wasn’t, if there were enough enthusiasts, the vendor might have decided that he could just sell them straight back to one. And being the first, or one of the first, vendors to accept them could be worth some free publicity.