back to article Bank of America: Bitcoin could become THE currency of e-commerce

Chinese banks may not be too keen on Bitcoin at the moment (which has done something to damp down the current price) but a new research report from Bank of America rates it as a major player in future internet transactions. "We believe Bitcoin can become a major means of payment for e-commerce and may emerge as a serious …

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Anonymous Coward

Flawed assumptions

"The Bank of America analysts think that the market value of a Bitcoin should be around $1,300, based on the assumption that around 10 per cent of e-commerce transactions will use the payment system."

Great, except the bitcoin protocol limits you to 7 transactions per second, as the protocol tries to aim for a new block to be mined every 10 minutes, and there's limits on blocksize and a minimum transaction size.

This means that you've got a hard upper cap of 220 million bitcoin transactions per year. Under BoA's assumptions, they're pegging the number of e-commerce transactions at 2.2 billion per year. There are about 500 million people in the EU, and about 320 million people in the US. I feel that people would take a dim view on being allowed no more than a couple of transactions per year.

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Re: Flawed assumptions

I wouldn't really call that a "hard limit". It's just the limit right at the moment. When it becomes clear that it's too low the developers can raise it. That said, scalability is still a concern. If it gets to the point where end users can't possibly keep a full copy of the blockchain and verify their own transactions it will lose a very important part of what made it appealing in the first place.

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Re: Flawed assumptions

People have been aware of the transaction rate limit, and are working on solutions. The simplest is just to raise the cap on block size, which is 1 MB/block currently. Another approach is to move the bulk of transactions "off-chain". For example, Bank of America could handle transactions among their customers internally, and only send a bulk transaction on the main block chain to Citibank (with a separate note detailing how the funds should be split up).

Finally, people could spin up an exact duplicate of bitcoin on a second block chain that runs in parallel, with some means of transferring funds between them. Repeat as necessary. This sort of exists already with the three dozen or so alternate cryptocurrencies, except those are all different, rather than exact copies.

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Anonymous Coward

Re: Flawed assumptions, Dani Eder's proposed solutions

Alas, these solutions aren't really solutions:

1) To raise the cap requires over 50% of the computing power of the network to agree to move, and runs the risk of forking the blockchain. In order to compete with Visa/MasterCard/PayPal, you're looking at a couple of orders of magnitude increase in block size.

2) You've just reinvented what we currently have as a banking system, and have shot the purported benefits of anonymity, decentralisation and a lack of evil bastard banks out of the water.

3) There will be different mining rates, difficulty rates, and hence BTC[n] -> actual money rates across these three currencies, each of which will have to have floating exchange rates against each other, building yet more complexity into the system.

BitCoin simply isn't worth it. It's a nice thought experiment that's been taken too far, wasting huge amounts of resources to enable people to buy drugs, child porn, and assassinations with relative anonymity.

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Re: Flawed assumptions, Dani Eder's proposed solutions

1) And that 50% will agree to raise the cap, because then they can earn more in transaction fees. It's in their economic self-interest to handle more transactions. However bigger blocks can cause other problems, which is why the simple solution has not been immediately adopted by the developers.

2) It doesn't have to be evil bastard banks, I just used them as an example. You can set up a local non-profit association for the purpose of saving transaction fees, or release "transaction pooling software" as open source.

3) We already deal with this even with just Bitcoin across different currency markets, not to mention other altcoins:

http://bitcoincharts.com/markets/

https://www.cryptsy.com/

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Re: Flawed assumptions

The protocol currently CAPS at 7 TPS. It is arbitrary and set so that fools do not try and explode the block cahin size before it is ready. Will be lifted next year.

www.crypto-coins.org

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Re: Flawed assumptions, Dani Eder's proposed solutions

They will agree because it'll be easier to mine for transactions (in other words earn money for confirming them), it's simply a case of updating the protocol. The issue is more figuring out when it needs to happen.

Not for nothing but lets not pretend you can't use cash to anonymously buy drugs or have somebody killed.

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Re: Flawed assumptions

Wow, no one thought of that before!

Oh wait - https://en.bitcoin.it/wiki/Scalability

In particular, note the 7tps is an artificial limit.

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Hmm odd that a bank would be against regulation ;) The cynic in me believes what they find most attractive about it is the lack of regulation. Cue the next global financial collapse.

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Anonymous Coward

Hmm odd that a bank would be against regulation ;) The cynic in me believes what they find most attractive about it is the lack of regulation. Cue the next global financial collapse.

I agree. We have gone from backed money ("I promise to give the bearer of this note the equivalent in gold") to currency which is 100% based on how fast it can be printed (with the inherent time bomb in deflation behind it - see how Germany got to it's Billion Mark banknotes - and the risk to democracy in general as a consequence).

And now we're about to create a new currency which is not controlled by anyone. What's that ticking sound? Hello? Where has everybody gone?

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Uncontrolled is the sole virtue of "crypto" currency

There's no virtue in anonymity...people evolved to be the opposite of anonymous, in a fishbowl of gossip. Get used to it.

ANY regulation presents numerous problems. Whoever regulates monopolizes. (Voluntarily accepted standards are a different matter). Regulation also assumes that there is such a thing as legitimate government. There is not.

People forget that the idea of legitimacy whether of the voters or of the King has to do with avoiding the evil of civil strife, not with some sort of moral standing. Regulation which facilitates commerce, progress, etc. has its place...it's like a public road or a Defense Department. Those which secure rights, equality, and all manner of public protection for privately enjoyed things (caribou and snail darters come to mind) are just spoils of the system.

Anonymity is a tool to fight illegitimate (i.e. most) governmental activity.

CURRENCY ought to be about supporting trade. That means the value of it is not readily manipulated. Period. Governmental currencies by definition fail the test. Add ludicrous pension obligations to those governments, and we get a progress-stifling economy. An UNCONTROLED currency could take down ½ of this, and the loss of the ability to steal the pension funds from out of everyone’s pockets through inflation might curb the pensions. Who knows, with progress again enabled, robust pensions might again become affordable.

Gold tended to come and go as the balance between mined supplies and economic growth changed, but not all that much most of the time. The dollar or the pound were like that, once upon a time, but no more.

A bitcoin somewhere in the value range of $50.00usd to $250.00 USD would be in the ballpark for the actual value traditionally represented by dollars or pounds. The difficulty I believe lies in supporting a transition from an esoteric techie thing and speculative bubble and potential pay pal alternative, for which the total currency supply need not be large at all, to a currency base capable (as augmented by circulation velocity and the lenders’ magic of lending the same reserves more than once) of supporting the majority of the planet’s economic activity.

It’s hard to imagine how that transition could occur, without an intermediate step of coordination and control: back to the original central bank problem.

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Re: Uncontrolled is the sole virtue of "crypto" currency

There's no virtue in anonymity...people evolved to be the opposite of anonymous, in a fishbowl of gossip. Get used to it.

Anonymity is a tool to fight illegitimate (i.e. most) governmental activity. …. johnwerneken Posted Saturday 7th December 2013 18:46 GMT

And in those two short statements, johnwerneken, is there the virtue of being relatively anonymous.

Are/Is a virtuous group/gathering/network of smarter communicating individuals, people evolving and/or a relatively exclusive anonymous revolutionary cartel of foreign alien being. And a fine honed tool for exploitation and future exploration or mass weapon for disruptive systems attack and present programs destruction.

When such is easily dual use activated and wielded, only pure fools would not engage with principals for the former to guarantee secure quarantine and non-exercising of the latter.

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@Rampant Spaniel

"The cynic in me believes what they find most attractive about it is the lack of regulation. Cue the next global financial collapse."

That's what I'm thinking too.

And the idea that the supply of Bitcoins is going to be determined by developers and their decisions regarding transaction rate limit and block sizes etc does not exactly inspire confidence. Well, not in my mind, anyway.

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Anonymous Coward

Subtle thinking

I think this is quite a subtle point. Mostly I have considered bitcoins from the point of view of a store of wealth. In which case volatility is an issue.

However if you just used it as a short term transfer unit, then volatility is not a major issue.

To put this in perspective some of my customers pay me via the wire transfer global banking system. The total cost of a transfer (exchange margin, senders bank fee, intermediate bank fee and my bank) is often $75 on a $300 transaction. That is a 25% loss. (Frankly if my customers just put cash in a clear envelope and posted it, I bet more would actually get to me)

Frankly, bitcoin volatility is nothing compared to 25% the banks are taking now.

It is still likely to be attractive compared to the 8.5% total cost of Paypal.

I will definitely be investigating bitcoin for international payments for my business.

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Re: Subtle thinking

Oh dear dear, you really are not seeing the issue here. The 25% the nice chaps at the bank cream off is a predictable fee for a service rendered. This is entirely different to the inherently volatile nature of bitcoins. The fact that even Carol Vorderman couldn't predict how much you will normally end up paying the bank for whacking a button on the computer (which they normally graciously allow you to whack for them via internet banking) isn't instability, no, it is a representation of how complex the nature of their job is. However, lucky soul you, it is possible to mitigate some of this by, for a token fee payable to the parasites, sorry bankers, to bet against currency shifts to ensure that the value of the transaction will not fall by an unpredictable amount, but rather by the quite predictable fee levied. Any loss in value of the original transaction is then made up by whichever poor sod the banks conned into securing the transaction, seemingly of late, by refusing to loan them money unless they did so or just by using your pension funds. Then of course they extracted a fee from them for that as well.

There are days I think I chose the wrong career, then I am reminded I have a soul.

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Re: Subtle thinking

Have a look at a currency broker rather than using your bank to transfer money. Typically the fees are about 4% + £9 and the money goes into the recipient's bank account as a local domestic payment in their own currency. The company I work for uses Moneycorp and HiFX for international transfers. Other currency brokers exist.

The main problem with bitcoin is the exchanges. They are mostly unregulated, some of them are ponzi schemes, and they are not particularly cheap, or particularly fast at converting between real money and bitcoin.

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Re: Subtle thinking

Sorry but $75 transaction cost on an $300 transaction? Really? Darwin, I'm so glad I'm not living in the land of the brave and the free.

I could pay anybody in Europe 300 € and it would cost me less than € 1. Customs however would be keeping the parcel "under investigation" for several weeks as the watch will start ticking for a while when they shake it.

Perhaps we store our idiots in customs while you store them in banks eh?

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Re: Subtle thinking

Only because the EU forced the banks to play nice. Before that, they weren't too ashamed to nail a 16€ charge on top of a 14€ transaction between two Euro countries.

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Re: Subtle thinking

Whilst making another euro or two off the exchange rate spread, because they get you coming, going and then charge you for making you wait in the middle, and you'll be damn grateful for it thank you very much.

However, at least Euro banks (especially UK ones) have some sanity when it comes to electronic transactions. A sort code and an account number and an amount is all you need to make a transfer for free within the UK and it's usually done within an hour or two. I REALLY miss that side of it over here, here it's yeah write a check, email a picture of it to the other person and they can use our uber l33t banking app to add it to their account in a few days time, maybe.

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Anonymous Coward

Re: Subtle thinking

> is often $75 on a $300 transaction.

You are using a system that is designed to transfer 000's of dollars not a couple of hundred which is why the fee's appear to be high. It is equivalent to getting the supermarket to deliver your groceries using a taxi (fast delivery) instead of their own delivery service (when they can) and then bitching about the cost of the taxi compared to your groceries.

There are any number of methods and services you can use to get money from A to B so choose a cheaper alternative.

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Re: Subtle thinking

25% loss? That's even worse than Paypal. And I thought that was bad enough. Those of us who live in places with modern banking systems are able to use, without any undue hassle, currency exchange brokers, who will take only about 0.5%. And I'm able to set up the transfer specified in GBP so I can get exactly what's gone on the invoice. My US customers continue to pay me via Paypal - but my USD rate takes this into account.

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Re: Subtle thinking

4%!?!?! As you are mentioning names - I've used xe.com for many years (to do GBP->EUR) but I'm now using transferwise.com for my clients to pay me.

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Re: Subtle thinking

Do you have any problems with Transferwise?

Do you have any problems getting random companies to agree to use Transferwise?

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Bitcoin COIN, a wholly different kettle of phish in ethereal phorm ....

..... suffering not the folly of fools with erring tools

One imagines that Counter Intelligence in Bitcoin will pay no heed to anything that ponzis say about Bitcoin's rise and falls/growing pains, fully realising that such prognostications are pathetic cynical attempts to exercise and influence a sort of remote control which they presume to command over existing traditional fiat paper/counterfeiting money used as an empowering and depowering currency.

“I believe that banking institutions are more dangerous to our liberties than standing armies.” – Thomas Jefferson

“Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild.

“The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” The Rothschild brothers of London writing to associates in New York, 1863.

And more of such wisdom, which one would be hard pressed and/or totally unable to convince all and/or oneself are blatant lies, can be found here ...... http://www.themoneymasters.com/the-money-masters/famous-quotations-on-banking/

Knowledge is Power. Intelligence is Devastating. Applied Intelligence Controls Powerful Knowledge with Remote Commands and not only with/in/within Beta ProgramMING Projects servering Google HyperRadioProACTive IT and APT Zeroday Vulnerability XSSXXXXploits their daily bread as was advised to one and all earlier on the Register for global sharing ...... http://forums.theregister.co.uk/forum/1/2013/12/04/google_unveils_tenyear_plan_to_build_its_own_robots/#c_2048518

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I think Bitcoin will die a death very soon

"The amount of computational power required to mine a Bitcoin has now pushed hobbyists out of the market and specialized ASIC chips are required to perform the calculations needed to generate new currency."

This means, in effect, that Bitcoin mining is more centralised, and vulnerable to attack. It will be attacked in short order, by the same banking cartel that is threatened by Bitcoin's own emergence as a replacement for fiat money that can be conjured out of thin air (with interest payable on every penny, of course.)

If there is one thing central bankers hate above all else, it's competition. However, they're smiling right now, because every penny that's spent on Bitcoin is money that isn't going into gold and silver. When physical supplies of that finally dry up, it will be time to put the pin in Bitcoin.

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Re: I think Bitcoin will die a death very soon

"...every penny that's spent on Bitcoin is money that isn't going into gold and silver."

Gold and silver are -in my opinion- a shitty way of guaranteeing currency. They have no practical uses except for jewellery and (in small amounts) for making some electronic components. They are subject to lots of variation depending on production, new extraction technologies and market stampedes, and History has shown that a country can produce huge amounts of precious metals and gems and still have very little actual wealth. As an example, consider the inflation in the XVII century in Spain due to the American mines, or the state of the economy in South Africa for most of the XX century.

Bitcoin is even shittier, as it depends on processing power (whose future evolution is quite controversial), breakthroughs in technology (e.g. quantum computers and new/improved algorithms) and the whim of the developers. I'd rather invest in tulips, thank you!. ;^)

A saner approach -IMHO- would be to back bank bills with a 'basket' of natural resources and energy. This way, a 50€ note could be exchanged for any of the following: 0.23 grams of gold, or 730 Kg of iron, or 1,211 Kg. of lead, 70 l of petrol, 310 kilowatt /hour or... .*

Advantages: Recessions would be weaker and happen less often, as most of the speculative side of currency would vanish, there would be good reasons for helping poor countries to develop their economies and governments wouldn't be able to bullshit-and-screw everyone else by printing more money whenever they feel like it.

This idea is far from new, and it seems quite sound. What's your opinion, fellow commentards?

* For this example, I took the numbers straight from my backside. The actual mean of deciding the weight of the different resources would be a little bit more complex. :0)

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Re: I think Bitcoin will die a death very soon

We abandoned the gold standard long ago, but pay off the attraction of gold and silver was always that they had limited usefulness but we're hard(ish) to obtain but people wanted them. The strength of a currency will always be determined to some degree by what people have sunk into it. Bit coins probably have some future to them as some folks have quite a lot sunk into it, even if it's just via their electric bill, they test will be how it matures, adapts to regulation etc.

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Re: I think Bitcoin will die a death very soon

"Gold and silver are -in my opinion- a shitty way of guaranteeing currency. They have no practical uses except for jewellery and (in small amounts) for making some electronic components."

Gold, for thousands of years, has had value. Bitcoin has had value for what... the last 2? ... and really had value in the last year of its existence. Gold is useful in its own right. And if the whole world economy collapses, aliens invade, or zombie apolypse... etc., gold will have value. If the proverbial shit hits the fan, no one will care about bit coin. You may dismiss the value of gold, now, in our civilized society, but it's its resilience in trying times that makes gold such a good hedge. I don't own any, but I would buy gold long before I invest in bitcoin, even though amazon doesn't take gold... the guy down the street that sells honda gas generators would, if the world was coming to an end....

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Re: I think Bitcoin will die a death very soon

Ahem, silver is the second most useful substance on Earth, with approximately 10,000 uses. It's beaten only by oil, with around 30,000 uses. Like oil, silver is consumed, often in very small amounts at a time, which makes recovery a lot harder to justify (unlike gold jewelry.)

Given the rate of silver consumption that has occurred over the last 3 decades, the last time there was this little silver stock available on the planet was around 1300 AD. Available silver stocks are around 20% of the quantity available in the 1980s, and consumption is increasing: Many industrial applications have no substitute for silver.

Think on the ramifications of that for a moment, and then tell me - hand on heart - that there is no future in precious metals. Or listen to this guy.

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Silver badge

Re: I think Bitcoin will die a death very soon

"The amount of computational power required to mine a Bitcoin has now pushed hobbyists out of the market and specialized ASIC chips are required to perform the calculations needed to generate new currency."

Exactly.

A quick google research shows this is the real issue and not squabbling over valuation or validation.

It could easily become the next Flooze or Beans. Caveat emptor.

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Re: I think Bitcoin will die a death very soon

The problem with trying to fix the value of various commodities relative to each other is that people will game the system. If fuel suddenly became scarce while iron was plentiful, then people would dump their worthless iron into the government's coffers to snatch up the precious fuel. Eventually, the government would have to abandon its scheme when it simply runs out of fuel.

They tried this exact scheme with gold and silver, trying to fix their price at a 15:1 ratio, and they eventually abandoned it for those exact reasons.

The only way for a government to back its currency with a "basket" of commodities is to have a "basket" of different currencies. But that's really not the point.

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Anonymous Coward

Follow the money

If there is anything to be said for Bitcoin, it might remove the overwhelming temptation governments have to overprint money in times of trouble. After all, currency is nothing more than an idea ... based on trust

So who do we trust now ?

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Anonymous Coward

Never going to happen.

Ebay will surcharge 10% ontop for Bitcoin transactions, making PayPal "only" 3%. They did this to kill other e currencies in the past, seemingly totally under the radar of the monopolies commission.

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Bank of America thinks it's a good deal? What could possibly go wrong!

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BofA gave target of $1300 for Bitcoin, but I am not so sure. That total leaves off the fact that content providers on the internet will adopt Bitcoin as a way to replace a faltering ad revenue based model. Many of the kids these days are using Ad Blocker, and advertisers are going to become more frugal with their ad campaign buys. WSJ and ESPN Insider already have pay walls, which are larger ineffectual due to the annual subscription. A Bitcoin add-on to your browser that lets you pay a pennies worth of Bitcoin to a site to view the content. Problem solved, and when this trend really matures, who knows what the internet evolves into.

However, if the $1300 price assessment is right, which it isn't, but f it is, it would be wise to look at the 2nd generation of crypto-currencies in the mid-term. They trade against Bitcoin and some are making stride against their bigger brother. Litecoin for example is trading at ~$41. They are others of course, check out our currencies page for more data.

Check out Crypto-coins.org for information on Bitcoin, Litecoin, and the other alts that currently trade.

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Trading right now at US$712 and going down.....

South Sea Bubble.......Dot Com Bubble.......Bit Coin Bubble......or Big Con..........

I'll stick to offshore banks, thank you.

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Could someone please clarify something for me

In my admittedly limited understanding of bitcoins each bitcoin is unique (which is why mining them is taking more and more computational power).

How are fractions of bitcoins then managed?

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Anonymous Coward

Re: Could someone please clarify something for me

Info

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So just HOW many Bitcoins have BoA mined? (and how much are they now worth?)

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Anonymous Coward

Gold is not only valuable, it is also VERY useful.

The current problem with Gold and Silver, is that unless you are buying physical gold and taking it to your own safety deposit box, you are probably just buying some "paper gold" that has no actual gold to back it up.

I saw the 25% trasfer fee comment and wondered why they can't just send a check. A check costs me about 75 cents.

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Anonymous Coward

send a cheque

Yes it is amazing that my bank can accept a cheque from most places in the world for only a few cents.

Unfortunately there are now few companies in the US or EU that are now able to send a cheque in the mail. Those companies that can't pay directly by credit card/paypal can only use wire transfer for some reason. They just won't send cheques any more.

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