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.
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.
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.
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.
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.
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.
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.
Doesn't necessarily imply anything about future bitcoin business models, or even current ones that still fly beneath the mainstream investor radars.
Credit card fraud is incredibly rampant and the security measures in place by banks and sites is so over the top it becomes difficult to even use them. Use ghostery? Your transaction won't go through with an unknown error. Use a VPN? Your transaction won't go through with an unknown error. Paying from a different computer? A different IP? Using a different address? All these things are a recipe for being on hold with your bank for 45 minutes when you all you wanted to do was order $50 of stuff from NewEgg.
In order to replicate the credit card payment process you have:
prebuy bitcoins. Not only is this a bitch to deal with, but it costs money. Transaction fees, hidden or not. Sure you can buy on an exchange but that has a small fee plus the risk they'll steal or lose your coins. Buying from an ATM or broker has a fee. Even if it isn't explicit they'll get you on exchange rate spread.
Some sort of escrow service. If Amazon doesn't ship me my TV, I can cancel the charge on Visa. Either you forgo this or you pay for it. This will have a fee.
There is volatility risk.
Then the merchant still has some fees. They have to pay Coinbase their fee.
When accounting for all the risk I doubt it's cheaper.
That isn't even considering that confirmation time is like what? 10-30 minutes?
Bitcoin will be the silk road currency but not much else.
Volatility risk is inherent to every single currency. The swiss franc just had a 30% change in value. Bitcoin's volatility is going down every year, look at the charts, and it makes sense, too. Deeper markets are harder to move. There's nothing particularly unique about bitcoin that makes it volatile except its youth and nascent ecosystem. Over time its predictable supply curve makes it less volatile than most of the world's currencies for most of the world's population that don't live in stable OECD economies with decent currencies. There are numerous countries with 10-20% inflation and wild swings.
Is bitcoin any better? Well again, its volatility is going down every year. But already you can go to Bitreserve and lock in the price to a dollar or euro or gold or yen or whatever value. So if you're in Kenya, instead of 10% inflation, you just keep your money according to the dollar rate if you want, enabled by bitcoin.
Merchant fee? Bitpay offers 0% processing for all. Their most recent merchant taking bitcoin through Bitpay (at 0% fees) was Microsoft.
Transactions are instant, confirmation time can be mitigated as it's a function of risk. Cup of coffee needs no confirmation time. Amazon needs no confirmation time. (if the customer double spends it, you simply cancel 15 minutes later and the item supposed to ship the next day won't arrive.) Xbox Live needs no confirmation time. (account gets shut down after 10 minutes of trying to set up a multiplayer game of Halo, xbox gets fingerprinted and it and the ip gets blacklisted for fraud. Remember only the owner of bitcoin can double spend through careful effort, meaning you can be near certain fraud was intentional.) In short, virtually all of online retail has no real confirmation issues long term. And software solutions are in progress, there was one posted just last week, can't find it atm.
Escrow: it's just an insurance service, no reason there won't be a company offering it. In fact escrow with timelocks and multi-sig already exist. It's a bit of a long discussion but look into Mike Hearn's presentations and articles on this, the short story is that with bitcoin you can get much better and fairer and more specific expert escrow services to fit your particular niche. Paypal and Amazon's systems aren't adequate and allow too much fraud and require too many costs.
Whether the customer or the merchant pays isn't relevant, the customer ALWAYS pays, it's not like the merchant will pay extra fees from his money-tree in his backyard. The customer pays. So if you have an expensive escrow system that screws over merchants and lets criminals chargeback lots of transactions stealing products essentially without paying and the merchant has to pay for expensive processes to get their product/money back, or let it slide, then the company will raise prices to make up for the losses or go out of business. Customers pay.
Same with creditcard theft. Oh you don't have to pay if your CC gets stolen and someone spends $1k of your money? You still pay. Mastercard isn't giving you $1k. They're either taking it from the merchant (see above), or they're paying you money out of revenues. Surprise, in both cases, you're the source of revenue. Banking isn't cheap, there are enough articles on this online just check 'm out. A checking account averages about $200 a year? Credit is hugely overpriced? Paying 15-20% a year on credit when if I put money in a savings account I can barely get 0.5%? That's obviously because there's no peer-to-peer lending, if there was you'd both pay/get 10% and be better off by 10%. But people accept crazy rates on creditcards, why? Because the regular use is free or insured or promoted. All of those things you think are 'free' or 'cheap' are only such because you're getting screwed in other areas of your financial services.
In short, creditcards are a 1950s invention that are hugely unsecure: people walk around with plastic cards with their freaking entire password (doubles as an account number) printed on it. And everytime you want to pay, you show your password. It's insane. And then if something goes wrong, you charge it back. All of this costs money, there's a ton of theft and fraud with this system and the customer ends up paying for it. You're deluding yourself if you think that's cheap, it's like getting a free razor and being oblivious to the fact you're paying a shit ton on the blades.
I don't know how much everybody knows about him (I'm pretty sure his Wikipedia profile won't tell the entire story), but this finance executive has a bad reputation. Pre-financial crisis, he was COO Morgan Stanley, and later went off to create a hedge fund 100% based on hyped market bluffs. He sold the fund to Citigroup ($800m) in 2008* as a condition for him joining as interim CEO of Citigroup... and just a few months later, Citigroup wrote-off the entire fund. As per his role at Citigroup, I'll let you do the research and news digging.
I sometimes don't understand the tech's sector hypocrisy: tech wants to become a solution to the problem, and they go on to finance and advice themselves with the problem. I really don't get it.
* edit from 2007 to '08
This is something a company like Coinbase desperately needs, if it wants to have a say in future Bitcoin regulation that will inevitably be introduced at some point in the future.
I can personally see the value of having someone like that on board.
Only if it can be assured to make them money in the process. Besides, you can't paint with such broad strokes, the "tech sector" can't be guilty of hypocrisy, only individuals can, and from where I sit, it's all pretty clearly about money.
Regarding Coinbase I would assume they are convincing their investors that the company has a huge value and expertise even assuming total Bitcoin collapse / switch to another digital currency.
Personally, I think BTC is going to be OK because there's already a decent ecosystem growing around it. Enough people are keen on it succeeding that it'll do something useful. The real question is whether it'll be a multi-trillion dollar industry that replaces money or a multi-billion dollar industry that's used for secure value transactions or proof of work or something, not than whether or not it'll fail entirely and disappear.
Exactly. I am personally convinced it will succeed, but I don't know in which way. It could be anything that benefits of proof of work.
Are there actually libraries, or clients which create a P2P network, that is generic? I mean the client synchronization is the same as in BTC, but the data exchanged is generic.
That's a violation of California B&P code section 17538. (http://www.leginfo.ca.gov/cgi-bin/displaycode?section=bpc&gr...)
(d) A vendor conducting business through the Internet or any other electronic means of communication shall do all of the following when the transaction involves a buyer located in this state:
(1) Before accepting any payment or processing any debit or credit charge or funds transfer, the vendor shall disclose to the buyer in writing or by electronic means of communication, such as e-mail or an on-screen notice, the vendor's return and refund policy, the legal name under which the business is conducted and, except as provided in paragraph (3), the complete street address from which the business is actually conducted.
Some of those institutions are obviously signs of opening BTC to stock exchange or more hedge founds, and traditional investments assets.
Would have been nice to hear more of where they see/want to put bitcoin in the future.
It is gaining momentum.
http://ecorner.stanford.edu/authorMaterialInfo.html?mid=3369
