Running an honest Bitcoin exchange isn't very profitable. Some exchanges don't charge commissions, so all rates are low. Coinbase doesn't charge customers commissions until they do $1m a year in business, which few do.
This is the entire point of regulation. When there is information asymmetry (a natural phenomenon of these Bitcoin exchanges) honest agents are always disadvantaged compared to dishonest agents. There is very little the honest agent can do to prove their honesty that the dishonest agent can't simply lie about. That will eventually chase out a lot of the honest agents who are selling high quality and therefore pricey products. In the end you are left with a market flooded with both dishonest agents and low quality products. The idea of regulation is to combat this information asymmetry and ensure that even the bottom of the market qualititywise is not below some acceptable standard.
This is actually a great assessment of many industries. I watched this exact thing happen in the lead generation business from 2000 and continue to today. It's grown impossible to be honest, as no one trusts you anyways and it becomes difficult to compete on price. Even when you give them everything they ask for, they still don't buy because they have learned not to trust lead generators, Bitcoin marketplaces, etc.
Exactly. Coinbase takes your money but doesn't buy BTC for several days, so if the price goes down, they pocket the difference. If the price goes up, they will often cancel your order. It goes without saying that bitcoins are volatile so this isn't such a rare occurrence.
That's not what sanswork was saying. sanswork was saying that the buy price is higher than the sell price, so coinbase makes money off the price difference.
I don't think they intentionally cancel transactions as a way to make profit. You can see reports of them cancelling transactions when the price goes down as well but still refunding the full previous amount.
I also have an instant account so I can immediately get my funds with no chance of cancelling.
Thanks for the clarification. That's what I get for starting a comment with the equivalent of "This."
As to the accusation you can see is thrown around all over the place, that is possible, but my interest-free loan to them of several thousand dollars left a sour taste in my mouth regardless and it wouldn't be hard for them to make some money off of the capital, in BTC or not.
How much bitcoin and other currencies do they need to hold? If it can safely and reliably without holding much money, I imagine that it could still be worthwhile.
VCs and founders take chances all the time that a large and loyal group of users will eventually lead to an enormous revenue stream. No one really knew that search leads to a fantastically profitable ad platform. If an exchange is really good for a long time and transactions fly through at volume and cost per transaction unseen up to now, there are all sorts of possibilities.
I don't really understand bitcoin, so I could easily be totally wrong. That said, my understanding is that one of the big (or maybe biggest) advantages of bitcoin as a technology (regardless of the money supply set up and such) is efficiency, the kind of efficiency advantages that the web or bittorrent has over other communication technologies. If it potentially that eficant, it's good that transaction costs and rates are confusingly low, that lets volume be high. Let other companies build other parts of the ecosystem and let them have the advantage of near-zero transaction costs.
Basically, if bitcoin is going someplace, being a trusted exchange may very well pay off. I imagine that beyond a certain point of proven reliability and transaction volume, VCs will be willing to take some of the action off a promising horse.
Bitcoin's efficiency is "regulatory", like Uber; by transmitting money internationally without requiring KYC/AML compliance, and by putting all fraud costs firmly on the victim, it allows for nominally low transaction "fees". The fee ends up hidden in exchange spreads or covered by the losses of people who want to play with unregulated forex trading.
putting all fraud costs firmly on the victim...voluntarily.
Ideally in a mature system with various options for mitigating risk cheaply. If someone wants the (currently a tight oligopoly) 'credit card insurance scheme' why not let them have it in a more naturally competitive market?
The spreads are the spreads and if transacting costs more then it does elsewhere no one will use it. Otherwise, some positive things might happen.
Anyway, what about people who want to play with regulated forex trading?
Because everyone wants the "low cost, no fraud protection" card, until the Russian hackers steal a bunch of them. Then those people are the very ones who make the loudest noise blaming others for the problem, despite being told about the risks up front.
This is a mentality problem with America. I find banks to be terrible and high friction institutions. I don't trust that it is 'federally insured' as you are only insured to what their database/multi-page legal policy/management says you have in the account in the first place. So the system doesn't work for me. I'd love a system like bitcoin, a system that gives me the freedom to move my money as I see fit, on my terms, without a fee because I don't have enough of it. But you will always have people like above, who complain that such a system exposes me to 'risk' and because of that I shouldn't be allowed to make a informed decision in how I wish to store my money.
You say the system doesn't work for you, but in fact it does. You're insured whether you like it or not.
Bitcoin exchanges aren't free, right? They have to make their money. They will end up working almost identically to the way banks work. Or they will go out of business.
I'm not. I use cash. I'm too poor to always keep a few hundred dollars around and wait for them to make a 'policy change' that now doubles the minimum and have them take my money. I simply don't have the time to read the dozens of spam notices about 'free life insurance' they send me as well as the notices about the changes in policy.
Bitcoin already has a transaction fee built it, its reasonable and value-added. I have no problem for paying for a service that gives me value.
I can handle myself in the real world, If I give money to someone who steals it from me? My bad, I'll eat my mistake. Don't steal from me and tell me its for my own protection.
Ugh, that page breeds SO much misinformation it's saddening. I wish they'd stop calling it 'cost per transaction'.
Imagine you build a bridge for $1m and 1 person drives on it. Does that bridge cost $1m per user?
No, it's just an average metric. There isn't actually a marginal cost of $1m for every person that drives on that bridge. It just happens that the bridge is underutilized and that the average cost appears high.
Blocks are like that. If the block holds 0 transactions, the block reward is paid out. If the block holds 1 trillion transactions, the block reward is paid out. Either case, it's 25 bitcoins. In other words, a transaction does not carry a marginal cost in block rewards, as block rewards are paid out regardless of ANY number of transactions.
Transaction fees are the marginal cost, and those are pennies.
As for the block's capacity to hold transactions? That's interesting. If the $1m bridge could only ever move 1 person, then the cost of driving on that bridge was indeed $1m.
But blocks have quite large capacities. Currently 1mb, they're set to go to 20mb probably this year, and grow to hundreds of megabytes over time. Read about it from Chief Scientist at TBF on bitcoin [0].
The roadmap is that in 12 years according to the work that's being put in the protocol right now, you can fit a little under 400 million bitcoin transactions in a single block, using technology that's as expensive as the one that's running bitcoin nodes today. (cheap consumer grade home computers.) In 12 years, bitcoin will have had nearly 4 more halvings, meaning block rewards are by then only 1.5 bitcoin per block.
In other words, in roughly a decade bitcoin's block rewards will be a tiny tiny fraction of a fraction of a penny.
And even then, it's STILL not a 'cost per transaction'. It's not even an 'average cost per transaction', because the sender doesn't actually pay. The block reward bitcoins are created out of thin air, not paid by the senders of the transaction, which means it's a cost to all owners of bitcoin, regardless if any transactions are made, in the form of inflation of the money supply that devalues existing money by a tiny bit. Hey, just like say, every single currency in the rest of the world, whose money supply increases (aka everyone, including the dollar).
And this money supply is, unlike the dollar, which is printed every year in gigantic amounts, set to go to 0 by design, by software, and there's absolutely no way to change it except by consensus (moving to a new bitcoin blockchain).
> The block reward bitcoins are created out of thin air
Its a value redistribution by diluting all the existing holders of bitcoin. Bitcoins may be created out of thin air, but the value that makes them a reward is not.
> And this money supply is, unlike the dollar, which is printed every year in gigantic amounts, set to go to 0 by design
Which means that to continue to give miners an incentive to validate transactions, actual transaction fees will have to pick up the slack of providing value as the block rewards decline.
> Its a value redistribution by diluting all the existing holders of bitcoin. Bitcoins may be created out of thin air, but the value that makes them a reward is not.
What's your point? I said so in my post. Maybe I'm missing something. We're both saying the same thing, which means that this value dilution is not actually a transaction cost. It happens regardless of whether any transactions are made. And it's similar to the dollar, in that daily/yearly new money supply dilutes the value of all dollars. Bitcoin isn't unique. It's only unique in that this new money supply eventually ends, while the dollar and any other currency keeps diluting forever.
> Which means that to continue to give miners an incentive to validate transactions, actual transaction fees will have to pick up the slack of providing value as the block rewards decline.
Agreed. And that can easily happen. Bitcoin is very tiny, it's maybe used on average like once a month by 1 million people. It can easily scale 100x in use case, meaning 10 million people use it every few days. It'd still be tiny. But if that'd happen, the price would likely be at least 10x higher. At that point you could literally cut out all block rewards, the transaction fees (in the pennies) would already be enough to pay for the miners. And seeing bitcoin, a global currency, scale to 10m users in the next few decades as mining rewards taper off, is a very very tiny expectation. If it can't even do that, then who cares if the economics work out, nobody wants to use it anyway. But if it scales because people want to use it, to 10m people or 100m people or even to the order of the billions of users that people like Marc Andreessen think it could be used by one day, then block rewards are completely unnecessary, and you can pay miners a shit ton of money on transactions that cost pennies.
And again, if it doesn't scale because nobody wants to use it, then who cares if block rewards go to 0 and suddenly transaction fees have to be $20 per transaction... It's like saying 'if by 2015 typewriters won't be used by millions of people, they will become super expensive'. It's completely irrelevant. Nobody cares. And if it does scale, you can keep transaction fees cheap and pay miners with larger volumes of transactions.
