I am salvadoran myself and I do not support the current president but I should say that the law passed by congress says that El Salvador will have it's own bitcoin reserve and an exchange for bitcoin against USD (our current national currency), so there will NOT be a transaction fee involved as you are just moving within a national reserve with a national exchange.
> so there will NOT be a transaction fee involved as you are just moving within a national reserve with a national exchange.
For buying and selling Bitcoin, possibly. Transactions with Bitcoin will still have the usual transaction fees, as you still need to pay the miners verifying/realizing them.
LN requires opening and closing channels, each of which have to be done as a regular Bitcoin transaction. The value proposition of LN is that repeated transactions with the same entity (or some subset of) can be done without high fees, but considering almost nobody is currently using LN that doesn't change things right now.
LN now has routing, so you can open a single channel with a well-connected node and transact with everyone. They will charge you a fee for this, but it is on the order of 1/100th as much as a regular bitcoin transaction.
Still all sounds really complicated, obtuse and unnecessary. They should've went with a cryptocurrency which is actually usable out of the box as a... currency.
Why? Are you saying that countries should start adopting a crypto with a market cap of barely 1B$, that's been around for a less amount of time, that's significantly less battle tested and that never recovered to it's all time high value?
Do you think that the only thing that matters for crypto is speed and fees? You don't think trust/security/decentralization have any value?
Bitcoin chooses trust and security above everything else, as it should. Then you can have layers on top where you transact at the speed of network packets.
Routing in LN has a bit of a problem where sometimes it can't find a route though. My understanding is that it's an NP complete problem and it's approximation in practice leads to the dreaded "unable to find route" problem.
Is it possible to calculate the transaction volume in BTC over the lightning network, or is the ledger non-public in the same way that Bitcoin's is?
If I understood the Satoshi paper right, after the block reward is exhausted the network's security depends on transaction fees being high enough to sustain a strong level of security. If Lightning brings transaction fees down, is that not a threat to the security of the network as the block reward becomes smaller?
LN doesn't reduce on-chain Bitcoin transaction fees, but instead attempts to move most of the transactions off-chain. With LN you would open a channel using an on-chain transaction, conduct any number of off-chain transactions in that channel, then "settle" the channel by closing with another on-chain transaction.
There basically are two different views currently on the future scalability and funding model of the network.
The LN/small block view is to keep that layer limited and small and build on top of it and the idea is that with such limited transaction volume these "settlement" transactions will eventually cost a lot. I don't really see this working since to compete with block subsidy rewards you would need very costly transactions.
The big block or "Bitcoin Cash" view is to scale the block size up and eventually you will have very high volume of on-chain transactions.
> I don't really see this working since to compete with block subsidy rewards you would need very costly transactions.
This seems to suggest that miners dictate the reward they get, rather than miners are forced to adapt to the reward they are offered.
There's no required amount of energy used for mining and miners are offered 0 guarantee of reward. Mining difficulty automatically increases and decreases depending on how profitably miners can operate. If the reward drops to the point that a miner using expensive coal can't compete with a miner using cheap solar, then they simply go out of business and hope they can sell their equipment to someone who can still turn a profit.
> This seems to suggest that miners dictate the reward they get, rather than miners are forced to adapt to the reward they are offered.
Miners don't dictate the reward they get. The subsidy is the "block reward" that started at 50 BTC and halves every 4 years, which is currently at 6.25 BTC - it will be halved again in a few years to 3.125, etc. Blocks are as full as they can be right now and rarely get to the 1.0 BTC mark, so basically if you want the transaction fee market to pay for blocks without increasing the size you'll need to pay close to 6X to 10X higher fees than the current price.
> There's no required amount of energy used for mining
This is true and actually the difficulty can decrease, but none of that changes how many transactions can actually fit into a block.
> Mining difficulty automatically increases and decreases depending on how profitably miners can operate.
Mostly accurate. Mining difficulty decreases if a block took too long to mine. There are lots of scenarios where mining difficulty could get easier - most of which don't seem plausible right now though.
If you run a node on lightning, you would know how much transactions you've forwarded, so you can make estimates, especially if you run a large node (say Bitfinex that runs their own nodes), but lightning isn't public the same way blockchain is.
The 1MB block limit makes it highly likely that there will be transactions in the mempool, you still need to open/close channels (even batched ones) and presumably large transfers for cold storage still happen on the blockchain, but then again it's very difficult to say what happens in year ~2140, we'll all be long gone by then.
At those time scales, it's pretty difficult to predict anything imo. That said, Bitcoin has been declared many times before and it'll continue to be predicted, it always comes back stronger.
It is also only 2140 if you believe that the market cap can double with the halvening schedule every four years. I see the upper bound (around gold market cap) in 3-5 halving cycles. After that the majority of the security has to be financed by tx fees
Miners will get an exponentially decreasing amount of block rewards until 2140, but even 20 years from now the (BTC-denominated) size of the block rewards will be substantially lower than they are today.
The price matters because they are BTC-denominated. If the price of Bitcoin doubles every 4 years, the security of the system can stay at parity with what it is today (assuming the real value of transaction fees stays roughly the same).
That doesn't make any sense, the channels are p2p, you can open and close channels with whoever you wish and your channel counterparties don't actually hold your funds, you hold them.
So "off chain" means LN holds the BTC in some other data structure then batches it up as one big transaction? Kinda like how a broker covers small retail trades until they hit enough volume to register an NYSE trade on the floor? Is that how it works? If so , this means lots of BTC is tied up in LN ... that seems dubious as heck.
It's not entirely off chain. It's hedged in that a transaction is created sending X BTC between us, we repeatedly update that transaction off chain every time we move small amounts of money between eachother, then after Y days we submit the final transaction to the blockchain to resolve the total amounts.
The idea being if one of us starts to be uncooperative, the other can just submit the transaction at its latest state so that we don't lose anything except that last update that we disagreed upon.
Most of the examples of Lightning that I've seen involve frequent transactions between small numbers of parties. How would this work in a retail transaction? For example, if I want to buy a cup of coffee from a shop that I visit infrequently?
My understanding is basically there's routing and there will be centralization of channels to some extent. One way to think of LN is that it is a wallet/debit card of sorts. You transfer some amount of BTC to a Lightning channel and that becomes your wallet. You can transact with that wallet quickly/cheaply but there's always the ability for that channel to be closed and put back on the chain with the last balance in the case of disputes etc..
But as you said, coffee shop needs some path to you to make that feasible. So then you get BTCVisa (c) or whatever, which is a channel provider that has built a network of channels open with lots of vendors. If you open a channel with them then you get to benefit from getting to use the wallet you already have. There is cross-channel routing of course so maybe that doesn't happen but it seems like a natural result.
LN is neat in concept, but I'm not sure I really see the point compared to Bitcoin cash or the like that just say scale on chain. I guess we'll see.
It forms a network, where transactions are routed between LN nodes/channels. You have to be in the same graph with the coffee shop. If there are small separate subgraphs, they can be connected by one common node, such as an exchange.
So, most likely the coffee shop has just one or a few channels open to popular exchanges or dedicated LN services. You open a channel either directly or indirectly to the same exchange / service.
You have onchain BTC, and you can decide to put them in a LN channel with another party (this causes an onchain transaction)
You and that party can now transact freely between each other with no fees, but if that other party is a gateway, it can route payments through it and through other gateways too, and each of them charge fees for routing.
Once any of the parties decide to close the channel, is when a new onchain transaction is created with the last balances state.
While the LN channel is open, only the parties involved know the current state of the balance.
Interesting. So it's like lots of little ledgers, each channel stays open until N number of transactions between two people complete, then the finally tally is pushed onchain when the channel closes. Am I wrong to thing this sounds a little risky? Like, that channel could be "lost" after the goods/services were exchanged, leaving the seller holding the bag. I don't understand what kind of recourse the seller has to LN if LN screws up? It's kinda like escrow, but escrow agents are heavily regulated whereas is LN "trustworthy"?
EDIT: ah, I think "nicpottier" explains a little more, below. about having an account on LN requires a certain amount of a deposit (like a debit account).
Each update to the channel is a new transaction that references the opening transaction, on each update, this transaction is replaced with a new one, so in practice only the last transaction is kept (old transactions become dangerous to publish)
The big difference is that bitcoin's scripting language is not turing complete. This is a security and scalability trade off that the bitcoin community isn't willing to compromise on, which drove people like Vitalik (started as a bitcoin dev) away to start Ethereum.
I haven't looked into this much, but there are projects like Rootstock, https://www.rsk.co/, that essentially recreate all of Ethereum's functionality as a bitcoin sidechain.
It has always had, it is just much limited than ethereum's.
But you can express things like "if X and Y cooperate they can spend this transaction or Y can spend after 1000 blocks or X can spend if it reveals the preimage of this hash ____"
These logics are what LN uses in its update-transactions
If what you want is a more technical answer of how the balances in a LN channel is trustlessly updated, then you should probably read a more in-depth resource, it's a complicated topic. But I'll try to give you some idea.
Every transaction in a LN channel is not a simple transaction, it's a smart contract transaction that, if broadcasted, closes the channel automatically but have multiple ways of spending it further, and one of those ways allows a party to get all the funds if he has proof that the counter party cheated (closed the channel using and old-state transaction).
So those transactions that are created are never published if both party cooperate, instead, they serve as a forced-closing mechanism if the other party is uncooperative
That was just a high level view of updating channels, but opening a channel and routing a payment is another story
Lightning scales with the number of transactions, but does not scale with the number of users. For that it still needs the bitcoin network to verify, and you're back at your transaction bottleneck but with added complexity.
Unless the national exchange is hosting wallets it controls on behalf of individual citizens, or acting as an intermediary for all transactions—in which case you’ve negated all the features of Bitcoin and may as well be using any random currency with the government as shared banker—I don’t see how it does.
I mean, sure, “the government will be your bank for free” solves the problem of the unbanked, but renders the identity and features of the underlying currency mostly irrelevant.
Except the main benefit of BTC is really the lack of printability. Governments can't just make more of it even if they run the LN for their country. That said I don't think it will come to full LN centralization either.
There are still other cryptos that have further benefits as well.
Monero for example is fully private and can do ~1500tps on chain atm. Bitcoin adoption is just one avenue to competing currencies that bring freedom back. If the LN can remain distributed and bring anonymity to its users, then great, but if not there's still further alternatives, and with decentralized exchanges, governments won't be able to stop the use of a better system.
Currency competition is just plain great for human rights and freedom.
Just like paying "Mastercard dollars" at the store means it might as well be pesos? Presumably for transactions that are worth paying blockchain fees, you'd use the blockchain.
> Just like paying "Mastercard dollars" at the store means it might as well be pesos?
I’m talking about specifically the benefit being sold as “Bitcoin is solving the problem of the unbanked”: if the solution involves the government being a free universal payment intermediary, the underlying currency choice isn’t what is solving the problem of tje unbanked, its the government providing free universal banking services, to which the underlying currency is mostly irrelevant, that is solving that problem.
The currency choice might be relevant to other things, though.
> you’ve negated all the features of Bitcoin and may as well be using any random currency with the government as shared banker
Since the goals are to 'give people without bank accounts access' and 'To make it easier to send back remittance payments'. I suppose they are just negating the value of bitcoin in general, though not for their specific use-case. Especially give the fact that the current legal tender there is currently USD which anyhow does not give the country any control over monetary policy.
This is a good question and I think the clues are in the way informal vendors in parts of Asia and Africa have already caught on to transacting through mobile. In remote parts of ES there aren’t any bank branches and villagers have to travel an hour or more by bus into town just to open an account, when they get back to their village that same lack of infrastructure means no POS or businesses accepting cards. Feature phones and smart phones, however, are ubiquitous and this gives an “official” way of doing this.
This solution doesn’t have to be crypto at all, however. I’ve been to China where even food carts have QR codes printed on them for people to take wechat pay and ali pay.
Electronic transfers are common. But electronic payments like that are not so much.
We have Bank QR codes and something simillar to M-Pesa, but its not that widespread because there is no one standard for QR payments or similar. That makes it less practical to use because both you and the vendor must use the same bank. (El Salvador is small and there are many finatial instituions.)
Something like U.S. Zelle or Swedish Swish would help, but banks have not standardized yet.
If WhatsApp started something like WeChat payments it would become a hit. Like they did in Brazil.
You presumably live in a developed economy. There's a reason 70% of El Salvadorans don't have bank accounts, and it isn't a context of easy online banking.
It's small payments what are are mostly done in cash, like the $0.20 bus fare, $1.25 lunch, $0.50 soda or $0.25 tortillas. There is no widespread electronic alternative for those payments yet here.
Free mobile banking accounts have been available for a while in El Salvador, and can be opened with a selfie and a photo of your national ID. They are only avaialble for those 18+ and older though.
correct, just search El Zonte or Bitcoin Beach, tons of videos on youtube on how they're using lightning network in fully circular economy since entire town has been unbanked
it's pretty fantastic people! naysayers should plan to visit El Zonte, beautiful surfing community.
I plan to visit later this year and have friends who work with Strike team etc.
The problem here lies when the merchant want to derisk btc/USD by often converting it back to USD after a transaction. That causes a miner fee, there is a penalty in breaking the lighting channel.
You can stay on lightning for exchanges, Bitfinex for example offers lightning deposits/withdrawals, El Salvador would too, considering they are using lightning right now.
Asking as a noob, isn't the whole point of transaction fees to prevent malicious actors from flooding the network with spam. How does lighting networks prevent that from happening and why can't one use a smiliar approach for the actual bitcoin blockchain?
The blockchain settles the transaction and records the finality.
Imagine a transaction as being a simple cryptographic signed message that sends 1 BTC to someone, you just broadcast it to the network and it gets recorded immediately. But if you expect to continue transacting with the same person, instead of broadcasting the transaction, you can hold on to it and keep iterating on top of it with new balances, each time signing the transaction so that your counterparty can always go to blockchain to claim their coins.
There's obviously some mechanism to avoid broadcasting old state and making sure you actually have the funds, etc, but you can't flood the network, even if you tried, you'd only be flooding your immediate neighbor which still charges fees, but much smaller fees than the blockchain. There's also mechanism for connecting those channels, so you don't need to have a direct channel with someone you want to pay, you just need a path to them.
High level answer: Lightning transactions happen off network and only "sync up" once in a while. In a lightning transaction, only the two individuals transacting know that it has happened. But in an on-chain transaction, that info is public.
Other person node who would lose money if this happend can publish the original transaction that is construscted in a way that the attacker would lose all his funds.
So attacker could potentially do this but if they get caught they get punished for losing everything and they get caught if the other side node is online when this happens.
There are also watchtowers that can monitor the network for hacks like this
Transaction fees come from the miners who will put your transaction in a block and mine it for you. Creating your own reserve changes nothing for this.
Unless if you’re going to do a bunch of off chain stuff, which seems pointless.
Lightning network liquidity should actually help solve this. If you maintain a reserve and open a ton of payment channels for folks (those HTLCs are all on-chain), this drastically reduces impact of confirmation time and fees.
That’s been the claim for a while, yes. But actually delivery of said promises has always been “soon”.
And while six million isn’t a huge country comparatively, I personally would be mighty pissed off if my entire country was used as a massive financial experiment for crypto enthusiasts.
But Bitcoin is so volatile. You deposit today let's say 10k of your USD and in one week if the market doesn't like the twits of the day you find yourself with half that.
fiat currency does not drop 50% in one month and is not at the mercy of other countries. If US forbids all banks to execute trades in BTC like China did, BTC is dead.
> fiat currency does not drop 50% in one month and is not at the mercy of other countries.
Fiat currency not controlled by major economic powers has been know to do that (and there are a few cases for major powers, too, in conditions like just after losing major wars with other such powers.)
Conversely, if you aren’t a major economic power, a fiat currency that is controlled by one is at the mercy of other countries. (And, even if you are a major power, your currency has some exposure to your relationships with othe countrieds, though “at the mercy of” may be too strong.)
Not all fiat is “the USD from the perspective of the US”.
What the normal people will use in the beginning is going to be non-custodial LN based solution like strike. Minimal fees, easy to use. If you get a bit more, move to custodial LN wallet/onchain transactions. More fees, more security and less trust. And once you have too much BTC start storing them in an offline cold storage.
I can see someone explaining to their grandmother about having to move her BTC to offline cold storage and storing her private keys securely or she could lose her life's savings in an instant with no recourse
Multisig solutions are available for increased security and reliability. Services like Casa and Unchained Capital will even hold a single key from your set, allowing you to recover your funds if one of your keys is lost, however they can never move your funds on their own because they never possess a quorum.
So you can have a wallet that requires 2 signatures to move funds, where you control 2 signing devices (mobile app + hardware wallet) and the third-party holds the 3rd key. Normally you manage all transfers without involvement of the third party, but if one of your keys becomes inaccessible they can help you sweep your funds to a new set of keys.
Additional resiliency and security is gained by increasing the quorum to 3-of-5. You control a mobile app plus 3 hardware signing devices, which are ideally distributed geographically. This increases reliability in case something happens at your primary site (like your house) and increases security by requiring an attacker to physically visit multiple locations. The 5th key is held by the recovery service.
Shamir’s Secret Sharing is a general solution for splitting secrets. Bitcoin multisig is superior for for its specific applications though. The biggest reasons are:
1. There is never one single key with full control. This is a huge vulnerability with SSS.
2. More flexibility, by allowing differing k-of-n subsets in combination with timelocks and other Bitcoin script features.
That someone probably will have learned how to help grandma on complex digital processes last time goverment services, communications and commerce moved online.
I agree it won't be pain-free, but hardly the first time such conversion would happen
Who the hell has time to figure out all this stuff?
I personally think the day the digital US dollar is developed and can be stored in your IPhone. If I can take my locally stored digital dollar and then send it via imessage or whatsapp, then the game is truly over for Bitcoin.
It's closer to each individual bank having their own digital currency, all of which are worth 1 USD each. The digital US dollars at my bank are not directly exchangable with the digital US dollars at your bank. You need to settle up with an ACH transaction, which takes at least a day to transact as it has to run in a central batch job. In addition, only US domestic institutions can use this mechanism to transfer US dollars between themselves -- international institutions need to use the SWIFT system, which is multiple days for a transaction. Contrast with credit card payment and settlement, which acts closer to a digital system but can't be used as a store of value (and has punitive fees for attempting to do so). The US dollar acts like a cash system with some digital features rather than a digital system.
> The digital US dollars at my bank are not directly exchangable with the digital US dollars at your bank. You need to settle up with an ACH transaction, which takes at least a day to transact as it has to run in a central batch job.
FedNow will reduce that latency from days to minutes. US is slow in that game, but RTP is widely deployed in UK, France, etc.
For international transactions, one can use SWIFT (days) or TransferWise (minutes) or Western Union (under one hour).
I want my digital cash to work like regular cash. I need to pay the lawn guy, send an iMessage. I wanna buy lunch, swipe my phone and pay with the money in my phone. I don't need the charge going through my bank or some intermediary.
I want freedom to use my digital money the way I want without someone holding my account hostage, if I do something wrong. Additionally, I have no problem losing my money, if I send the money to the wrong person or lose my phone.
That's good usability-wise, but it still has the problem of central banks being able to create money (diluting your wealth for their benefit) and also being able to cancel you, or someone you want to pay, out of the system. It's a horribly powerful way to control people.
FedNow is a digital cash system. It's not there yet, and it's still not international. As for Western Union et al, it's a bit like claiming the US has a digital cash system because Venmo exists -- it's someone else taking on the risk the funds won't settle in order to provide a better user experience. So the US is approaching a digital cash system, but it's not there.
The bank does hold a fraction of your deposits, as our banking in the US is fractional reserve banking. This has been the case for quite some time, and isn't really the same thing as digital currency, even if we transact digitally.
From my understanding, they hold most of that in reserve accounts with the Federal Reserve. But yeah, someone at some point holds some cash. But of the total US money supply (in 2018), physical currency makes up about 11% of the total value[0].
Edit: Downvoted, and I'm guessing it's the source? This is legitimate fact though. Here's the fed's own announcement.
> In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.
Where does the Fed get the money to be a lender of last resort - by printing the money and generating inflation? If so, then how does this inflation impact the purchasing power of these last resort dollars?
I often like to take things to a logical extreme. Since the Fed can simply print all this money into existence, is there a limit to their ability to print? I mean couldn't they simply print their way out of any economic crisis or would this result in another Weimar republic situation? -- genuine question.
Printing money does not always cause inflation. The purpose of the Fed is to keep the dollar's value stable. If demand for the dollar rises, the Fed has to print money to avoid deflation.
The common mantra "When a measure becomes a target, it ceases to be a measure." applies here too, but many HN peeps seem to think it doesn't for some reason.
If you remove the constant adjustments to the CPI you get a _much_ higher rate of inflation than governments will admit.
One year ago the dollar was deflating, so this is cherrypicking data. If inflation was above 4% for multiple years then that would be a problem, but a month or two is not anything to be worried about.
I'm also not sure why you think adjustments to the CPI should not be allowed. Individual goods get cheaper or more expensive relative to other goods, and consumers change their behavior. It would be asinine to have the government subsidize certain goods (via economic policy) such that all consumers purchase the same basket today as they were in 1990!
I don’t particularly want my dollars to “hold value”.
I want currency to be useful as currency; I want my investments to hold value. The two things serve different functions, and I don't want investments compromised to be useful as currency or vice versa.
> I don’t particularly want my dollars to “hold value”
Sure, but would you really rather your dollars "lose value" as in they can purchase less and less goods and services over time? How does that benefit you personally?
> Sure, but would you really rather your dollars "lose value" as in they can purchase less and less goods and services over time?
Yes. Mostly, because of systemic effects on the broader economy I need to have functioning to earn a living, but also because of more direct personal benefits.
> How does that benefit you personally?
Because other than a small share in cash and the bank for liquidity, my assets aren’t dollar denominated, but my debts — which, while smaller than my total assets, are much larger than my dollar-denominated assets — are almost entirely dollar-denominated.
I agree that it's nice if you have assets, but I believe for most people we can't have nearly as many assets and or connections as the wealthy.
And for young people, they're basically priced out of assets by this system. _This_ literally is the reason owning a home is next to impossible for millennials and gen-zs.
Further, this encourages a debt based society that may encourage growth in the short run (debt giveth first), but then when the debts are due it holds the economy back. Typically this looks like the 2008 crash and is coined the `business cycle` by modern economists.
> when the debts are due it holds the economy back.
This is just wrong. The only debt that holds the economy back is debt that didn't actually generate growth. If you borrow to start a business, you are stimulating the economy with growth, through debt. If you rack up credit debt at the bar every weekend, you're going to cause yourself problems.
The topic is just more nuanced than you're implying. Debt is very good for the economy overall, as long as you're not overdoing it or taking on frivolous debts that don't let you grow.
Student loans seem relevant here. I take out 50k of student loans. The degree I earn empowers me to make 50k/year. After 2 years that debt has been turned into profit, and that's only for me personally, ignoring the value my education will bring to my employer, the community, and the economy at large.
Another example of good debt can be a car. I purchase a 20k car, with credit, which allows me to make 70k instead of 50k, in the next town over. After a year, that debt has paid itself off and is now earning for me, despite the fact that the value of the car instantly dropped 20+% as soon as I purchased it.
The idea that debt holds the economy back is terribly misinformed and over simplified. It's literally how we grow, and how the US has become the economic powerhouse it is. The most wealthy nation in the history of the world (what we do with the money is a different topic).
Most people have nonfinancial assets (e.g., durable items of personal property.)
> _This_ literally is the reason owning a home is next to impossible for millennials and gen-zs.
No, its not, because its been true (and inflation higher) for preceding generations, so it can’t possible explain why Millenials and beyond have it worse than Gen X who had it worse than Boomers. Tax and spending policy shifts (Reagan's being the biggest single one nationally, but there have been several subsequent national ones, and CA Prop 13 and its — mostly much weaker — copycats play a role, too) are a much bigger factor
> Typically this looks like the 2008 crash
The 2008 crash wasn't a regularly occurring event. (And as bad as it was, wasn't nearly as bad in and of itself as it is widely perceived; it gets magnified because — again for reasons that trace directly back to fiscal policy choices — the expansion after the brief and shallow 2001 recession was, up to that point, pretty much the most hollow expansion in modern US history, with, IIRC, every income quintile but the top doing worse, and even the top being mostly flat except for the top couple percent.)
How much money do you have in dollars? I have an emergency fund — 6 months of expenses. Everything else is in other assets that store value after inflation (e.g. stocks, bonds, housing).
> How does that benefit you personally?
A little bit of inflation means more economic growth in the long run. That benefits me because services and goods will get cheaper and/or better.
Not much, in fact I try to remain leveraged via debts to hedge against inflation.
But my salary is measured in dollars. I fought hard to get the salary I have today, but I must continue to ratchet up as my employment deal looks worse every year.
I believe the Cantillion effect is largely why the average peasant's wages have not kept up with asset prices.
Inflation means wealthy (with assets) get wealthier.
> A little bit of inflation means more economic growth in the long run.
When you play tricks with the CPI it does look that way. It's easy to say there's growth when revenues grow beyond a poor measure of inflation.
Inflation discourages savings and thus makes money look easy. As such, it actually encourages bad investment. Further, the business cycle that Kaynsians say are just a natural part of a large economy are really caused by over leveraged banking credit bursts.
If half of the dollars in circulation are just debts owed between banks, then that bubble bursts, it's no surprise that asset prices would fall--there's literally fewer dollars in circulation.
It's no big deal for those involved in fed policy making as they are usually the first to see it coming (and or instigate it with higher interest rates) and generally move their positions back to dollars just prior to a credit bubble burst.
But for those of us that leverage ourselves to hedge against inflation (buying a house), we get caught with a heavy loan on an asset that's no longer worth as much as the loan on it.
One should be open to viewpoints external to those provided by the people in charge of and profiting from the system.
Your salary is measured in dollars, but inflation affects your salary as well. When companies charge more for products, where do you think (some of) that extra money goes?
The rest of your comment has some interesting hypotheses (Cantillon effect, inflation encouraging bad investment) but in practice, you have to make measurements to see whether those effects actually happen. I haven't seen any empirical evidence for the Cantillon effect, and empirically we have evidence that a small amount of inflation does not decrease output (and can increase output in some cases).
> The Fed's goal is to maintain inflation at 2% for reasons more complicated than I'll discuss here.
It would be amazing if you could make the effort to explain the complicated reasons why the Fed's inflationary policy is a good thing. I have yet to hear a sound argument why sound money is worse for the people, than an inflationary currency. I can see how it would benefit the government to hide the true cost of taxation via inflation, but why does it ever benefit the individual to have their wealth diluted by the process of inflation, even if it is "only" by about 2% per year?
I can't do this topic justice from memory, but you seem to be genuinely interested, so I'll say what I can.
It seems related to the petrodollar system. This is where the world uses USD for energy (OPEC only sells oil for dollars). This forces countries who need oil to acquire dollars. However, there's a problem with that: a limited supply of dollars. How do we fix that problem? Use a fiat currency (not backed by something tangible) that allows us to print more money as necessary. How much more should we print? The target is 2% inflation, so that much is what the experts in this topic think.
This petrodollar system does a lot more than just force us to have inflation. The subject from here becomes more and more complicated, because monetary systems are highly complicated. There's a lot going on in the US fiscal policy, and the impacts vary from very good to very bad, depending on your perspective. It's in fact so complicated that I can imagine for every perspective there are good parts and bad parts of our monetary system.
There's a lot of talk in this thread and on the internet in general, especially around cryptocurrencies, that is massively oversimplified and doesn't pay any mind to the fact that, like any other field, there are many very intelligent people working to solve very difficult problems. If a monetary policy can be summed up in one sentence, it's probably not a good policy.
Well, you make it sound like there's a limited number of dollar notes and the bank will refuse your deposit/loan if they don't have enough notes lying around to make the fractional requirements.
In reality, they will accept your deposit/loan (as long as it makes business sense) with no regard for how many notes they have lying around. If that puts them over the edge of the fractional requirements, they'll just go to the Fed/Treasury, who will swing their wand and write in additional (digital) reserves for the bank.
> they'll just go to the Fed/Treasury, who will swing their wand and write in additional (digital) reserves for the bank.
Pretty sure that's true for larger institutions and lending between themselves, but not for your everyday accounts. They must go to fed member banks themselves to ask for the loans.
This simply isn't how the financial system works. The bank will only loan out amounts based on what they hold in reserve. Asking the Fed/Treasury to "swing their wand around" isn't really close to what happens. Also, the Federal Reserve and the Treasury are different entities.
They don't just "print money" for banks arbitrarily.
Printing money for banks arbitrarily is exactly what they do -- what they have to do, if they want to have any chance at meeting their target overnight rate. (Which they are.)
Demand for money comes from the market and is not very flexible, and certainly not under anyone's control. Lenders will meet the demand for money at ever increasing prices (i.e. higher overnight rates) unless money gets printed arbitrarily.
The US does not have reserve requirements; it has capital requirements. The fractional-reserve model is not a realistic description of banking in modern developed economies.
I don't have a strict definition handy, however it seems as though digital currencies would be those that are digitally based, whereas the dollar is a tangible currency first, even if it is fiat.
A digital currency would be like crypto currency, or in-game currencies or something designed to be digital. The dollar is the federal reserve currency, and not intended to be digital. It doesn't make sense to call it digital currency, when in fact it's physical currency first, and we've developed digital tools to help us use it and move it around.
> I personally think the day the digital US dollar is developed and can be stored in your IPhone. If I can take my locally stored digital dollar and then send it via imessage or whatsapp, then the game is truly over for Bitcoin
Hasn't this already happened. It's called Zelle or Venmo or CashApp or ApplePay or a million others. Heck, if you prefer Elon Musk pushed technology there's even this thing called PayPal.
And it comes with a whole series of laws that protect you in the case of hacking, fraud, etc.
I don't follow the advantage of using a government-issued (and custodially held) bitcoin wallet. Well, I understand that El Salvador wants to encourage people to use their BTC there. But other than that I don't see the value.
>Who the hell has time to figure out all this stuff?
In the early days of the internet, many things were a complete pain in the ass to do. But then services and apps were built and things became easier, same is happening in this space.
Before, even purchasing Bitcoin was extremely difficult to do, and involved a lot of research + steps - now it's trivial. Before, securing your wallet was extremely difficult, now it's easier but not ideal to those that are less tech saavy.
This is such a brilliant answer. Imposing the grandma test on early-stage ecosystems is a total naysayer move. We all know that humans are capable of doing advanced math, even though a newborn baby doesn't come even close to being able to do it.
Numbers in a retail bank's ledger are not digital dollars. They represent an obligation of the bank, and not direct ownership of dollars.
Digital dollars exist, but only banks can hold them, as they're the only ones with accounts at the central bank. The rest of us use retail bank accounts, which are the equivalent of custodial wallets in the crypto world.
This is correct in practice. But consider what I said in the context of the discussion: contrasting 'digital dollars' with cryptocurrencies.
With dollars, individuals have to choose between bank accounts, which are subject to counterparty risk, and cash, which cannot be transacted digitally.
If your holding of 'digital dollars' in a bank account is subject to counterparty risk, then there's something different about the dollars you hold and 'real' dollars issued by the central bank.
With cryptocurrency, anyone can transact the real thing. There's no counterparty risk. (Of course, there are issues with blockchain scaling, use of custodial wallets etc., which negate this to some extent.)
> With cryptocurrency, anyone can transact the real thing. There's no counterparty risk.
This only holds true if there was only one cryptocurrency in the world and everyone used self-custody. As soon as you have multiple cryptocurrencies and multiple networks and multiple wallet providers, you have counterparty risk.
Coinbase may not disappear, but others may. Similar for Bitcoin etc. etc.
So the person who transports those dollars to the bank doesn't get paid? The car that takes that person to the bank doesn't use gas? Just because you don't see the fee doesn't mean you don't pay it. It's included in the price of anything you buy.
That fee is only because we want that money settled instantly by a third party. There's no fee for a bank to bank transfer. Or heck, even writing a check. Once you get VISA involved they want a cut.
It might appear that way, but that is only because the fee is hidden.
The credit card terminal agreements signed by retailers prevent the retailer from offering differential pricing when buying via credit card or cash. Essentially, the credit card fee is embedded into the price.
This might be "good" for people who have credit cards, but it is inflationary (by roughly 2%) to people whose credit is poor and only transact by cash.
I think that using cash makes money expensive which adds some base load inflation - this will help reduces homelessness and other societal ills (such as wealth inequality).
Electronic money is never lost, not like those pounds, pennies, dollars, quarters. Losing money, takes out of circulation. While not much is taken out, it might be enough to create a base load of inflation - money becomes more scarce and therefore more expensive.
Low inflation leads to asset price bubbles - stock market and housing in particular. It also suppresses wage inflation. So housing becomes more expensive and wages do not keep up, making housing less affordable. A double punch.
Low inflation leads to more financial speculation as people with access to capital look to diversify away from a limited pool of assets (Bonds and cash become less desirable in low inflation regimes). Buying housing and leasing it out is a good use of capital. However, this leads real-estate investors to drive increases in rent as they chase yield and airbnb-empires also drive rental prices - as this is one way of driving yield.
High rents combined with low wage growth means that people's lives become priced for perfection and one small deviation can knock them out of equilibrium - losing their home / rental property when they lose their job.
All because governments and technology are conspiring to keep inflation low. Using cash is the person-on-the-street's only weapon to fight it.
Homelessness is a California’s complex housing shortage and governance/policy problem. The world is much bigger than issues in SF/Portland/Seattle. I am not following the strawman from utilitarian aspects of cash -> inflation -> homelessness & inquality.
Cheap money forces it to find a home that generates a 7%+ return. Cheap money reduces the number of asset classes that can guarantee (within reason) those returns to Housing and Stocks (and Crypto of course). Buying a home becomes out of reach for more people. In addition, low inflation also suppresses wage growth. As house prices increase (just look at Blackrock's purchase of residential property at 30-50% premiums) rents will also increase because professional landlords are seeking a 7% return and if the property changes hands at a 10% lift then rent-asked for that property will also rise. This leads to a situation of unaffordable housing (exaggerated by lack of new supply coming in line in places like California) in the face of low wage growth - this leads to homeless-ness. IMO.
From the interwebs: In the U.S., the money supply is influenced by supply and demand—and the actions of the Federal Reserve and commercial banks. ... More money flowing through the economy corresponds with lower interest rates, while less money available generates higher rates."
For perhaps the same reasons as you, I decline/turn-off auto-pay of any services I subscribe to. I actually cut checks every couple of weeks to pay bills.
I need a regular reminder of how I am being nickeled and dimed. My big fear is a constant drain on my account from a service that I had forgotten about or just the accumulative damage a lot of services add up to.
To be sure, our corporate overlords love the auto-pay, cashless society they have created for our convenience.
I have all of my credit cards and bank accounts set to notify (text) me whenever there is any transaction whatsoever. I find that helps with the subscription concerns, as well as confidence in catching fraud/incorrect charges quickly.
A cryptocurrency backed by the united states could certainly succeed as many people want to do business that way, but the point of bitcoin was decentralization and preventing government control of the currency.
The same people (lots and lots and lots of criminals, but you know, regular people too) who use bitcoin would probably not want a us dollar coin very much.
But the vast majority of people don't use bitcoin at all, for anything... I think a us dollar coin with FDIC protection or whatever protection it takes to make grandma feel safe that her $100k account is protected, would be wildly successful if they tried it.
> Who the hell has time to figure out all this stuff?
Nobody will have to learn this stuff, if the BTC economy develops there will be professional custodials for all levels. Eg. banks.
But the importance is that there is always the option to self-custody if you want to. With fiat you don't have that option even in theory. I think the option for self-custody is what makes BTC powerful alternative, not necessarily how widespread self-custody is going to be.
Physical cash is ridiculously cumbersome and difficult to handle in larger quantities. I wouldn't probably be able to get $10k worth of cash from my local bank, and getting something like $100k would probably require days and lots of work. However if I have millions worth of BTC at some big exchange, I can move that amount to a secure self custody in 10 minutes without a hassle.
So you agree that you were wrong to say that you don’t have the option even in theory? Convenience is a discussion point but it’s predicated on being possible – and since this happens not-infrequently (people buy cars, farm equipment, even houses with cash) it’s far from theoretical.
One other area to learn about: security – while it’s true that you can move millions on yourself own, the risks of theft or accidental loss are why most people do not avail themselves of these theoretical options since they consider the cost of banking fees to be an acceptable trade off for the security and convenience of letting a professional handle those problems.
… and the people who made that possible for the hacker will laugh at you and say it's your fault rather than admitting that the system they sold you is fragile.
How do you think bank accounts get hacked? It's much easier to yank a password/credit card number people use daily.
The benefit of private key is you only need to use it once. Then store it away in a safe or _bank_.
More UX will develop over time as adoption grows. We already have hardware wallets that even babies could use.
Finally you somehow imply that FIAT theft doesn't happen. Even in recent modern history people have lost all their savings in a snap be it their house burning down, colleague stealing everything or even your bank going under.
"More UX will develop over time as adoption grows. We already have hardware wallets that even babies could use."
The difference is this: If people have a hardware wallet they use digitally they think it's like a bank account on their phone. They do not realize that with that wallet if the wallet is gone so is the money. Wheras if the phone is gone, nothing happens to their money.
FDIC insurance prevents your money from being lost in this case, no?
Also, it's a bit ridiculous to think that private keys won't be stolen because you can just store it away in a safe or bank or whatever. People are susceptible to all sorts of scams and this private key won't be a panacea for human stupidity or ignorance.
Basically everything in your post highlights why crypto is a horrible idea for your average person:
> How do you think bank accounts get hacked? It's much easier to yank a password/credit card number people use daily.
Exactly, and when a credit card number is stolen the consumer is almost never liable, as opposed to crypto where your life savings are gone forever.
> The benefit of private key is you only need to use it once. Then store it away in a safe or _bank_.
As another responder said, you need your private key to sign every transaction. Giving you the benefit of the doubt and assuming you're talking about wallet keywords, even then if you have an account you still need the ability to sign transactions, and according to crypto enthusiasts the no-middleman, non-reversability of crypto transactions is a feature, not a bug.
> More UX will develop over time as adoption grows. We already have hardware wallets that even babies could use.
> Even in recent modern history people have lost all their savings in a snap be it their house burning down, colleague stealing everything or even your bank going under.
Which is exactly why everyone with a mortgage is required to have home owners insurance, and FDIC insurance exists.
The only way to introduce these kinds of benefits (e.g. to have someone adjudicate allegations of fraud; insurance; etc.) is to introduce middle men, which then defeats the entire purpose of crypto in the first place.
I'm all for getting the government out - but cash or gold is way easier to use.
If you have a political problem, you need to solve it politically. You can't hack it with a technical solution or politicians and their rich friends will just find a way to use it against you (like it's happening with btc, enjoy limitless tracking and the rich elite profiting from btc as much (if not more) than you) or ban it (like it happened to e-gold).
And what do you do when politics are fully captured by corporate and oligarchical interests?
The majority of bitcoiners see no way out of our current political system. The dollar underpins the US hegemony.
Bitcoin wouldn't be necessary if the government would allow alternative currencies, but until bitcoin, it had squashed numerous attempts at alternatives.
So to say that we need to solve it politically misses the point. Bitcoin is a solution to solve what is seen as a political mess. Further, politics is just non-violent war. This _is_ a political method.
> their rich friends will just find a way to use it against you
I don't entirely disagree. I see bitcoin as a start. The lightning network already brings some anonymity to transactions, but it could be made to do better.
Monero (XMR) is a privacy based crypto that already does so and can currently do 1500tps on chain (BTC does ~7). Crypto is war against oligarchs motivated by failed traditional politics. Monero and other techs like decentralized exchanges are a step up in weaponry of this war.
I have a feeling Monero et similia will be banned together with encrypted messaging (encryption = terrorist).
We lose more freedom every year at the hands of governments, I don't see why this trend is bound to improve.
I think what you do is you flee the country and move somewhere smaller where you have greater freedom and a greater chance at influencing politics.
My granddad was putting bombs in nazi buildings, but I don't think it really helped. We needed the USA to come over and kill the bad guys.
Well, the concept of holding cash and gold at home is easier than managing a private key. But as soon as you want your money to work i.e. earn interests or invest it, crypto currencies are easier to work with. I mean, you can literally deposit and earn interest by touching a button inside your Coinbase wallet, right now.
Regarding your second argument: Change in the financial system does not happen by itself. You need severe pressure. DeFi has a huge potential to put pressure on the traditional financial markets to make them more accessible to the poor and limit their excesses (monetary inflation).
The government could of course “ban” Bitcoin and DeFi. But since they are decentralized it can’t make them really disappear — only more cumbersome to get into (and out of), for example, by closing down centralized exchanges. But the government can’t really prevent you to meet a “dealer” cashing in/out on your cryptos.
> But the government can’t really prevent you to meet a “dealer” cashing in/out on your cryptos.
If that “dealer” doesn’t report your transactions under KYC or either of you don’t pay taxes, you’ll get a hard reminder that governments can and routinely do prevent things like this. It’s especially risky to break those laws with cryptocurrencies because you’re leaving a full irrepudiable history of every transaction so when they bust your dealer they get _every_ transaction, not just the one that was caught, and that’s for everyone they’ve dealt with — and since those transactions are all by definition illegal, they have both grounds to investigate and an easy lever to pressure each person to turn in bigger players in exchange for leniency.
Both. Some people (probably minority) will use self-hosted wallets. Majority will use custodials (banks).
> And if the latter, why would bitcoin be of help at all? A normal bank account would be simpler and less worrisome.
USD will still stay as the official currency of El Salvador. However now merchants have to accept also BTC. The hypotheses is that for example foreign businessmen will bring BTC in form of investments to the country, and people will send BTC via remittances. There is possibility that there isn't actual demand, but there is also possibility that El Salvador might get some serious economical boost because of this.
The original conversation was about how Bitcoin could help the 70% who are unbanked have access to something like a bank account. The proposed mechanism for this is "well, they can go to a bank and register something like a bank account, or else they can be a high-SES self-educated tech person who builds their own bank using computer hardware". I do not think this could help the 70% who are unbanked have access to something like a bank account.
Whether or not it has spinoff economic benefits in terms of tourism or parking capital flight from other countries, you might be right, but that's not what was being discussed, right?
I'd also say it's easier to give everyone the right to an account as in Germany (if the reason is that they can't get one b/c of a missing/bad credit history and not because they don't live to a bank and have no phone), to solve the 70% unbanked problem instead of introducing BTC.
> The original conversation was about how Bitcoin could help the 70% who are unbanked
And this isn't the best argument for bitcoin. The best argument for it is the limited supply.
Considering the BBC has a dog in the fight, I believe that's probably why it doesn't mention the anti-inflationary argument that is the true reason a country would want to transact in BTC.
The USD is available to the US to make more of at any time. Imagine trying to run your government on someone else's currency. You'd always be at a disadvantage.
In the past the US hegemony has regime changed several countries that tried to use their own currency. (See Lybia)
let's not put the cart before the horse? you can't solve the trickiest problem in a day. This news, is a major development and is going to open many, many doors, eventually solving this problem, too
I don't know how do you expect people to understand two disparate, absolutely differently working payment systems (LN and BTC) with different threat models, and moving between them always costs a lot of money.
But hey whatever works.
I think this will work as well as Petro worked for Venezuela.
My understanding is that Strike is already reasonably popular in El Salvador, because it's much better than taking a bus 2 hours to the Western Union, paying 10% to them, then paying 10% to the gang that hangs outside.
Could a more "conventional" system do the same job? Probably, but I won't begrudge people a working solution.
Yes, it's far more efficient now. Now the gang will just take 10% of your entire savings (because it's all on your phone) every time they see you. Or 30% if they don't like you that one day. Because if it's one thing I try to do in a situation with lots of street crime, it's carry the maximum amount of my net worth on my person in the least recoverable form in case I get robbed.
In Latin America people kidnap you and take you around to ATMs at gunpoint until you've reached the withdrawal limit. This seems so much more dangerous with bitcoin wallets.
There are wallets that will show a fake lower balance in distress mode.
Further, why walk around with all of your BTC available to you? If you really have enough to worry about gangs stealing it, put it in cold storage or on an exchange, but don't carry access to it around in your pocket the same way you wouldn't carry cash around in your pocket.
A fake UI screen? Wow, that's useful. Good thing there isn't an easily verifiable public ledger with the true value of the account that the criminals can check while holding you at gunpoint.
Meanwhile, you expect people to have cold storage where? IIRC, they cannot just memorize a private key, but they need an actual file on a device.
LN still requires periodic on-chain transactions to close and open payment channels. So either these costs are being passed along to the users in El Salvador or the wallet provider is subsidizing it.
Are you buying daily essentials using LN, or running a small business? Also how could someone in El Salvador run a node without reliable electricity and internet? Also remember that the hardware cost of a full node is likely more than a month’s wages.
>Also how could someone in El Salvador run a node without reliable electricity and internet?
A lightning node doesn't need to be on 24/7. To prevent your counterparty from stealing your funds you only need to be online every 2 weeks (or never if you use a watchtower service). Syncing is also fast, so 1 hour of internet access/electricity should allow you to catch up 2 weeks of blockchain history.
>Also remember that the hardware cost of a full node is likely more than a month’s wages.
Yeah that's a fair point. You probably[1] need to be online to make a transaction, but you can potentially have a thin client setup where you communicate with a hosted node somewhere, but the signing and stuff is kept on-device. This allows you to make transactions in the case where power is out, but your phone still has internet access. I don't live in el salvador so I'm not sure what the frequency of power outages is relative to telecommunications outages, but at least in the US cell towers and landlines run on backup power so they're up even when there's a blackout.
[1] For maximum convenience it's mandatory, but it's conceivable to update the state of a channel entirely offline. This would allow you to make offline transactions with a node you have a direct channel to, but multi hop transactions (ie. transactions with nodes that you don't have a direct channel to) would still be a hassle.
While you do need to close/open payment channels if you want to move the funds off the lightning network, I don't really see why you'd need to "periodically" do it. Lightning channels can stay open indefinitely so you can theoretically park your money on there indefinitely.
If someone sends me 1 BTC and the transaction is recorded in mysql, the database operator can revert the transaction and I have zero recourse. That's not possible with lightning. If someone sends me 1 BTC over lightning, then decides to reneg on it by trying to commit an older state of the channel (where they haven't sent me 1 BTC), then my recourse is to rebut that transaction with a newer one.
Is there some writeup with details on how El Salvador will implement things? One obvious option would seem to be a wholly custodial, national, off-chain payment system. So El Salvador would hold BTC reserves, while people would actually transact on a government-operated ledger, only interacting with the Blockhain when withdrawing or receiving actual BTC outside the system, if that will be allowed.
I think you have your custodial/non-custodial terminology mixed up.
If you aren’t holding the keys that control your funds the entire time, it’s a custodial service. If USD is involved in any form besides paper cash in your own hands, it’s a custodial service.
Where I live ordinary bank transactions are free for ordinary consumers. I never pay a transaction fee or any annual fees. My bank used to charge an annual fee for a credit card but they have stopped charging now.
In fact in my whole life (I'm 65 so about 50 years of having bank accounts) I have never paid transaction fees for ordinary transactions (in the UK and Norway).
Where I live (USA) I tried to transfer money between my Wells Fargo account (that charges large fees for foreign ATM withdrawals) and a credit union account (that required heavy bureaucracy to open a business account, that's why my main accounts are in Wells Fargo, but the credit union withdrawals at the foreign ATMs are free). Wells Fargo offered Zelle for ACH but I got confused. Then I tried transferring through Robin Hood, where I had both accounts connected. RH presented a pop-up saying that if I want to transfer to a different account from the funding account, I have to email them some documents to comply with AML. Same with WeBull. PayPal charges fees. So I came to the conclusion that the only simple way was to write myself a check, and deposit it in the phone app to the other account. And that is only permitted because checks were created before the current Orwellian financial system. But I could not write a check, because I am abroad and do not have my checkbook.
The baroque steam punk vibe of signing a cheque to yourself, then depositing it to your own account by taking a photo of it with your handheld supercomputer... I must order some more cheques.
I wonder if you could just fudge it with Photoshop (Gimp)? Could you get in trouble for forging a cheque to yourself?
Yes, I think cryptocurrency has a potential use case of cheap international transfers. I too faced issues living abroad and transferring money back and forth from the US. There are both flat fees, making small transfers expensive, and %age costs, since banks don't give you spot price for cross currency transactions but instead skim the spread between spot and whatever exchange rate they choose.
If the above doesn't sound correct to a reader here, then either you've never lived outside of the US or, please tell me how to transfer money via banks and not get fleeced.
You can add non-WF banking destinations once you are logged in. They put up a disclaimer to expect registering the account as a recipient to take up to 3 business days.
Articles on the Internet from May of this year claim that there are no fees, even outside the WF ecosystem. However, they refuse to publish fees as they vary by account.
I do wish you luck, and I hope that it was just a matter of that link being hard to find (they definitely try to funnel you to wire instructions.)
Living in Germany here. Many traditional banks charge a monthly fee of 10 euros for maintaining the bank account.
Additionally, my parents wanted to send me some money from another country and the cheapest fee they could find was $10.5 (Wise) most other options were from $30 to $100. This was for transferring roughly $2000.
I can agree that for a simple in country tx I've not had to pay living in Germany, that is largely because of smaller banks challenging and whittling down fees.
I might not be remembering well, but I sort of remember receiving extra charges from my bank (Germany at the time) because I passed the number of transactions limit for the month. All transactions above the limit came at a charge.
Greece here, transactions cost 3 EUR. I think they're possibly free if you use the same bank, but the apps are cumbersome to use and the potential for fees is a deterrent, so nobody uses them for transactions of less than hundreds of EUR.
You mean that a transfer from your Greek bank account to another Greek bank account would cost you 3 EUR?
What happens if you get a bank account in another EU / SEPA country (e.g. via n26) and use it instead of a Greek bank account? Would there be any downside? Would a Greek company paying you a salary refuse to transfer the money there rather than a Greek bank account?
> You mean that a transfer from your Greek bank account to another Greek bank account would cost you 3 EUR?
Yep! Sad.
> What happens if you get a bank account in another EU / SEPA country (e.g. via n26) and use it instead of a Greek bank account? Would there be any downside? Would a Greek company paying you a salary refuse to transfer the money there rather than a Greek bank account?
No, transferring money to N26/Revolut is free (well, minus whatever fee the Greek bank will charge, which I think will be 3 EUR), but receiving money from N26 gets a 3 EUR fee again...
If the payee has a Greek bank account I suppose? But then it means that if both payer and payee have a n26 bank account and use it in Greece, they don't have to pay this fee anymore, right? So why would they use Greek banks?
I just don't see how this 3 EUR fee still exists given the current competition.
> If the payee has a Greek bank account I suppose? But then it means that if both payer and payee have a n26 bank account and use it in Greece, they don't have to pay this fee anymore, right? So why would they use Greek banks?
Indeed! I think Greek banks are just running on inertia now, they'll soon have to abolish these fees. One thing keeping people from switching was ATM usage (N26 only lets you withdraw for free up to some amount). This was especially since until a few years ago we were pretty much cash-only, but now that we're basically card-only, there's much less incentive to use an ATM.
Ok I see. Yes you're right, needing cash also helps incumbents, ATM operators can also charge whatever they want when you withdraw. Let's hope these fees disappear soon.
As far as I know, the only actual legal requirement is that SEPA transfers to other countries can't be more expensive than in-country bank transfers. It just happens that a lot of European countries don't generally have charges for bank transfers.
Yeah I knew it's not a legal requirement but still I thought it would lead to zero fees everywhere, because now when you need to do a lot of transfers, it makes sense to create an account in a foreign SEPA bank and then even the transfers to greek accounts would be free. Granted I don't know how much are bank transfers used in Greece (given the fee probably not to their full potential).
You do, but I've found that some countries don't really want you, and they'll slam you with onerous KYC requirements to drive you to leave. I currently need to fill out 30 pages of documentation and have "a Skype call" with my bank "for verification".
A lot of banks in many countries charges heavily for not maintaining the minimum balance. I think a lot of people can't afford that. Though the minimum balances are usually much lower than a normal BTC transaction.
Where I live (Canada), transactions are usually "free" up to a certain amount per month, but they often hit you with monthly fees. That is unless you can maintain a minimum balance in your bank account, in which case the fees become the interest they earn off that chunk of cash, I suppose.
I'm in Canada too and a couple years ago my regular bank sent me a notice saying they needed to increase my fees on my account plan by $1 making it a total of $16 per month IIRC. I already thought $15 was a total ripoff and trying to squeeze the extra $1 a month out of me got me annoyed enough to go looking for alternatives.
I got a free Tangerine account for free unlimited debit transactions. As a bonus I can withdraw cash with no fees at Scotiabank ATMs in addition to my normal bank. They also give you a VISA debit card that can be useful as a backup card for important online services (as long as you keep some money in it).
I also got a free (prepaid) Stack Mastercard. They give you a virtual credit card number you can use online plus a physical card. The main benefit though is 0% (or near 0%) foreign exchange fees. Most online services bill in USD and my normal bank charges around 2% extra in fees for the foreign currency conversion.
Then I reduced my normal bank account to the bare minimum $4 per month plan. So instead of squeezing an extra $12 per year from me, my bank gets $132 less per year now. However, that shows you why it works. Even if 9% of their customers do what I did they still make more money and I'd bet a ton that barely anyone reevaluates their banking because of a $1 per month increase in prices.
Canadian banks have a cosy non compete arrangement, and they are allowed to charge enormous Interac and CC transaction fees. Tangerine (Scotiabank's online only brand) and Simplii (CIBC) offer no fee accounts and unlimited free Interac. Canadians are very traditional and change resistant too, they like to go into the physical bank.
I think cheques still exist because there is no system in Interac for associating a destination account reference with an Interac transfer. In Australia cheques have been replaced by BPay (owned by the banks) and PostBillPay (owned by the Post Office) https://en.m.wikipedia.org/wiki/BPAY. In fact, I've never had to use a cheque as an adult except for e.g. buying a car/house. Interbank transfers and instant payments (Osko) have been free for ages, at least 20 years. https://www.rba.gov.au/publications/bulletin/2020/mar/two-ye...
It shows how arthritic banking is in the West that payment systems like AliPay haven't been allowed.
Sometimes it's lower, sometimes it's much higher. Usually the more people that are using the blockchain the higher the fees. Bitcoin right now mostly follows a trend where it gains in popularity, which causes a surge in transactions, which causes fees to go up, which in turn causes people to stop using it, etc.
Low on-chain fees are actually a disaster for Bitcoin. Once mining rewards dwindle to nothing due to halvings fees would have to rise astronomically to maintain hash power.
How much hashpower do we need to keep the blockchain secure? Maybe it's less than what we have today, though I suspect it's more. (ASIC mining reduces the risk of 51% attacks because there's no huge mass of "dark silicon" that could be temporarily redirected from running Slack or Monster Hunter to mount a 51% attack; the vast majority of hashpower that has been manufactured so far is busily mining away to support the blockchain.)
I'm not convinced that higher transaction fees would be a huge disaster. Maybe Lightning will work out (El Salvador seems to be betting heavily on it), or maybe people will use "custodial wallets" like LocalBitcoins, or simply run up a tab at the bar; with any of these approaches, relegating the public blockchain to weekly, monthly, or trimestral settlements for most people would be a mild inconvenience rather than a disaster.
El Salvador is using the lightning network to facilitate transactions for the most part. They are using the work of Strike & bitcoin beach in El Salvador as an example.
Before they can even pay $10 per transaction, they need to buy Bitcoins first.
The problem of the unbanked isn’t that they don’t have access to financial services, it’s that they don’t have enough money. They live paycheck-to-check, if that. There’s no point in converting what little they have to Bitcoin and paying fees on the conversion, and then more fees when spending it.
It's fees all the way down. I'm not even joking. I wanted to buy an ENS domain last week, so I put $100 CAD into an exchange (~$80USD). I abandoned the attempt because, after the fees to transfer out of the exchange to a private wallet and the fees to actually make the transaction on the blockchain, I wasn't sure if I'd have enough money. That's $80 to buy something that's supposed to be $5. I couldn't even figure out how to figure out what the damn thing would actually cost in the end.
I really wish comments would be more focused on telling the whole story rather than focusing on outdated information.
Lightning transactions are cheap and fast - so this argument is misinformed.
A core reason for El Salvador to adopt Bitcoin might be related to remittance - big part of their GDP is based on remittance and this will save people money.
They are using Zap/Strike (Lightning) and zero fees.
The phony "fees are $1,000 a tx line" and $10 hyperbole simply show you have no clue what you're talking about when speaking about Bitcoin. Even on chain the past solid week you could send free BTC transactions, or for a couple of cents.
I am sorry but what is the point of adopting BTC if vast majority of the transactions are going to be handled by a third party service. Makes no sense to me.
> what is the point of adopting BTC if vast majority of the transactions are going to be handled by a third party service
Because they've saturated the technical audience who can do bitcoin without a 3rd party service and now need regular people to shovel money in to keep the prices propped up.
This is the "please buy a single tube of toothpaste from my Quixtar stash" phase.
The point of adopting BTC is generally to get wealthier. Merchants accept BTC to have more customers, more revenue and ultimately more profit. As I have witnessed it, there has been increasing adoption of BTC slowly but surely. In El Salvador however now they have to accept BTC because the government mandates that. Whether that makes sense or not, I don't know, but it is happening in any case.
There is open market competition for these third-parties. The system is fully trustless. Furthermore, onion routing (akin to Tor) is in development to prevent that third-party from knowing the content of your transaction and who you transacted with.
> There is open market competition for these third-parties.
Like banks?
> The system is fully trustless
Except for those third-parties, you mean? The people running the Lightning network are essential to this system functioning and very, very few people won’t be fully reliant on a bank to store their Bitcoin — especially after the first time someone makes the news for losing their wallet.
The third-party can't steal your Bitcoins. Assuming your node is online 24/7, you can verifiably cash out your Bitcoin on the blockchain at any time.
The third-party doesn't hold your Bitcoin– both parties can close the channel and cash out, again without any trust.
Your Bitcoins can't be stolen by a third-party, unless you and your watchtower fail to broadcast a transaction with proof there was a channel transfer.
That sounds like a lot of infrastructure which you need to operate to avoid trusting your back. Do we have any reason to think the average Salvadoran wants to do that? If not, it’s not exactly realizing the sales pitch.
Because it's a global currency not reliant on the US dollar? Not everything is about perfect decentralisation too, third parties can run decentralised infrastructure so it's verifiable by users of the network.
With USD (and indeed any national currency), generally all functions except issuance are handled by third party services, that would be the status quo for a currency, wouldn't it?
Sure, but is Bitcoin trying to improve that status quo or replicate it? Am I supposed to be impressed that Bitcoin has built a system that is also reliant on third-party services, just like modern banking?
For the moment, starting up a lightning provider is simpler than starting up a payment processor, but how much of that is because of regulation? And do we have any evidence that in the future lightning providers won't be as regulated as modern payment providers? Why should I assume that in the future the situation with lightning providers is going to be any different than the current situation with PayPal?
Here in NL, everybody is "entitled" to a bank account. However, banks can, and do, freely reject people. They will block and ban your account if they want to. For businesses it's even worse.
So even if everybody has the right to have a bank account, it just doesn't work like that.
The main benefit from this that I can see is that El Salvador will attract bitcoin businesses with a lot of money and other bitcoin whales who might move there and start businesses, employing locals and injecting money into the El Salvador economy.
The average person isn't going to use bitcoin and the average merchant will likely never be paid in it.
The bigger concern might be that Bitcoin offers zero privacy; anyone you pay with Bitcoin can know exactly how much you have in your account, which is a huge personal security risk, possibly especially so in El Salvador.
If people use Bitcoin to store their life savings instead of banks, expect gangs to run around robbing people for their bitcoin because all it takes is one unscrupulous vendor to inform the gangs of your net worth.
The poor always pay more than wealthy for services. E.g. if you have a poor credit history you are unlikely to get the same rate as someone who doesn't
Right now, doing a Bitcoin transaction costs $0.97, so it's already false. If you are willing to wait ~48 hours for confirmation, it can cost as little as $0.15.[0]
Furthermore, the system in question is not Layer 1 Bitcoin, but Layer 2 Lightning. To use Lightning, one must perform a Bitcoin transaction to open a channel– akin to opening a bank account– which provides access to the entire lightning network.
I find opening a bank account for less than a dollar very attractive.
That being said, layer 2 fees exist as well– you must pay someone, usually a hub, to securely lock some amount of Bitcoin to a channel so that you may transact. (Note that the secure lock isn't a security deposit; a channel be closed with funds returned without any third-party trust.)
Doubt they will be using the Bitcoin blockchain, likely a custodial wallet powered by a normal database.
Like paying with your coinbase account to another one
Right. People who can't even afford a bank account would now all be using financial services by paying 10 dollars per transaction.