How is Bitcoin supposed to serve as currency when it is all but impossible to spend at the moment (12/2017)?

It seems Bitcoin is not standing up to the test of use as currency (that is to say heavy use). I tried to pay someone 0.009BTC (about $150) for some goods which I need in a fairly timely manner. As if I was ordering some supplies from a crafts store. It has been 5 days and the transaction has not been verified. From what I read it may never be verified, i.e. there is no guarantee by design for the transaction to ever be mined, not to mentioned mined in a timely manner. say what you want about the banks, but when I spend fiat currency the transaction goes through immediately and the party I send the funds to can use the funds immediately. And I get my purchased goods in a timely manner. Not so with BTC. As the transaction volume is growing the system is breaking down to the point of being useless as currency. I am not even talking about being able to spend $5 for a hot dog (I am likely die of starvation before the $5 transaction becomes verified). I am all for crypto currency and bypassing the banks, but this model is simply dysfunctional.

Am I wrong? Am I missing something? Is it just growing pains? I think it's like that by design, which is not good.

transactions

Vladimir Ferdman

Posted 2017-12-19T21:03:10.253

Reputation: 379

11I think its a gigantic misconception that is furthered by sound-bite media: Bitcoin (in its current form) cannot replace cash, and it is not a currency. I'm sorry if you ever believed it was. Just as people never exchange gold bars for every day "hot-dog" transactions, they won't exchange BTC either. But both gold bars and BTC are valuable for other reasons. – abelenky – 2017-12-19T21:48:09.933

10Well, gold is real and is valuable as raw material in various industries. BTC is 100% virtual and has no value in and of itself. And yes, it was touted as replacement for evil fiat currency until now. – Vladimir Ferdman – 2017-12-19T22:31:14.003

3Bitcoin is absolutely a currency. But it solves the need for a central bank and monetary policy controls, and replaces it with a purely digital system without central control. However, it's an absolutely terribly payment systems (for multiple reasons, including speed, consumer protection, reliability, ... in addition to potentially high fees for small payments). That's fine - no technology solves all use cases and many interesting developments are happening. The fact that it's natively digital allows building many kinds of other systems on top, without a need to interact with the real world. – Pieter Wuille – 2017-12-20T00:37:15.280

7@abelenky Bitcoin was originally sold (in the marketing sense) as being able to replace cash. Now it has not been able to live up to that promise. It has failed in delivering that promise. However it was definitely promised; you can't just turn around and say "oh, Bitcoin was never supposed to be that"... – user253751 – 2017-12-20T09:29:57.853

@immibis Absolutely. But to function as cash requires more than a currency - it needs methods of payment. It's unrealistic to think the blockchain on itself can accomplish that in more than a rudimentary way - that's just not what it's good for. Accepting that and building on top (e.g. payment channels) will give us the best of both worlds. – Pieter Wuille – 2017-12-20T09:46:42.437

1Supposed by whom? – None – 2017-12-20T09:52:17.893

4Bitcoin has had an inherit limit from the very beginning of about 15,000 transactions per hour. Visa alone handles around 24,000 transactions PER SECOND. If someone told you BTC was as good as cash, and you believed them without understanding the technology, the fault is with you, not them. A sucker is born every minute, and sometimes the sucker is you. – abelenky – 2017-12-20T13:28:03.880

4@VladimirFerdman gold also has no value in and of itself, but people recognize it as valuable. Most of gold's value is unrelated to its use as raw material, and therefore most gold is stored in "reserves" and not used for production. – henning -- reinstate Monica – 2017-12-20T14:52:56.020

1@abelenky and sometimes the sucker is also the one who invested money in the misguided beliefs of suckers. Pop! – henning -- reinstate Monica – 2017-12-20T14:55:10.300

@abelenky It's pretty obvious it wasn't. People working on Bitcoin said it was going to be. Now it has failed to be. (Also don't bring ad hominem into it) – user253751 – 2017-12-21T06:51:59.103

@abelenky: Literally the title of the white paper calls bitcoin "electronic cash". It's correct that it cannot ever live up to that promise, but it is not correct to say that that is not the intention of the system. It has been designed, advertised, and promoted from day one as being able to fill that use case and it is not helpful to anyone to pretend that that is not the case. – Phoshi – 2017-12-21T20:52:27.690

Very true, @Phoshi. BT WAS advertised as digital currency for everyday needs with no or low fees and no dependency on banking overlords. – Vladimir Ferdman – 2017-12-22T01:23:03.040

Answers

You were probably trying to pay on the blockchain itself. That's like trying to pay for lunch by moving dollars through the Federal Reserve. You should use some system designed to move small quantities of bitcoins cheaply such as Coinbase.

We don't yet have good decentralized payment systems for bitcoin, so currently bitcoin is primarily being used as a store of value. Think of bitcoin as more like gold than dollars. The Lightning Network is one proposal to provide a way to move small amounts of bitcoin at high speed with low cost.

David Schwartz

Posted 2017-12-19T21:03:10.253

Reputation: 46 931

26Bitcoin is touted as replacement for currency, so moving small amounts of it with ease, speed and security is an absolute must. Yes, I had coin in my private wallet (the safest place in light of Mt. Gox fiasco) and at this moment am trying to move 0.5BTC from my private wallet to Coinbase. So far it's been 5 days and the transaction has not been confirmed. Will it ever be confirmed? I have no idea. That's the point. There is no guarantee by design that any transaction using bitcoin will be verified at all, let alone in a timely fashion. – Vladimir Ferdman – 2017-12-19T22:18:00.147

5Too bad blocks couldn't be a little bigger. – Max Vernon – 2017-12-19T22:53:34.857

2@VladimirFerdman It seems like you missed my point. Yes, you found one way to transfer bitcoins that sucks for your use case. There are ways to transfer dollars that suck for your use case too. But if you transferred them some other way, such as using Coinbase, you would have found the transfer to be cheap and fast. – David Schwartz – 2017-12-19T23:13:31.483

6What troubles me greatly is that there is no way by design to guarantee a transaction will get verified. Any transaction can just sit there forever and there is absolutely nothing that can be done to move it along. That is very troubling and needs to be fixed. Once all the coin is mined there will be almost no incentive for miners to do their work and transactions will sit there depending on god-like miners to notice them and give them movement. That's not right and is very bad design. – Vladimir Ferdman – 2017-12-19T23:16:00.270

4@VladimirFerdman None of what you said above is true. Ask another question and I, or someone else, will explain why that's not true. – David Schwartz – 2017-12-19T23:16:38.657

2Ok, I'll post another question about that in a few minutes. I am really interested in learning about it. So far from what I have been able to learn my understanding is as I stated. – Vladimir Ferdman – 2017-12-19T23:22:30.513

Actually, you shouldn't have waited for 5 days. Just make a double spend with higher fee. I've made about 20 bitcoin transactions to date and only once it has stuck the same way as yours. Yeah, bitcoin is not for buying hot dogs, but it is not worthless. – Oleg Gritsak – 2017-12-20T02:41:28.363

1Phrase "Once all the coin is mined there will be almost no incentive for miners" is wrong. Right now miners get reward of 12BTC for new block and about half of it (4-6BTC) as fees. – Oleg Gritsak – 2017-12-20T02:42:13.667

Of course if you transfer within Coinbase, your system is no longer meaningfully "decentralised", and if they collapse then everyone will tell you you shouldn't have kept your money on an exchange. – pjc50 – 2017-12-20T11:59:25.563

@pjc50 That's why I keep my doubloons in my mattress. So that when the banks fail I can laugh at everyone who shouldn't have kept their money on an exchange. (Tongue in cheek since Exchanges fail a bit more than real banks, but given time I'm sure exchanges will become more stable and dependable) – WernerCD – 2017-12-20T14:29:55.460

1Ok, so moving bitcoin from wallet to wallet will cost me $25 and will take an undefined amount of time with no guarantee that it will happen at all. Great! That's both cheap and convenient. Mind you, I have bought my bitcoin in 2013 when it was actually usable as currency. In fact I used it to as such to buy goods. But now that the scale has entered the equation, I can see that this is not a very useful commerce tool at all. Especially for small transactions as it was widely touted to be good for 4 years ago. Yes, it was touted as replacement for fiat currency back then. – Vladimir Ferdman – 2017-12-20T16:54:01.763

There is no shame in admitting we've learned things. The blockchain on itself is starting to show the limits of its usefulness as a payment system - even if not since 2009, we've known that for a while (the start of a fee market was introduced in 2014 in Bitcoin Core). That doesn't mean the currency itself failed for one purpose or another (cash-like being one of them). What is happening now is that rapid price increases and influx of users is happening faster than the technology can adapt to accomodate them, but in time, I expect that to be taken care of. – Pieter Wuille – 2017-12-20T17:49:42.723

You basically have two theories nowadays, in a hot debate:

Bitcoin is not like dollar; it is like gold (i.e. a store of value). Bitcoin is not made for everyday transactions for a cafe or a pizza. To allow such transactions with low fees, we would have to increase block size, allowing a lot of transactions to be stored forever in the blockchain.

This idea can be expressed more or less by: "We do not want every cafe or every pizza sold in the world today to be stored forever in the blockchain" The blockchain bytes are expensive (and thus the fees today), because the blockchain has to stay small. Why? Because if blockchain's size increases a lot faster than the average "hard disk" available to consumers, then fewer people will be able to host a node (at home or in their VPS). And then only big companies will be able to host a Bitcoin node, this would be the end of the decentralization paradigm. We don't want this, so writing a transaction (=bytes) in the blockchain has to stay expensive.

To solve this problem, everyday transactions have to done be off-chain, using Lightning channels for example (technology not available yet, as of 2017).
Bitcoin should not be a store of value, but really an everyday-usable currency, even for small payements. To solve the fee problem, let's increase a lot the block size, i.e. less competition to be in a block, i.e. lower fees. Then all transactions will be on-chain, but with a gigantic blockchain, growing much faster than what an average citizen could host at home or on his server. Then only a few big companies will be able to host a node. That could be seen as the end of (truly) "decentralized" model.

But on the other hand, it helps to keep everything saved in the blockchain.

I don't know which one of these two theories (Bitcoin vs Bitcoin cash) will eventually become dominant, but this makes the Bitcoin history exciting!

Anyway, we can sum up the problem like this: “Is the blockchain (i.e. gigabytes of data replicated on servers around the world - and soon terabytes) the right place to store the history of every cafe and pizza sold in the world for the future of mankind?”

If no, then we lose the "currency" aspect of Bitcoin.

If yes, then we lose a little bit of the "decentralized" aspect of Bitcoin.

Basj

Posted 2017-12-19T21:03:10.253

Reputation: 324

3Or perhaps bitcoin is a hair-brained idea that will not have any traction long term because of the dilemma mentioned above? – Vladimir Ferdman – 2017-12-20T01:51:58.920

1Or the 3rd theory, that this is a failed experiment, and in optimistic scenario, it will be replaced by some other distributed value storage, free from that weak points... – None – 2017-12-20T09:55:43.157

@9ilsdx9rvj0lo anyway a transaction has to be stored somewhere, either on a public secured database (blockchain for example) or off-chain. – Basj – 2017-12-20T11:00:27.943

@VladimirFerdman "Or perhaps bitcoin is a hair-brained [sic] idea." May I ask what makes you feel so angry or offended about a technology? – user76284 – 2018-01-03T20:02:18.173

1I did not say the technology was bad. I said Bitcoin, a particular implementation, is a not a very workable solution. It is cumbersome, expensive to use, provides no guarantee of successful transfer (beholden to miners, who are not under anyone's control). It is also susceptible to all kinds of market manipulation as we are seeing right now. It is basically fiat currency without any kind of regulation. Bad idea. An it will crash and crash badly, I am afraid. It was good to use when it was obscure and there were few transactions. It does not scale well to anything like real currency volume. – Vladimir Ferdman – 2018-01-04T20:29:43.923

This is exactly why, on August 1rst 2017 there was a fork for Bitcoin Cash. Instead of going for the Lightning network, it advocates bigger blocks (from 1mb to 8mb) which they will increase if necessary. The lack of competition to get into a block greatly reduces the fees which makes BCH, at this moment, much more convenient to use as a currency.

Cedric Martens

Posted 2017-12-19T21:03:10.253

Reputation: 877

How does going from 1MB blocks to 8MB blocks affect things? Is the net effect something like an 8-fold increase throughput-capacity for transactions? – Nat – 2017-12-20T03:05:58.703

@Nat exactly - and segwit2x would have doubled bitcoin block capacity while we were waiting for the fabled lightning network. instead block capacity is maxed out since end of Oct 2017 - see e.g., here - and the backlog is about 200,000 transactions today (2017-12-20)

– davidbak – 2017-12-20T08:51:32.130

Maybe you did not include enough transaction fees in your payment. Miners will only include the transactions with the highest transaction fees in their block to make as much money as possible. Transaction fees are also the reason why miners will keep on "mining" once all the 21 million Bitcoins have been mined.

Average transaction fee (converted to USD)

As you can see the average transaction fee has increased rapidly over the last two weeks and is around $25 today. So you'll only want to pay with Bitcoin if you transfer a way higher amount of money.

The transaction fees are high because there is a limit on the number of blocks (on average every 10 minutes) and a limit on the block size (1 MB). The Bitcoin protocol could be changed to lower the transaction fees, for example they could increase the block size. But people would need to agree to this and the (majority of the?) Bitcoin clients would have to be updated to make this work.

Bitcoin scalability problem

If no widely accepted change would be made to the protocol, then the transaction fees will remain high as long as many people want to do Bitcoin transactions. It could be that Bitcoin will only be used to store large amounts of money, and not for transactions under $200 or something. But an other possibility is that the Bitcoin hype will come to an end and transaction fees will be restored to practical heights. Of course, if transaction fees are low again, the popularity of Bitcoin will increase and so the transaction fees will increase. The question is what the equilibrium will be, if Bitcoin ever becomes stable.

Paul

Posted 2017-12-19T21:03:10.253

Reputation: 131

Imagine what shopping would look like if shops waited for cheques, credit card and electronic transactions to clear and the signature verified, cash to be sent to forensic experts for analysis of potential forgery and gold sent to the lab for invasive tests of purity.

The place you purchased goods from chooses to ship goods when a credit card transaction is received, because waiting until the transaction authenticates is not feasible. The place chooses to ship goods when a Bitcoin transaction authenticates. They could choose to ship them when the transaction is received.

All currencies we have ever had, have ultimately been authenticated primarily by trusting in the goodness and decency of people in sufficiently large numbers. Bitcoin's authentication is vastly superior to virtually any other currency.

As shops come to trust bitcoin, and users of bitcoin, they will start shipping goods when the transaction is made, not when it is authenticated.

Scott

Posted 2017-12-19T21:03:10.253

Reputation: 111

4I'm not sure this is true. You cant just enter any random credit card number into a site and get stuff. Some preliminary checks are definately done – Richard Tingle – 2017-12-20T11:36:42.413

@RichardTingle - yes, there is authentication that the credit card exists. But there is no authentication that you have actually permanently received the money, due to chargebacks etc. I've added a 'primarily' into my answer, as I wasn't meaning to say there are no partial authentications completed with traditional payments. – Scott – 2017-12-20T23:39:55.410

What happens when I then go home and create a double-spend with a higher fee? – user253751 – 2017-12-21T06:54:39.057