If something can be accomplished on the blockchain, which requires N nodes, a business can probably replicate that same objective with less than N nodes because they don't have to pay the cost of verifying that nodes are acting honestly. This business is incentivized to be honest because otherwise they lose their business. Someone has to pay those costs for the N nodes on the blockchain - who will it be? Transactions seem cheap now because funding for these blockchains is often used to subsidize costs.
You mentioned ease of use, like the use of SDKs, but blockchain technology does not enable that. All blockchain can do is that if you ask it "hey i was told the state of the world was this. is it true?" and the blockchain will tell you yes or no. If you want to provide those kinds of guarantees to customers in a reliable way, all you need is cryptography, not blockchain.
For business running the same code on their 1 node instead of N is not a replacement, because their counterparty has no reason to trust whatever is running on that 1 node.
Your reasoning re: N nodes are expensive is also flawed. Executing a single payment transaction takes a fraction of a second of compute. Even if it is replicated 10,000X, it's still extremely cheap compute-wise. The low cost of transactions has nothing to do with subsidizing.
I mean, why are you doing this kind of business with someone where you can't even trust that?
Aside from that, block chains only provide trust if they're meaningfully decentralized. These hyper specific b2b ones seem unlikely to pass that test. Exactly who all is running verifier nodes?
The only people that need to run a verifier node are those that don't trust the other verifier nodes to do it properly. It's opt in, most will not run one, but a business that has enough money at stake can if they want to.
Then the blockchain client software provides the framework for cryptographic assurance that the two copies of the ledger are in sync.
Sort of like banks use customer money to offer loans to avoid the need of centralised liquidity.
The Blockchain technology is important to allow different exchanges to interact with each other in ways that I suspect would be not super legal through a central entity.
When A sends money to B both have an expectation that B is able to access such money through normal monetary systems like: seeing their bank balance go up, withdraw it as cash, or transfer it again to C which will have a similar recursive set of expectations.
Unless your database is the de facto central banck for the currency A and B use you will have to convice B's monetary system to believe B now has more money. The simples and almost only way to do that is to pay the appropriate price in a currency they like.
Which requires liquidity.
As an example if you wanted to install a bitcoin ATM with withdrawl* in a train station (or anywhere else) you would need liquidity in whatever currency the user want to withdraw.
* I suppose you could withdrawn bitcoin by giving out fresh wallets with the sum or by simply transfering it.
because it is the banks that do the transfer, so they need to have liquidity
> Bitcoin doesn’t transfer funds, it’s just a shared ledger of what funds have been transferred.
the bitcoin blockchain act as a single bank in terms of transfering between bitcoin wallets, there is no need for central liquidity because it is all "internal".
A perfect example is arbitrage between bitcoin exchanges, to my undestanding many exchanges do internal transactions off-chain and only interact with the public blockchains for deposits/withdrawals. If a user wanted to exchange bitcoin for ether and then withdraw the sum the exchange would need to have liquidity in ether for the withdrawal.
So in this case, "this business is incentivized to be honest" might be the precise "problem" this is meant to solve.
> This business is incentivized to be honest because otherwise they lose their business
is true. And it might be true if you assume perfect competition, low barriers to entry, no egregious regulations, no regulatory capture, no bundling to force decisions regardless of 'honesty' (or 'fairness'), etc.
So in a perfect world, maybe. But I think the niche in all the imperfections.
You usually can trust your bank, as long as you trust your government. Regulations make it difficult for banks to misbehave.
That being said, not trusting your government (which I can believe is a valid stance in some countries) is probably the only valid use case for blockchain IMO.
You mean criptography and trust right?
if bank of america does something malicious, i can prove in court very trivially through those signed receipts that they did so.
So I don't need to trust bank of america - i just need to trust the courts to charge financial institutions that provably are breaking the law.
This is missing something important, which we can see by considering one of the major problems merchants want to solve right now.
The credit card companies charge them ~3% and then give ~1% back to the customer, implying that there is a ~2% net gain to be had by cutting out the middle man. So why hasn't this happened? Because the alternative with the lower fees is ACH, but customers are less willing to give out their bank account number than their credit card number to a random small business.
This is the easy case for some centralized service to fix it, right? Have some large trustworthy company take the customer's bank account info and transfer the money to the merchant for a very small processing fee. But this is the part where your assumption falls through. Once the merchant has signed up for this, the payment processor is the only one with the customer's payment info. In other words, it's hard to switch, and then the payment processor can charge higher fees (eroding the benefit) and the high switching costs also cause the market to consolidate. And because you're tied to a single payment processor, when their fraud AI has a false positive they can erase your business overnight by locking you out and not answering the phone.
Now suppose you don't have a centralized system. Instead, the customer acquires a store of value (Bitcoin, stablecoin, something else) however they want. Customer A can get it from Coinbase, Customer B can get it from Stripe, Customer C can get it by selling something on eBay and accepting it as payment, and the merchant doesn't have to do business with any of these third parties to accept payments from customers who do, because they all support the same transfer medium.
Now you have a competitive market. Currently a new payment processor has to earn the trust of a large enough percentage of the general public for merchants to be willing to use them; a new exchange would only need the trust of enough people to be doing enough business to cover their costs, a far lower threshold. If a merchant wants to switch payment processors or has a dispute with one of them, their own customers wouldn't have to do anything different because the means customers use to convert dollars to tokens is independent of the means merchants use to convert tokens to dollars.
> Someone has to pay those costs for the N nodes on the blockchain - who will it be?
That's the boring question. The interesting question is, can you have a blockchain with lower fees than payment processors currently have? And the answer appears to be yes, e.g. the transaction fee for Bitcoin Cash is around a penny.
If trust is an issue, the bank can provide cryptographically signed receipts that show they've confirmed the entire lineage of your account, in the same way a blockchain does, but they would be the only verifier. The question becomes about how the cost of the additional trust from the blockchain relates to the incentive of doing honest business. I imagine that trust cost is pretty high.
> can you have a blockchain with lower fees than payment processors currently have? And the answer appears to be yes
The transaction fee is not the only thing being paid. They are also getting mining rewards. If a blockchain has mining rewards, maybe in the form of Bitcoin Cash, then that will dilute the entire pool of Bitcoin Cash.
How is this any different than the Fed or the fractional reserve banking system creating new US dollars?
> nothing about the technology itself makes the concept of transferring money cheaper.
Nothing except for the thing that matters: If you have something fungible instead of something with high switching costs, it makes fees go down.
> if it became a threat to payment processors, my theory is that they could lower their costs more than blockchains potentially can.
And that's why blockchains are useful! To exert the pressure needed to make that happen.
It doesn't matter if the centralized system can have lower costs unless it actually does, and for that you need the competitor to exist as a viable threat.
The miners get the fees. The fed does not keep the dollars they make. They also adjust the rates to avoid things like recessions.
> Nothing except for the thing that matters: If you have something fungible instead of something with high switching costs, it makes fees go down.
The US dollar is considered fungible... Help me understand how any of this is specific to blockchain technology and not included in non-blockchain technology. Have you worked with this tech before? Also, what about things like venmo and zelle? zero fees, super fast.
> And that's why blockchains are useful! To exert the pressure needed to make that happen.
I'm not saying they are not useful. I am saying the technology behind them is irrelevant to the costs.
Somebody gets the money. Banks and government contractors get the money. It's not clear how that's any better than miners getting it, and either way it's creating new money that dilutes the value of your existing money.
> They also adjust the rates to avoid things like recessions.
There is nothing stopping the government from setting up a fractional reserve banking system denominated in a cryptocurrency. It works the same as it does in dollars. Alice borrows from the bank, pays the money to Bob and now the bank credits Bob's account and balances its books through the money that Alice owes the bank. If Bob wants to withdraw the money as physical cash or cryptocurrency in a non-custodial wallet then the bank either has enough reserves to do that or can sell the loan and use the proceeds to pay Bob. But if that doesn't happen -- which is more common -- then the balance credited to Bob's account only ever exists in the bank's computer and the bank has effectively created new money in that denomination.
> The US dollar is considered fungible... Help me understand how any of this is specific to blockchain technology and not included in non-blockchain technology.
US dollars as bills in your pocket, sure, but it's hard to transfer those over the internet without involving a middle man.
> Also, what about things like venmo and zelle? zero fees, super fast.
Venmo isn't a protocol, it's a company. It isn't free for businesses and they can still shut down your operations without recourse.
Zelle is a protocol, but it's designed for transferring money between individuals, not making purchases from a business or setting up autopay. What we need is a protocol that is designed to do those things, but the banks fight attempts to create it because they want to keep getting the 3% from credit cards.
> I'm not saying they are not useful. I am saying the technology behind them is irrelevant to the costs.
Suppose that something with the transaction fees of Bitcoin Cash was more widely used and therefore a viable way for small businesses to accept payments from ordinary customers. Which existing non-cryptocurrency service is a viable means to do the same thing for the same or lower fees? A real one, not a hypothetical cost structure that nobody actually offers.
In Europe you can wire money across borders for free, you just need to know the account number. Arrives in seconds at 0 cost.
I feel like a lot of the fintech in the US is purely a result of a lack of regulation.
For the example of Argentina, the real reason that business is using crypto is because their currency is unreliable. It might be a good fit there but trading in dollars would've fixed that too.
And a wire, which is as close to sepa as I think you can get, costs 10s of $ each time.
Basically, the international business problem is real. The Argentina case is mostly lack of a domestic stable currency though. These are legit use cases, fast and cheap transactions aren't.
If you actually offered those US businesses with instant, verifiable transfers that cost nearly nothing, do you actually think they wouldn't move to that?
- https://en.wikipedia.org/wiki/Single_Euro_Payments_Area
I don't know if I'd call that a "unified economic zone" without some qualifications.
https://www.europeanpaymentscouncil.eu/about-sepa/sepa-timel...
Crypto here would similarly make very little sense.
And occasionally, they will withdraw that service for arbitrary and capricious reasons
https://www.hackerneue.com/item?id=44685011
Crypto stablecoins running on blockchain rails provide an alternative to that network.
You are underestimating how toxic the Argentinian government was.
We did do that with capital controls, the problem is that it was illegal, and the Argentinian IRS is very active trying to tear you a new one. Argentina has long become a bimonetary economy, dealing with ARS for everyday transactions, but saving in USD and pricing assets in USD (real state for example).
To give an example where this would have helped, my parents in Argentina needed to send money to my brother in Europe. The government had made that illegal with capital controls, so I had to transfer him money through wise from a 3rd country and when at some point later I visited they gave me the cash.
People underestimate how annoying and distopic governments can be if given the chance.
I suspect that banks cannot solve this because it would be illegal for them to do so.
If many banks could send and receive money from across the world money laundering would become way way easier (in this sense the lack of privacy in many blockchains can be seen as a strength) and it is how offshore fiscal paradises work
do you mean "electronic funds transfer"? because "wiring" is an old school thing that uses Telex machines and and gets processed by people and I would doubt it carries no fee. (It's probably been modernised so that people handle virtual slips of paper, but it very much carries the feel of an "order on a slip of paper" type of transaction and is far from instantaneous.)
I'm genuinely asking, I only know about the US systems where electronic funds transfer is known as ACH which is an automated clearing house, and wiring is called wiring. From the US, I can wire to European banks. I can't ACH.
Today, if you want to transact between businesses or retail (folks like you and I), you need to find a route between the two entities' banks. This route might take several hops, passing through some central banks, and some of these hops might be instant or might take days to actually settle. On top of that, you need to pay the service that helped you find a route (SWIFT) and potentially the nodes your transaction goes through. Bottomline, it can be slow and a lot of middle men are taxing you.
This is why you see services like (Transfer)Wise, that basically try to bank everywhere, and allow you to send money faster by taking a shorter route (kind of like a wormhole :D). But they have to add liquidity everywhere, which they have to rebalance constantly, and it's centralized (single point of failure). FWIW it's great because for a long time this is the best thing we had.
Now, let's take a look at the other side. Using stablecoin is a matter of just creating a wallet. The openness by default of blockchains make it really easy to integrate with a blockchain as an entity (just use the SDK, it's there by design). Furthermore, it's in many cases instant and cheap (unless you're transacting on a slow blockchain, but then that's your fault).
That being said, the elephant in the room is that one stablecoin (let's say USDC) is now present on many blockchains. So if you have USDC on chain A, and I have USDC on chain B, we're back to our "tradfi" world where we have to find a route between our two chains, which might take us over many bridges, which can be slow and costly. The alternative, like with Wise, is to use centralized players who have liquidity on many different chains and can move things around by just updating their internal (and centralized) database. It's tradfi all over again :D