Bitcoin as a medium of settlement

Here is Eli Dourado:

This is relevant when thinking about bringing the next few billion people online and into the global economy. These people will not have credit histories that are accessible to the same intermediaries that I am set up to use. They may have local intermediaries that they can use, or they may be willing to use Bitcoin directly. If that is the case, they will be able to enter into the stream of global commerce.

There are not right now many transactions between rich countries and the bottom couple billion people on Earth. Why is that? Is it because these people have nothing of value to sell or is it because we have no way of transacting with them? We are about to find out.


I have a friend who was born in the Punjab and visits there from time to time. He says that he and his friends all refuse to deal with the banks in the area because there is a high perceived risk that if they ever withdrew any significant (by Punjab standards) amount of money, bank employees would tip off accomplices on the outside and they would be robbed. Hard to build a modern economy on banks like that.

Specially in countries with high inflation, where everytime you have to withdraw cash to get some lunch, you get a pack of money which you'll have to find creative ways to hide...

Something like BitPesa seems like a more feasible first step. It is for money transfer, and only in parts of Africa (I think), but it goes straight to the recipient's mobile phone.

It's a classic chicken and egg problem. Not sure Bitcoin, which is largely anonymous is the way to go as there's no intermediary to police any fraud. Here in the Philippines most poor don't use banks but just keep their money in a lockbox or mattress.

Hmmm - it is my understanding that Bitcoin is largely NOT anonymous. Amof, I am pretty sure that Bitcoin and/or Bitcoin transactions have to go through a number of headstands to approach anonymity. VERY unlike cash.

As @JC points out one of the problems to get around is that in some places intermiaries are the main source of fraud.

The trouble with cryptocoins is that it is hard for anyone, to maintain a secure computer system and novices don't even try. This is somewhat less of a problem for money transfers than for storage:

Imagine a village dude in India sells some service to an American for $50, he wants to recieve it in something like rupee-dominated store credit from his cousin, the local grocer. The grocer got the tech do this from some indian IT/finance firm that no-one in America knows or trusts. The grocer only trusts the firm to provide machines and do money transfers, not actually hold deposits.

* So the service provider gives the American an use-once key which he got from the grocer.

* So the American uses an app which buys a fraction of a bitcoin and sends it direct to the grocer using the use-once key.

* The grocer's computer similarly turns it into rupees.

2 have read Carl Menger, Ludwig von Mises, F.A. Hayek -- puts a different hue on things and this money stuff.

2b juvenile or just stupid, and always having somebody 2blame . . .

"Is it because these people have nothing of value to sell or is it because we have no way of transacting with them?" - probably the former rather than the latter, at least at the moment. Most of the developing world is still running on pre-20C technologies. If you go to a country like Egypt or Indonesia (two places I have lived) you will see farming in the countryside the way they have done it for thousands of years. Animal and human labour largely. It's interesting that this activity has not been wiped out by cheap food - after all industrial scale farming has been around for a long while now. But they have no way of buying even very cheap food. There are literally no buyers for their labor due to their very low skills. The only jobs they can do are basic manual service jobs which is a small sector. So they have to grow food themselves, which they can do since they own or have rights to the land. If the rich developed world decided to give them surplus food, we would hardly miss the cost. But this would mean that they would literally have nothing to do.

This perhaps foreshadows the coming robot revolution. Those without robots will have literally nothing worth selling to the robot owning elite. So either the robot owning elite basically give away stuff to the non-robot owners for free (leaving them with nothing to do). or the non-robot owners continue in their usual 20C economy trading with each other but mostly not the elite, like the farmers in the developing world.

hard to imagine but the luddittes of the past, with their looms and oxen, thought the same way . . .

Yes the interesting thing is why there are not two such sectors in rich countries as well. Perhaps it is due to the more gradual nature of the modernization, things didn't change as much in any one generation so people's skills were able to remain relevant, and their children were able to upgrade more easily to the newer types of jobs since they weren't so different from the past. As an example, your great-grandfather might be a illiterate farm worker, your grandfather a semi-skilled car factory laborer, your father an office worker and you are a computer programmer. All feasible steps. But the son of an illiterate sustainance farm worker is not going to become a computer programmer and the enabling semi-skilled jobs are being automated away.

In the United States, anyway, one reason the past might not be too instructive for understanding the coming robot revolution is that we already have a few decades of experience of continued economic growth combined with stagnating real wages for men and declining labor force participation. The reasons for this are surely complex and women have done a bit better (e.g. median, inflation-adjusted full-time earnings for women increased by a third since the early 1970s) but it's clear the labor force hasn't even fully adjusted to changes in the economy since the 1970s. How it will cope with what are likely to be even more radical changes in the coming decades no one can say for sure but I don't see any reason to just wave such concerns away with mocking references to Luddites.

"How it will cope with what are likely to be even more radical changes in the coming decades"

I'm pretty sure it won't.

"Is it because these people have nothing of value to sell or is it because we have no way of transacting with them?"

The world's poorest are largely subsistence farmers, servants, or sellers of low-value-added goods and services. Many of them are also not proficient in an internationally useful language like English, French or Spanish.

There has been a lot of hype surrounding mobile money over the past 8 years or so but it simply has not taken off in most poor countries even as cell phone ownership and network coverage have increased massively (the exception that is always used to justify the hype is Kenya, where mobile money really has been successful). Bitcoin will likely face even bigger hurdles to adoption, especially as governments try to combat tax evasion and tighten anti-money laundering measures. At least in Asia, many countries now have a value-added tax and will increasingly insist that businesses operating on their territory record and process payments in a way that leaves a paper trail.

Anyway, PayPal is already supposed to be a universal intermediary that allows people to do business across borders and to allow for settlement where parties want to be protected against fraud and/or where at least one party lacks access to the credit card network. My experience is that it is still rarely used for international transactions where one side of the transaction is in a developing country. It seems to me that any intermediary relying on Bitcoin would need to learn from the relative failures of mobile money and PayPal to really take off in the poor world


I remember all the payments I've made through PayPal: bicycle components, recorded music, clothing, books. All of them high-value added goods.

Bitcoin, Paypal, whatever.....would be great for buying directly Fair Trade / Max Havelaar products. However, I really doubt the good people of NGOs are ready to go extinct and leaves business in the hands of people they're supposed to help. They will defend their middlemen way of life and won't disappear without a fight. Or, can I buy my overpriced organic fair-trade coffee directly to the producer?

But the rest of my comment hints at all sorts of reasons why it will probably be impractical for you to buy coffee directly from the producer. First, can the producer communicate in a language that you and other people who live in the rich world can understand? Second, does he have the sales, marketing and tech skills to run an attractive website that makes people want to buy from him? As a quick aside, tech geeks have trouble with this second question but never underestimate how important sales skills are. You can have a crappy product but still get rich if you have sales talent and you can have an excellent product and get nowhere if you don't have sales and marketing skills.

Third, how are you going to get the coffee? Is the guy's cousin going to hop on his motorbike, drive 50 miles on a pothole-filled road to the nearest DHL office and ship it to you (and are you willing to pay the $60 shipping fee plus whatever your country's Customs authorities decide to charge you)? These are all reasons why distributors and middlemen -- whether they are hippy NGO types or suit-wearing capitalists -- are probably not going away any time soon. Container ships are still by far the cheapest way to move goods long distances but the only way to take advantage of the cost savings that container ships offer is by being able to bundle huge amounts of your product together and be willing to tolerate the slow transit time. Which, of course, means you need a distributor and someone who can handle the logistics of maintaining a warehouse in the destination country and fulfilling individual orders out of inventory as they come in. In other words, you need a middleman to keep your transaction costs down.

Thanks, all of them are valid points.

It seems the highest transaction costs are not related to the method of payment.

After a year of very weak adoption, with a year to go before a big mining rewards halving, with no workable plan to transition bitcoin to a sustainable fee-per-transaction model, and no governance system that could decide one, bitcoin fans are apparently tiring of pitching to genuine potential users and drifting off into fantasies in which two billion sustenance farmers come to the project's rescue.

But digital networks and money are gradually penetrating into largely sustenance farming regions, albeit not yet really to the farmers themselves. For them to market what they have - small amounts of tropical farmland and very old fashioned farming skills - they need mostly transport infrastructure. Connecting them to the global economy is more about logistics than banking.

More junk logic. A credit history is what you use to get loans, not access to the banking system. There is no feature of the Bitcoin technology that solves any problems related to lending or money transfer, except for the desire by some to have no centralized intermediary. 99.9% of the people in the world could not care less about whether the verification is done by a "decentralized" or a centralized system.

Perhaps even more, because as we are finding out, people who want to transact with bitcoin more likely than not are using third party services that are essentially banks (e.g. Coinbase, Circle, etc), because the decentralized bitcoin network only provides one of many services of a banking system---a timestamped ledger.

Furthermore, the security and validity of maintaining the ledger depends on making the process so inefficient that someone would need to consume a lot of electricity to defeat it. That is the legitimate validators have to consume more electicity than any attacker would want to consume to defeat the system.

Bitcoin is definitely popular and one of the rising digital currency, but it’s too risky to deal with. I usually use it for doing Forex trading, I am working with OctaFX broker where there are variety of options available, so I have used BC in past but currently I prefer going with Skrill and they have terrific system with allowing me to get all my payments instantly without any delay and even the fees is not charged too much so that really helps.

Thank you for writing this great concept

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