[Cryptography] A little history, was What is total world transaction volume?

[Ray Dillinger]

On 02/09/2017 07:54 AM, John Levine wrote:
>> In other words, people will start spending liability currencies issued
>> by web wallet providers (e.g. Coinbase).  Those currencies will be
>> redeemable for actual bitcoin on the blockchain, with varying degrees of
>> probability.  The risk will be the technological, financial, or
>> fiduciary failure of the issuer.
> 
> This leads to an obvious question -- if you have to trust Coinbase or
> whoever issues your wallet, what's the point of tying it to bitcoin,
> other than bitcoin's ineffable coolness?
> 

This in fact stems from one of Bitcoin's central problems: scalability.

The distributed block chain system is simply inadequate to ever become a
widely-used payment system.  It can be used for interbank settlements
(ie, coinbase and empty-gox make a single bitcoin transaction when their
respective userbases have created a net movement of so many coins), but
if that's how it's used, the consumer is no better off than when using
any other bank-issued currency or bank-mediated payment system.

Also, bitcoin's privacy provisions are inferior in most ways to credit
card transactions.  Pretty much anybody can analyze the block chain but
bankers reveal that information only to people who are recognized by law
as having "right to know."  You don't have to like the way the right-
to-know determination is made with no control by the consumers actually
using the system, but making the information public doesn't really
enhance your privacy.

Bitcoin may allow privacy in theory, but practically nobody's got good
enough opsec to actually receive and spend bitcoin without every
transaction being traceable. If you follow the rules you'd have to
follow to be untraceable, you wind up in a completely closed subset of
the bitcoin economy populated exclusively by other people following
the same rules.  And, bluntly speaking, the cardinality of that subset
is zero.  There is nobody you can trade with whose opsec will allow
you to keep your privacy.

So you have a choice between bank-issued currencies and bank-settled
transactions, which allow you *some* privacy from *some* people, and
block chain transactions which don't.  And that's when you can actually
make block chain transactions, and there simply isn't enough room in
the block chain for a consumer-level application do that.

				Bear



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