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Bitcoin Businesses Technology

Bitcoin Has No Future as a Payments Network, Says FTX Chief (ft.com) 134

Posted by msmash from the closer-look dept.
Bitcoin has no future as a payments network because of its inefficiency and high environmental costs, according to one of crypto's most influential chief executives. From a report: Sam Bankman-Fried, founder of the digital asset exchange FTX, said the proof of work system of validating blockchain transactions, which underpins bitcoin, was not capable of scaling up to cope with the millions of transactions that would be needed to make the cryptocurrency an effective means of payment. "The bitcoin network is not a payments network and it is not a scaling network," said Bankman-Fried. His comments came as the fast-growing cryptocurrency market was hit by a punishing sell-off that left bitcoin down by more than 35 per cent since January, at its lowest level since late 2020.

Bitcoin is still seen by some crypto enthusiasts as a way to conduct everyday transactions. Countries such as El Salvador and the Central African Republic have adopted Bitcoin as a legal tender. But recent research by academics in the US found that Bitcoin has scarcely been used for daily payments in El Salvador, despite the rollout of bitcoin ATMs and other measures to encourage its use. The 30-year-old billionaire, who has expanded FTX into one of the world's largest virtual asset exchanges, said an alternative type of blockchain known as proof of stake, or other technological innovations, would be required to create a functional crypto payments network. In a Twitter thread, Bankman-Fried clarified: "To be clear I also said that it does have potential as a store of value. The BTC network can't sustain thousands/millions of TPS, although BTC can be xfered on lightning/L2s/etc."
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Bitcoin Has No Future as a Payments Network, Says FTX Chief More

Bitcoin Has No Future as a Payments Network, Says FTX Chief

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  • Not the reason (Score:3)

    by burtosis ( 1124179 ) on Monday May 16, 2022 @09:16AM (#62538740)

    Bitcoin is still seen by some crypto enthusiasts as a way to conduct everyday transactions. Countries such as El Salvador and the Central African Republic have adopted Bitcoin as a legal tender. But recent research by academics in the US found that Bitcoin has scarcely been used for daily payments in El Salvador, despite the rollout of bitcoin ATMs and other measures to encourage its use.

    Public adoption is nice, but is not the primary purpose of pegging their fiat to bitcoin. They hope to stabilize fiat value, and yet have more flexibility because they do not need to make concessions to any other national banking system. It also increases liquidity of fiat exchange by using a neutral intermediary (even if exchanges are ultimately used) which also helps to stabilize the respective currencies. This only requires infrequent fairly large transfers and is thus closer to the use case for bitcoin.

    • Re: (Score:3, Insightful)

      by rgmoore ( 133276 )

      They hope to stabilize fiat value, and yet have more flexibility because they do not need to make concessions to any other national banking system.

      That's a nice idea, but Bitcoin has never shown the kind of stability they need in order for the "stabilize fiat value" part to work. They would be better off trying to peg to some kind of real-world commodity, like precious metals or petroleum, instead.

      More generally, this kind of thing is unlikely to work unless they do more work with their fiat currency. T

      • That's a nice idea, but Bitcoin has never shown the kind of stability they need in order for the "stabilize fiat value" part to work. They would be better off trying to peg to some kind of real-world commodity, like precious metals or petroleum, instead.

        The currency has been fixed to the dollar since 2001, so it already has a strong enough peg to markets. but because of sanctions and “competition” between national banks the liquidity and thus the stability to the economy is being held lower than market demands. Enough markets and currency is pegged to the dollar that worldwide recessions become possible. Oil does not work so well when it comes to liquidity, just look at Russia at the moment. I guess it remains to be seen if it helps or h

    • You don't stabilise currencies with infrequent transactions. You need frequent transactions tied to real world value to stabilise a currency.

      • Stabilization occurs when liquidity is maximized and transactions do not need to be frequent compared to fiat. This assumes that the fiat is highly unstable to begin with, we aren’t talking US dollars or Euros here. Companies need to make payments internationally, people need to send money, investments need liquidity. All of these are several orders of magnitude less than day to day fiat transactions.

        • No. Liquidity alone doesn't stabilise anything. Actual trading volume with a stable foundation (e.g. economy underpinned by something relatively fixed like people's pay, cost of food etc) stabilises a currency.

  • No shit (Score:5, Insightful)

    by jwhyche ( 6192 ) on Monday May 16, 2022 @09:34AM (#62538828) Homepage

    We made this prediction years ago. When bitcoin passed a value of $1000 a coin it lost all its value as a medium of common exchange. Now is nothing more than a commodity to represent stored currency.

    You can still spend it like a common currency but you are not going to be buying a pizza with it any more.

    • Any currency / payment solution would have to be scalable, relatively quick and not favor the founder. With the speed of BT Tx and the lack of scalability, as well as the founder effect, it was impossible from the start to be a currency meant for exchange. It just simply has no advantage whatsoever over real currency.
      • yeah, bitcoin wont remain the biggest crypto. its proof of work and scaling are limiting factors, as well as features. other cryptos on proof of stake, with solutions now or in the works to scale, and with added value of smart contracts likely do have a future though.

    • Re:No shit (Score:4, Funny)

      by UnknowingFool ( 672806 ) on Monday May 16, 2022 @09:50AM (#62538912)
      But bro, crypto is the new hotness. My cousin's best friend's college roommate says I need to go all in based on a TikTok he saw.

    • Re:No shit (Score:5, Interesting)

      by RobinH ( 124750 ) on Monday May 16, 2022 @10:05AM (#62539002) Homepage

      Fiat currency has value to me because I know that lots of people have debts they legally have to repay in those fiat currencies, and they don't have enough to repay it. The best example would be a mortgage. Those people are all willing to do stuff for me in exchange for my fiat currency. If they don't, they lose their house. As a purveyor of pizzas, I'd be willing to accept payment in this fiat currency for that reason. The fact that it has a stable value depends on the trustworthiness of the government. It's a risk, yes. Historically USD, CAD, AUD, EUR have been pretty good. Even 8% inflation is nothing compared to bitcoin speculative price swings, and I don't keep that much as cash anyway. After all, I prefer to own things that generate profits and wealth, like a pizza place.

      Bitcoin has value... why? Because there are only so many that can actually exist, nobody can manipulate it by creating more than the set amount, and as long as you remember your password and never lose it, nobody can take them away? I think you're ignoring the fact that someone can just hit you with a $5 wrench until you give up your password, but whatever. The fact is that even if bitcoin is all the things its proponents claim, it's still the worst possible store of value. Nobody wants to own bitcoin for its own sake because it has no intrinsic value (unlike, say, precious metals, food, or stocks) and nobody owes money in bitcoin. So nobody in the world really needs it. The only possible reason to buy it is because I think I can find someone else who's even more clueless about how worthless it is than me.

      • Re:No shit (Score:4)

        by jwhyche ( 6192 ) on Monday May 16, 2022 @10:23AM (#62539080) Homepage

        Because there are only so many that can actually exist, nobody can manipulate it by creating more than the set amount, and as long as you remember your password and never lose it,

        This is another issue with bitcoin, there can only be so many of them. Coins are going to be lost and with no way to replace them, eventually the currency will be useless. We have all heard the story of the poor smuck that lost millions of dollars in bitcoins because he threw away the HD the coins where on. Those coins are lost forever, they can never be replaced.

        • This is another issue with bitcoin, there can only be so many of them. Coins are going to be lost and with no way to replace them, eventually the currency will be useless. We have all heard the story of the poor smuck that lost millions of dollars in bitcoins because he threw away the HD the coins where on. Those coins are lost forever, they can never be replaced.

          Bitcoin has lots of problems, but I don't think the loss of virtual "coins" is one of them. So long as there's still one schmuck with a valid bitcoin wallet, the BTC or fraction of a BTC in that wallet can be infinitely subdivided. Of course, the precision of some internal functions may need to be increased (i.e. recoded). This would result in some new sub-unit, say, a nano micro-satoshi.

      • Bitcoin has value... why?

         
        This isn't really a discussion anyone here wants to have. The biggest problem is separating the the technology from the price. Almost everyone here is blinded by the price and it's arguably unreasonable selling value. Bitcoin has lots of properties that make it valuable. Valuable philosophically, valuable technologically. How valuable in dollar amounts is another discussion.

      • Nobody wants to own bitcoin for its own sake because it has no intrinsic value (unlike, say, precious metals, food, or stocks) and nobody owes money in bitcoin.

        The best example of a currency with intrinsic value is fiat currency, and the first paragraph of your post explained why, leaving out only one small -- but very important -- detail. The reason that so many people have fiat currency-denominated debts is because the creation of those debts is how the currency to repay them is created. Every dollar created is accompanied by the creation of a legally-binding commitment by someone[*] to do real work in order to get someone else to give them a dollar to repay th

  • "DeFi" = "Deregulated Finance" (Score:4, Insightful)

    by Anonymous Coward on Monday May 16, 2022 @09:38AM (#62538850)

    Remember kids, "DeFi" really means "Deregulated Finance".

    • But Grandma Libertarian tells us that regulations are the root of all evil.

    • Please. Whether or not Bitcoin is deregulated does not address his point that Bitcoin processing is slow and does not scale as a payment system for widespread public use. Maybe newer coins will be designed to be faster and more scalable but certainly not Bitcoin.

  • Right about few things (Score:5, Insightful)

    by DarkOx ( 621550 ) on Monday May 16, 2022 @09:42AM (#62538866) Journal

    Bitcoin has not future as payments network

    Spot on its to inefficient and slow and either always will be or will have its integrity under direct threat.

    Bitcoin is still seen by some crypto enthusiasts as a way to conduct everyday transactions.

    Correct true believers are like that they don't operate on reason. These enthusiasts are the same type of people that pay $100 for a 'directional' Ethernet cable to connect to their stereo.

    To be clear I also said that it does have potential as a store of value.

    - WRONG It can't because because it fails to deliver on the original promise as a way transact without a middle man, (at least in practical terms). As such any advantage it has over dollars, euros, francs, yen, etc is imaginary, or will be once the regulators catch up. In the interim the weak/unknown state of regulatory application carries a mixture of advantages and severe disadvantages well covered on Slashdot. The fact that its not actually useful is why it can't be a wealth store.

    If the blockchain implementation has scaled it *could* have perhaps worked as a wealth store based on network effects, everybody use bitcoin to transact therefore bitcoins have value. However since it does not do that an instead relies on middle men it has no extrinsic value any more. Bitcoin exchanges offer me nothing in real terms that SWIFT, ACH, OCC, Pick your stock exchange, does not at those guys generally do it better and safer. You can't 'improve' a bitcoin, can't turn it into a jewelry, a microchip package, connector, data storage media, etc like Gold. Don't 'need it' anyone can make a new block chain currency thing anytime they want, and it and its associated coins would be exactly as useful.

    The chance it has at being a wealth store is if someone puts 'force' behind it. If an El Salvador for example went from you *can* pay your taxes in bitcoin to you *must* pay your taxes in bitcoin. So no it won't be a wealth store, because there a no reasons it should be. El Salvador will more than likely forget all about it too once they see the capital flight form Bitcoin destroying their asset value; which is happening because people are liquidating their bitcoin positions to maintain margin requirements to hold stocks, also currently declining in value...but that is more than just where the money is going its also a statement. People would rather own preserve their equity position in stocks and bonds than hold their bitcoin even during this market route.

    • Re: (Score:2)

      by ceoyoyo ( 59147 )

      It can't because because it fails to deliver on the original promise as a way transact without a middle man, (at least in practical terms).

      That's exactly why it will stick around as "a store of value." Bitcoin is just another complicated (or complicatable) financial instrument that most of the people dealing in it don't understand. That's what middle men love. Currently it's all dodgy exchanges and fly-by-night apps, but the big boys want it properly regulated so they can sell it to Joe Average as part of h

      • Re: (Score:2)

        by DarkOx ( 621550 )

        Maybe.

        The big guys want to sell financial products. That much is true. However why should big guys care what the product is? Its a zero or negative nominal interest rate environment coupled with historically high inflation for common currency (the dollar).

        Everyone not planning to retire next week is desperate to chase yield and highly risk seeking - because they can't afford to sit still / in cash.

        To that end there is no reason why the big guys can't sell you bitcoin this week, and some other shitcoin next

        • Re: (Score:2)

          by ceoyoyo ( 59147 )

          Oh, they don't care what it is. They do care that they have a vast array of "products" with which to tempt you. So they'll sell you bitcoin or etherium or a managed market fund, or a de-risked asset backed security (lol) or some nice oil futures. Bitcoin will stick around because it's got the first mover cachet. You'll *also* be able to buy crypto futures, mutual funds, active traded funds, shorts, curated NFT collections....

          Now, when you see an asset backed security with crypto as the backing you'll know t

    • WRONG It can't because because it fails to deliver on the original promise as a way transact without a middle man

       
      WTF are you even talking about? Amazing, you start off with something not true at all and use that as the basis of your argument?

      • Re: (Score:2)

        by DarkOx ( 621550 )

        for useful intents I can't exchange bitcoin without a middle man. Where can buy a pizza by sending coin directly from my local wallet to the pie-shop. right - does not exist, and if it did it would cost more than the pizza and take longer than either party is willing to wait.

        Or were you going to suggest the original promise did not include direct first-second party transactions? I think that would be news to MOST

  • BTC is not a currency... (Score:3)

    by JasterBobaMereel ( 1102861 ) on Monday May 16, 2022 @09:47AM (#62538898)

    It cannot handle large number of transactions
    It is not stable enough to be useful as a currency
          Nobody wants a currency where they have to check the price this minute because it might have changed...

    It can be used as a store, but is still not really stable enough for this, people use gold and other valuable commodities for this as the price does vary but does not normally fluctuate greatly or fast

    • The o ku way I can see it being a day-to-day method of payment is through payment processors who handle the risk, offering a guaranteed rate if exchange into cash. It'll be something comparable to mechanisms used to manage currency fluctuations but more comparable to accepting payment in shares.

      • Re: (Score:2)

        by ceoyoyo ( 59147 )

        So why would you use it then? People who "handle risk" do so by figuring out how much to charge you to cover any losses they might endure. Plus some extra profit. Add to that the expense of actually running the network, which is *also* passed on to whoever is doing the transaction.

        That's why people in places that have volatile currencies like to use foreign "hard" currency if they can.

        • I wouldn't use it. As well as the risk to the merchant, I wouldn't have any certainty if the 'currency' I was carrying were to be very volatile. I like the idea that I can leave my house to buy something for â1,000, arriving at the shop to find I still have enough money for my purchase.

  • That's not the only use case, of course.

    Sure, since Bitcoin is slow and expensive it's not as good for a payment network as PayPal, Venmo, Cash App, etc. Or Visa and MasterCard depending on the use case.

    Sure it's high risk - we see "millions lost when exchange ..." every other day.

    And sure you can't reasonably set prices in BTC, putting up labels saying this jar of pickles is X BTC and the milk is however much - the prices would be outdated a few hours later. Even more so, you REALLY wouldn't sign a rental contract agreeing to pay Y BTC per month for the next year for an apartment or house. So it's not useful as the medium of exchange, currency.

    I'll admit it's not good as a payment network and it's not at all good as a currency. HOWEVER - Bitcoin is good for ... something, I'm sure. Or maybe not.

  • The story title seems too long (Score:3)

    by NoMoreDupes ( 8410441 ) on Monday May 16, 2022 @10:10AM (#62539032)

    "Bitcoin Has No Future"

    There, more precise, none of the fluff.

  • Casino Game Without A Dealer (Score:4, Insightful)

    by The Cynical Critic ( 1294574 ) on Monday May 16, 2022 @10:42AM (#62539174)
    The fact that bitcoin doesn't scale is and is hence entirely unsuitable for any significant volume of transactions something that's been blindingly obvious for about a decade at this point. Back then it at least successfully carved out a niche for contraband like narcotics, unlicensed firearms and murder-for-hire along with drug cartel money transfers, bypassing Chinese foreign money transfer controls, crypto locker and other cybercrime ransom payments.

    However since then the closer scrutiny of transactions on the public ledger and the significant slowdown in the number of transactions and increase in their cost has driven away more or less all of these questionable users. Most of whom are left are speculators betting on the value, i.e other speculators' interest in it. The whole thing has basically become something akin to a casino game without a dealer. Betting against each other on something that isn't tied to anything in the real world, causing it to swing wildly back and forth as the gamblers' moods swing.

    Honestly, this is the sort of stupidity where I say that you deserve your misfortune if you get burned by it. Even when you've over-leveraged yourself so badly you lose your house when it all comes crashing down.

  • No, financial institutions love transferring money using an asset that takes an hour and a half to get through, at which point the value may have changed 20%.

  • Is this news? I'm honestly wondering. (Score:3)

    by Petersko ( 564140 ) on Monday May 16, 2022 @11:25AM (#62539366)

    So for the last few years I've heard over and over again that the nature of transactions on the blockchain were just flat out incompatible with having millions of transactions per day. On the flip side, I haven't seen hardly anybody claiming the counterpoint.

    Are people really still pursuing the idea of Bitcoin as a run-of-the-mill transactional unit of trade? I thought that ship had sailed.

  • As usual we can't have it all. Pick two

  • In a Twitter thread, Bankman-Fried clarified: "To be clear I also said that it does have potential as a store of value. ..."

    Extreme volatility is not what anyone wants in a store of value.

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