Why I'm Interested in Bitcoin
For all the people out there who are thinking about bitcoin as a payment technology: If you assume that customers get paid in dollars and that vendors will have to use dollars to pay their taxes, pay their employees and buy the raw materials for their products (reasonable assumptions, I think), then a payment consists of one conversion from dollars to bitcoins by the purchaser, and one conversion from bitcoins to dollars by the vendor.<p>Those two transactions will have associated costs. Exchanges take out trading fees and the market makers on the exchanges will want to see some profit as well (you will see this reflected in the bid/ask spread). The total cost for the transaction will be 2x the spread + exchange fees. People keep touting the 2.5% charge for using credit cards, but they don't compare it to a similar value for bitcoin. It clearly is not 0%. Exchange fees alone are can be something like 0.5%. If we double that (two conversions, remember) that's 1% just in exchange fees. Unfortunately, I don't have good numbers for bitcoin / dollar spreads because I don't watch that market very closely.<p>So we have 2.5% for credit cards and 1% + spread (unknown) for bitcoin. And with credit cards consumers at least get some protection in the case of fraud. Does anyone else have a better model for bitcoin transaction costs?