A few thoughts - Tuesday, July 15, 2014
Posted: Tue Jul 15, 2014 5:24 pm
Good afternoon! A few thoughts for lunch today:
Poor customer service reigns supreme in bitcoins
I've started to use bitcoins during the course of normal life, now that many sites accept them and because some of those sites provide a discount significant enough to make a difference. However, bitcoins remain expensive to spend for a variety of reasons, and I'd be glad to spend them in even more cases if it weren't for these fees. I thought that it would be worth examining the experience of doing business with bitcoins online for those who have not done that yet. First, I'll talk about customer service.
On Thursday, we will be installing the production server for the mining pool, and some of it was purchased with bitcoins using purse.io. purse.io's customer service is exceptionally poor. They have bugs in their site that allow users to overdraw their accounts by a few cents due to transaction fees. The overdrawn accounts then cannot be paid out to the buyers, even if there is no dispute. When my brother complained to them, they actually told him that he needed to pay purse.io the balance of the error to fix their bug. He refused and allowed the buyer of the bitcoins to open a claim, so that one of the other two parties had to take that loss. We may not use purse.io in the future because of their representatives' poor attitude.
Cryptsy is another unprofessional company which we may be forced to leave as soon as Mintpal releases a working API. I've been submitting tickets to Cryptsy for months. One time, they released an API update that incorrectly locked people out due to security checks. It took them 24 hours before they responded about such a serious issue, during which I was completely down. I've submitted three other tickets to Cryptsy, and each of them required days before I even received a response. One of these tickets was comically reopened last week by someone who asked me if it had been resolved, over two months later. More seriously, my brother called Cryptsy on the phone to try to get some answers from them. They put down the phone and (apparently forgetting to mute it) made fun of a customer while he was listening right there. How Cryptsy is able to stay in business when they treat people like this is beyond me; as soon as there is valid competition, their angry customers are going to leave in droves.
While some people might say that the bitcoin industry is "growing up," there still seem to be many companies that launched before they were ready and which do not recognize the importance of responding to customer complaints respectfully. I suspect that companies like this will eventually fail because they will be unable to develop the relationships necessary to retain repeat customers.
An examination of fees
Next, let's examine the impact of fees on bitcoin transactions to see when they are useful for online commerce and when they are not. One of the best uses for bitcoins until they were directly accepted by many stores was to use bitcoins to purchase gift cards, at a 3% discount. However, I don't do this because it is not the optimal way to save money for most stores. First, at least one of the cashback credit cards usually gives 5% in the category that you are buying, so using one of those cards is a better idea than a 3% bonus for spending bitcoins when it is available. If such bonus is not available, then the 3% that is saved in bitcoins is actually only saved on the next purchase, and only then if you use the same site to purchase gift cards again. Therefore, there is always going to be a loss on the last card you purchase, whenever that is, because there will be 3% you can never redeem. Finally, there are sites that sell used gift cards for 15% or 20% off, which is much more than one can get with the bitcoin gift card sites. You can stack those sites with cashback bonuses, and receive even greater discounts, if the card you're looking for is available.
A further hindrance to bitcoin usage is that you lose 1% to Coinbase every time a "re-purchase" is made, and you also lose transaction fees in at least one direction. To purchase something with purse.io, for example, it costs 1% to purchase bitcoins, 1% to pay purse.io's fees, and the network's transaction fees, which can be as high as 1% because these companies use very high fees for transactions. That means that 3% is lost before any savings are realized at all.
There's also another catch: the vendors where the gift cards are available to are not always the cheapest vendors for the items you need. We were not able to use purse.io for all items because Amazon does not have competitive prices on 90% of the items we were looking for. I don't purchase many gift cards using bitcoins because I never have time to buy anything except food, and grocery stores are a low-margin business where gift cards are not available. The best savings are on things that aren't great deals to begin with, like expensive restaurants, which means that you still pay more after all of the discounts.
In conclusion with fees, Coinbase is a big roadblock to progress in this area because they are a huge drag on the bitcoin economy. The issues preventing bitcoin adoption for me are that Coinbase has no competition to drive down their profits, that the 1MB transaction limit is forcing higher and higher fees on the blockchain, that discounts on gift cards purchased with bitcoins are in "rewards points" that are not immediate discounts, and that 5% cashback bonus periods of credit cards overwhelm any savings offered by using bitcoins.
A long period of nothing ahead?
/u/Emocmo yesterday pointed out that breaking the 620 line would result in a very long formation coming up, which I take to mean that it will be a long time before anything happens with the bitcoin price. Looking at the August 2012 false bubble, one can see that a long period of low volatility is pretty much what happened after that "failure to launch." With no new significant developments on the horizon to demonstrate that we are not on the downtrend of a false bubble, there is unlikely to be a rise soon.
After I wrote this message, I edited it to say that Emocmo posted a new point and figure chart that implies a new formation of only four columns. He comes to the same conclusion: that even if the price breaks out of the range, there still won't be much movement.
Professionals versus amateurs
Someone in /r/bitcoinmarkets pointed out that it's amazing how the patterns just repeat themselves over and over again. They said that the reason for the patterns is that the market is filled with amateur investors. That seems to be a common theme, but I haven't seen any evidence provided by anyone that the majority of investors in bitcoins are amateur. It's likely that people in */r/bitcoinmarkets* are amateur investors, but that doesn't mean that the people who hold the majority of the bitcoins (and who actually move the markets) are amateurs. There is a a catch, then. There may be a majority of people who know little about investing, but they control very little of the money invested in bitcoins, and that means that the market is not being influenced by amateurs.
Something else that's interesting is the idea of "disclaimers" that /u/moral_agent brought up in a post he made recently. moral_agent's posts now have large disclaimers at the top with the usual warning not to consider what he says trading advice and so on. The law states that professional brokers who are giving advice have to include disclaimers like that in their statements, just as lawyers who post online often include disclaimers. There is, of course, no law preventing non-licensed professionals from sharing their opinions without such disclaimers. To people who are not curious enough to learn trading before putting up money, these blatant warnings make advice from professional traders seem inaccurate, and some of the magical charts in /r/bitcoinmarkets with no explanation for their lines accurate. In a society that does not place a high value on personal responsibility, we inadvertantly encourage people to follow the wrong advice with such huge disclaimers.
Other
Poor customer service reigns supreme in bitcoins
I've started to use bitcoins during the course of normal life, now that many sites accept them and because some of those sites provide a discount significant enough to make a difference. However, bitcoins remain expensive to spend for a variety of reasons, and I'd be glad to spend them in even more cases if it weren't for these fees. I thought that it would be worth examining the experience of doing business with bitcoins online for those who have not done that yet. First, I'll talk about customer service.
On Thursday, we will be installing the production server for the mining pool, and some of it was purchased with bitcoins using purse.io. purse.io's customer service is exceptionally poor. They have bugs in their site that allow users to overdraw their accounts by a few cents due to transaction fees. The overdrawn accounts then cannot be paid out to the buyers, even if there is no dispute. When my brother complained to them, they actually told him that he needed to pay purse.io the balance of the error to fix their bug. He refused and allowed the buyer of the bitcoins to open a claim, so that one of the other two parties had to take that loss. We may not use purse.io in the future because of their representatives' poor attitude.
Cryptsy is another unprofessional company which we may be forced to leave as soon as Mintpal releases a working API. I've been submitting tickets to Cryptsy for months. One time, they released an API update that incorrectly locked people out due to security checks. It took them 24 hours before they responded about such a serious issue, during which I was completely down. I've submitted three other tickets to Cryptsy, and each of them required days before I even received a response. One of these tickets was comically reopened last week by someone who asked me if it had been resolved, over two months later. More seriously, my brother called Cryptsy on the phone to try to get some answers from them. They put down the phone and (apparently forgetting to mute it) made fun of a customer while he was listening right there. How Cryptsy is able to stay in business when they treat people like this is beyond me; as soon as there is valid competition, their angry customers are going to leave in droves.
While some people might say that the bitcoin industry is "growing up," there still seem to be many companies that launched before they were ready and which do not recognize the importance of responding to customer complaints respectfully. I suspect that companies like this will eventually fail because they will be unable to develop the relationships necessary to retain repeat customers.
An examination of fees
Next, let's examine the impact of fees on bitcoin transactions to see when they are useful for online commerce and when they are not. One of the best uses for bitcoins until they were directly accepted by many stores was to use bitcoins to purchase gift cards, at a 3% discount. However, I don't do this because it is not the optimal way to save money for most stores. First, at least one of the cashback credit cards usually gives 5% in the category that you are buying, so using one of those cards is a better idea than a 3% bonus for spending bitcoins when it is available. If such bonus is not available, then the 3% that is saved in bitcoins is actually only saved on the next purchase, and only then if you use the same site to purchase gift cards again. Therefore, there is always going to be a loss on the last card you purchase, whenever that is, because there will be 3% you can never redeem. Finally, there are sites that sell used gift cards for 15% or 20% off, which is much more than one can get with the bitcoin gift card sites. You can stack those sites with cashback bonuses, and receive even greater discounts, if the card you're looking for is available.
A further hindrance to bitcoin usage is that you lose 1% to Coinbase every time a "re-purchase" is made, and you also lose transaction fees in at least one direction. To purchase something with purse.io, for example, it costs 1% to purchase bitcoins, 1% to pay purse.io's fees, and the network's transaction fees, which can be as high as 1% because these companies use very high fees for transactions. That means that 3% is lost before any savings are realized at all.
There's also another catch: the vendors where the gift cards are available to are not always the cheapest vendors for the items you need. We were not able to use purse.io for all items because Amazon does not have competitive prices on 90% of the items we were looking for. I don't purchase many gift cards using bitcoins because I never have time to buy anything except food, and grocery stores are a low-margin business where gift cards are not available. The best savings are on things that aren't great deals to begin with, like expensive restaurants, which means that you still pay more after all of the discounts.
In conclusion with fees, Coinbase is a big roadblock to progress in this area because they are a huge drag on the bitcoin economy. The issues preventing bitcoin adoption for me are that Coinbase has no competition to drive down their profits, that the 1MB transaction limit is forcing higher and higher fees on the blockchain, that discounts on gift cards purchased with bitcoins are in "rewards points" that are not immediate discounts, and that 5% cashback bonus periods of credit cards overwhelm any savings offered by using bitcoins.
A long period of nothing ahead?
/u/Emocmo yesterday pointed out that breaking the 620 line would result in a very long formation coming up, which I take to mean that it will be a long time before anything happens with the bitcoin price. Looking at the August 2012 false bubble, one can see that a long period of low volatility is pretty much what happened after that "failure to launch." With no new significant developments on the horizon to demonstrate that we are not on the downtrend of a false bubble, there is unlikely to be a rise soon.
After I wrote this message, I edited it to say that Emocmo posted a new point and figure chart that implies a new formation of only four columns. He comes to the same conclusion: that even if the price breaks out of the range, there still won't be much movement.
Professionals versus amateurs
Someone in /r/bitcoinmarkets pointed out that it's amazing how the patterns just repeat themselves over and over again. They said that the reason for the patterns is that the market is filled with amateur investors. That seems to be a common theme, but I haven't seen any evidence provided by anyone that the majority of investors in bitcoins are amateur. It's likely that people in */r/bitcoinmarkets* are amateur investors, but that doesn't mean that the people who hold the majority of the bitcoins (and who actually move the markets) are amateurs. There is a a catch, then. There may be a majority of people who know little about investing, but they control very little of the money invested in bitcoins, and that means that the market is not being influenced by amateurs.
Something else that's interesting is the idea of "disclaimers" that /u/moral_agent brought up in a post he made recently. moral_agent's posts now have large disclaimers at the top with the usual warning not to consider what he says trading advice and so on. The law states that professional brokers who are giving advice have to include disclaimers like that in their statements, just as lawyers who post online often include disclaimers. There is, of course, no law preventing non-licensed professionals from sharing their opinions without such disclaimers. To people who are not curious enough to learn trading before putting up money, these blatant warnings make advice from professional traders seem inaccurate, and some of the magical charts in /r/bitcoinmarkets with no explanation for their lines accurate. In a society that does not place a high value on personal responsibility, we inadvertantly encourage people to follow the wrong advice with such huge disclaimers.
Other
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