How would you feel about a "Bitcoin wallet" site that stored your balance in USD? With the actual funds being held in a Bank of America or HSBC or whatever bank account?

Paypal isn't covered by FDIC insurance either.

Do you refuse to touch them too?

It doesn't exist in a lot of other cases either. Paypal is my usual example, but there's other similar cases. Games with microtransactions perhaps, or active DRM like Microsoft's PlaysForSure. The company can screw you over in all of these cases too.

Yet people still use them.

What stops any company from doing this?

My response to that is roughly covered by this post, so I'll link to it rather than make this reply even longer.

Also, consider what position Mt Gox occupies in the picture I described above. I gave two examples of customer-end companies, both of which transferred money from a bank account to the customer processor and then, via Bitcoin, on to the seller processor. Mt Gox was essentially the first two steps rolled up into one: a bank that is also the customer-side processor for the payment. People lost money with Mt Gox because they were using the bank aspect of it, and had money deposited in it.

Deposit protection regulation for banks does sound like a good idea to me. As it happens, we already have this for existing banks, and those banks can be used to store the money that eventually gets paid to somebody via Bitcoin, so you won't lose the deposit guarantee just by using Bitcoin. Presumably this protection would also continue to apply to a bank that starts making Bitcoin payments directly. It might not, for whatever reason, apply to a Bitcoin payment processor that starts taking bank deposits (i.e. the Paypal case)... but in that case, regulation for the Bitcoin market won't help, because it's the deposit protection that needs to be fixed. (Or perhaps it doesn't, because Paypal seems to be fine without it...)

Bootnote: there's a second class of people that lost money with Mt Gox flopping over, namely the people who were storing bitcoin outside of Mt Gox and are now affected by the reduced exchange rate. Who are these people? They aren't regular users (either buyers or sellers), because those users will use Bitcoin via the payment providers that I described.

These people are a) the payment providers themselves, and b) speculators. For payment providers, dealing with changes in exchange rate is their job. They'll set their own exchange rate to be slightly worse than the real exchange rate (essentially as the fee for the transaction). In order to lose money, the exchange rate has to drop by more than the fee for the transaction -- and if that happens, they cover the loss with fees from all their other transactions. (And if the rate goes up? They get to keep the extra money.)

Risk is the name of the game for speculators too. They're gamblers; they're there because of the risk, with the idea being to make enough money on exchange rate jumps to cover losses on exchange rate drops.

I don't think we should try to protect the second group of people. The first group would benefit from anything that lowers the exchange rate volatility... but I believe (with bitpay.com as my evidence) that the volatility is low enough to make their service commercially viable even today, and that'll only get better if more people use Bitcoin. So we don't need market regulation for them, either.

Yep. That's how to do it with Bitcoin, too.

Sure would be nice if we had a system where sellers could switch their provider while still selling to the same buyers, and where buyers could switch their provider while still buying from the same sellers.

Oh wait.

(I made this post further up in the thread describing this, so I'll just link to it rather than repeat myself.)

Indeed, but doing it that way isn't a requirement for Bitcoin.

There is already at least one service that takes all of the research out of it from the seller's perspective. Customers pay into a Bitcoin address; all the seller needs to do does is sign up, integrate it into their checkout system and they get money in their bank account at the end of every day.

All we need now is a similar service for the customer end. The obvious way to do it would be a service that takes a credit card payment and turns it into a Bitcoin payment, although there would also be room for services that take bank payments or whatever's useful. (Perhaps somebody has done this already, but I don't know of an example off-hand.)

Both of these services take the responsibility of research off of the payer and payee. They also bundle up all of the risk associated with the exchange rate and turn it into fixed fees. (This is where they make their money: insuring against risk, making sure, as with all insurance, that they statistically get paid a profit overall.)

And now perhaps you're thinking "wait... what's the point of Bitcoin if I'm just going to use a credit card with it anyway"? Well, it's like the point of e-mail when we have Facebook Mail. Or the point of the Internet when we have CompuServe Information Service.

It sounds like you don't want regulation of Bitcoin per se, but instead regulation of exchanges. Or, more generally, you want regulation of anybody to which you give money with the expectation of getting it back. I'd expect that legislation to exist already, because the concept of "a company which holds on to your money for a bit" is one that's existed for a long time before Bitcoin.

As an aside: as far as I'm aware, Paypal does not come with this protection in the US. They can take your money, and there's sod all you can do about it. In Europe, Paypal is a bank... but actually, according to their website, don't qualify for deposit protection anyway, so they can happily go bust and your deposits won't be covered.

It's notable that people still use Paypal.

As would we all. And as I say, that can be Bitcoin.

At the very least, it may be the most convenient option available, even if you wouldn't describe it as convenient.

No; they're useless to you in your local shop that won't accept them because the shop won't accept them. But if the shop does accept them, then they're useful to you. It doesn't matter to you how fast they need to get rid of whatever you used to pay with, or whatever other problems they might have, because that's all internal to the shop and has nothing to do with you.

"Because the shop doesn't accept it" is a pretty good reason for not using Bitcoin -- but it would mean that you'd be perfectly happy using it if the shop did accept it.

The point of Bitcoin is that it's decentralized. You don't have some central entity telling you who you can or cannot pay.

Perhaps you don't care about that, in which case, the reason might well be simply that you are trying to pay somebody that doesn't accept Paypal, cash or credit cards.

I have no idea what relation this has with the text you quoted. You do allude to a good point here though: even though my local cashier doesn't accept Yen, Yen is still a thing that's useful. If you found a cashier that only accepted Yen, presumably you'd be happy to use it. Why do you not apply that same logic to Bitcoin?

What regulation are we talking about here, then? The necessary regulation for making Bitcoin a payment network (anti-counterfeiting, accurately keeping track of money etc) is handled by the Bitcoin protocol. What more is necessary to make it usable as a payment network?

They aren't failing miserably. It works just fine for paying people.

So basically, your complaints boil down to "the exchange rate is too volatile", which suggests you'd be okay with Bitcoin if that wasn't a problem. (And as it happens, it's something that can be pretty much completely hidden today if you buy BTC as you need it and pay via somebody like Bitpay that fixes the price for a period of time.)

(I don't see any way for the price to ever be fixed to actual currencies -- partially because this would involve being fixed to multiple currencies which are themselves not fixed to each other. The good news is that this obviously isn't important, because e.g. USD, EUR and JPY are all not fixed to each other, and yet people still use them.)

Other than that, your only issue is regulation (of, presumably, exchanges). IANAL, but I would've thought that exchanges would already be covered under existing regulation for companies that handle money. It's worth pointing out at this point that Paypal in America isn't directly regulated by the US federal government, so if you're in America and you use Paypal then this isn't actually a requirement for you anyway.

I'm not. The whole point of Bitcoin is to make a payment network -- essentially, a distributed-but-still-secure version of Paypal. And as it happens, Paypal is in pretty common use despite not being usable by kids and despite requiring computers, so it seems pretty unreasonable to claim that having either of those restrictions will stop it from becoming popular.

Children are too young to use Paypal (which requires them to be 18 or above to agree to the contract). Does that mean Paypal is useless?

For that matter, it also requires a computer to use. It fails two of your conditions for becoming popular, despite having become popular. This suggests that neither of these two conditions are actually necessary.