Economy

Bitcoin Limits: A Matter Of Trust, Not Technology

Bitcoin or plastic?
Bitcoin or plastic?
Leonid Bershidsky

The Bitcoin rate spike, still alive despite bitter divisions in the community that supports the cryptocurrency, has laid bare the biggest problem with Bitcoin: Compared with fiat currencies, it's painfully inconvenient and expensive to use as a means of payment.

Bitcoin is set up to reward users for verifying transactions. Miners who package transactions into "blocks' receive two kinds of rewards: The additional Bitcoin they produce by using their hardware to solve mathematical problems (an income stream that will eventually cease since 21 million bitcoins are the maximum that can be mined) and the transaction fees paid by users to get their payments into blocks.

The Bitcoin system is designed around scarcity and its traditionalists insist on keeping the block size small (rebels who did away with that tenet founded an offshoot, Bitcoin Cash, earlier this year). Their reasoning is that only people with more computing power can live in a big-block world and going down that path would make Bitcoin less democratic. But that horse has bolted: Mining is already largely the province of people who invest significant money in equipment and the huge amount of energy required to run it. As Bitcoin's exchange rate rose rapidly and more people wanted to get in on the boom, getting into blocks became difficult, and miners prioritize transactions on which users are willing to pay a higher fee. It works a bit like Uber's surge pricing, except the user sets the fee based on how long she's prepared to wait for the transaction to go through -- using one of several sites that link fees to waiting times or show median and average fees.

At the time of this writing, the median fee paid to process the median transaction -- 226 bytes of information -- was 171,760 satoshis, or 0.0017176 Bitcoin, or $11.38. If you just want to pay for a cup of coffee or order something relatively inexpensive on an e-commerce site without waiting many hours for the transaction to clear, this is uneconomical. If you're a speculator, though, hoping to make money on the wild exchange rate fluctuations, you'll be willing to pay an even bigger premium for speed. No wonder the medium transaction size at the time of this writing exceeded $800 after reaching a peak of almost $1,300.

Bitcoin was never a particularly convenient means of payment. One can get a Bitcoin debit card and use it anywhere cards are accepted, but the fees on them -- charged on top of the Bitcoin transaction fees -- are generally higher than at your bank. For merchants, it's convenient to sign on to accept the cryptocurrency via specialized payment platforms -- but then the rate volatility and the same high transaction fees make it unattractive for a merchant who mostly works in a fiat currency economy. In July, Morgan Stanley issued a report saying merchants' acceptance of Bitcoin was on a downward trend just as the cryptocurrency's exchange rate went through the roof.

Some merchants stick to the currency, perhaps for PR value. BitPay, one of the top Bitcoin payment platforms, reported last month it was on track to process $1 billion in payments to merchants this year; the dollar volume of the transactions in January through September was up 328 percent year-on-year, the company said. But Visa, for example, processed $6.3 trillion in payments last year. Bitcoin hasn't even begun to make a dent in this market.

There is a notable group of merchants and customers willing to put up with Bitcoin's inconveniences: U.S. marijuana dispensaries and pot users, who are not adequately served by banks because of legal problems. Dark Web markets for harder drugs, guns and other restricted items also prefer to use Bitcoin, and, despite a recent crackdown, the currency still holds an appeal for Chinese investors trying to bypass their country's currency restrictions.

The essential value of Bitcoin, speculation aside, is to provide payment and transfer services in grey or black areas, where governments don't want banks to go and where electronic fiat money is too traceable for comfort. It's up to buyers and sellers to determine if this value proposition justifies the exchange rate to fiat currencies; given the current maximum block size of 1 megabyte and the strong resistance to increasing it, the original Bitcoin may never expand beyond its current narrow usefulness.

This creates a window of opportunity for Ethereum, Bitcoin Cash and other cryptocurrencies to gain wider acceptance. But dealing in several of them will inevitably be confusing for merchants. Besides, various combinations of design, technology and market failures such the one now afflicting Bitcoin as a means of payment, will keep cropping up.

It's likely that, if we ever switch to paying in cryptocurrency, it will be of the fiat variety, issued by central banks. As the sole issuers, they will fit their systems to historical transaction volumes and dictate transaction fees. If forced to compete with central-bank-designed systems for convenience, decentralized currencies will remain on the risky fringe, seducing volatility-loving speculators, dodgy businesses and their anonymity-craving customers.

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Society

What It Means When The Jews Of Germany No Longer Feel Safe

A neo-Nazi has been buried in the former grave of a Jewish musicologist Max Friedlaender – not an oversight, but a deliberate provocation. This is just one more example of antisemitism on the rise in Germany, and society's inability to respond.

At a protest against antisemitism in Berlin

Eva Marie Kogel

-Essay-

BERLIN — If you want to check the state of your society, there's a simple test: as the U.S. High Commissioner for Germany, John Jay McCloy, said in 1949, the touchstone for a democracy is the well-being of Jews. This litmus test is still relevant today. And it seems Germany would not pass.


Incidents are piling up. Most recently, groups of neo-Nazis from across the country traveled to a church near Berlin for the funeral of a well-known far-right figure. He was buried in the former grave of Jewish musicologist Max Friedlaender, a gravesite chosen deliberately by the right-wing extremists.

The incident at the cemetery

They intentionally chose a Jewish grave as an act of provocation, trying to gain maximum publicity for this act of desecration. And the cemetery authorities at the graveyard in Stahnsdorf fell for it. The church issued an immediate apology, calling it a "terrible mistake" and saying they "must immediately see whether and what we can undo."

There are so many incidents that get little to no media attention.

It's unfathomable that this burial was allowed to take place at all, but now the cemetery authorities need to make a decision quickly about how to put things right. Otherwise, the grave may well become a pilgrimage site for Holocaust deniers and antisemites.

The incident has garnered attention in the international press and it will live long in the memory. Like the case of singer-songwriter Gil Ofarim, who recently claimed he was subjected to antisemitic abuse at a hotel in Leipzig. Details of the crime are still being investigated. But there are so many other incidents that get little to no media attention.

Photo of the grave of Jewish musicologist Max Friedlaender

The grave of Jewish musicologist Max Friedlaender

Jens Kalaene/dpa/ZUMA

Crimes against Jews are rising

Across all parts of society, antisemitism is on the rise. Until a few years ago, Jewish life was seen as an accepted part of German society. Since the attack on the synagogue in Halle in 2019, the picture has changed: it was a bitter reminder that right-wing terror against Jewish people has a long, unbroken history in Germany.

Stories have abounded about the coronavirus crisis being a Jewish conspiracy; meanwhile, Muslim antisemitism is becoming louder and more forceful. The anti-Israel boycott movement BDS rears its head in every debate on antisemitism, just as left-wing or post-colonial thinking are part of every discussion.

Jewish life needs to be allowed to step out of the shadows.

Since 2015, the number of antisemitic crimes recorded has risen by about a third, to 2,350. But victims only report around 20% of cases. Some choose not to because they've had bad experiences with the police, others because they're afraid of the perpetrators, and still others because they just want to put it behind them. Victims clearly hold out little hope of useful reaction from the state – so crimes go unreported.

And the reality of Jewish life in Germany is a dark one. Sociologists say that Jewish children are living out their "identity under siege." What impact does it have on them when they can only go to nursery under police protection? Or when they hear Holocaust jokes at school?

Germany needs to take its antisemitism seriously

This shows that the country of commemorative services and "stumbling blocks" placed in sidewalks as a memorial to victims of the Nazis has lost its moral compass. To make it point true north again, antisemitism needs to be documented from the perspective of those affected, making it visible to the non-Jewish population. And Jewish life needs to be allowed to step out of the shadows.

That is the first thing. The second is that we need to talk about specifically German forms of antisemitism. For example, the fact that in no other EU country are Jewish people so often confronted about the Israeli government's policies (according to a survey, 41% of German Jews have experienced this, while the EU average is 28%). Projecting the old antisemitism onto the state of Israel offers people a more comfortable target for their arguments.

Our society needs to have more conversations about antisemitism. The test of German democracy, as McCloy called it, starts with taking these concerns seriously and talking about them. We need to have these conversations because it affects all of us. It's about saving our democracy. Before it's too late.

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