> If something can be accomplished on the blockchain, which requires N nodes, a business can probably replicate that same objective with less than N nodes because they don't have to pay the cost of verifying that nodes are acting honestly. This business is incentivized to be honest because otherwise they lose their business.

This is missing something important, which we can see by considering one of the major problems merchants want to solve right now.

The credit card companies charge them ~3% and then give ~1% back to the customer, implying that there is a ~2% net gain to be had by cutting out the middle man. So why hasn't this happened? Because the alternative with the lower fees is ACH, but customers are less willing to give out their bank account number than their credit card number to a random small business.

This is the easy case for some centralized service to fix it, right? Have some large trustworthy company take the customer's bank account info and transfer the money to the merchant for a very small processing fee. But this is the part where your assumption falls through. Once the merchant has signed up for this, the payment processor is the only one with the customer's payment info. In other words, it's hard to switch, and then the payment processor can charge higher fees (eroding the benefit) and the high switching costs also cause the market to consolidate. And because you're tied to a single payment processor, when their fraud AI has a false positive they can erase your business overnight by locking you out and not answering the phone.

Now suppose you don't have a centralized system. Instead, the customer acquires a store of value (Bitcoin, stablecoin, something else) however they want. Customer A can get it from Coinbase, Customer B can get it from Stripe, Customer C can get it by selling something on eBay and accepting it as payment, and the merchant doesn't have to do business with any of these third parties to accept payments from customers who do, because they all support the same transfer medium.

Now you have a competitive market. Currently a new payment processor has to earn the trust of a large enough percentage of the general public for merchants to be willing to use them; a new exchange would only need the trust of enough people to be doing enough business to cover their costs, a far lower threshold. If a merchant wants to switch payment processors or has a dispute with one of them, their own customers wouldn't have to do anything different because the means customers use to convert dollars to tokens is independent of the means merchants use to convert tokens to dollars.

> Someone has to pay those costs for the N nodes on the blockchain - who will it be?

That's the boring question. The interesting question is, can you have a blockchain with lower fees than payment processors currently have? And the answer appears to be yes, e.g. the transaction fee for Bitcoin Cash is around a penny.

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siddthesquid 6 days ago | parent [-]

My point is that blockchain is just a technology - nothing about the technology itself makes the concept of transferring money cheaper. I agree that it is another competitive avenue for transactions, but if it became a threat to payment processors, my theory is that they could lower their costs more than blockchains potentially can. This is because the software and infrastructure needed to build something that assigns numbers to accounts and allows transfers is obviously going to be cheaper off the blockchain.

If trust is an issue, the bank can provide cryptographically signed receipts that show they've confirmed the entire lineage of your account, in the same way a blockchain does, but they would be the only verifier. The question becomes about how the cost of the additional trust from the blockchain relates to the incentive of doing honest business. I imagine that trust cost is pretty high.

> can you have a blockchain with lower fees than payment processors currently have? And the answer appears to be yes

The transaction fee is not the only thing being paid. They are also getting mining rewards. If a blockchain has mining rewards, maybe in the form of Bitcoin Cash, then that will dilute the entire pool of Bitcoin Cash.

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AnthonyMouse 5 days ago | parent [-]

> They are also getting mining rewards. If a blockchain has mining rewards, maybe in the form of Bitcoin Cash, then that will dilute the entire pool of Bitcoin Cash.

How is this any different than the Fed or the fractional reserve banking system creating new US dollars?

> nothing about the technology itself makes the concept of transferring money cheaper.

Nothing except for the thing that matters: If you have something fungible instead of something with high switching costs, it makes fees go down.

> if it became a threat to payment processors, my theory is that they could lower their costs more than blockchains potentially can.

And that's why blockchains are useful! To exert the pressure needed to make that happen.

It doesn't matter if the centralized system can have lower costs unless it actually does, and for that you need the competitor to exist as a viable threat.

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siddthesquid 5 days ago | parent [-]

> How is this any different than the Fed or the fractional reserve banking system creating new US dollars?

The miners get the fees. The fed does not keep the dollars they make. They also adjust the rates to avoid things like recessions.

> Nothing except for the thing that matters: If you have something fungible instead of something with high switching costs, it makes fees go down.

The US dollar is considered fungible... Help me understand how any of this is specific to blockchain technology and not included in non-blockchain technology. Have you worked with this tech before? Also, what about things like venmo and zelle? zero fees, super fast.

> And that's why blockchains are useful! To exert the pressure needed to make that happen.

I'm not saying they are not useful. I am saying the technology behind them is irrelevant to the costs.

	▲	AnthonyMouse 5 days ago \| parent [-]
		> The miners get the fees. The fed does not keep the dollars they make. Somebody gets the money. Banks and government contractors get the money. It's not clear how that's any better than miners getting it, and either way it's creating new money that dilutes the value of your existing money. > They also adjust the rates to avoid things like recessions. There is nothing stopping the government from setting up a fractional reserve banking system denominated in a cryptocurrency. It works the same as it does in dollars. Alice borrows from the bank, pays the money to Bob and now the bank credits Bob's account and balances its books through the money that Alice owes the bank. If Bob wants to withdraw the money as physical cash or cryptocurrency in a non-custodial wallet then the bank either has enough reserves to do that or can sell the loan and use the proceeds to pay Bob. But if that doesn't happen -- which is more common -- then the balance credited to Bob's account only ever exists in the bank's computer and the bank has effectively created new money in that denomination. > The US dollar is considered fungible... Help me understand how any of this is specific to blockchain technology and not included in non-blockchain technology. US dollars as bills in your pocket, sure, but it's hard to transfer those over the internet without involving a middle man. > Also, what about things like venmo and zelle? zero fees, super fast. Venmo isn't a protocol, it's a company. It isn't free for businesses and they can still shut down your operations without recourse. Zelle is a protocol, but it's designed for transferring money between individuals, not making purchases from a business or setting up autopay. What we need is a protocol that is designed to do those things, but the banks fight attempts to create it because they want to keep getting the 3% from credit cards. > I'm not saying they are not useful. I am saying the technology behind them is irrelevant to the costs. Suppose that something with the transaction fees of Bitcoin Cash was more widely used and therefore a viable way for small businesses to accept payments from ordinary customers. Which existing non-cryptocurrency service is a viable means to do the same thing for the same or lower fees? A real one, not a hypothetical cost structure that nobody actually offers.