Crazy people, speculation, and bitcoin 'mining'

[Kalbear]

Right - a major problem with an untraceable currency is that you need traceability in a digital market to ensure transactions process. If I 'give' you money and you say 'nope, don't have it' and are lying, how can I tell? So far the way around this is to introduce a traceable component with exchanges, but as we've seen they're not backed by governments or NGOs to ensure against theft and do not have oversight for dealing with embezzlement.

Some level of traceability is a requirement for a healthy digital currency. Perhaps not full oversight, but the ability to ensure transactions and the ability to audit at least the money you 'own' is hugely important regardless of where you fall on the libertarian spectrum. Bitcoin does none of these things. That makes it great for using it as a currency for purchasing illegal things, but exceedingly poor for a currency for purchasing anything else.

[Commodore]

Right - a major problem with an untraceable currency is that you need traceability in a digital market to ensure transactions process. If I 'give' you money and you say 'nope, don't have it' and are lying, how can I tell? So far the way around this is to introduce a traceable component with exchanges, but as we've seen they're not backed by governments or NGOs to ensure against theft and do not have oversight for dealing with embezzlement.

Some level of traceability is a requirement for a healthy digital currency. Perhaps not full oversight, but the ability to ensure transactions and the ability to audit at least the money you 'own' is hugely important regardless of where you fall on the libertarian spectrum. Bitcoin does none of these things. That makes it great for using it as a currency for purchasing illegal things, but exceedingly poor for a currency for purchasing anything else.

the account address is public, it's the identity behind the address that could be anonymous

just like an email address, you don't need to know the owner to know a message was sent (Bitcoin is even more transparent than email in that all transactions between addresses are on a public ledger)

[BloodRider]

bump

http://www.cnbc.com/id/101461632

Bitcoin is a revolution that can't be stopped. It will do for money/exchange what the internet has done for knowledge sharing.

Strangely enough, the Mt. Gox implosion has launched Bitcoin into the mainstream. Not the way we would have liked, but there's no turning back now. If anything it demonstrated the resilience of the system.

The media/academics keep wanting to write its obituary, but Bitcoin absorbs every shock and comes back stronger (was close to $700 USD today).

one of the worst aspects of Krugman's popularity is the pervasiveness of "you're so stupid" arguments

Who mentioned Krugman. How does this statement support Bitcoins?

[Kalbear]

Sure - but there's nothing that says they have received said money. There is no way to inspect their account. If you give them money it's their word that they received it - or not.

They can just as easily claim that you sent it to the wrong account, as an example. There is no concept of an exchange, basically. You have at best a way to link a transaction between accounts, but nothing that indicates what it is for, whether or not the other side received the goods or services they want, etc. This is precisely what is needed in a digital world.

[Commodore]

Sure - but there's nothing that says they have received said money. There is no way to inspect their account. If you give them money it's their word that they received it - or not.

They can just as easily claim that you sent it to the wrong account, as an example. There is no concept of an exchange, basically. You have at best a way to link a transaction between accounts, but nothing that indicates what it is for, whether or not the other side received the goods or services they want, etc. This is precisely what is needed in a digital world.

all transactions that have ever occurred are on the public ledger (watch the blockchain in real time), so everyone knows how much bitcoin is in every single account on the network

[Kalbear]

I understand that, Commodore. Again, there is nothing that prevents me from claiming that the transaction that you carried out to an anonymous source is not my account, and you need to send it again. And there's nothing preventing me from saying that I won't give you whatever you said you wanted after you've given me that transaction.

In fact, there's very little way to say whether or not anonymous account A is the same or a different one than B. I could, for instance, give all my bitcoin to another anonymous account and the only record that anyone would have of that other account is that money. There's no way to establish trust in an account that way either, not directly or indirectly.

The only ledger that exists is the simple one of giving a bitcoin value from anonymous account a to anonymous account b. That isn't enough for a general banking system with anonymity. It is rife with abuse. And as we're seeing, it's very easily abused. That we do not and probably cannot know whether mtgox was incompetence or embezzlement is a serious issue.

[lupis42]

Yes a different set of problems. But less problamatic problems. But the point was more that the distributed nature of bitcoin is itself a problem.

They're not less problematic, they're just familiar, so we don't think about them. The size of the payment processing industry is a strong indicator of just how large they are.

The distributedness of Bitcoin isn't a bug, it's a feature.

The threat is rather simple. Bitcoin verifies transactions by essentially democratic vote. Once enough members of the network say it happen, it happened. Perhaps another way that makes it clearer would be to say that Bitcoin resolves disputes on what block-chain (ie - list of all transactions ever) is the real one based on majority rule. Well, technically it's related to length, but said length can be controlled by size of the group computing transactions and so on.

But basically, the idea is that with sufficient computing power, one can gain control of additions to the blockchain. And once one controls that, one can also control generation of new coins practically as one sees fit. This allows one to erase transactions and double-spend money and all sorts of things that basically completely undermine the entire purpose of the network.

Right - it would suddenly have centralized control, which would be untrustworthy.

The greedy-mining attack essentially points out that one does not even need majority control to exert this kind of power.

This is a security threat far beyond robbing an armoured car, which is more akin to robbing a bitcoin wallet which, well, also happens alot.

Which is a serious concern if that attack is practical. But I don't know whether that attack is practical or not. It's a bit like saying "the UK financial system is extremely vulnerable - if a clever hacker transferred a few billion then detonated a nuke in low orbit over London, the resulting EMP would erase the traces of the hack and leave the UK financial systems in tatters. I suspect, given that nobody seems to be panicking about that, that it's not a major concern at the moment, but I have no practical way of knowing.

Bitcoins problems are unique. They are of similar kind (like transaction volume) but they are unique to the architecture and, more importantly, far far worse. The VISA network puts the bitcoin protocol as it currently exists to shame in terms of transaction volume. It's not even a contest. It's also a hell of alot more feasible and simple to upgrade.

The VISA network also costs a couple of bucks per transaction to use - the Bitcoin network doesn't. And the VISA network is only simple to upgrade if those upgrades don't involve any changes on the merchant end - the costs of even software upgrades on all that merchant hardware can easily hit the billions. And billions again if the changes require cards to be re-issued.

Right - a major problem with an untraceable currency is that you need traceability in a digital market to ensure transactions process. If I 'give' you money and you say 'nope, don't have it' and are lying, how can I tell? So far the way around this is to introduce a traceable component with exchanges, but as we've seen they're not backed by governments or NGOs to ensure against theft and do not have oversight for dealing with embezzlement.

Some level of traceability is a requirement for a healthy digital currency. Perhaps not full oversight, but the ability to ensure transactions and the ability to audit at least the money you 'own' is hugely important regardless of where you fall on the libertarian spectrum. Bitcoin does none of these things. That makes it great for using it as a currency for purchasing illegal things, but exceedingly poor for a currency for purchasing anything else.

Ok, so we're clear: transactions in Bitcoin can be viewed forever - they more auditable than transactions in cash, or even than transactions in conventional financial systems. They are tied to a 'Wallet', rather than a person - basically an encryption key. But as soon as someone can prove that you own a wallet, your entire transaction history is exposed.

Upthread a bit, I posted a link, http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/, which is worth reading if you think of Bitcoin as in any way good for buying illegal stuff.

Bitcoin does the 'ensure transactions' and 'audit what you own' bit better than paper money. What it doesn't do is stuff like reverse payments in the case of fraud, or protect you if someone steals your wallet - it's more like cash than a credit card. What a lot of the bitcoin exchanges do, however, is give you an account that they control - essentially, a safety deposit box. When they convert money to bitcoins for you, they are essentially behaving like a bank that takes your money at the counter and puts gold in a safety deposit box with your name on it. If someone robs the bank, and steals the contents of the box, it's your money that goes missing. (Which is what happened in normal bank robberies in the 20s and 30s too.)

[Galactus]

Which is a serious concern if that attack is practical. But I don't know whether that attack is practical or not. It's a bit like saying "the UK financial system is extremely vulnerable - if a clever hacker transferred a few billion then detonated a nuke in low orbit over London, the resulting EMP would erase the traces of the hack and leave the UK financial systems in tatters. I suspect, given that nobody seems to be panicking about that, that it's not a major concern at the moment, but I have no practical way of knowing.

No one is panicking over it becuase Pierce Brosnan and Izabella Scorupco would stop it. Duh.

[lupis42]

I understand that, Commodore. Again, there is nothing that prevents me from claiming that the transaction that you carried out to an anonymous source is not my account, and you need to send it again. And there's nothing preventing me from saying that I won't give you whatever you said you wanted after you've given me that transaction.

No - but since you have to specify where you wanted paying, if you specified the wrong address, who's fault is that? If you tell me your address is ABC, then after I send you cash, tell me you never got it, and I need to send it to XYZ, how is that different?

In fact, there's very little way to say whether or not anonymous account A is the same or a different one than B.

https://stackoverflow.com/questions/9375044/can-we-have-multiple-public-keys-with-a-single-private-key-for-rsa

I could, for instance, give all my bitcoin to another anonymous account and the only record that anyone would have of that other account is that money. There's no way to establish trust in an account that way either, not directly or indirectly.

Sure there is - publicly associate a particular public key with a particular person/enterprise. If Alice says "this wallet is the one that anyone wanting to send money to Alice should send to" it's as easy as that. That process (public/private key cryptography) is what underlies basically every excrypted exchange conducted over the internet.

[Shryke]

They're not less problematic, they're just familiar, so we don't think about them. The size of the payment processing industry is a strong indicator of just how large they are.

The distributedness of Bitcoin isn't a bug, it's a feature.

It's an intentional design, but it comes with a huge share of issues.

Right - it would suddenly have centralized control, which would be untrustworthy.

No, it would have unregulated control. That's the problem. The centralization is irrelevant. The problem is there's no way to regulate the people who gains control of additions to the blockchain.

Bitcoins answer to people behaving badly is to try and distribute control enough that no one actor can be powerful enough for their bad behaviour to effect everyone else. Except the whole point of what I'm mentioning is that this doesn't actually work.

The more sensible option the real economy uses is to regulate behaviour.

Which is a serious concern if that attack is practical. But I don't know whether that attack is practical or not. It's a bit like saying "the UK financial system is extremely vulnerable - if a clever hacker transferred a few billion then detonated a nuke in low orbit over London, the resulting EMP would erase the traces of the hack and leave the UK financial systems in tatters. I suspect, given that nobody seems to be panicking about that, that it's not a major concern at the moment, but I have no practical way of knowing.

Except unlike your ridiculous scenario, the scenario in question is eminently possible. It's already almost happened and the only reason it didn't is because said pool is run by enough true believers that they are actively trying to not gain enough power to launch a cartel attack.

The VISA network also costs a couple of bucks per transaction to use - the Bitcoin network doesn't. And the VISA network is only simple to upgrade if those upgrades don't involve any changes on the merchant end - the costs of even software upgrades on all that merchant hardware can easily hit the billions. And billions again if the changes require cards to be re-issued.

Yes it does. The cost is actually far more difficult to calculate, but remember that transaction processing is done via mining. Bitcoin has very real transaction fees that are heavily sought after by it's adherents.

And this does not even touch on the point about transaction volume.

[Shryke]

Ok, so we're clear: transactions in Bitcoin can be viewed forever - they more auditable than transactions in cash, or even than transactions in conventional financial systems. They are tied to a 'Wallet', rather than a person - basically an encryption key. But as soon as someone can prove that you own a wallet, your entire transaction history is exposed.

Upthread a bit, I posted a link, http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/, which is worth reading if you think of Bitcoin as in any way good for buying illegal stuff.

Bitcoin does the 'ensure transactions' and 'audit what you own' bit better than paper money. What it doesn't do is stuff like reverse payments in the case of fraud, or protect you if someone steals your wallet - it's more like cash than a credit card. What a lot of the bitcoin exchanges do, however, is give you an account that they control - essentially, a safety deposit box. When they convert money to bitcoins for you, they are essentially behaving like a bank that takes your money at the counter and puts gold in a safety deposit box with your name on it. If someone robs the bank, and steals the contents of the box, it's your money that goes missing. (Which is what happened in normal bank robberies in the 20s and 30s too.)

Except there's no way to connect that wallet to a real person and tons of ways to move your money through enough wallets that tracing the transactions become impractical/practically impossible.

There's a reason every time bitcoins are stolen, even in huge amounts, the results is "you're fucked". Cause there's no way to trace it.

[Altherion]

Bitcoin does the 'ensure transactions' and 'audit what you own' bit better than paper money. What it doesn't do is stuff like reverse payments in the case of fraud, or protect you if someone steals your wallet - it's more like cash than a credit card. What a lot of the bitcoin exchanges do, however, is give you an account that they control - essentially, a safety deposit box. When they convert money to bitcoins for you, they are essentially behaving like a bank that takes your money at the counter and puts gold in a safety deposit box with your name on it. If someone robs the bank, and steals the contents of the box, it's your money that goes missing. (Which is what happened in normal bank robberies in the 20s and 30s too.)

Yes, that's a very good analogy except for one key detail: you would see the faces of the people running the bank and if they wanted to abscond with the cash, they'd have to get away and keep running for quite some time. With bitcoins, the "bank" can disappear without a trace and there's precious little you can do about it. Also, the robbery scenario is part of the reason why every modern country has an agency (such as the FDIC in the US) which guarantees all deposits up to some fairly large amount. It's extremely foolish to keep money in banks which are not so ensured and doubly foolish to do this with bitcoins (which can be stolen with much less of a chance of retribution).

The problem with bitcoins is that, leaving aside its deflationary nature, you can only use them with people you trust. They work like cash, but cash is useful precisely because you give it to somebody in person -- if they don't give you what was agreed, you can always shout "Thief!". Most people don't put cash in an package and mail it halfway across the world to somebody you've never met before, which is what many bitcoin transactions amount to.

[lupis42]

No, it would have unregulated control. That's the problem. The centralization is irrelevant. The problem is there's no way to regulate the people who gains control of additions to the blockchain.

Bitcoins answer to people behaving badly is to try and distribute control enough that no one actor can be powerful enough for their bad behaviour to effect everyone else. Except the whole point of what I'm mentioning is that this doesn't actually work.

The more sensible option the real economy uses is to regulate behaviour.

Except unlike your ridiculous scenario, the scenario in question is eminently possible. It's already almost happened and the only reason it didn't is because said pool is run by enough true believers that they are actively trying to not gain enough power to launch a cartel attack.

The bolded part is exactly how I'd describe central banks as well. But I don't think you and I will get anywhere using this thread to reiterate that we have very different options on the trustworthiness of regulatory power controlled through the political process, and it feels a bit off-topic.

Yes it does. The cost is actually far more difficult to calculate, but remember that transaction processing is done via mining. Bitcoin has very real transaction fees that are heavily sought after by it's adherents.

And this does not even touch on the point about transaction volume.

I'm not claiming it's free - but while it's harder to measure, it's not even close to VISA on a per transaction basis. Also, unlike VISA, the system allows a range, so that it's possible to have cheap slow transactions AND fast more expensive transactions on the same network.

This is part of what I mean about the advantages of a decentrallized network. VISA has to work the same way for everyone, which means your Amazon purchase has to be approved the same way your Starbucks purchase does, even though having the approval within seconds instead of within minutes is worthless for the Amazon purchase. Having a decentrallized network makes it much easier to have one network that can adapt to multiple models.

Except there's no way to connect that wallet to a real person and tons of ways to move your money through enough wallets that tracing the transactions become impractical/practically impossible.

There's a reason every time bitcoins are stolen, even in huge amounts, the results is "you're fucked". Cause there's no way to trace it.

Right but that's even more true of typical, paper currency. Kalbear's complaining that Bitcoin behaves like... well like all the money that governments issue.

Yes, that's a very good analogy except for one key detail: you would see the faces of the people running the bank and if they wanted to abscond with the cash, they'd have to get away and keep running for quite some time. With bitcoins, the "bank" can disappear without a trace and there's precious little you can do about it. Also, the robbery scenario is part of the reason why every modern country has an agency (such as the FDIC in the US) which guarantees all deposits up to some fairly large amount. It's extremely foolish to keep money in banks which are not so ensured and doubly foolish to do this with bitcoins (which can be stolen with much less of a chance of retribution).

The problem with bitcoins is that, leaving aside its deflationary nature, you can only use them with people you trust. They work like cash, but cash is useful precisely because you give it to somebody in person -- if they don't give you what was agreed, you can always shout "Thief!". Most people don't put cash in an package and mail it halfway across the world to somebody you've never met before, which is what many bitcoin transactions amount to.

There are lots of ways to use Bitcoins that are more sophisticated - see, upthread, the example of '2 out of 3' transactions, which much more closely resemble a credit card purchase - as long as buyer and seller are happy, goods are exchanged, if there's a dispute, the previously agreed on moderator decides who wins. The fact that most people are using it as a bulk-cash mailing service, and putting their money in uninsured banks is not a problem with Bitcoin, it's just the natural behavior of early adopters.

[Ken Stone]

If someone gives me cash for a good, and I later claim they didn't give me the cash, how can someone prove that they did? If someone gives me their credit card and later claims I stole their number, how can I prove they gave it to me? At some level all currency exchange requires trust, rather it's digital or "real".

[TrueMetis]

If someone gives me cash for a good, and I later claim they didn't give me the cash, how can someone prove that they did? If someone gives me their credit card and later claims I stole their number, how can I prove they gave it to me? At some level all currency exchange requires trust, rather it's digital or "real".

Except usually when you give or receive cash you can ask for a receipt.

[Commodore]

3rd party transaction verification or dispute resolution can be written into the Bitcoin software.

I.e. two of the three parties have to agree before a transaction goes through.

[Corvo Attano]

Does anybody else here mine Dogecoins?

[Kalbear]

No - but since you have to specify where you wanted paying, if you specified the wrong address, who's fault is that? If you tell me your address is ABC, then after I send you cash, tell me you never got it, and I need to send it to XYZ, how is that different?

It's not different than sending cash via mail without a registered receipt. That is a problem. That you require a third party to act as a mediator essentially means that you've just invented the need for paypal/credit companies/banks to intervene. Which means fees, which means you've now reduced one of the major reasons to use bitcoins in the first place.

Sure there is - publicly associate a particular public key with a particular person/enterprise. If Alice says "this wallet is the one that anyone wanting to send money to Alice should send to" it's as easy as that. That process (public/private key cryptography) is what underlies basically every excrypted exchange conducted over the internet.

That's not what I'm talking about. There is no way for me to verify that Alice is who Alice says they are. They are not accountable for that wallet. They can say whatever they want, but unless you have another party verify that Alice is Alice in some way there is very little guarantee. Again, it's like sending cash in an envelope. You might have a receipt that it was delivered - but you have no way of telling that who you delivered it to is the 'right 'person.

You need 3rd party verifications. Which bitcoin does not have. That's what these exchanges do for you, basically. But when you have exchanges, you have costs based on either transaction as a percentage or overall - and quickly these exchanges will figure out that they can't do it as a percentage for micropayments if they want to stay viable.

So congrats - you've now invented banking again, except with shittier, less protected banks and a deflationary currency.

Right but that's even more true of typical, paper currency. Kalbear's complaining that Bitcoin behaves like... well like all the money that governments issue.

I'm complaining that a digital currency is behaving like a physical one without any of the benefits of a digital currency and all the drawbacks of a physical currency. That's not a good thing. The advantage of physical currency is that in order to transfer it you must actually have it exchange, meaning there is no ambiguity (at least in person) of it going somewhere. That isn't the case with bitcoins - or rather, the ambiguity is that it isn't clear who you're giving it to, and that person can always claim 'nope, not me'. and walk off with it. Or launder it, or embezzle it, or whatever.

[lupis42]

It's not different than sending cash via mail without a registered receipt. That is a problem. That you require a third party to act as a mediator essentially means that you've just invented the need for paypal/credit companies/banks to intervene. Which means fees, which means you've now reduced one of the major reasons to use bitcoins in the first place.

Yes and no - yes, there is still a role for intermediaries (mediators, banks, etc), and they'll still have costs. But the network is not inextricably tied to one intermediary and one fee structure for all transactions. You can send your room-mate money for rent sans mediator, and still use mediation for Sumdewdz-online-useful-things-store. Basically, you get the advantages of a digital network with the flexibility of a paper currency. There are also more options for structuring payments so that mediators/arbitrators only get paid if they actually have to arbitrate, very much unlike the fee structures used for the existing payment networks.

That's not what I'm talking about. There is no way for me to verify that Alice is who Alice says they are. They are not accountable for that wallet. They can say whatever they want, but unless you have another party verify that Alice is Alice in some way there is very little guarantee. Again, it's like sending cash in an envelope. You might have a receipt that it was delivered - but you have no way of telling that who you delivered it to is the 'right 'person.

Back up a moment - the 'Right' person is the person who you're dealing with, and who has to tell you where to send money in the first place. Unless you're mailing cash to people without actually having any other contact with them.

If you buy something on eBay, or Craigslist, when you pay via check/cashiers check/paypal you use the address the person you're buying from provides. You don't Google their name, and send money to whatever address happens to pop up. Similarly, when you buy something at an online merchant, whether you use some intermediary (Google/PayPal/VISA) you're sending money to whatever type of address they give you.

Identity verification isn't really part of the process - it may be part of joining the payment network in the first place (getting a merchant account with VISA/PayPal/etc), but even if it is, it's not a major part of a transaction.

You need 3rd party verifications. Which bitcoin does not have. That's what these exchanges do for you, basically. But when you have exchanges, you have costs based on either transaction as a percentage or overall - and quickly these exchanges will figure out that they can't do it as a percentage for micropayments if they want to stay viable.

Exchanges don't do verification either - exchanges are, (to varying degrees) somewhere between deposit accounts (where they hold a wallet for you) and barebones currency changing machines.

So congrats - you've now invented banking again, except with shittier, less protected banks and a deflationary currency.

It's a reinvention of banking that banks might still be useful with a digital currency?

If your concern is that a bunch of entities are acting like banks without actually doing any of the insurance/regulatory oversight that banks typically go through, by all means avoid them. Wait for either an existing, real bank or a regulatory agency to sign off on one of the Bitcoin focused new boys. It's certainly a reasonable position to take.

I'm complaining that a digital currency is behaving like a physical one without any of the benefits of a digital currency and all the drawbacks of a physical currency. That's not a good thing. The advantage of physical currency is that in order to transfer it you must actually have it exchange, meaning there is no ambiguity (at least in person) of it going somewhere. That isn't the case with bitcoins - or rather, the ambiguity is that it isn't clear who you're giving it to, and that person can always claim 'nope, not me'. and walk off with it. Or launder it, or embezzle it, or whatever.

The main advantage of a digital currency is the ability to be sent over a data connection - Bitcoin has that, cash doesn't. That is the primary difference between it and cash, although the protocol has some other features that have a lot of potential as well. What it doesn't give you is all the advantages of a financial sector. It's digital nature means that many of those things can be provided more easily/cheaply, but many of them are still going to involve a financial sector.

As far as the exchange goes, again, I think you have a very confused notion of how this works. It's more verifiable as you handing a 20 to the clerk at the grocery store, in the sense that they cannot then shortchange you by claiming you handed them a 10.

If they claim to have not recieved the money, they have to disavow whatever payment address they previously provided you - just as an eBay seller, or Amazon would. Bitcoin doesn't prevent that any more than postal money orders or debit cards prevent that. VISA protects you from that, for a substantial fee, and they could do roughly the same thing, (and quite possibly more cheaply) over the Bitcoin network, but that's a function of the way that VISA handles disputes, and can be done as easily (or more so) with Bitcoins as with Dollars, Pounds, Euros, or Yen.

[Kalbear]

If you buy something on eBay, or Craigslist, when you pay via check/cashiers check/paypal you use the address the person you're buying from provides. You don't Google their name, and send money to whatever address happens to pop up. Similarly, when you buy something at an online merchant, whether you use some intermediary (Google/PayPal/VISA) you're sending money to whatever type of address they give you.

Identity verification isn't really part of the process - it may be part of joining the payment network in the first place (getting a merchant account with VISA/PayPal/etc), but even if it is, it's not a major part of a transaction.

Sure - but with eBay you get buyer guarantees as part of paying their fees. They're acting as mediators there. This is much more akin to craigslist. And just like craigslist, it's rife with scamming opportunities. Unlike craigslist there is no personal contact that at least gives some inspection opportunity of the goods, nor is it in a local community.

As far as the exchange goes, again, I think you have a very confused notion of how this works. It's more verifiable as you handing a 20 to the clerk at the grocery store, in the sense that they cannot then shortchange you by claiming you handed them a 10.

They can claim that you didn't hand 'them' anything at all. So it's even less verifiable than the grocery store.

Bitcoin doesn't prevent that any more than postal money orders or debit cards prevent that. VISA protects you from that, for a substantial fee, and they could do roughly the same thing, (and quite possibly more cheaply) over the Bitcoin network, but that's a function of the way that VISA handles disputes, and can be done as easily (or more so) with Bitcoins as with Dollars, Pounds, Euros, or Yen.

Sure - but my point is that duplication of postal money orders is not a good model to do. Again, we already have wire transfers to banks, money orders with registered receipts. These are things that my cash can currently do. While cash by itself isn't digital, it can easily be turned into something that is. Bitcoin gets the conversion part right, but leaves everything else to be hosed. And the 'everything else' part is the most important part of the system. Digitalization of funds is ubiquitious. It's easy. It's fairly cheap for decently sized amounts of money. It's very fast, too. Bitcoin in theory is better, but it still needs all the other things that digitalization of cash already has - the verification, disputed claims, fraud & embezzlement protection, guarantees of savings, etc. And all of that isn't free.

so at the end of the day you're left with something that is basically digitalized cash with none of the value that physical cash actually has while having many of the drawbacks that physical cash has. You can make it not have those drawbacks, but then you've just reinvented banking.

Identity verification isn't really part of the process - it may be part of joining the payment network in the first place (getting a merchant account with VISA/PayPal/etc), but even if it is, it's not a major part of a transaction.

This, by the way, is false; identity verification and fraud protection is a massive part of what value paypal provides. While you might not consider it a big deal, it is quite possibly the biggest thing paypal and ebay is concerned about after protecting actual money losses.