You can hand me dollar bills, but how many dollar bills do you have? I just counted. I have $36 in bills in my possession. I should to go to the ATM today to get more in case I run out. Eventually, Bitcoin will be similar in that most of our wealth won't be stored in the actual currency, but in bank deposits. I could withdraw actual currency from a Bitcoin bank with the tap of a button and have it on my phone in 10 minutes. Getting dollars requires going to a physical place to get physical bills.
Transferring large amounts of dollars takes days. Transferring Bitcoin takes 10 minutes or so.
But why does transferring large amounts of dollars take days? There is nothing physical preventing banks from supporting fast transfers. They can do fast transfers with BTC or USD.
Transfers are slow because there is little need to transfer large amounts of money quickly, and slower transactions help address issues with fraud. If you are buying a car, or paying for a house there is little need for a fast transactions. So with BTC or USD, transferring large amounts of money will take days.
It's got nothing to do with fraud checks. Transfers take days because banks largely run on mainframes programmed in the 1970s. Because of the (by todays standards) peculiar designs those machines had, the bulk of the work is done at night in batch jobs. The vast size and complexity of the software, combined with archaic platforms, their business-critical nature, and almost total absence of competition means that banks don't upgrade to more modern systems unless forced (see the UK same day payments initiative). Then the banking network is not a perfectly connected system so sometimes payments must be routed via intermediate banks. That's why it can end up taking days.
Zero transaction fees? The bitcoin network costs something like $3.5 million per day to run, and optimistically handles tens of millions in transactions. That's a transaction fee of 10%.
You just don't notice it because they pay the miners by printing money. I'll be really interested to see what happens when they stop that and start relying on up front transaction fees to fund the network.
This is an excellent point. I'm curious to see how that pans out. My guess is that since Bitcoin transaction fees are supposed to be set by the market, they'll stay competitive. If mining is unprofitable at the rates credit cards are offering, fewer people will mine, which makes mining cost less energy, leaving more profit. Eventually an equilibrium will be reached.
The mining network shedding capacity is a bad thing for Bitcoin.
If 90% of the network is powered down to reduce transaction fees, that gives someone the opportunity to buy up 20% of it on the cheap and corrupt the network. Bitcoin has to use as many resources as possible to stay secure.
This is the biggest practical flaw I've understood so far, but it still seems fixable. If Bitcoin becomes uncompetitive with traditional payment systems and mining activity decreases, miners could collectively decide to alter the mining reward.
The problem with keeping mining rewards high is that Bitcoin is supposed to be deflationary.
Right now the mining rewards being minted increase the Bitcoin supply at a rate of 11% per year. If demand for Bitcoin were constant, this would amount to 11% inflation. Demand for Bitcoin is currently increasing, so it is net deflationary, but this only lasts as long as the demand for Bitcoin is growing constantly. If you kept mining rewards high after the demand for Bitcoins had stabilized, you'd have five times the inflation of the dreaded US dollar, as you paid for your infrastructure costs through inflationary taxation.
(Which Benjamin Franklin and I actually like, but that's another issue entirely.)
Transferring large amounts of dollars takes days. Transferring Bitcoin takes 10 minutes or so.