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What Is A Bitcoin Worth As A Transaction Mechanism

1480 words - 6 pages

What is a Bitcoin Worth as a Transaction Mechanism?
February 19, 2014 Eric Gravengaard & Matt Kolbe

Recent op-ed and research pieces by analysts have centered on Bitcoin, not as 21st century financial asset, but as a 21st century payments and remittances mechanismi. The underlying technology behind Bitcoin is an amazing invention that makes electronic, non-reversible, financial transactions possible across the Internet. That there is no central counter-party able to freeze funds or reverse transactions is possibly one of Bitcoin's most useful features. What does the demand for transactions mean for the future of Bitcoin prices? In this note we try to value Bitcoin by comparing demand for ...view middle of the document...

16% 0.20% 78.27 3,131.63 40.01 18,772.60 239.85 $ $ $

FY 2012 4,872 3,975 3,025 -2,155 9,717 6,295,000 80,413 2,081 0.15% 0.19% 78.28 3,024.99 38.64 17,246.58 220.31 $ $ $

FY 2011 4,261 3,478 2,674 -1,880 8,533 5,867,000 76,084 1,931 0.15% 0.18% 77.11 3,038.32 39.40 16,073.97 208.45

PayPal is a division of eBay that focuses on digital payments, enabling both consumer to business as well as consumer to consumer (peer to peer) transactions. PayPal relies on both the existing credit card networks as well as the ACH system in the United States to connect a user's account to his money. PayPal transmitted more than $179 billion dollars per year.
eBay / PayPal (in millions, except ratios) Revenue from Payments Net TPV Revenue as Percent of TPV Customer Assets, held by PayPal Daily Spending Volume Source: eBay 2013 10-K $ $ FY 2013 $ $ 6,628 $179,663 3.69% 9,260 492.23 $ $ $ $ FY 2012 5,574 144,937 3.85% 8,094 397.09 $ 325.36 $ $ FY 2011 4,123 118,758 3.47%

Western Union
Consumer-to-Consumer operating segment facilitates money transfers between two consumers, primarily through a network of third-party agents. The Company's multicurrency, real-time money transfer service is viewed by the Company as one interconnected global network where a money transfer can be sent from one location to another, around the world. This service is available for international cross-border transfers - that is, the transfer of funds from one country to another - and, in certain countries, intracountry transfers - that is, money transfers from one location to another in the same country. This segment also includes money transfer transactions that can be initiated through the Company's websites and account based money transfers.
Source: 2013 10-K

What is a Bitcoin Worth as a Transaction Mechanism?

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Western Union is the market share leader in remittances, sending an estimated $400 billion per yeariii. The majority of this is transmitted by immigrants living in high-productivity of labor areas to family members and friends in their home countries. Their Consumer to Consumer (C2C) business segment generated $4.58 billion of revenue in 2012 on 231 million C2C transactions. The average revenue per transaction was $19.85iv.

Bitcoin reports on aggregate Bitcoin transactions provide a view on demand for on-chain Bitcoin transactions. 100,000 Bitcoin changed hands yesterday, or rather mores specifically moved from one wallet to anotherv. Based on this, we calculate the daily velocity of Bitcoin is less than 1%. By comparison, PayPal moved about 5% of the money in PayPal accounts per day, which is not necessarily an equal comparison because much of the funds PayPal transmits exist in linked bank accounts and credit cards. Also of note, the amount paid to miners for processing these transactions was more than $34 per transaction and represented more than 4% of the notional value of the transactions. While the transaction fees in...

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