A recent entry on Stipe.com’s Blog has garnered some attention lately. It was featured in CoinDesk as well as being picked up in aggregator sites like the The Bitcoin Channel. On the surface it may seem like a reasonable blueprint for Bitcoins future, but when you break it down it shows tremendous misunderstanding of what Bitcoin is and the amazing potential of this great technology.
Note: The key concepts will be referenced below, however, it is recommended to read the entire blog entry referenced above.
Overview: The Stripe Perspective seems to be that Bitcoin is only useful as a backend to the current financial system. Like many similar articles before it mostly coming from companies looking to dominate the facilitation of transactions, it attempts to mold Bitcoin into the current financial system that has not had major innovations for the majority of people alive today.
Bitcoin is already doing much more than what the Author sees for its future. Mass adoption will come in due time with technological improvements on the Blockchain as oppose to simply speeding up financial functionality that was proven broken in the 2008 financial crisis.
1. Money – This section is pretty clean and there is not much to comment on other than the fact that using bitcoins as a store of value in a country with a stable currency like the US does have advantages even with the volatility situation.
This advantage is often overlooked, but bitcoins are the only medium of exchange that cannot be confiscated by authorities if you are someone who is comfortable with securing your own bitcoins. This option is of course in the process of becoming obsolete by the NYC BitLicense proposal unless visionaries like Erick Voorhees get their message across to those cheering for regulation.
2. Gateways –
“Behind the scenes, the sender’s gateway would convert the specified amount to Bitcoin and send those bitcoins to the recipient’s gateway. The recipient’s gateway would then translate the received amount back into the recipient’s preferred currency.”
Yes, it would nice for the banking system to convert everything to bitcoins then easily make transfers from institution to institution, and then convert back to your local currency. Here are some comments:
a. If the banks cared, they would have done it a long time ago.
b. Clearly the concept of private banking, self banking, or the fact that Blockchain.info runs a global operation without a bank account seem like fantasy and can't be sustained.
c. Bitcoin does NOT stop anyone from thinking in local currency even if they hold on to the bitcoins when selling their goods/services
3. Bitcoin as the IP layer –
“[…] every entity on the internet could have a payment address that feels like an email address.”
This is probably the section that should not be criticized too much by someone with expertise in Finance and Economics. At the moment this is not critical since it’s easy to simply use bitcoins peer to peer. In the future, yes it would be nice to have an ‘optional’ Identifiable Bitcoin address that is connected to your PC and Phone so that you never have to carry ID on you again.
If you need to identify yourself on the Internet you can just use this bitcoinIP to say ‘vote for president.’ The question that would need to be answered is how to do it in a way that Corporation and/or Governments don’t have an easier time tracking everything you do. Everyone forgets that Bitcoin was designed to give people freedom not to facilitate the surveillance state.
4. Contrast with other global networks – the author’s view is that our current leading global payment networks have issues:
Swift (which he states has the biggest issue of fees and conversion inefficiencies) and PayPal (which he states the biggest issue is that it's a closed system that's unwilling or unable to make major improvements).
a. Swift first - the biggest issue is the fact that bureaucrats in the US or EU have the power to ban other countries from Swift (Russia being threatened and Iran is already there). A country like Russia can economically retaliate and who benefits then?
b. PayPal – Personal Story: I had to send US$20 to my friend and he said, "Please do not write that it's for the NCAA basketball tournament pool in the notes, I don't want my account suspended."
Is that really what the author thinks Bitcoin is trying to replicate?! It's time for a real change. Those are the real issues with the global payment networks - not fees and adaptability.
Otherwise Bitcoin will be nothing more than a faster way to send your personal information through the internet or provide current financial institutions the ability to process paper checks in two business days instead of three.
5. Comparison to the card networks - This section deserves the majority of the criticism because it shows a misunderstanding of sound finance/economics:
a. The biggest complaint seems to be that Bitcoin lacks "3. Consumer trust and protection (Chargebacks, Stolen Cards)" that something like Visa has in place. It’s unfortunate that the real problem is identified by is completely ignored "Other functions such as consumer credit are provided by the banks rather than Visa itself."
YES, when you have corrupt banks backed by corrupt governments that only function on a debt based economic model, Visa can just pull credit out of its ‘hat.’ Then they can sit back collecting 3% from merchants and 15+% from users just for providing credit that they are not even liable for and the award winning customer service out of India who you need to inform any time you cross the border. Is anyone wondering why their stock price only goes up?
b. There is a major emphasis on the need for chargebacks, which is starting to become a tiresome debate at least for this writer. The only time I've ever had to use that service is when someone else used my credit card number, which would not happen in Bitcoin because you are pushing out the payment vs. someone on the other end pulling it from you.
People have gotten lazy and run to the credit card instead of calling the merchants. If they were legit, they would fix your problem, if they were not, than why are you buying from them without reading reviews?
Also people would immediately blast the bad merchants on the web and crush their business (there is no incentive to do that when you have a 'nanny' credit card that fixes your mistakes more often than fraud by a business).
c. The author states that the ability of chargebacks and trust by Visa:
"[...] results in many transactions happening that otherwise would not, and makes the whole ecosystem more valuable."
NO it does NOT. The economy strengthens when stupid transactions that should NOT be made are NOT made (unless you are a fan of socialized loses living in a non-capitalistic developed nation).
Let's take this on a bigger scale, how many homes were bought in the mid-2000's that should NOT have been bought if not for too much trust and easy credit? How valuable did that make the ecosystem?
d. It’s stated that “…unless we solve decentralized reputation…, the Bitcoin ecosystem will see the emergence of a few centralized consumer ‘trust providers.’”
This goes against almost everything Bitcoin stands for in my opinion. Decentralized trust is the foundation of this revolutionary disruptive technology. And even in practice it seemed to do ok for 'Silk Road', which made drugs safer (review system) and in some cases cheaper (premium for getting arrested or shot on the street corner removed, but replaced with a convenience premium of shopping from home). Moral views on this issue will vary, but from an economic model, I wish there was more hard data to prove the common sense case.
e. Towards the end it’s stated:
“[…] it’ll generally make sense for these companies to consolidate. Ultimately there will be one or a few major players, just like there are in the credit card world. You’ll see gateways cobranding with the trust providers, just like today you see cards cobranded with Visa and their issuing bank. As a result, the trust providers will be building a network of vetted merchants and gateways. To make sure only good actors are in the system, they’ll need to set and enforce rules and regulations for acceptable behavior—otherwise their brand will become less meaningful. This brings us back to a world of a few entities who get to set the rules.”
Maybe this could happen 20+ years from now when Bitcoin slowly becomes corrupted from within like all financial systems before it (being realistic a little). But if this happens prior to mass adoption, then BITCOIN HAS FAILED in my eyes as a disruptive technology it was designed to be and you might as well slap the FED/NSA new joint logo on it right now.