While traveling in Israel last year I was asked to pay for a coworking space via a wire transfer. This required several different account numbers to be exchanged, something called a SWIFT code, and a lot of crossing my fingers because I was pretty positive I was doing it all wrong. After that, linking accounts across banks seems like a cakewalk.
At WePay our objective is to make complex payments easy for developers, but that means we get to deal with all the weird antiquated oddities that surround handling money. Just the mechanics present an obvious challenge (ACH? Routing Numbers? Numerous banks + card networks?), but it’s also a highly regulated, highly scrutinized space where what is legal today can be illegal tomorrow.
After these experiences with our current hodgepodge system, I’m a huge supporter of cryptocurrencies. But that doesn’t make them the panacea they’re often made out to be…
Let’s take a step back — what’s the promise of Bitcoin? Well, the idea is that we can say goodbye to our money being bounded by borders and easily move money and funds across continents and accounts without any fees or restrictions. Unfortunately, in practice its not that easy.
The first problem is one of regulation. There’s just very little in the way of precedent here. We have the BitLicense conversations going on in NY, we have the IRS taking positions that Bitcoin is property not a currency, and New Zealand having their Bitcoin ATMs shutdown. If you’re willing to take some risk and play in this space, just make sure you have a good lawyer. I wouldn’t consider this a reason against implementing bitcoin as a form of payment for your business, but you have to be aware of it.
The major issue comes in the sense that Bitcoin is essentially cash. You give me your Bitcoin, and unless we’re using the same wallet provider (i.e. Coinbase), there’s no way I’m going to be able to get that money back from you. Gone are the days of issuing a chargeback on your credit card, gone are the days of reversing an ACH transfer and clawing back funds, you have no protection.
At WePay, if we spot a fraudulent transaction or suspect an issue, we can choose to place a hold on your funds for up to 7 days to confirm that it’s fraud and speak to all of the relevant parties. In the Bitcoin world, there’s no “hold” unless I have an agreement with every single Bitcoin-hosted wallet and even then you could just host it yourself. It’s cash, so its just being handed over to the next wallet.
I don’t know about you, but I feel pretty comfortable as a consumer knowing that if our transaction goes sour, when I call up American Express, they’ll give me my money back assuming I can make a reasonable case. Or more apt, if you steal my credit card and use it, I’m not liable.
Now there’s a lot of cases where the risk is worth the reward — international payments with trusted parties or donations might fit. But in a marketplace where you don’t necessarily know what you’re getting, or when you’re dealing with unknown parties, those safeguards start to look pretty good…
Is Bitcoin the future? Maybe. Are crypto-currencies going to change the world? Yes, but exactly how is still on the table. Projects like Stellar could certainly become exciting, but we’re still in the infancy of payments and a lot more innovation is on the way… At the end of the day though, we won’t have wide adoption of Bitcoin until basic consumer protections are put in place. It doesn’t matter as a user if the card network gets a cut, that’s the merchant’s problem, there’s very few types of transactions that the user is going to trust the person they’re giving money to.
Disagree with me? Did I miss something? Tweet me @scottefein or send me an firstname.lastname@example.org.