Bitcoin, the Baby and the Bathwater

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Bitcoin, as Marc Andreessen recently blogged (and others responded), is both a technology platform and a currency. I hope the merits of the technology platform are not lost to the world by the ‘boiler rooms’ surrounding the currency. Whether one can survive the crash of the other I’m not sure (nor can I be certain it will crash). The current hyper appreciation does have all the hallmarks of a pyramid scheme, with my friends keen for me to join this ‘no brainer’ bet (cue some adage about cocktail parties and stock tips etc…).

There are two points in Marc’s article that I’d like to elaborate on:-

The inherent weaknesses in the Card Schemes (highlighted so well by companies like Target recently) are well known – but also scheduled to be addressed. Currently you essentially hand merchants your wallet and hope they don’t take too much money (you also grant them the ability to keep taking long after you think you have taken your wallet back). The concept of ‘pushing’ a fist full of dollars to the merchant is much safer – you know how much your giving, and the merchant has no ongoing access to you wallet. Payment systems like Zapp (in the UK) are designed this way from the outset, and Tokenization more widely should solve this for the existing card schemes.

The security of payment provided by Bitcoin I believe is somewhat overstated. As with any system, you can make things very secure – but then humans get involved. The Bitcoin system is very good at ensuring you have the right credentials – but not necessarily that you should have control of those credentials. Stored value on a card (like Mondex) is open to theft – and there is no (commercial) 3rd party to run crying to. I can see people wanting to store Bitcoins in hosted Cyber Vaults accessed by Verification credentials [you could call these credentials CVVs  – nod/wink ]. Once again you now have persistent access credentials floating around the web and the risk of Target like leaks again. Things once again boil down to ‘Authentication’ at the heart of payments, and the best placed to provide this are those who ‘recognise’ you, rather than those who confirm the credentials you supply. It is this Authentication layer where I believe the multi-billion dollars of disruption lie, and not the back-office mechanic for keeping the ‘transaction ledger’. ‘Recognising’ someone means knowing what is normal, and it those who profile us daily for advertising etc… that are very well placed to make this judgement.

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