“Uncoinventional” Bitcoin Only Tour Does Libertopia

city tacosWhen John and I were invited to speak at Libertopia this year, I was extremely excited about the prospect of visiting California again. The last time I had been that far West was February of 2011 for the Freedom Law School Conference in Ontario, California. I happened to be pregnant at the time and I also happened to be selected for the body scanner when trying to board our flight home. To make a long story short, we had to take a train back to Texas and I have not flown since.

Since we knew we would need to drive, I thought a second Uncoinventional Bitcoin-only family road trip was in order. This would allow us to see what has changed in the Bitcoin travel space since our June bitcoin-only trip, while inspiring others to get out and spend their BTC!

With these situational factors in mind (spending bitcoin only, driving, and having children with us), I knew that I would have to approach this conference differently than most people attending the event.

Logistics

While the Libertopia organizers got a great rate on the Town and Country hotel for attendees, it was not a rate that we could pay via bitcoin. This is because the hotel does not accept bitcoin directly, and the special block room rate was not available through hotel booking companies like CheapAir.

Our hotel hunt led us to the Ocean Beach Hotel. It was on the beach, a short walk to the dog beach, dog friendly, and cost less than the Town and Country hotel when booking through travel companies.

Usually I am very resistant to staying at a venue that is separated from the events we are speaking at. With two toddlers in tow, it is nice to be able to “escape” to a room for a nap, snack or family play time. The truth is, I have not had much fun attending conferences with the kids and I think it is because I try too hard to have one foot in both worlds – I want to participate in the conference, so I am there physically, but I am also a mom, so I am basically walking up and down the hallway outside the conference, chasing the kiddos while John works a booth.

This time, I was determined that it would be different. I decided to use the invitation to San Diego as an opportunity to expose my children to the beach and to fully embrace the role of mom when John and I were not presenting to Libertopia attendees. We also decided not to work a booth.

That was the best decision ever.

The Event

During Libertopia we spent our mornings at the beach, our afternoons at the conference and our evenings doing some bitcoin dining.

On Friday neither of us had a presentation. So we showed up to check in, mingle with like minded company, and check out the Town and Country Resort. It was a great place for a conference on so many levels.

The break out rooms were small and intimate and were connected to the main room through an open outdoor courtyard. This allowed attendees walking around to randomly peek in on break-out sessions and stay for a talk they may not have experienced otherwise. Many conferences put the break-out rooms so far away that a total lack of foot traffic creates a black hole of sorts.

The extensive outdoor walkways and driveways on the property allowed for great fun for our family as we zipped around on a scooter, a bike and sometimes a stroller. The whole place was basically one large flower garden, which gave a distinct feeling of tranquility, especially in contrast to typical indoor conference venues.

Bitcoin was a major theme of the conference. I was invited to speak on bitcoin-only travel.  I gave tips on how to get there, stay there, eat there and play there. I also suggested four bitcoin-friendly cities as potential destinations for bitcoin-only travel: New York City, Austin, San Diego and Cleveland Heights.

My favorite bitcoin-travel services also happen to be some of our sponsors:

GyftGyft allows you to use Bitcoin at hundreds of popular retailers through digital gift cards. Through Gyft, now you can buy groceries at Whole Foods, electronics at Best Buy, an even book hotel rooms.

CheapAirCheapAir allows you to buy hotels and airfare with bitcoin, litecoin and dogecoin! Follow their blog People of Bitcoin to learn about some fascinating Bitcoiners.

Airbitz – The Airbitz mobile digital wallet provides a a decentralized, secure, private, synchronized, and backed up Bitcoin wallet with a built in bitcoin business directory. Download the app here.

Brawker – Purchase anything with bitcoin through a proxy on Brawker. You can also acquire bitcoin while respecting your privacy.

Other bitcoin speakers included M.K. Lords, Davi Barker, Angela Keaton, and Drew Phillips.  They discussed how bitcoin can be used as a force for good and M.K. Lords discussed how bitcoin is changing the way the world views activists.

Another recurring theme at the conference was the idea of small groups, working together with other small groups to create a voluntary society. My husband John referred to these groups as Freedom Cells, and Bob Podolski and Clyde Cleveland referred to these groups as Octalogs.

The idea is simple: you form a cadre of tight knit friends and you work together on self-improvement, life skills, preparedness, etc… Your small group links up with other small groups and eventually you have enough people to opt out of the system entirely.

John’s full speech audio on Freedom Cells, and the creative uses of the bitcon blockchain to fulfill the vision of Freedom Cells is here.

We also hosted a screening of Sovereign Living, a documentary style reality show about our family’s attempts to get off all centralized lives.  It is produced by The Center for Natural Living which has the vision of a voluntary and natural world. The episodes will soon be available on WatchMyBit.com, the first ever micro-bitcoin payment video service.

Constructive Reflections

Now that bitcoin has become a mainstream meme in our society, I think it is important for events featuring bitcoin lectures, panels and talks to prioritize the payment method when selecting an event venue. I would suggest working with the venue to ensure those who travel on bitcoin have access to any deals you work out on price.

I would also suggest that all conferences include children in some way. So many people who want to change the world leave their family behind to attend these events. To truly change the world we need to make sure our children have access to the information, skills, knowledge and relationships that we did not have access to until most of us became adults.

My final suggestion is to put the vendor area outside of the main stage area. I understand the sentiment of having everyone together, but it is much easier for vendors to have conversations with people if the booths are not in the middle of a conference room where people are trying to listen. This will be an important factor when more children are worked into the mix.

Overall, Libertopia was one of the better conferences I have ever attended. I look forward to a return in 2015!

 


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The international monetary system has actually fallen down 3 times in the past hundred years

In 1914, 1939, and 1971. Each failure was followed by a period of tumult: War, civil unrest, or significant issue to the security of the global economic climate. Now James Rickards, the well-known writer of Money Wars, reveals why one more collapse is rapidly coming close to – and why this time around, absolutely nothing much less than the establishment of cash itself is at danger.

The American buck has been the international reserve money since completion of the Second World War. If the buck falls short, the entire worldwide financial system will certainly fall short with it. Nothing else currency has the deep, liquid pools of possessions needed to get the job done.

Optimists have actually constantly said, essentially, that there’s absolutely nothing to worry aboutAc that confidence in the dollar will certainly never really be drunk, despite exactly how high our national debt or how inefficient our government. Yet in the last couple of years, the dangers have ended up being also big to dismiss.

While Washington is gridlocked as well as unable to make progress on our long-term troubles, our biggest financial competitorsAc China, Russia, as well as the oil generating countries of the Middle EastAc are doing every little thing feasible to finish U.S. financial hegemony. The prospective results: Financial warfare. Deflation. Devaluation. Market failure. Mayhem.

Rickards offers a supporting analysis of these as well as other risks to the buck. The fundamental issue is that money and wide range have actually become increasingly more separated. Cash is transitory and also ephemeral, and also it might soon be worthless if central lenders and political leaders advance their present course. Yet real wide range is irreversible and also tangible, and also it has real value worldwide.

The writer demonstrates how daily people that conserve and spend have ended up being guinea porkers in the central bankers’ lab. The world’s significant financial playersAc national governments, huge bankings, multilateral institutionsAc will certainly constantly get by by covering together new regulations of the video game. The real victims of the following dilemma will be little investors who thought that just what worked for decades will certainly keep functioning.

Luckily, it’s not too late to plan for the coming death of money. Rickards explains the power of transforming unstable money into real wide range: gold, land, art, and also various other lasting stores of worth. As he creates: “The coming collapse of the buck and the worldwide financial system is entirely foreseeable … Just countries and also individuals who make provision today will survive the maelstrom to come.”.

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We are going full Bitcoin!

Boost VC Is Going Full Bitcoin

 

We are going full Bitcoin!
Our team is excited to announce, after raising $6.6m to fund 200 companies, that we will be accepting 20–30 Bitcoin companies into our next Boost tribe. Tribe 5 will consist of 100% Bitcoin companies. Under this umbrella we will be looking at payments, exchanges, block chain technology, Sidechains, and companies that service Bitcoin companies. We are very excited about the focus that this will bring us. Long term we hope to be able to breach other “before-the-chasm” industries, but Bitcoin is our first exciting step.

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The international financial system has collapsed 3 times in the past century

In 1914, 1939, as well as 1971. Each failure was complied with by a duration of tumult: War, civil discontent, or considerable damages to the security of the worldwide economic situation. Now James Rickards, the well-known writer of Money Wars, shows why one more collapse is swiftly coming close to – and also why this time, absolutely nothing much less compared to the institution of money itself goes to danger.

The American dollar has been the global reserve currency since completion of the 2nd World War. If the buck fails, the whole global financial system will certainly neglect with it. Nothing else money has the deep, liquid pools of properties should do the job.

Optimists have always claimed, in essence, that there’s absolutely nothing to worry aboutAc that confidence in the dollar will certainly never ever genuinely be trembled, despite just how high our national debt or exactly how dysfunctional our government. Yet in the last few years, the risks have come to be also large to disregard.

While Washington is gridlocked and unable to make progress on our lasting problems, our greatest financial competitorsAc China, Russia, and the oil making countries of the Middle EastAc are doing everything possible to finish U.S. financial hegemony. The prospective outcomes: Financial warfare. Deflation. Devaluation. Market collapse. Turmoil.

Rickards supplies a bracing analysis of these as well as various other dangers to the buck. The essential issue is that cash and also wealth have ended up being increasingly more separated. Cash is transitory as well as ephemeral, and it could quickly be worthless if central lenders as well as politicians advance their current path. However true wide range is long-term as well as tangible, and it has genuine worth worldwide.

The author shows how everyday people that conserve and also spend have come to be guinea pigs in the central lenders’ research laboratory. The globe’s major economic playersAc national governments, large financial institutions, multilateral institutionsAc will always get by by covering with each other brand-new rules of the video game. The real targets of the next situation will be small financiers who presumed that what worked for years will keep functioning.

Fortunately, it’s not too late to prepare for the coming death of money. Rickards clarifies the power of converting unstable money right into real wide range: gold, land, art, as well as other lasting shops of value. As he creates: “The coming failure of the buck as well as the global financial system is totally direct … Simply nations and individuals which make provision today will survive the bedlam to come.”.

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Multigateway: The First Decentralized Cryptocurrency Exchange

nxt

Disclosure: I own stake in a variety of the assets related to Supernet projects.


Soft launch of the Supernet v0 wallet was announced November 14th by James on the Slack channels with a cheerful:

“Supernet v0 launched yesterday, took everyone by surprise. gotta love decentralization :)” -JL777

Users of the Supernet may now withdraw Bitcoin, Litecoin, Peercoin and NXT directly out to Visa and Mastercards around the globe! Payouts are done in US dollars and local banks set fiat exchange rate. This is a server provided by Coinomat.

Users can also be relieved to trade on the first live decentralized crypto currency exchange!

The software is available for download at the Multigateway website and functions similar to the NXT wallet client, with the exception of some Supernet magic.

The Multigateway (MGW) is not only safer, but it may also be the cheapest. It charges no deposit fees and the withdrawal fees equal the minimum transaction fee per coin. Currently, users must convert their coin manually, be it Blackcoin or Dogecoin to NXT, in order to transfer to another crypto coin. But will soon change with InstantDEX which expected to allow 3 second or less conversions, programmable trade bots and much more!

Investors can invest in MGW, but the real ROI is expected from InstantDEX which will have competitive fee and leverage MGW’s minimal fees and tech.

Under the hood

MGW works by creating assets on top of NXT’s long standing decentralized asset exchange.

Coin assets such as mgwBTC are traded for deposits of Bitcoin, Blackcoin, Viacoin, etc. at a ratio of 1 to 1. MGW is a full reserve, decentralized exchange with live proof of solvency!

Deposited crypto currencies are stored on server clusters of 3. These are secured through multisignature transactions, where 2 out of 3 servers must agree for withdraws to occur.
Each server is monitored and secured by an independent party, partnered up with the Supernet.

The number of Multisignature parties is not limited by MGW, but by the the Bitcoin protocol.

According to JL777, core Bitcoin devs have coded multisignature transactions beyond m of 3 as non standard. This means miners and nodes need to compile these manually or enable this feature on their own accord, which most don’t. It is not enabled by default. This may be driven by concerns of blockchain bloating.

Because of this, it takes a long time for greater multisig transactions to be confirmed by the BTC network, which would not allow MGW to operate properly and would be the end of InstantDEX. If this was to change or if coins that have solved this problem were to join the MGW then further distributed clusters could be set up, and the possible combinations are stellar.

Though going from 1 out of 1 one key or a central trusted party, to 2 out of 3 may seem like not that much of a change, it is actually massive. Its the difference between a central point of failure and a network. It is perhaps the simplest differentiation between a centralized and decentralized model. However, collusion among parties is still a concern, which is why reputation may be essential to this experiment of multi signatures.

With that in mind, I will highlight the core parties that have stepped up to secure the core MGW cluster as of time of publishing.

MGW clusters

There are two MGW clusters. MGW#0 controls BTC, LTC, DRK, BTCD and VRC coins. This is the main Supernet cluster and is secured by Coinomat, MyNXT.info team and Frohike.

Coinomat is an automatic crypto coin and fiat exchange that serves as a gateway from Visa and Mastercard to crypto currencies. It also provides instant conversions among various crypto currencies such as Bitcoin, Litecoin and Peercoin.
The second key holder of MGW#0 is MyNXT.info “a group of 15 people between investors, advisors, developers and designers,” says abuelau, a Sr. Member of the NXT community, early adopter, and member of the team. MyNXT.info is an NXT blockchain explorer, mobile wallet and web advertizment agency, fully powered by NXT.
MyNXT were motivated to join “after we saw the hacks on MtGox and Bter,” said abuelau, adding: “Every time I need to exchange NXT or other coins I am nervous with the possibility of losing my coins while they are at the exchange, so anything that helps make it more secure is welcome.”

Frohike is “a German unix server administrator. He specializes in server hardening and security. He’s been involved since June in the team… working with James and recently he joined SuperNET as server admin for the forum and websites,” said VanBreuk, Hero Member of the NXT community and general manager of the MGW development process.

I reached out to Frohike for comment but he did not reply but publishing time.

Unlike cluster number two, live proof of solvency for MGW#0 is not active yet, since they are migrating coins and assets to production servers. The website and api for this monitoring is expected to be available, soon according to VanBreuk.

The second cluster called MGW#2 is responsible for controlling Blackcoin, Viacoin and Dogecoin!

This one is secured by Cobaltsky, Hero Member of the NXT community, artist and developer. Along side Marcus03 Sr. Member who is also developing an NXT mobile wallet and Jeffdiesel, also a Hero Member.

Live proof of solvency for MGW#1 can be currently found here.

For more information on the progress of MGW clusters, follow the main NXT thread.

Decentralizing everything

Anyone can set up their own MGW cluster, as you would expect from a community focused on decentralization. However, for the time being, interested parties must reach out to JL777 or other core Supernet developers to be given access to the private repo. This might change in the future after the main development is finished.

Coin developers, businesses and individuals interested in joining the Supernet are welcome to reach out at the Supernet forums publicly or contact JL777 directly through a private message.

More blockchain technologies wanted!

The Supernet is putting out a call for innovative and active crypto coin communities. Its very difficult to be noticed and compete as a crypto coin these days; there’s over 500 coins on coinmarketcap and great coins may be getting lost among the masses.

The Supernet has some general standards by which to review coins. A solid answer to the question “What value can your crypto coin tech bring to customers?” may be all you need to join.

NXT Phasing

Keep in mind, however, that MGW is still in its beta stages. Compared to 1 out of 1 cold storage solutions for the average exchanges, or deposit accounts for bank like crypto coin organizations, MGW is many times more decentralized, both for its trading platform and its distributed multisignature servers.

However, until NXT releases its “Phased transactoins” feature, the NXT asset side of things will not support multisignature. This means that the coin assets that mirror each crypto coin are controlled manually and could be exploited by dumping them on the market.

MGW beta will end when phasing is live on the NXT network. Until than, each MGW key holder is responsible for a third of a hot wallet with relevant coin assets. The amount of coin assets on the hot wallet are the average expected volume per coin.

The remaining ‘unbound’ assets, which are not expected to be traded for the crypto currencies yet are currently being held in escrow by anon136’s renown escrow services.
Its time to take distributed finance to the next level, and the Supernet’s Multigateway has just raised the bar.

Worth a Tip? NXT-UWQK-YZ7T-GDS6-GMW8P


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The Satoshi Nakamoto Mystery

The Satoshi Nakamoto Mystery

bitcoinSince the creation of Bitcoin, many have wondered who Satoshi Nakamoto, the pseudonymous creator, actually was. The mystery was deepened recently when on March 6, 2014, Newsweek published an article which identified a man named Dorian Prentice Satoshi Nakamoto as the Satoshi Nakamoto who created Bitcoin. Dorian Nakamoto is a 64 year old Japanese American male who lives a modest lifestyle in Temple City, California and also likes to collect model trains. It appears as though if he is the creator of Bitcoin, he has not spent any of his riches.

The article was written by Leah McGrath Goodman, and gives several pieces of evidence to suggest that Dorian is the real creator of Bitcoin. Apparently, Dorian Nakamoto was very good at math and also had a background in engineering and knew how to program. Much of his career, which includes work for the U.S government, is shrouded in secrecy. The greatest piece of evidence is the statement given by Dorian Nakamoto at the time of the interview: “I am no longer involved in that and I cannot discuss it. It’s been turned over to other people. They are in charge of it now. I no longer have any connection.”

This statement was later confirmed by police. However, in a later interview, Dorian denied being the creator and said that his quote was taken out of context. He apparently though that the interviewer was talking about his classified work for the U.S military. He would also deny having anything to do with Bitcoin, saying he had just recently heard of it. The mystery was deepened even further when on March 7th Satoshi Nakamoto’s profile on the P2P Foundation posted: “I am not Dorian Nakamoto.”

Other issues remain with the Newsweek story, such as why the writing style and skill of Dorian Nakamoto is so much different than the Bitcoin creator’s writing skills. Satoshi Nakamoto wrote in a very technical tone and with very good English skills. As evidenced by earlier emails and letters written by Dorian, his writing is nowhere near as good. Because of these issues, many in the Bitcoin community met the article with skepticism. Many were also concerned with Dorian Nakamoto’s lack of privacy and exposure which, regardless of whether he really created Bitcoin, may put him in danger.

While many may still be inclined to believe that Dorian Nakamoto is the creator of Bitcoin, it seems as though he is serious about denying it. A law firm hired by Dorian Nakamoto released a statement that said: “I did not create, invent or otherwise work on Bitcoin. I unconditionally deny the Newsweek report.” The fact that Dorian hired a law firm may mean that he is contemplating action against Newsweek. Regardless of what happens, the mystery of Bitcoin’s anonymous creator will continue on.

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Bitcoin as a Solution to E-Commerce Pain

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Bitcoin as a Solution to E-Commerce Pain

Written By: Ashok Misra of Alina Consultants

Introduction

Bitcoin as a Solution to E-Commerce Pain

Bitcoin is a decentralized virtual currency whose valuation and use has grown dramatically since its inception in January 2009.

Some thinkers view bitcoin as a viable alternative to sovereign currencies; however, e-commerce was the original use case for bitcoin in Satoshi Nakamoto’s epic paper in 2009 on the proposed “Peer to Peer” cash system.

Unfortunately, a lack of authoritative articles exist on the precise benefits of bitcoin vis-a-vis payment methods involving credit cards for purchase of goods and services on the Internet.

In this paper, we address in practical terms the precise advantages of using bitcoin as a payment method for Customer Not Present (CNP) transactions made over the Internet.

E-commerce Payments (“e-payments”)

E-payments are digital payments for goods and services that are made over the Internet on online merchant websites. E-commerce serves multiple vertical lines of business for physical and digital goods. Dominant verticals in shipped physical goods purchased over e-commerce channels by retailers are books, apparel, and electronics. Examples of digital goods purchased over the Internet are music, streaming media, and e-books.

Some key drivers for e-commerce are: residential broadband penetration; access to consumer payment instruments suitable for online commerce; and distribution and delivery channels for physical goods.

The worldwide e-commerce market has grown by 20 percent year after year for the last several years. Global B2C Ecommerce Sales are projected to hit USD1.5 Trillion in 2014, driven by growth in emerging markets.

The more mature e-commerce markets such as the United States, the UK, and Germany, where citizens enjoy a strong purchasing power and widespread access to broadband Internet, see about 10 to 15 percent of online share to total retail trade, whereas less mature e-commerce markets such as Poland see only about 3.8 percent of online retail volume to total volume. However, many regions such as Poland are witnessing a tremendous rate of growth in e-commerce. Poland, for example, has a population of 38.5 million, out of which 26.2 million are Internet users and 12.6 million are online shoppers.

Payment Methods

Payment methods used by consumers for online purchases vary considerably by region, depending upon their availability and consumer attitudes. They expose a unique set of advantages and risks for online commerce. They can be broken down as follows:

Credit and Debit Cards

Credit and debit cards were originally intended for “card present” merchants. The cards were designed for physical use at the point of sale, where the magnetic stripe card is “swiped” and read by a terminal. The cardholder is authenticated by methods such as a wet ink signature on a printed receipt, a signature captured on a touch sensitive POS screen, a secret PIN number, etc.

Such cards have been adapted since the birth of e-commerce by merchants and processors for use on the Internet. The number on the card is entered by the consumer on a web form during the order process. Authentication is carried out using information such as billing zip code, expiration date, etc.

Fraud with credit cards is a serious concern on account of the weak authentication and inherently insecure mechanics. However, it must be noted that consumers are typically protected against fraudulent purchases on their credit cards. For transactions made in a “Card Present” manner, the consumer’s bank bears the fraud loss, whereas in the e-commerce CNP use mode, the online merchant bears the fraud loss.

Security for credit cards in a “Card Present” environment has improved progressively. That notwithstanding, there have been recent cases of large breaches involving retail stores. The United States lost 5.33 billion USD to fraud in 2013. This was up 14.5% from the previous year. Of the 5.33 Billion, issuing banks in the United States lost 3.41 billion USD. The United States accounted for 47.3 % of global card fraud losses on only 23.5% of total volume.

All industrialized countries outside of the United States have migrated magnetic stripe credit cards to EMV1 technology. EMV cards have a microprocessor chip embedded in the plastic that communicates with the POS device. It is possible to embed the EMV chips form factor on mobile phones to communicate with proximity readers. EMV cards are virtually invulnerable to tampering, duplication, etc. Banks and card brands in the United States have announced their intent to move to EMV technology, and rollout is currently underway in a phased manner. It is expected that fraud on e-commerce channels will increase after the EMV rollout in the United States as fraudsters typically attempt to exploit the weakest attack surfaces.

It must be noted that EMV technology does not impact the mechanics of the e-commerce use case. Credit card numbers will still have to be entered on websites in the same manner as they are for magnetic stripe transactions.

Alternative Payment Methods

Credit card penetration in some regions (like the European Union, for example) has been limited due to negative sentiments on the part of consumers with the use of credit payment instruments.

That notwithstanding, e-commerce growth in several of these regions has progressed, as non-card payment tenders have been adopted. Examples of alternative payment methods are

Direct Debit (Germany), Ideal (Netherlands), and Boleto (Brazil). Alternate payment systems generally have more friction in purchase paths than credit cards. This friction usually stems from more robust authentication.

Main Players in Credit Card E-commerce Payments

Consumers are issued payment instruments by their card issuers. These instruments are credit or debit cards.

Issuers are banks that provide credit or debit instruments to consumers.

Merchants are businesses that sell goods or services to consumers.

Acquirers are banks that underwrite merchants.

Brands are the associations, such as Visa, MasterCard and Discover, that maintain the network of Issuers and Acquirers. Visa and MasterCard are now public companies.

Payment Service Providers (PSPs) are entities who provide transaction and settlement services for merchants.

Costs of E-commerce Payments with Credit Cards

The costs of e-commerce payments are borne primarily by merchants. Whereas there has been regulation that precludes merchants from directly passing on credit card processing costs to consumers, one can conjecture that costs for payment processing are reflected in SKU prices.

Costs for credit card processing are broadly divided into two categories:

  • Non-negotiable costs
  • Negotiable costs

Non-negotiable costs are pass-through costs levied by the brands and collected by acquirers. These costs make up more that 85 percent of total payment acceptance costs. The largest component of the non-negotiable cost is credit card interchange. Credit card interchange varies depending upon the type of card product. For example, an airline mileage card may attract 50 basis points of additional interchange fees over a non-rewards card. Other non-negotiable fees are assessments, cross-border fees, etc.

Negotiable fees are service fees paid by merchants to gateway service providers. Merchants with smaller processing volumes may be set up by their processor to pay a single-blended fee that includes interchange and gateway service fees.

Typical Process Flow for CNP Commerce

Screen Shot 2014-11-13 at 8.45.04 AM

  1. Consumer visits merchant website and loads a shopping basket.
  2. Checkout flow captures payment information and shipping address.
  3. Merchant sends authorisation to credit card gateway for final amount with shipping and handling.
  4. Credit card gateway routes transaction to consumer’s credit card issuer and obtains authorisation.
  5. Merchant indicates to consumer that the process is completed, and goods will be shipped or available for download.
  6. Merchant sends a settlement instruction to credit card gateway, which, in turn, routes it to the issuing bank.
  7. Merchant gets paid by acquirer.
  8. Transaction shows up on customer’s billing statement.

Bitcoin Basics

Bitcoin is a software-based online payment system described by Satoshi Nakamoto in 2008 and introduced as open-source software in 2009. Bitcoin payments are recorded in a public ledger using its own unit of account which is also called bitcoin. Payments work in a peer-to-peer manner without a central repository or single administrator, which has led the US Treasury to call bitcoin a decentralized virtual currency. Although its status as a currency is disputed, media reports often refer to bitcoin as a cryptocurrency or digital currency.

Bitcoin is created as a reward for payment processing work in which users offer their computing power to verify and record payments into the public ledger. Called mining, individuals or companies engage in this activity in exchange for transaction fees and newly created bitcoin. Besides mining, bitcoin can be obtained in exchange for fiat money, products, and services. Users can send and receive bitcoin electronically for an optional transaction fee using wallet software on a personal computer, mobile device, or a web application.

E-commerce Purchase Paths Using Bitcoin

E-commerce purchase paths using bitcoin as a payment method can be developed using two basic methodologies, namely:

  1. Purchase paths using a Bitcoin processor
  2. Purchase paths made without the use of a Bitcoin processor

Bitcoin Processors

Bitcoin processors such as Coinbase and BitPay offer an abstraction layer into Bitcoin. A merchant desirous of accepting bitcoin from consumers, but at the same time desirous of being paid in fiat currency, could integrate with a service like BitPay. From the consumer’s point of view, the order flow would be exactly similar to a purchase with a credit card until the point of payment. Upon reaching the point where the payment is to be made, the website generates and displays a Bitcoin public address for the merchant. This Bitcoin address may be rendered in a QR code. Also, the order amount is converted to BTC and displayed to the consumer. The processor determines the price point to BTC conversion rate based upon industry real-time analytics. The consumer pays for the order amount using his or her Bitcoin wallet. BitPay provides the technical implementation to notify the merchant’s website when the payment has been completed as a signal to initiate delivery of the purchased goods to the consumer.

Merchants who choose to accept and hold bitcoin2 do not technically need a payment processor. In the direct integration method, the merchant creates a unique Bitcoin address for the customer’s shopping cart. The customer pays for the order total using his or her own wallet.

The merchant polls the Bitcoin network periodically to determine if the payment is completed, after which goods can be delivered.

Pain Points Solved by Bitcoin

Receipt of Funds by Merchants.

Credit Cards

With credit card payments, consumers see the funds withdrawn from their account (or credit floor reduced) immediately after the e-commerce payment has been completed. As described in the flow diagram, the merchant is paid through a settlement process that takes from one to several days. During the time that the funds are in transit, the merchant is technically forced to extend credit to her acquirer. It is likely that merchants do not enjoy the same credit on their account payable vendors.

Bitcoin

As we have seen, bitcoin payments are instantaneous3 for both parties, and there are no settlement delays involved. Thus, the funds disbursed by consumers are available immediately to the merchant.

Credit Card Chargebacks

A consumer may dispute a merchant charge within a certain window after a transaction is

completed. A dispute may arise due to non-receipt of goods or services, fraud, an incorrect amount billed, etc. The consumer’s transaction is temporarily reversed at the initiation of the dispute process. During this time, the acquiring bank “funds” the disputed amount to the consumer. Thereafter, there is a resolution process wherein the consumer and merchant present documentation to resolve the dispute. If the transaction is resolved in the consumer’s favor, the charge is reversed permanently. If resolved in the merchant’s favor, the temporary adjustment made to the consumer at the start of the dispute process is reversed.

Bitcoin

With bitcoin, there is no guarantor for transactions. No party can reverse a completed payment. From a merchant’s point of view, there is no exposure to disputes that will reverse payments.

Merchant Credit Card Acceptance Underwriting

As described earlier, a merchant desirous of accepting credit cards needs to secure a relationship with an acquiring bank. This could involve an “underwriting procedure,” as the acquiring bank guarantees payments for the merchant. Should the merchant become insolvent, it is the acquiring bank who protects the payment in the event of consumer disputes. Merchants who do not have a processing history, such as startup businesses, usually face difficulties during the underwriting process for obvious reasons.

Bitcoin

With Bitcoin there is no centralized banking institution involved. The underwriting process is eliminated completely. Also, merchants who do not have a business history can begin payment acceptance immediately.

Credit Card Security

Security with payment cards relies upon protecting the credit card payment data (16-digit credit card number) and authentication data (billing address, expiration date, cardholder verification codes, etc.).

The Payment Card Industry Data Security Standard (“PCI DSS”) was developed to encourage and enhance cardholder data security and facilitate the broad adoption of consistent data security measures globally. PCI DSS provides a baseline of technical and operational requirements designed to protect cardholder data. PCI DSS applies to all entities involved in payment card processing—including merchants, processors, acquirers, issuers, and service providers, as well as all other entities that store, process, or transmit cardholder data.

Bitcoin Security

Attack surfaces for Bitcoin are primarily at the endpoints. There is no useful information for a hacker that can obtained by observing transactions in flight. The Bitcoin protocol, in fact, relies on transaction information being public.

Since the consumer does not “deposit” symmetric payment and authentication information to the merchant, there is no way for a maleficent agent who is privy to the communication channel or to the merchant’s infrastructure to use that information to exploit the consumer at some later time.

At the merchant end, there is no need to maintain any sensitive information on front-end webservers. The infrastructure to handle the merchant’s bitcoin obtained from consumer payments can be completely delinked from the commerce website.

There have, in fact, been recent incidents where bitcoin have been stolen. It is worth emphasizing that these cases without exception involved theft at end-point infrastructure. Thus, they were not attacks on the protocol. There are various technologies (out of the scope of this article) to secure bitcoin on hardware appliances.

Caveats

Volatility

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As seen in the chart above, price fluctuations in the bitcoin to USD rate on bitcoin exchanges vary considerably over even short periods in time. We have seen bitcoin highs and lows in the range of $1,200 to $100 in the last twelve-month period. The volatility is likely due to the fact that currently bitcoin purchase is driven largely by speculation and there is no robust way of evaluating an appropriate USD to BTC rate. Also the perceived value of the cryptocurrency fluctuates with news and announcements from financial regulators on the manner in which they intend to regulate bitcoin. This volatility is not conducive to e-commerce and some stability needs to set in for mass adoption.

Consumer Protection – There are several cautionary advisories from government agencies about the risks associated with virtual currencies. It is certainly true that Bitcoin offers no protection for consumers, and it is unlikely that governmental consumer agencies will protect consumers for bitcoin purchases in the same manner as they do for regular bank instruments. That notwithstanding, from the consumer risk management point of view it brings up the question if the higher reflected sku costs associated with credit card transactions are proportional to the protection offered. If the costs of protection were offered using free principles, the costs would likely be lowered. For low value transactions over the internet, consumers may choose to embrace the risks associated with bitcoin for lower SKU price points, particularly for repeat purchases from the same merchant.

It is conceivable that trusted third parties could broker bitcoin transactions and offer consumer insurance. The Bitcoin protocol supports the contract to enforce financial agreements; Bitcoin supports contracts using the same decentralized and distributed architecture used for financial transactions. These constructs can be used to reduce the risks of dealing with unknown entities in commerce.

Legal Issues – Needless to say there are serious risks on further growth of bitcoin on account of the uncertain legal status of bitcoin as a financial tender type. Some jurisdictions have deemed bitcoin to be a commodity whereas others treat it as currency. Some countries have outlawed bitcoin altogether and treat the possession of bitcoin as a criminal activity.

At the time of writing the United States treats bitcoin as a commodity. Any agency involved in the transfer of bitcoin with fiat currencies comes under the purview of banking and money laundering laws and requires licensing in every state, thus there is a high entry bar for exchange activities. For consumers, the act of purchasing a commodity in bitcoin is a taxable event. This treatment certainly hinders wider adoption.

Regulators clearly see the bitcoin features of anonymity, decentralization and lack of a central control as detrimental to control. However, it is fair to assume that a complete ban on bitcoin would continue to take place only in totalitarian jurisdictions. In western countries, it is unlikely for governments to impose a categorical ban on bitcoin. It is more likely that tax reporting, VAT, etc. would be based on some kind of honor system. There are some successful examples of parallel currencies that are recognized as legal tenders. An example is the WIR franc developed in Switzerland in 1934 and still in use at this time.

Conclusion

Bitcoin offers a unique and powerful payment mechanism for all participants in e-commerce payments. It eliminates many of the inefficiencies present in traditional web payments. Bitcoin is not purely an academic subject anymore. Some mainstream web properties such as Expedia, Overstock.com, Dell, and WordPress have been accepting bitcoin as a form of payment. Bitcoin has an extremely low entry bar and should expect its usage to grow rapidly

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