Interested in Mobile Payments: Bitcoin Is Cash at a Distance

bitcoin digital currencyMobile payments are on the rise, so it only makes sense that new forms of digital currency are popping up, too. One kind of digital currency you may already know about is Bitcoin, a P2P cryptocurrency created by Satoshi Nakamoto.

One of the biggest questions surrounding digital currency (aside from how they work) is whether they’re a viable solution—or, whether they’ll make a splash and then be quickly forgotten. You know, kind of like QR codes.

It’s a little early to tell, but it’s something that could well be a major disruptor in the realm of mobile payments and mobile banking. Before we dive in and look at what Bitcoin has to offer, watch this intro video that will give you a crash course on Bitcoin.

What makes Bitcoin so potentially disruptive?

Bitcoin’s got two major things going for it. First, it handles like cash. That is, it’s immediate, irreversible and anonymous. In just the same way I can hand you dollar bills without you knowing or caring who I am, I can send you bitcoins without you knowing or caring who I am. As soon as they’re sent, they’re yours, just like the dollars I put in your hand are yours. There’s no exposing of my identity, third-party approval, float time, batching, 2- to 3-day delay, bounces or chargebacks. I either have the “cash” in hand to give you or I don’t. The big difference between Bitcoin and hard cash–I can hand you that Bitcoin over the Internet, including across international boundaries. Think of it as “cash at a distance.”

Second, the Bitcoin network is decentralized and distributed. There’s no central authority or server. So, any bitcoins you own can’t be confiscated, frozen or garnished by any government or banking agency because there’s no one single place to go to do it. As long as you have Internet access, your bitcoins are yours to do with as you like. Sort of like cash under your virtual mattress!

I’ve got your attention now, don’t I?

So what are the practical implications of these characteristics of Bitcoin? Let’s look a few cases where Bitcoin could make a big impact.

International payments

Making payments across international borders is a complicated affair, usually involving multiple intermediaries and currency conversions. Often, transactions aren’t fully resolved for many days, which exposes the parties to currency rate fluctuation risk. Using Bitcoin, you can effectively pay a party in another country directly and immediately with cash (no intermediaries), which results in a very short window of currency rate exposure. The receiving party can then exchange the bitcoin for their local currency through a currency exchange or keep it to use for their own payments.

A safer haven

Because Bitcoin is out of the reach of governments, it’s already being used in some countries as a safer repository for money than the local currency in local banks, which may be controlled by unstable or corrupt regimes. There are already online exchanges that will convert Bitcoin in and out of many different currencies.

Anonymity and fraud prevention

Consumers like to pay for things digitally because it’s easier and faster than hard cash—but they don’t like having to give up their account identity to do it. Credit cards (in the U.S., anyway) and checks must reveal your account information to the payee because they’re based on you giving someone else the information (your account number) necessary to withdraw money from your account. This is pretty much a security hole you can drive a truck through. Bitcoin, conversely, is based on giving money, not taking it. A Bitcoin public ID can only be used to deposit money, not withdraw it. People and organizations publicly post their Bitcoin IDs online so others can make contributions or payments to it. It’s fraud-proof by its very nature. In fact, if you’d like to make a contribution to me, my Bitcoin ID is: 1FrTHp5DR3hLAqCVmuzXLmTLkpJFKCAAgP

What’s keeping Bitcoin from becoming popular?

It’s complicated. The software for using Bitcoin is stable and secure, but it’s not yet normal person-friendly. You have to know too much to make it work. At this point, it’s also hard to get bitcoins. It usually involves a multi-step process starting with depositing cash in a bank account of a transfer company, then having that credit forwarded to a currency exchange where you can then trade it for Bitcoin. This is far too complicated and mysterious for the average consumer. What’s needed is the ability to make a direct purchase in cash at a bank or a retail store, which directly gives you bitcoins. Another drawback? Bitcoin is not yet accepted in many places, although more are starting to appear.

Not so legal or polite uses

Like any powerful tool, Bitcoin can be used for both legal as well as socially questionable activities. In fact, the application that would probably quickly propel Bitcoin into mass use would be porn. The porn industry served as a major driving force behind the maturation of on-demand video distribution technology, and it could do the same for Bitcoin. The ability to subscribe to an “adult” site without giving up your personal identity would be highly attractive to many people, even though most, of course, would never admit it.

Sure, Bitcoin has some functionality to fine-tune before the online currency becomes more widespread. That being said, Bitcoin is definitely a tool to watch, especially as mobile payment capabilities continue to become more prevalent.

Any Bitcoin users out there? I’d be interested to hear about your experience so far with the online currency.

Joe CascioJoe Cascio is a long-time friend. He’s also a semi-retired software developer who, between rounds of golf, tinkers with and consults on new technologies. He prefers to write web applications in python and can also develop Android apps. Before chucking the 9-to-5 life for the golf club, he was last employed as the Chief Technology Officer at a medical imaging software company. He comes down unflinchingly on the dog side of the dog-vs-cat question and grew up around Boston with Red Sox crimson running in his veins. I love Joe. You will, too. Find him on Twitter @joecascio. Stalk him regularly.

  • Wikaaru

    test

  • ElisK

    I find its simpler to work with bitcoins than other currencies. With Bitcoin, I know exactly what’s happening behind the curtains, in fact, the mechanics of Bitcoin are very public and predictable, different than the mechanics of Central Banks around the world.
    I finally understood economics at austrian level, trading, cryptography and others fascinating stuffs.

    One of the best articles! Simple and direct.

  • http://twitter.com/JoeCascio Joe Cascio

    Thanks for your comment. Yes, bitcoin is wonderfully simple and transparent. When equally simple and transparent user programs arrive, I think it could take off.

  • Fellow Traveler

    I just wanted to point this out, since the distinction is important.

    Bitcoin is NOT anonymous. Nor is it untraceable.

    However, it IS censorship-resistant, which is why it even still exists. (It would have been shut down already, if that were possible or easily done.) This censorship-resistance is what makes Bitcoin so important.

    Anonymity layers are possible, however. But the basic foundation of Bitcoin is not about anonymity — it’s about censorship resistance.

  • http://twitter.com/JoeCascio Joe Cascio

    You are correct. It is not perfectly anonymous, but can be made so. However, even the out-of-the-box public wallet IDs are quite unrecognizable to the average user. You have to go to some trouble to trace IP addresses, etc. and even that doesn’t get you to the “real” person owning the wallet. ISP collaboration would be required, wouldn’t it? 

    BTW, if you are the same FellowTraveler that did the OpenTransactions work, I’d like to say, “Well done!”. I understand OT is being used in the development of RCredits, a CommonGoodFinance implementation. Please feel free to connect on Twitter or wherever.

  • rau

    The biggest complication for people using it is understanding the risks, such as theft, deletion, or scams. That being said, BitCoins are revolutionary technology.

  • ShellyKramer

    Thanks! Appreciate the input!

    *Shelly Kramer* *| **V3 Integrated Marketing 816.200.2520 @ShellyKramer

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  • http://twitter.com/whitslack Matt Whitlock

    Online gambling is far more likely to thrust Bitcoin into the mainstream than is pornography. While an Internet casino may not be able to accept deposits from U.S. players due to laws, nothing is stopping them from accepting deposits in Bitcoin, which can be sent to the casino anonymously, and the winnings paid out anonymously as well.

  • http://twitter.com/whitslack Matt Whitlock

    “What’s needed is the ability to make a direct purchase in cash at a bank or a retail store, which directly gives you bitcoins.” That’s already possible. See BitInstant. You can deposit cash at a major bank branch, Walmart, CVS, or 7-Eleven, and your Bitcoins are sent to the address of your choosing instantly.

  • http://twitter.com/JoeCascio Joe Cascio

    Correct me if I’m mis-informed but the last I heard (a few days ago when a friend tried it), the CVS approach still involves the use of an intermediary cash-acceptance service. Also, you first have to print out a deposit ticket from bitinstant, which is then taken to the retail store. The funds are supposed to be deposited by CVS to the intermediary (which for my friend got him a blank stare from the CVS cashier as they’d never been trained on that or the store didn’t participate or they didn’t know they participate) and then you get the bitcoins or a deposit to a currency exchange as much as an hour later. What I want is to go to a retail store with nothing but cash in hand and my smart phone, and walk out with the bitcoin deposited in my phone or online wallet. It’s still not that simple.

  • Fellow Traveler

    Bitcoin itself cannot be made anonymous, but anonymity layers can be added (such as OT.) So ultimately, the potential is there for Bitcoin to be traded anonymously–but the Bitcoin p2p network itself is definitely NOT anonymous–nor is it meant to be. It’s meant to be censorship-resistant. (And that’s why it’s so important.)

    You are correct that BTC IDs are unrecognizable to the average user. However, a simple piece of software can do the hard work of reconstructing the totality of all BTC transactions and displaying them in a user-friendly format. I think there is even a video of this already posted to YouTube.

    You are also correct that ISP collaboration could be required for linking some of those BTC IDs to IP addresses. (Although honestly, much linking can be done simply through using Google.) 
    Also: ISPs ARE collaborators… Usually the word “anonymous,” when used regarding the Internet, implies that you CANNOT serve a subpoena to an ISP and end up with my name and home address. If you can do that, not much point in calling it “anonymous” is there? I wouldn’t want to mistakenly believe I was “anonymous” when I could actually be traced using the same techniques that are used by courts today for prosecuting file-sharing college kids.

    Yes I am the author of OT; thank you for your kind words. I was not aware of the RCredits project’s use of OT, but I am curious to hear how it goes and, of course, I will give them any support they need. (Within reason :P)

  • http://twitter.com/ErikVoorhees Erik Voorhees

    Ahhh so refreshing to see an article that actually “gets” Bitcoin.  Well-written, and succeeds in conveying the fundamental benefits of this new currency without falling prey to the FUD found in so many popular media articles on Bitcoin. The concept of Bitcoin as enabling one to “give money” as opposed to enabling someone to “take money” is crucially important, and the author gets big points for understanding that.

  • Noone

    I renewed my domains recently. With Bitcoin, I was not limited to only US companies that accept dollars, and could register with anyone in the world who could offer best prices.

  • ShellyKramer

    Who can complain about that??? Thanks for the share!

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