Category Archives: Merchant acceptance

Bitpay and Bitcoin

This was very much what I’ve been saying all along. Without people earning payment in Bitcoin, there is no incentive for me to take the time to obtain Bitcoin. Bitpay is its own worst enemy because it facilitates merchants “accepting” Bitcoin without actually having to use it to pay out suppliers and employees thus expanding the actual user base. This is why I was promoting the Bitcoin Consumer Fair to try and drive adoption by consumers.

From the article:

BitPay’s CEO Stephen Pair admitted as much in June, when he told BusinessInsider that the company was trying to find another business model. “We keep adding merchants—we’re up to over 60,000 now—but they’re selling to the same pool of Bitcoin early adopters.”

Gavin Andresen, who in 2010 was picked by Bitcoin’s mysterious inventor to lead work on its code, recently told me that he didn’t see that changing soon (see “The Looming Problem That Could Kill Bitcoin”). “Until part of your paycheck is regularly paid in Bitcoin, I’m not sure how it would really go mainstream,” he said.

The other article has a little bit better news, though doesn’t really address the fundamental flaw above. http://www.coindesk.com/ingenico-adds-bitcoin-option-to-pos-terminals/ Basically, the article talks about how one of the largest payment terminals can easily now accept Bitcoin.

According to the company, it will be compatible with the majority of Ingenico terminals as they run its operating system, Tellium. –
http://www.coindesk.com/point-of-sale-giant-ingenico-rolls-out-worldwide-bitcoin-payment/

 

The long tail of Bitcoin adoption

The long tail of Bitcoin

Much has been said about the slow, nearly flat, adoption rate of Bitcoin in 2014. Unfortunately, many of the writers are to embed in the existing paradigm to understand why Bitcoin is different from previous technologies and why this adoption rate isn’t troubling. The first distinguishing factor is that Bitcoin is a protocol and not a proprietary technology, like say Apple Pay. With a proprietary tech or even a technology promoted by a group of companies, they can artificially inflate or accelerate adoption by virtue of the money they pour into it via marketing or leveraging pre-existing market share. With few exceptions (most notably Bitpay and the Bitcoin Bowl), Bitcoin’s major players do not have the money to market Bitcoin more broadly. That’s why many of them, like Circle, are taking the approach of obscuring the Bitcoin technology behind their sales pitch. They also don’t have the existing market capture of an Apple or Visa.

Some might counter than Bitcoin is more like the Internet, a protocol that doesn’t need to be promoted in its own right because it will grow by virtue of its use by companies and the public not its promotion. While true, there is also a distinct difference. Companies wanting to play in the early days of the Internet were not saddle by oppressive regulations. The early Internet was a wild west and still for the most part remains of the least regulated industries. Companies playing in the Bitcoin space, however, must meet increasing scrutiny of a skeptical regulatory regime in what is one of the more heavily regulated industries, banking and finance.

Some people keep looking for Bitcoin’s killer app. Money is Bitcoin’s (or the blockchain’s) killer app. The transfer of value unburden by the regulatory saddle is what makes Bitcoin useful. Unfortunately, any company wanting to promote, profit from and further Bitcoin reinjects that regulatory burden and removes the principle benefit of the technology. So how is Bitcoin going to grow?

Bitcoin shines by eliminating geographic boundaries. That may be because the sender and recipient are in different locations or because their base money is based on geography (issued by specific countries). As this benefit because apparent to people and businesses who suffer from market capture by intermediaries, they will gravitate to Bitcoin. Then, businesses that provide services to those people will begin taking Bitcoin in greater and greater numbers in order to take advantage of the spending power those users have. Unfortunately, this is not a quick growth curve. It will spread naturally through word of mouth and grass roots efforts. Bitcoin may take years to achieve any measurable market share and it will probably remain a niche market supporting those that most benefit from it.

How FINCEN regulations affects cloud based solutions in payment tech.

Just a few weeks ago, the Financial Crimes Enforcement Network (FINCEN) released a ruling about the applicability of the payment processor exception to a Bitcoin based company.

As a little background, generally any company that transfers value between one party and another (or from one location to another) is deemed a money transmitter and subject to applicable regulatory controls. There is an exception for “payment processors” who merely process payments on behalf of merchants [See (5)(ii)(B) ].

In the recent ruling, the company requesting clarification wanted to accept remittance in U.S. Dollars from presumably U.S. customers of Latin American hotels and send those hotels the commensurate value in bitcoin. The company argued they fell under the payment processor exception. FINCEN disagreed. Without going into to much detail, the basis of the ruling was that for the payment processor exemption to apply, the  “payment processor exemption to apply, the entity must use a clearance and settlement system that intermediates solely between BSA regulated institutions.” (BSA is the Bank Secrecy Act).

While this is bad for the company that requested the ruling, it’s even worse for the Bitcoin community at large. Why?

[Disclaimer, the following is not to be construed as legal advice and s not meant to pick on Blockchain.info. I’m a customer of blockchain.info and use their API to facilitate transactions for my privacy preserving disposable email service 1ncemail.]blockchain

Blockchain.info offers a very simple API that allows merchants to accept bitcoin on their websites and integrate such into their shopping cart or other systems. The API works like many other payment processors in that when money is received it makes a call to a URL on the merchant’s server indicating payment has been received. The merchant then appropriately credits the customer’s account.

The problem (from a regulatory perspective) is that Blockchain.info’s API generates a payment transaction wallet to accept payment for the merchant and then forwards that payment on to the merchant’s wallet. In that respect, Blockchain.info is moving value from one person (the consumer) to another (the merchant) and they can’t rely on the payment processor exception because they are going through BSA regulated entities to send value to the merchant.

Now, of course, if Blockchain.info provided the same functionality of the API in software the merchant downloaded and installed on their own servers, there wouldn’t be an issue, because they are merely providing software, not facilitating the actual transmission. I would say the API could provide the primary function (monitoring a transaction wallet address for payment and calling a URL) without running afoul of the regulations. But because Blockchain.info has control of that intermediary wallet, they are in fact a money transmitter, for the purposes of the regulations.

I actually think this ruling might be a prelude to FINCEN considering miners as money transmitters. And I hesitate to suggest, if someone presented the Bitcoin system in the abstract (without reference Bitcoin) to FINCEN asking for clarification if miners were money transmitters, they would unquestionably say yes.

 

 

An open letter to Priceline

I’ve been an avid user of Priceline’s Name Your Own Price™ for hotels for years. I have 56 hotel stays in the last 2 years (from my history) and before that I refused to register but used Priceline in guest mode. I’m sure I’ve had over 100 hotel stays, mostly with Name Your Own Price™ though a few were Express Deals. I rarely pay full price except when I have to attend a conference and must stay at the conference hotel.

Recently, Expedia began accepting #bitcoin for hotel bookings. Michael Gulmann, executive VP of global product at Expedia, had this to say about their results:

“We did some estimates based on the size of Overstock and the size of Expedia, and came up with our own estimates of what we could expect, and we’re meeting and exceeding those.”

I am writing this letter to ask, nay beg, Priceline to begin accepting Bitcoin. At the very least, you should accept it for the Name Your Own Price™ product. Bitcoin is perfect for that auction because it is irrefutable. Name Your Own Price works because the bidder (me) basically agrees that if you can find me a decent hotel at this price, I will stay there. While I’m sure Priceline does some analysis to reduce the risks of charge backs from credit cards, the risks of fraud and charge backs is still there. Not so with Bitcoin. I could prepay and if I change my mind, tough luck on me.

So price line, what say you?