Heated polar debates over Bitcoin are in full swing. Even
the banking community, let alone non-fin companies, are divided in their opinion. With over 80 (!) competitors and wannabes, Bitcoin is not the
only cryptocurrency out there. More schemes are in the making. Only a couple will survive long-term (and Bitcoin may not be one of the winners).
So, what exactly excites all those companies that invest time and money into digital currencies? More importantly, are they excited for the right reasons?
2P or not 2P
In real life, Bitcoin, as well as most of the other digital currencies, is not based on P2P mechanism. Just like email requires ISPs and SMS needs MNOs and SMS centres, Bitcoin et al rely on several parties for its existence and operation: "miners", exchanges
and distributed nodes (the "ledger"). It's not at all similar to such true P2P actions as me handing over a fiver in cash, or beaming some data over direct wireless link. That leads us to the following problem.
It's your problem!
When I send you an email and it doesn't get through, I don't care much - I will resend it again. If my emails start persistently disappear in the ether, I can talk to my ISP if needed. Since Bitcoin relies on some distributed "ledger", whom do you call
when your Bitcoin payment gets lost?! When a system is "decentralized", nobody is in control/in charge - i.e. nobody is responsible.
Most of us know by now that any online transaction can be tracked, one way or another. In case of Bitcoin, you do need to go through some KYC when cashing in or out. Hence, there is no anonymity. And why would you need one - in the digital world, knowing the
identity of the party you are dealing with increases confidence and trust. After all, when parting with your money whom would you rather pay: "Alexander Peschkoff" (knowing that my identity was verified to at least some degree) or "cn5467"?..
Low transaction cost
Shifting data costs next to nothing indeed. However, in real life, you need to cash in or out at some point - e.g. most of the remittance markets cannot use even banks cards, let alone Bitcoins, to buy food and other things they need most. That means more
participants in the food chain, and - hence - increased cost, including the cost of fraud as well as the cost of volatility. From that perspective Visa or MasterCard charges look rather reasonable (not that they cannot be improved though).
Can digital currencies be a viable payment option? Absolutely. Are they here to stay? Sure.
Are digital currency ready to enter the mainstream market? Not yet. What is missing? Ubiquity, trust, Apple-style user experience.
To gain ubiquity, digital currencies must be extended to physical retail (where both consumers and merchants can benefit from an alternative payment method). Trust comes from transparency, big name credibility and certainty of value. User experience needs
apps that make paying with digital currencies easier than sending a text message. From that perspective, MintChip seems to be heading in the right direction...