Trying to see if we can pound some cents into this e-scrow Dorothy.
Dave’s been down on the crypto farm with Greg Brockman of Stripe learning a thing or two about Bitcoin and if there’s one thing I learned it’s that Greg is no dummy. For the past couple of years Dave has been harping on two reasons why Bitcoin would be challenged for adoption on Main Street (Lawsky’s Law withstanding). The first had to do with how long it takes to ring up a credit card transaction and receive approval in a brick and mortar retail environment and the second has to do with chargebacks. Dave having started and run retail businesses for over thirty years knows a little bit about both these issues.
I’ve written about issues relating to “acceptance” and “honor” in particular as they relate to bank cards and the development of networks such as those pioneered by Dee Hock of Visa. Dee’s a big thinker in the “chaos” and “order” space so much that he got some peanut butter in his chocolate when he tried to coin something known as “chaordic.” Chaordic is the type of concept one comes up with when they attempt to ply the space between Heisenberg’s wave and the particle, Schrodinger’s cat-in-a-box or between zero and Michael Woodfords zero lower bound.
I actually knew a guy in the car business once that referred to his “pre-owned” lot as “newsed” cars… like new… only used… newsed which is similar to @RustyRockets Trews or what the news would be if it were true. It’s tough to be two things at once such as being the President of the United States (POTUS) and Golfer of the United States (GOTUS). Sometimes you simply have to choose how to spend your time and money, then sometimes you don’t have to spend money, but time gets spent either way.
I’ve also written quite a bit about the currency of reputation and how there is no forgiveness in the blockchain and that this is going to require an entirely new form of reputation management that revolves around “no-do-overs.” It’s probably been two or three years since I first corresponded with Craig Newmark of CraigsList.com about the next generation of trust-based systems (or trustless networks) and how they would most likely develop. Dave disagreed with Craig that there was something called a “culture of trust” (http://tradewithdave.com/?p=10567), but Dave most definitely does not disagree with Greg about the consolidation of trust.
Here’s what Greg of Stripe.com had to say in his recent article (emphasis Dave):
Ultimately, the message Visa delivers to consumers is that if they see the Visa logo, they are safe. If something goes wrong (such as the merchant delivering a bad product), the consumer will be made whole. This results in many transactions happening that otherwise would not, and makes the whole ecosystem more valuable.
And so, unless we solve decentralized reputation (which people are starting to think about), the Bitcoin ecosystem will see the emergence of a few centralized consumer “trust providers”.
You can already start to see the need for this with the emergence of Bitcoin escrow services. However, escrow isn’t actually a solution to trust—it’s a way not to trust. It makes sense only for a certain segment of purchases, and requires you to jump through stressful hoops like completing an inspection of the goods before irrevocably releasing the funds.
The winners in this space will instead be companies which inspire consumers to trust those they endorse. They’ll provide consumer protection services like chargeback mediation (and have a direct relationship with the merchant to actually recoup funds for those chargebacks). They’ll gain acceptance among Bitcoin-accepting merchants if they can boost sales:
Because the trust providers’ main assets are their brands, and those brands benefit from network effects, it’ll generally make sense for these companies to consolidate. Ultimately there will be one or a few major players, just like there are in the credit card world.
Other participants in the ecosystem will want to display the brand too. You’ll see gateways cobranding with the trust providers, just like today you see cards cobranded with Visa and their issuing bank.
As a result, the trust providers will be building a network of vetted merchants and gateways. To make sure only good actors are in the system, they’ll need to set and enforce rules and regulations for acceptable behavior—otherwise their brand will become less meaningful. This brings us back to a world of a few entities who get to set the rules.
Did you catch that? “Unless we solve decentralized reputation (which people are starting to think about), the Bitcoin ecosystem will see the emergence of a few centralized consumer trust providers.” Are the advocates for a more fair and just system based on Bitcoin just going to roll over and roll up their straw mats like so many scarecrows who were occupying Zuccotti Park and now that Ben Lawsky has come through with his New York State sickle and cut down the harvest we’re “back to a world of a few entities who set the rules.”
Think about that for a minute. Is that the “promise” that everyone has been so excited about Bitcoin bringing to the
economy equanomy? Are you convinced that simply because CNBC claims to be “First In Business Worldwide” and that New York City claims to be “the financial capital of the world” that Bitcoin is going to just hang there on that scare pole like it doesn’t even have half-a-brain… or half-a-heart… or half-a-courage… or the electronic ability to satisfy the double coincidence of needs half-of-money while transmitting the results of a means test back to headquarters every time you go through the check out line at Wal-mart with your SNAPcoin card… not to mention the Euro’s ability to function as the store-of-wealth-half (they do have gold backing the Euro in case you didn’t notice – Deutsche Bank balance sheet withstanding even though it’s Germany’s gold – shoulda pushed those sanctions I guess)… but I digress.
What is going on with all this exactly? Well, unless Dave gets a beach chair between Henry Kravis and Jeremy Allaire within the next 45 days (make that 44… 43… 42) and unless Barry Silbert and Vitalik Buterin decide to start working on their tans somewhere besides the Jersey shore (channel Islands version), the clock is ticking on Bitcoin when it comes to this side of the pond and that side of the pond while the Isle of Man in the middle is still fair game. As I was reading Greg Brockman’s piece, I kept feeling a little bit like I was reading a piece about Ripple… not Bitcoin. Then later on in the piece, Greg wrote this…
“There are a number of cryptocurrencies which already have gateways baked in at a protocol level (such as Open Transactionsand Ripple). However, there are huge network effects in any financial system, and to date these other systems have failed to win the necessary user support.”
Hmmm? That really makes a scarecrow think. Add on top of that no mention of Ethereum (clearly skiing outside of the Lawsky Lawski and across the Swiss Alps with their $750k crowdfunded “equity” raise in two hours today – isn’t equity crowdfunding illegal (cough)… guess not if you’re Goldman) and no mention of Hyperledger.com. Where are we heading exactly Toto? Dave gets a weird feeling that there are two Yellow Brick Roads that we’re going to be traveling concurrently. One of those roads is decentralized and one of those roads is distributed.
follow… follow… follow… follow… follow the escrow road… (i.e. follow the money)
If Lawsky is going to essentially ring fence the USA, is he going so far as to make sure something like Henry Kravis’ increased investment in First Data and Jeremy Allaire’s relationship with Accel Partners end up with a combined regulatory groomed ski slope such that they are “The winners in this space” as the space was defined so clearly by Brockman. It doesn’t seem too far-fetched to Dave that First Data would love to get their hands on their own medallion (think the Bitcoin “B” in addition to the MC/V window stickers for merchant acceptance). Sure “Visa CEO doesn’t see Bitcoin as a threat” (http://www.coindesk.com/visa-ceo-bitcoin-threat/) because of its “complexities” while the established payment providers have “established network rules” and an “understanding of how things operate”… what seems to be the problem? I guess there isn’t a problem as long as you can trust First Data not to go into competition with you via Bitcoin and if you’re the CEO of McDonald’s I guess you don’t have to worry about Chipolte’ eating your lunch (read 17% SSS increase) while you try to compete with Starbucks by sending every self-respecting construction worker to Burger King while your staff spends ten minutes applying whip cream to your specialty drinks… heck of a job Brownie.
Here’s what OpenPodBayDoorsHal had to say about the Lawski-daddy on Reddit:
It’s worse than that. These regs cannot be followed. Coinbase is supposed to get me to tell them the name and physical address of anyplace I sent Bitcoin from my account, which they then have to keep for ten years. How am I supposed to do that? I bought something from a Bitcoin merchant in Guatemala, how do I know their address? How am I supposed to communicate that to Coinbase? Lawsky knows exactly what he’s doing, he’s doing exactly what his bosses told him to do. Stop Bitcoin and make it look like it’s just regulations.
So, there are some fairly unhappy Bitcointhusiasts out there and there may be some CEO’s who are sitting on Dee Hock’s laurels with a failure to appreciate just what kind of chaos it took to grow those self-similar fractalized laurels, but what’s the real plan? Getting back to those two Yellow Brick Roads that diverged, distributed and decentralized in the yellow wood… I’m working on that one. I’m pretty certain that the Euro has a partial yellow (read gold) backing and I’m pretty pretty sure that at least half of the new divorced currency model is going to be based on gold and the other half on the blockchain. As far as the Bitcoin half, it looks like select places (think Jersey and the Isle of Man – see today’s story: http://www.coindesk.com/isle-man-clarifies-regulation-digital-currency-businesses/) are going to handle the coin cleansing much in the same manner they handled the wash dry and fold of paper money in the past.
Greg Brockman wasn’t the only one who earned their stripes this week, Brett King over at Medium.com did the yeoman’s work when he penned Bitcoin’s Failed Coup of Wall Street which includes an in-depth analysis of the all important payment systems metric of acceptance.
Brett King is Killing It
Here’s Brett expounding on the implications that Bitcoin global transaction volume peaked at US $180 million in June even though more users are downloading Bitcoin wallets they aren’t spending the money that they put in those wallets.
What we need is to get Bitcoin wallets on phones, being used everyday. For that consumers need places to spend their Bitcoin — this is good transaction volume, as opposed to bad transaction volume which curtails adoption growth. The only other way to go is to encourage stable growth as an asset class, so that Bitcoin outperforms the stock market on returns, while being less volatile — given Bitcoin’s nature as a pseudo commodity, that is extremely unlikely. If we encourage Bitcoin as an asset class, then the dreams of supplanting the centralized banking systems of the world dies.
In July Dell computer announced that they would start accepting Bitcoin for purchase of their products. That is a huge announcement for Bitcoin. Unfortunately, these types of announcements are just not coming quickly enough to stimulate the right type of growth for Bitcoin.
Let’s face it — when a mobile wallet in Kenya, or a coffee company out of Seattle has more merchant acceptance than Bitcoin, you know we have an uphill battle for adoption. Regardless of what you think of the Blockchain, or the fantastic decentralized model behind Bitcoin, consumer adoption and frequency of use is the best indicator of the ability of Bitcoin to disrupt either payments or the value store model of the existing banking system. That is the problem we have to fix if we don’t want to relegate Bitcoin to a hedge commodity in the medium term.
If you believe in Bitcoin — you need to start spending it, not holding it for asset gain. If you’re not spending it, you’re killing Bitcoin.
When Craig Newmark attempted to convince me that there was something called “a culture of trust.” I answered the same way that the Dos Equis most interesting man in the world answered when asked about rollerblading…. “No.” Today we have Greg Brockman saying that trust is an inspiration. “The winners in this space will instead be companies which inspire consumers to trust those they endorse.” Dave’s not so sure about that idea either. Then Greg goes onto say “They’ll gain acceptance among Bitcoin-accepting merchants if they can boost sales.” Now you’re talking.
And finally, Eric Vorhees expresses his opinion on the Lawsky Lawski
The European Banking Authority recently published their study on a proposed regulatory framework
Dave’s not new to the Bitcoin escrow party – here’s 9 articles on the subject for your consideration: http://tradewithdave.com/?s=escrow+and+bitcoin
On Dee Hock or why old guys rule: http://tradewithdave.com/?s=%22dee+hock%22+
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