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April 11, 2013
 

Are Bitcoins a Bankers Worst Nightmare?

Are Bitcoins a Bankers Worst Nightmare?

People have always sought to secure transaction for goods and services by using a trusted system to reduce risk. This goes back to the use of gold and silver coins that were worth a similar amount to there face value. Then paper money was introduced and was guaranteed by the financial institutions or governments that produced them.

The idea that a government backed and regulated institution is the only way to have a secure transaction has led to the virtual monopoly that sees only large players like multinational corporations and credit card companies in partnership with banks able to provide transaction services. This requires new merchants to convince one of these entities to partner with it to enable the merchant to accept payments. This applies to debit cards, credit cards and payment services like PayPal.

If you want to use these services, you need to provide detailed information, identifying your business, bank accounts and tax information. This is to protect the consumers that use these services from incorrect charges are fraudulent transactions.

The institutions provide confidence by having processes that can reverse transactions that are not legitimate and the merchant or the provider will foot the bill. This requires that anyone using the system has to be vetted and trusted, for the system to work or the payment processors would ultimately be bled dry by having to pay for fraudulent or incorrect transactions.

The Bitcoin is much simpler and for a merchant it gives certainty that they have the payment when it is added to their account after a few minutes. The cryptographic process that independently handles transactions is reliable and irreversible. There are no charge-backs and no fees and the transactions all over the world do not require currency exchanges or clearance times.

However, consumers also have no ability to reverse a transaction and once they click to transfer an amount then it is instantly gone. The convenience factor is also missing with perhaps several thousand businesses using Bitcoins at this time. Where card services and PayPal have many millions of merchants able to offer there services with these payment systems.

The computer was in a similar situation. The personal computer was a niche product that technically literate people were purchasing. They had very limited power and were difficult to use. They were interesting and fascinated people that understood them but had very limited usefulness to the wider community.

The relative low cost and ability to process data led to transforming what were almost toys into a business product that could make typing, accounting and calculating quicker and easier. The innovation drove the computer industry and it is still producing newer faster, more innovative products today.

The Bitcoin platform has the same sort of insider vision, with people starting to develop businesses that take advantage of the best qualities of the Bitcoin. As with the people that dismissed personal computers, many in the finance industry dismiss the Bitcoin as being difficult to use and without the powerful applications that the large transaction processors have. A killer app made by the Bitcoin equivalent of an Apple or a Microsoft will see this low powered niche currency become much more widespread and accepted.

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