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Payments and banking
[...] Visa and MasterCard actually sit on top of dollar-based banking transactions, providing a set of value-added services like enabling banks to track fraud disputes, and verifying the identity of the buyer and seller. It turns out that for the person paying for a product,
the key feature of a new payment system — think of PayPal in its early days — is the confidence that if the goods aren’t as described you’ll get your money back. And for the person accepting payment, basically the key feature is that their customer has it, and is willing to use it. Add in points, credit lines, and a free checked bag on any United flight and you have something that consumers choose and merchants accept. Nobody actually wants to pay with bitcoin, which is why it hasn’t taken off. [...]
Freedom to transact without government supervision
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The government-backed banking system provides FDIC guarantees, reversibility of ACH, identity verification, audit standards, and an investigation system when things go wrong. Bitcoin, by design, has none of these things. I saw a remarkable message thread by someone whose bitcoin account got drained because their email had been hacked and their password was stolen. They were stunned to have no recourse! And this is widespread — in 2014, the then-#1 bitcoin trader, Mt. Gox, also lost $400m of investor money due to security failures. The subsequent #1 bitcoin trader, Bitfinex, also shut down after a loss of customer funds. Imagine the world if more banks had been drained of customer funds than not. Bitcoin is what banking looked like in the middle ages — “here’s your libertarian paradise, have a nice day.”
[This issue is particularly near and dear to my heart because my own company,
True Link, is designed to help vulnerable seniors — people likely to give out their credit card number over the phone, enter sketchy sweepstakes or donate to sketchy charities, participate in scam investments, or install password-stealing malware.
As the people who most need security enhancements in banking and payments, they depend heavily on the existing protections and would absolutely be harmed by many of the proposed changes in favor of private-key authenticated, instant, and irreversible transfers. Someone starting from a human perspective on banking security—who is currently harmed and how can we help them?—would come up with something very different from blockchain!]
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Micropayments and bank-to-bank transfers
[...]People have proposed that you will use bitcoins for micropayments — for example, paying two cents to a musician to listen to their song on the internet, or four cents to read a newspaper article. Yet the infrastructure to do this — for example, advance authorization with the source of funds so you don’t have to wait eight minutes to read the article you just clicked — actually eliminates the need for bitcoin at all. If you’re happy to pay four cents an article or two cents a song, you can set it up to bill once a month from your bank account and read to your heart’s content. [...]
In terms of interbank payments, many people mention Ripple as a promising way to transfer money between banks. [...] Why haven’t banks preferred this new technology? The answer is that setting up a Ripple Gateway isn’t actually much different than using the existing corresponding-account system — except that a lost password or security token can lead to much larger and more instant actual losses — which, as a reminder, has happened to more leading bitcoin exchanges than have managed to avoid it. The same features that make the banking system attractive to end users also make it attractive to banks. They already have ledgers, and don’t need to distribute them, anonymize them, encrypt them, publish them, and make them irreversible.
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