Microsoft now accepts Bitcoin. It’s all over the news. This is how this will play out. After six months or so Microsoft or another large tech company will acquire Bitpay for some insane amount of money, and then use their position in the market to push Bitcoin in every major retail channel and service they have. Of course Bitpay doesn’t actually do anything that your software couldn’t do automatically for you (and will), the dirty secret is that all Bitcoin payment processors are just order routers to exchanges in disguise with a payout back-end via ACH or some other established local payment method. The topology of Bitcoin payments is much more akin to trading infrastructure and financial services than it is to existing payment rails, and is in many ways less complicated than the legacy systems currently churning through payments.
It seems that whenever new technology comes along we have an arms race of companies trying to establish themselves as the defacto players. Bitcoin is no different in that in every country we are starting to see remittance and payments companies that pop up and perform one of two functions. They take your money and convert it into Bitcoin, or they take your Bitcoin and convert it into cash. They do this through local exchanges or by matching buyers with sellers within their own systems. Maybe they also let you link with some local payout options, or connect to an ATM machine or other point of sale device, but ultimately they are performing the same basic functions. It reminds me of the old WHO lyric, meet the new boss same as the old boss.
I’ve stated before how Bitcoin is the new Forex, but it has one property that really differentiates itself, and I think ultimately invalidates the model of most companies trying to establish themselves as the new middlemen. It is programmable money. That is a phrase that is thrown around a lot, it’s hard to pin down, what does it mean anyway? To me it means the ability to write programs that control the spending and flow of money, functionality that up until now has been largely provided by middlemen and embodied in third parties. Ten years ago you needed someone to “process” your transactions. To validate that it happened, record it in a database, and inform all of the parties through settlement what actually occurred. This still happens to a large extant across industries. The reason you needed these middlemen is that they created a proxy for trust, a framework where people could purchase services from providers without having to have any real relationship with them. So long as we mutually agreed to trust the credit card company, or the payment processor the exchange was facilitated. Bitcoin doesn’t require trust, and when it does each party can agree to trust different people. I may trust Exchange X to trade out my Bitcoin for dollars, and you trust Exchange Y. We don’t have to mutually agree on anything in order to facilitate payment.
Similarly since the flow of Bitcoin is software controlled, why do we need middlemen to handle the transaction? Why can’t the software embedded into your website facilitate the trade-out to cash itself? Lets look at the Bitpay model. They build a plugin for your e-commerce site that interfaces with their payment back-end. When they see a Bitcoin payment they notify you and the purchaser of a successful transaction, sell the Bitcoin on an exchange, and transfer the money to the merchant. They wrap that up with insurance and a big float so they don’t have to sell immediately and you have a money transfer business. The thing is, none of that functionality needs to be centralized. Alternatively your website could simply wait for the Bitcoin payment, trade it out on an exchange you trust, and initiate a payment via a method supported by the exchange to your bank account. Pretty easy, and something you can imagine being baked right into open source software.
Why can’t someones wallet directly do that? This quickly leads us down a rabbit hole where every consumer has the ability to directly deposit their money into investment vehicles they trust without middlemen. I don’t need to pay someone else to do cash settlement if the code running my website can do it automatically. I don’t need a special relationship with a select few companies if anyone can give me Bitcoin for cash. What we see is a proliferation of models that are replicating how payments have worked for the last twenty years when we are on the cusp of a payments topology that is completely different.
Decentralized computing and programmable money are here. Its time to embrace the new capabilities we have instead of shoehorning them into the existing models. The same way open source has completely taken over computing we can expect that same system to take over payments, and financial services. What we need is interoperable open systems (like open transactions) and the Bitcoin network to link our software systems together. Exchange and third party processors need to start speaking a unified API so that we can blow the possibilities wide open.