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Bitcoin, and the wallet wars.

Bitcoin was an experiment. Conceived as one of the first crypto-currencies, described first in 1998 by Wei Dai on the cypherpunks mailing list. Bitcoin, introduced in 2009, is designed around the idea of using cryptography to control the creation and transfer of money, rather than relying on central authorities. So in the Bitcoin world there is no central authority. The currency has a value, secured on the idea that the supply is limited, and new coins are mined over time, with coins divisible to ensure more widespread usage can be achieved. We can have 21 million Coins. The currency can be freely traded and spent. Transactions are cheap, or often free, And transactions are irreversible. Wikileaks, La Cie and The Internet Archive all accept Bitcoin as payment method.

Recently, Bitcoin Central partnered with Aqoba in France and will be able to provide what will bea form of a cash specifi accounts with an IBAN number, therby allowing Bitcoin funded transactions access to the international banking system. An exciting innovation, powered by open-source software and administered by a decentralised network.

Virtual currencies have had their nay-sayers though – citing money-laundering and contraband goods as reasons not to embrace virtual currency, It’s not just government agencies who may be dubious though as established online payment providers see a huge threat to their growth as smart device ownership soars.

Payment companies like PayPal and credit-card companies like VISA and Mastercard must be feeling threatened. Their investment in technology is significant but their spend on brand building and creating customer confidence in their brand and mechanisms is  greater still. They’ll be keen to see off the challenge of a what they well term an insecure, unbacked concept.

A decentralised network like Bitcoin with a true peer-to-peer payment mechanism could  enter widespread use, but security of funds will always be at the heart of any public scepticism. Also, the ability for your virtual currency to have ‘real-world’ value will be a challenge for any on-tangible currency. But an NFC enabled device with access to your Bitcoin account or ‘holdin’; could counter that objection. If peer-to-peer currencies can’t capture a wide market, and many vested interests will try to hinder this growth as much as they can, what alternative could succeed?

If you were a technology company with an own or co-branded device and content ecosystem you could create an alternative currency. If you had a smart phone or tablet with NFC that could be used in real-world shops your ‘currency’ could have even more adopters. If you had billions of dollars of cash reserves in the bank, consumers and retailers would trust you to settle or complete transactions. Maybe you’d decide to give your currency an exchange rate, so it doesn’t just provide consumers with a dollar, yen or euro account, but it is valued against them. You protect your consumers against inflation and they always know what purchases are going to cost on your ecosystem. maybe if they depoist $100 a month into their account and always keep their balance at a certain level, you’ll reward them with credits every quarter. Consumers will like that and give you more of their disposable income, maybe even having their companies pay their wages direct to you. More currency available inside your ecosystem – encouraging more retailers and service providers to accept your currency as a method of payment. Of course, you’d need to be very tech-savvy, consumer oriented company to make this work. With those billions of dollars in the bank. There aren’t many of them. But there’s a few.

“And what would you call this currency? I’d call it a Personal Internet Payment System. Hmm, an acronym would be nice. PIP$.”

Paymium, the company behind Bitcoin-Central has partnered with Aqoba, which is a registered PSP. This allows Aqoba to keep funds on behalf of third-parties in payment accounts (“comptes de paiement”) which are different from bank accounts (“comptes de dépôt”). The difference between these is that funds deposited on a payment account may not be used for investments or loaned out. These accounts have no overdraft capabilities but will will soon get their own IBAN number and be able to be associated with a debit card, but remain distinct from what is legally referred to as a “bank account”.

There’s a a lot of vested interest who won’t be keen on the growth of currencies like BitCoin – banks and payment companies are under direct threat – governments will be concerned about tax evasion and ease of fund transfer for illicit transactions. So don’t be surprised to hear negative views on virtual currencies – but the consumer will decide – and a small group of tech-savvy consumers have got us this far.

External links & references

  1. bitcoin.org
  2. Bitcoin and Europen banking approval @ Guardian Tech Podcast
  3. List of virtual currencies : Redcert

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Andy O'Donoghue talks about technology, some say, too much.

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