San Francicso-based Stripe, a company that offers API-based payment systems, has published a blog post examining how it sees the market for bitcoin developing.
Titled “Bitcoin: The Stripe Perspective”, the article examines what it may take for mainstream consumer adoption to ignite for digital currency.
The blog explores bitcoin’s possible use as a tool against high-inflation currencies, among other topics that relate to the concept of global payments infrastructure. Beyond that, however, consumer protections remain a major unresolved issue and a barrier for bitcoin.
Stripe is no stranger to digital currency. Back in March, Stripe announced that it would be testing bitcoin payment support. To date, the company has raised over $120m from venture capital firms such as Andreessen Horowitz, Khosla Ventures and Sequoia Capital.
The post, written by Stripe CTO Greg Brockman, whom CoinDesk recently interviewed, states in the introduction:
“Many people have remarked that bitcoin resembles the Internet in the early 90s. So it’s an open question: what might a bitcoin that’s useful for the mainstream look like?”
Yet despite potential obstacles to broader adoption, Stripe posits that digital currency and the underlying technology could be a valuable tool in solving some of the key challenges in payments today.
Purpose enables adoption
Brockman’s post indicates that, for the time being, most people in countries with stong fiat currencies have little incentive to switch to bitcoin. Yet by identifying novel – and practical – use cases for bitcoin, the technology may catch on throughout the world.
“Consumers mostly want a safe place to hold their savings, and the existing bank account insurances and consumer protections [in stable currency countries] have set a high bar,” he wrote.
However, as Stripe suggests, there is a huge upside for countries that have inflationary problems with their currencies. Examples of high-inflation economies in 2014 include Argentina, Venezuela and Iran.
Citizens of countries that must use high-inflation currencies have an incentive to find more stable monies. Stripe sees bitcoin as a possible tool for a situation like this, owing to the digital currency’s international profile.
Despite bitcoin’s reputation for being volatile, some fiat currencies like the Argentine peso are even more erratic than BTC. These fluctuations can hurt long-term usage for unstable currencies – and boost the potential value of using bitcoin.
As well, digital currency can help dissolve antiquated border and capital control issues related to money transfers. According to Stripe, bitcoin presents a chance to rejuvenate the world’s payments infrastructure.
The post notes:
“Traditional payment systems look a lot like computer networks before the Internet. Cryptocurrencies have given us a real opportunity to solve these problems.”
Access via gateways
Stripe believes that the best way for people to be introduced to bitcoin is through gateways that specialize in digital currency.
Gateways, in theory, would be operated by financial companies such as payment processors. They would be responsible for handling some of the consumer protection and legal issues related to bitcoin.
This idea of gateways is similar to a system currently in use by Ripple Labs. That company’s plan is to allow third parties like banks to connect to its payments and smart assets protocol with what it also calls gateways.
The key difference between bitcoin and Ripple Labs is that the latter supports a wide number of currencies; bitcoin is the only option on its network.
But the post cautions that gateways won’t likely prove to be the real igniter of digital currency. Stripe noted that Ripple Labs and another alternative called Open Transactions have “failed to win the necessary user support” that would lead to broader adoption.
Bitcoin in the broader market
Comparing bitcoin to current payment processors such as Visa, Stripe believes digital currency offers a worthwhile way to move money and a system for validation built upon a set of rules. The combination of cryptography and decentralized transaction certification infrastructure represents a novel concept that has not yet been integrated with major payment networks.
But, in the end, it is Stripe’s opinion that bitcoin fundamentally lacks the proper consumer protections that would make it a viable competitor to companies like Visa.
The post states:
“Unless we solve decentralized reputation, the bitcoin ecosystem will see the emergence of a few centralized consumer ‘trust providers’.”
Click here to view full article