Evolution of Financial Services Technology — Part 2

There are three areas that could become severely disruptive if cryptocurrency technology is widely adopted by the populace:

1. Micropayments
2. Remittances
3. Electronic Processing of Payments

Micropayments — Changetip is one of the first tipping services online where you can tip someone else via micropayments.
Remittances — 5-10 percent to send money through Western Union, 1% or less with cryptocurrencies.
Electronic processing of payments — 2-3% per transaction; 1% or less for cryptocurrency transactions.

There are major companies accepting bitcoin and various other cryptocurrencies — Microsoft, Dell, New Egg, and Overstock .com to name a few.  There are a few local businesses in Austin that accept bitcoin — Art of Tacos is one of my favorite eateries along with several other restaurants.

The Bitcoin St. Petersburg Bowl happened over the Christmas holidays of 2014 to increase awareness of the technology. I heard that Bitpay may not be sponsoring the bowl in the future but the exposure was one of the first I had seen directed towards an audience that had little or no knowledge of the cryptocurrency.
That’s pretty sad that Bitpay will not be sponsoring again because I was able to introduce several of my friends to bitcoin by sitting down and watching the game with them and showing them how to use the cryptocurrency. After the game, we actually downloaded wallets and I shared some of my coins. We even went to Youtube where we watched some videos contained bitcoin QR address codes.  I was able to show them how easy it was to tip by scanning the QR code from the TV screen and sending a few satoshis to the video creator. Skepticism ruled the conversation but at least they were introduced to an emerging technology that will change the way we transact globally.  All of this interaction was created that day because we decided to sit down and watch a football game.

For a lot of people it’s the underlying technology of the blockchain that has a lot of people excited. Having a distributed timestamp server that verifies transactions using cryptography is ground breaking. The blockchain really solved this problem in a way that I find fascinating every time that I look at the code. Having a trustless environment where individuals or organizations can exchange value in a secure way over the internet is truly amazing.

The blockchain can be monitored by everyone but controlled by no one. Cash can can be counterfeited but digital counterfeiting is much easier. The blockchain can help prevent this counterfeiting through a distributed timestamp server and cryptography. Beware middle men — certain functions being performed by third parties could be performed by the blockchain. We will always need lawyers and bankers but their functionality in third party situations such as certain forms of arbitration and custodian of wire transfers are two examples that will be affected when it comes to this disruptive change.

There are approximately $72 billion in transaction fees and debit card fees charged annually. Credit card companies keep us on the hook by charging interest and say they are doing us a favor by giving us frequent flier miles while steadily charging us high interest rates. Remove all of that with bitcoin. I will note that bitcoin in it’s rawest form is not credit so this may be an unfair comparison on that front.

Evolution of Financial Services Technology — Part 1

Before I begin, I want to say that I am not for or against any cryptocurrency.  I’m simply a geekly little country boy who loves technology — specifically software.  And when a technology is released, I do my due diligence before mentioning it to anyone.

I was first introduced to bitcoin in 2011 but did not take it seriously until the second half of 2013.  At that time, the price was sky rocketing and rose above $1200.  The Silk Road was in the news and being taken down.  There were several bitcoin millionaires created during this time period.  I began to study the source code and it was an eye opening experience.

My studies revealed to me the possibilities that I saw in bitcoin.  If cryptocurrencies were to become a part of everyday financial activities, the technology would be very disruptive to the existing financial infrastructure.  At the very least, it would become an integral part of financial transactions in the future that would increase the speed of all financial transactions.

Over the years inventions have been created that help societies advance in many ways:
1. Printing Press — allowed the masses access to books but also gave the populace an outlet to express themselves.
2. Assembly Line — faster production and increase in quality.
3. Internal Combustion Engine — allowed us to move faster and more efficiently.
4. Internet — anyone can trade stocks, communicate, shopping, online banking: the list goes on and on.

These were watershed inventions that fundamentally changed the way we do business, learn, and educate our society.  What all of these inventions have in common is that they were very disruptive to the current state of affairs within society.

I am going to add a new invention to this list called the blockchain.
The blockchain is a public cryptographic ledger that has many uses beyond currency but bitcoin is the first application of blockchain technology.  There have been many attempts to create digital cash without a trusted third party.  The main problem that needed to be overcome was the double spend problem.  By many accounts, cryptocurrency, specifically the blockchain (the technology behind cryptocurrency) is a solution to a long-standing computer science paradox known as the Byzantine General’s problem.  This situation can be expressed abstractly in terms of a group of generals of the Byzantine army camped with their troops around an enemy city.  Communicating only by messenger, the generals must agree upon a common battle plan.  However, one or more of them may be traitors who will try to confuse the others.

Therefore, how do you effectively communicate in a trustless environment without a trusted third party?  By many accounts, the blockchain is a solution to this computer science paradox referred to as the double-spend problem.

Apply this paradox to an attempt to exchange value online.  The challenge is how to send and receive money or exchange value
without the need for a trusted third party.   How do you ensure that the same digital credit standing in for the amount being
exchanged isn’t being spent twice.

In 2008, a programmer or programmers anonymously named Satoshi Nakamoto released a whitepaper that outlined a solution to the double spend problem.  In January 2009, the source code was released.  Later that year the first bitcoins were mined.

While cryptocurrencies have issued billions worth of currency since bitcoin was launched in 2009, it has both struggled to attract mainstream adoption and also increasingly come to the attention of regulators.

How Bitcoins and the Blockchain Can Help Charities

Everyone has donated to some form of charity or non profit — whether its a food bank or someone on the corner asking for spare change for their organization, we have given to someone in need.

The thing I love about bitcoin is that microtransactions are finally feasible online and even in the real world. We can donate 5 cents, 10 cents, or 25 cents and know that the majority of that payment will go to the charity. The cost to transmit this much is a penny or less — may be even a few bits. I have used some bitcoin wallets where you can set the transaction fee.

Microtransactions with credit cards is not economically feasible unless fees are waived. I guess in theory it’s possible but the cost to transmit a microtransaction will be more than 5 cents if you are choosing to send 5 cents. That’s like the government creating pennies and it costs more than a penny to make a penny!!

We have donated to the Capital Area Food Bank in Austin, TX. They have a bitcoin address where you can send bitcoins and within minutes those coins are available for them to use. This is why we need more businesses that transact directly in bitcoin. For organizations that need capital instantly to provide services, the speed of directly getting this transaction and buying food (in the case of the food bank) means that a family will have a meal much quicker.

There are still options such as gift cards through Gyft where you can purchase a gift card with bitcoin.  An organization could purchase these gift cards and buy goods and services that do not accept bitcoin. But the quicker we can have more businesses transacting directly in bitcoin, the more robust and sold the cryptoeconomy will be in the long run and decrease the cost per transaction providing more capital to circulate in the economy.

So I am asking everyone to download a bitcoin wallet (blockchain, coinbase, mycelium are some of my favorites), get some bitcoins, and donate to your local charity that accepts bitcoin. They will appreciate the fact that you are donating with bitcoin which allows them to access those funds in minutes.

Bringing Blockchain Tech to the Masses

When I first started reading about the blockchain and bitcoin it seemed to be overwhelming.  There was a lot of information out there and like everyone else that was introduced to the technology, I did not get it and put it on the back burner.  I thought to myself how could this actually work.  There is no way that this could take off and become a useful technology.

For a few months, I simply did nothing.  I tried to mine a few times with no luck.  The difficulty was steadily increasing and I was trying to use hardware I already had in my possession.  My efforts were futile and I gave up on bitcoin and the blockchain.  There was still a lot of excitement in the news and people were steadily getting rich.  I know you have heard about the teenager  who’s grandmother gave him   a $1000.  He bought a few bitcoins and cashed out  at $100,000  and started a web education company.

When I got into technology, it was because I loved it.  And I still love it to this day.  The money has never been an objective but I have always had a steady income.  Even when the layoffs or downsizing has affected me, I have always survived and never made any career decisions for the sake of money.  I am very fortunate to see the impact that the blockchain will have on this world and I am in it for the long run.

The biggest impact I can see will be on remittances, global e-commerce,  and micro lending.  The ability to transfer value worldwide within minutes is revolutionary.  When I look into other tech such as Apple Pay and Venmo, it’s still relegated to the states.   Bitcoin is a worldwide transfer of value for a few bits.  We have never had this before.

It’s an exciting time and I am happy to be a part of the blockchain community and bringing this technology to everyone in the future.