A Long, Hard Slog for Bitcoin
I have often expatiated at length on the difficulties that NFC stakeholders face in persuading the public to adopt NFC. They have to have handsets that can NFC payments; they have to know they have handsets that can make NFC payments; they need to know how to use those handsets for NFC payments; they need to be convinced that they should make NFC payments as an alternative to cash or card payments; and so on.
Well, those difficulties are as nothing when they’re stacked up against those faced by the advocates of Bitcoin as they attempt to achieve the same goal. If the consumer journey for NFC is a hard slog over cold, inhospitable terrain, then the equivalent for Bitcoin has our traveller making the journey blindfolded, clad only in underwear and being pursued by assorted cheetahs, mountain lions and wolves. While also under heavy weapons fire.
A variety of problems
The problems are many, varied and mutually reinforcing. To begin with, while most people will have heard the word “Bitcoin” bandied around in the media, few of them will know what it actually is. They will have a vague idea that it is used for payment, but beyond that there will be a fair amount of head scratching. Then one or two of them will venture that “It’s used to pay for stuff on dodgy sites”, which is certainly true, although it doesn’t really take us further forward.
It doesn’t help that national governments are in approximately the same state of awareness of the head-scratching masses, with some defining it as a currency, others as a commodity, with a further group refusing to commit themselves.
A decentralised currency created by high-powered PCs cracking cryptographical puzzles, Bitcoin is not easy to get a handle on. That is the first, overwhelming problem. The second lies in its volatility. For our recent report on cryptocurrency, we tracked Bitcoin – and a basket of fiat currencies – against the US dollar between December 2013 and late-January 2015. At the end of the period, Bitcoin stood at 23% of its December 2013 baseline, compared with the Pound at 93%, the Euro at 84% and the Rouble at 49%.
When a currency makes the Rouble – given its recent travails – look a relatively sound investment, then one might hesitate to exchange one’s existing notes and coinage.
Thirdly, there is the problem that, in a decentralised, unregulated environment, Bitcoins have gone walkabout, occasionally in the digital pockets of rogue exchange owners but more often through exchange security breaches. The more high-profile breaches we see, the less likely Bitcoin is to gain mass adoption.
In short: regardless of which Tier 1 retailers enable Bitcoin payments, the public will remain wary of embracing Bitcoin unless and until these issues are addressed.
Opportunities in the settlement layer
However: having excoriated cryptocurrency for the past 460 or so words, I would now like to offer up a positive note as a finale. While Juniper are not optimistic for cryptocurrency’s prospects as a direct mechanism for payment, we would argue that it has significant potential as an enabler of payment. This is precisely the route taken by Ripple Labs. While Ripple itself exists as a cryptocurrency (XRP), its creators regard its primary potential use case as an IP-based technology that will allow banks to settle transactions in real-time via a distributed network.
By enabling real-time bilateral settlement and liquidity management for FX transactions, the protocol then opens up the potential for banks to add comprehensive transaction traceability and reporting, together with additional reconciliation information.
The public may ultimately be unwilling to pay with cryptocurrencies, but they may end up making faster, more secure payments as a result of it.