Bitcoin, credit cards and PayPal are not the same

To most people, words like cash, currency, money, moolah, credit, loot, greenbacks and shekels are interchangeable. But they mean different things. Would a future money media cheat sheet be helpful?

Well, Bitcoin has been in the news. I mean the real news, not the sort of news that I spend my days with.

Almost one in 10 of the world’s Bitcoins disappeared during the collapse of Mt Gox, it has been claimed.

[From Mt.Gox has VANISHED. So where have all the Bitcoins gone? • The Register]

This is a fabulous story and, unsurprisingly, the media have been all over it. At the Mobile World Congress in Barcelona, I went along to see my old chum Jon Matonis of the Bitcoin Foundation on a panel about innovation. When the panel finished, he was absolutely mobbed by journalists!

Their questions were not about, for example, the efficiency of the cryptography used in the distributed proof-of-work protocol or the potential uses for scripting in future implementation. The media attention is on Bitcoin the currency (XBT), not bitcoin the protocol. So what’s the big picture here? What do the Mt. Gox antics mean for the long-term evolution of crypto currency? Well, as far as I can tell, the answer is: almost nothing. This might mean a hiccough for XBT (although I’ve always been sceptical about XBT as a player in the mass-market payments space) but not for bitcoin technology and not for the family of cryptocurrencies to come. There is no point in me posting exactly the same analysis as someone who is an expert in the field, so let me point to what David Evans said about this:

Bitcoin is based on a several brilliant technological innovations. It is possible that those innovations will lead to the development of a software platform that facilitates more efficient financial and other transactions among businesses and people.

[From 2014 – Bitcoin’s Real Problem Isn’t Mt. Gox | PYMNTS.com]

David is almost certainly right about this as I have repeatedly written.

Unfortunately, Bitcoin and many similar digital currencies have a two fatal design defects that will prevent them from succeeding as the cryptocurrencies they want to be.

[From 2014 – Bitcoin’s Real Problem Isn’t Mt. Gox | PYMNTS.com]

David is almost certainly right about this too. The bitcoin family of protocols (let’s call them “altcoins” as an inclusive term) will be used to build great new financial services around transaction systems, but cryptocurrency is almost certainly not one of them. This is not to say that I am a cryptocurrency sceptic – I’m not. I can see many reasons why people might prefer to trade in community currencies, to store value-based currencies, to put energy-based currencies into their pension plans and so on. Given the incredible new technology platforms, it would be amazing if money remained fundamentally unchanged. It didn’t in the Agricultural Revolution, it didn’t in the Industrial Revolution and it won’t in the Information Revolution. But that’s another point. David was making a series of informed and perceptive observations on XBT, not on a future altcoin-based e-Dinar or a future Kiva (a currency based on renewable energy).

Anyway. Back to the mainstream. The ramifications of the Mt. Gox Bitcoin tribulations extended as far as the BBC inviting me on to the “World at One” to comment on situation. (A situation, I might add, that remains unclear.) What happened, as the story at the top of the page says, is that much of the Mt. Gox moolah appears to have evaporated and some sort of crime has undoubtedly occurred. Although what that crime might be and who the perpetrators might be is far from clear at the time of writing.

So I went on the World at One and made a few comments about the situation and thought nothing more about it, until I received an e-mail from Simon Platman, who said:

Just been listening to you on BBC R4 saying there are plenty of other virtual currencies to bitcoin like, say, paypal.

This didn’t sound right to me, since I wouldn’t have said that bitcoin is like PayPal, so I went back to listen to the extract and what I said was this:

There are lots of different kinds of virtual currencies. Bitcoin is only one way of implementing electronic money. There are hundreds of others, ranging from the credit card in your pocket to PayPal and so on.

As far as I am concerned, this is to a first approximation correct. There are lots of different kinds of virtual currencies. This is true. Bitcoin is only one way of implementing electronic money. This is also true. I did not intend to convey the idea that virtual currencies an electronic money are the same thing. But Simon raises an interesting point.

But what about the tens of thousands of listeners not as savvy as me who now think Paypal and Bitcoin are the same? Aren’t guys like you supposed to be “Thought leaders in digital money and digital identity”, which is why you get invited on shows like PM – because you’re supposed to know your stuff?

Well, indeed. And I would not want to mislead the public and certainly wouldn’t want PayPal users to panic and think that their money might be stolen by hackers at any time. But Simon made me think: should we “experts” be more careful in our choice of words around the general public, or doesn’t it matter? To people like me, or possibly only me, all of these word and phrases have very specific meanings. To me, electronic money and electronic cash are different. To me, virtual coins and virtual currencies are different. To me, complementary and alternative currencies are different. To me, an offline pre-authorised debit card is not the same as a prepaid card. And such is the tragic trajectory of my life, I know perfectly well that PayPal and credit cards and XBT are all utterly different, but I am comfortable with the umbrella term “electronic money” for all of them. But am I right to be?

I thought we might have discussion about this in a coffee break at our annual Tomorrow’s Transactions Forum, which happens to be next month (run, don’t walk, to book yourself a delegate spot while there are some left), so I’ll invite Simon along to see if we can, between us, agree a common lexicon of sufficient brevity and wit to merit a briefing for interested media types. Any suggestions for the “five key terms” gratefully received.