All Things to All People: The Rise of Bitcoin Universal Services
As Bitcoin edges ever closer to mainstream consumers, its interface is changing to provide maximum convenience to those who transact.
As Bitcoin edges ever closer to mainstream consumers, its interface is changing to provide maximum convenience to those who transact. Like the evolution of Internet payments 15 years ago, the Bitcoin ecosystem is quickly shifting towards ease of access and effortless use when it comes to attracting prospective users.
The changes are happening apace. Already gone are the days of multi-step, unintuitive exchanges and unreliable processes. Now, Bitcoin businesses who deal in customer funds are obliged to have in place a raft of security and compliance measures in order to appeal to the mass market. They must also be as simple as possible to use and crucially offer all the flexibility of use that makes Bitcoin appear as ‘useful’ a transaction medium as cash or a credit card.
Bitcoin Universal Services
Enter Bitcoin universal services (BUS), those businesses providing not just an exchange or not just a wallet, but merchant payment processing services and even add-ons such as debit cards linked to their own infrastructure.
While still less common than the vast number of operations offering such services separately, BUSs are unique in offering a one-stop shop for users and merchants and in so doing have a vital role to play in ‘closing’ the Bitcoin ecosystem.
Perhaps the best-known operator in the BUS field is Coinbase. With a global presence and reliable tools backed by a conspicuous amount of investment from its big-name supporters, its ability to provide a consumer exchange, wallet and merchant acceptance solution is continuing to prove immensely popular.
“Our goal is to become the world’s largest exchange,” CEO Brian Armstrong said upon the release of Coinbase’s exchange facility, the first fully-licensed operation in the US.
The advantages of having an integrated multi-tool solution are of course clear. The user has a wallet and exchange in one place, with the specialized processes ensuring funds are handled securely despite the high profile of the host. Both user and business also benefit from the security of having the same operator deal in all stages of the B2C transaction process.
There is, however, a drawback. With much power comes much responsibility, and it is the way in which Coinbase, as a form of ‘test case’ for the major go-to service in Bitcoin, has handled issues of customer data and centralization which has become the subject of mounting criticism.
The company’s regulatory stance has also caused friction with the cryptocurrency community. Cases such as the recent altering of its terms and conditions to allow retention of user credit histories led commentators to treat Coinbase with suspicion rather than encouragement. Fears of a ‘too-big-to-fail’ company, in the wake of Mt. Gox and the threat of 51% mining attacks, are still present in the Bitcoin community.
Smaller scale for the greater good
While the dust continues to settle, other providers are stepping up to provide the same and even more comprehensive user and merchant packages on a smaller scale. Hong Kong-based ANX has been offering an exchange, wallet and associated debit card for the past year.
In Europe, UK-based startup SpectroCoin has been offering the same features since 2013, recently with the interesting addition of non-bitcoin spending; users can pay in bitcoin using funds from their wallet stored in fiat currency (euros).
The move is designed to address volatility issues, which can cause unexpected results during PoS transactions.
“If Euro wallet is chosen, an exact amount of bitcoins required completing the transaction is exchanged and the transaction is sent to Bitcoin network,” a press release from SpectroCoin released this week explains about the new payment format.
CEO Vytautas Karalevicius believes that in future, there should be around twenty BUS operators around the globe, each with a 5% share of the market. A setup such as this would maintain the health of the ecosystem, instead of having a single dominant player like Coinbase creating more centralized conditions, much like PayPal in fiat payments. SpectroCoin, which has sustained its own growth without VC funding, is hoping to strike this balance.
Cointelegraph reached out to Karalevicius for his take on the developing BUS model, its advantages and challenges facing key industry players in the current environment.
Cointelegraph: Bitcoin universal services are less numerous than those offering just one or two products such as wallets or exchanges. What do you think the benefits for consumers and businesses are of using an overarching company rather than several different ones?
Vytautas Karalevicius: Firstly, the answer is based on a misconception of bitcoin being a free method of payment. Yes, it is cheap and quick, and it is absolutely dominant to other payment methods if we compare by speed/price ratio, however the more blockchain transactions are involved (from exchange to wallet, from wallet to merchant), the more expensive use of bitcoin becomes. Therefore, using the universal service provides a number of transactions are done off the chain, so clients can achieve cost savings.
Also overarching companies like SpectroCoin can offer better rates as they have both buy and sell sides inside the house, while solely merchant service providers are dependent on third parties to exchange bitcoins to fiat on behalf of their clients, which adds additional costs.
CT: Coinbase is a good example of such an operation, but they have faced criticism about data handling and centralization. What do you think about that? Can you have a company control many facets of the transaction process without users giving too much trust away?
VK: The answer cannot be universal, as it extremely depends on the domicile of the service provider, for sure a company in US will have stricter data handling requirements than practically any company registered outside USA. For sure, Bitcoin companies as any financial company should secure the privacy of their clients as a "bank secret." However, using universal service providers is not a take it or leave it option. Clients can only use one or couple of services service provider is offering and diversify his trust among several different service providers.
Regarding centralization, the beauty of Bitcoin is its decentralization and it has to be decentralized at every level of its ecosystem: mining, exchange, wallets and etc. If there would be only one dominant mining pool, bitcoin would not be decentralized anymore, also if there would be only one dominant exchange such as Coinbase, it will become more like PayPal with having a lot of off chain transactions and become a closed payment system. Eventually that kind of exchange would be too big to fail, that's why there has to be several small-medium size bitcoin service providers globally, so even if one or two of them fails, Bitcoin as a concept would not be affected.
“[P]eople should use other email service providers not only Gmail in the same way people should use different Bitcoin service providers.”
On the other hand I see Bitcoin as a protocol, like an email and the service SpectroCoin provides are Bitcoin web client with additional features such as exchange it is very similar to a thing Gmail does for e-mail. So as for email to stay decentralized people should use other email service providers not only Gmail in the same way people should use different Bitcoin service providers.
CT: Can you tell us more about the future plans for SpectroCoin as a universal provider?
VK: Our key future plans are introducing additional currencies both fiat and digital, so we could follow our idea of allowing our clients to split three fundamental properties of money apart (to use Bitcoin as a medium of exchange, Euros as method of account and some other asset class as a store of value).
We are also aiming to become first European BUS with debit cards issued for clients. Currently our project, Spectrocard, is in a beta stage without bitcoin offered as a deposit option as we are testing our debit card system with more typical users at the moment. We are working for additional cash deposit options in the near future.
Elsewhere, we are expanding our merchant network both by ourselves and through partners, so soon there will be a wide network of locations accepting bitcoin in our region. Also, we have introduced vouchers, which can be used for non-digital off chain transactions among people.
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