Jeffrey Robinson was basically my first introduction to Bitcoin. He spoke at a small conference in NYC, or rather ranted about Bitcoin being a hoax perpetuated by "libertarian anarchists". He told the audience that if we wanted to learn more, to buy his book
Bitcon which I promptly bought. I come from the electronic payments and non-bank lending industry and Bitcoin was something I had been hearing about for a while. Basically, he's the one that convinced me to finally learn about it.
So I read the book and learned a lot but ultimately I felt some of his arguments missed the mark. The traditional payments industry is already a disaster. This is how many people get paid when you buy a cup of coffee with a credit card:
*The small business owner
*The small business owner’s merchant account representative
*The merchant account representative’s company (the ISO)
*The payment processor (the processor settling the transaction)
*The acquiring bank (the payment processor’s bank that is authorized to use the payment networks)
*The payment networks (Visa, mastercard, etc.)
*The customer’s card issuing bank (The bank that issued the card to the customer gets a percentage of every sale made with that card)
*The state (where there is sales tax)
This is at a minimum. There can be additional layers depending on the card type. Also I suppose the small business owner can't even get that deposit unless they have a bank account so there are other ways bankers make money. For a $1 cup of coffee, this sure is a lot of people getting paid.
I sold credit card processing accounts (merchant accounts) for several years. You can win a sale just by saving the business owner 10 basis points on their card processing. Bitcoin can save entire percentage points. That made me say
wow because it's really disruptive. Many of the mainstream disruptive payment processors of today aren't actually disruptive. They might cut one party out of the layer like the ISO and market directly to the merchant. Big whoop you might say, but it's had the payments industry on edge for years. Payments professionals and their trade groups have been freaking out because just 1 banker in a chain of 6 that are used to getting paid might be phased out by something "disruptive." Imagine phasing out all 6 bankers? Now that's
disruptive!There's an upside and downside to Bitcoin, and that's no chargebacks. If I send you bitcoins and you don't send me what I want in return, I can't call my bank and have them confiscate bitcoins right out of your bank account. Good for you, bad for me.
In traditional payment processing, if I dispute a charge on my card because you wouldn't give me a refund, your card processor will just debit the money out of your account unless you can prove without a doubt that I got what I paid for. That's a best case scenario because banks can and often do just freeze all the business owner's processing revenues when there's a chargeback dispute even if what they're freezing is way above and beyond what is being disputed. A $100 dispute can freeze up thousands of dollars in funds so that card processor can proactively "protect" itself in case other disputes should occur. I've watched clients get crippled by processors freezing their funds. And I'm not talking about illegal offshore drug businesses, I'm talking about mom and pop retail such as family restaurants.
In one of my experiences, a restaurant with an average transaction size of $80 catered a huge party around the holidays for which they charged $5,000. The processor thought it was too high compared to their average and froze the $5,000 in addition to all of their revenues going forward. They had to spend weeks trying to convince the processor that it was for a catering event. That meant humiliating themselves and getting their high paying customer involved in it. The customer had to submit affidavits to the business's card processor that confirmed they paid for a party and accepted the costs. Even then the processor didn't want to okay it. They told the business they wanted to cancel the charge altogether and the business was just going to have to deal with the customer paying them in cash. It was a nightmare.
And you want to know what? I dealt with these issues all the time. This is standard operating procedure. You blink for one second and the processor blows you up. First transaction I ever did with Square was sell a magazine advertisement and Square told me they were keeping the money (more than 2 grand) for at least six months and that I was banned from using their services in perpetuity because my business model might be high risk. Of course when they discovered the magazine covers the payments and lending industry, of which they're a part of, they reversed everything and paid me immediately. Had I not been in that position, they would've stolen the money as "protection" and left me with no recourse to get it back.
Banks do have real chargeback risk and they do need to be cautious and alert. I've seen them get burned on fraudulent transactions they didn't freeze. But when I can't do business with the guy standing next to me without six bankers deciding it's okay, it has to make you wonder. Everybody on Wall Street has to get a cut out of me buying a cup of coffee at 7-11.
Now I've been one of those bankers in a layer of six getting paid a cut of every card transaction a business does. Had I still depended on these accounts for a living, I'd be terrified of Bitcoin.
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This is all part of my point. There are those that claim Bitcoin doesn't solve any problems and then there are those like Jeffrey Robinson that say Bitcoin is a scam with no need or use. He swung and missed. You will notice this is my first post and I know I'm late to the game here. I run the official forum and print trade magazine for a growing non-bank lending industry (dailyfunder.com), have attended the bitcoin center in NYC, have heard the Winklevii twins speak at a conference and just recently began dabbling in mining using some rather weak equipment. I'm doing it for the learning experience and as a hobby I suppose. How can one criticize something they've never tried? They can't. That's why I like getting my hands on everything.
I have bought Bitcoins from Coinbase and used some of them to buy a new monitor on Overstock. It's my impression they didn't pay the 3% in fees that their card processor would've charged them. I'm still waiting to see what the scam is...
Sure, there's a good portion of the Bitcoin crowd that are cultish lunatics. Anarchists? sure. Libertarians? Yup. Speculators and those hoping to get rich? Yes, they're all here in some capacity and so what? Revolutions bring out revolutionaries.
I think mainstream adoption of Bitcoin the currency has challenges for those who can't imagine a situation where:
- There is no FDIC if your bank blows up
You can't dispute a charge and forcefully confiscate the funds back
Those are hurdles, not road blocks. Besides, Bitcoin doesn't have to be for EVERYONE, nor does it have to replace the dollar. Bitcoin the currency has a place alongside fiat. Don't listen to Jeffrey Robinson.
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