Bitcoin, the anonymous peer-to-peer digital cash token, has captured the attention of the press because it combines a mysterious story (who created Bitcoin) with a great”David versus Goliath” story as the U.S. government attempts to regulate the bitcoin startups. This post isn’t concerned with theseissues; instead, we look at several unique capabilities of bitcointhat drive substantial cost out of the payment system. Embracingthese unique capabilities of bitcoin could greatly benefit anypayment network.
Bitcoin Implementation Overview
Like everyone else, I’ve been thinking about bitcoin. Probably unlike everybody else, I’ve been considering how the software algorithms that make bitcoin operate could be used by a merchant to simplify their current increasingly complex and costly gift card environment (Mercator will release a report in February detailing these complexities that have evolved as new channels and new technologies have been deployed across an ever-increasing number of third-party suppliers). This complexity is manifested in complex settlement processes and data located in too many locations to be easily and cost-effectively harvested to create even basic reports.
Bitcoin Attributes Perfect For Gift Cards
Driving my thinking process was the extreme simplicity of a bitcoin transaction since there is no settlement to speak of: using a Bitcoin is like handing over cash. Once I started to think this way, I developed a list of the six key benefits that an issuer would derive from a modified closed-loop version of Bitcoin. You can read them in the private version of this blog on MercatorAdvisory Group’s website (Prepaid and Emerging Technology members need to be logged in).
Implementation
So how would a merchant implement a private version of a bitcoin? Well, there are already several public derivatives of the Bitcoin algorithm (for example, the Ron Paul Coin), but these are all designed to be used at multiple merchants. When a bitcoin is”traded,” a message is sent to test the validity of the bitcoin being spent (through the public blockchain). In the public version of bitcoin, this is done anonymously through a highly distributed network (established by bitcoin miners), which is the opposite of what a merchant needs for a closed-loop gift card program. Read more in the private version of this blog on MercatorAdvisory Group’s website.
