Posted by on Jun 6, 2014 in Bitcoin, Dogecoin, Litecoin, Programming, Startup, Virtual Currency | 0 comments

I’ve been following Bitcoin since mid 2010. It was particularly interesting to me at the time as my company was processing high-risk payments; high-risk payments which Bitcoin seemed to be ideally suited for. Since then I’ve mined and traded (terribly) Bitcoin and a bunch of other cryptocurrencies like Litecoin and Dogecoin. A few weeks ago I published a document on securing virtual currency applications based on my experience in traditional payments and building applications. Late 2013 and early 2014 had been frustrating times to watch scammers and incompetence dominate the cryptocurrency landscape only to, predictably, fail a short time later. If cryptocurrencies are ever going to succeed they will have to do better, much better.

Enter CoinIn. CoinIn allowed Canadian customers to purchase small amounts of Bitcoin, Litecoin and Dogecoin online using familiar payment options.

Subsequent iterations of CoinIn would have added merchant services and API’s to effectively ‘end-to-end’ transactions. At launch it would have been purely a wallet offering Bitcoin, Litecoin and Dogecoin for sale. It was to close the gap on quality by applying proper application security and compliance practices, as well as enabling regular consumers to bypass much of the complexity in dealing with cryptocurrencies on their own. It had payment options sorted and integrated, was on the road to being a registered money service business in Canada and had banking, at least for awhile. It also had $500,000 of seed funding available but it only pulled a small portion before I came to the decision it wasn’t the correct approach. The project has since been sidelined. Not killed, just sidelined.

The issue is, at least right now, there is no compelling reason for a mainstream consumer to exchange fiat currency (dollar, euro, peso) for virtual currency. Note that I said mainstream consumer, not speculator, libertarian or anarchist. I do agree that cryptocurrencies offer benefits not available with traditional payment methods, but most mainstream consumers don’t care. Top that with huge volatility, low (but increasing) merchant adoption, very little to no consumer protection and difficulty of use, and there is now a huge barrier to mainstream acceptance (at least for individuals in countries with reasonably stable economies). If you aren’t in a country with a reasonably stable economy, or are in the market for items that can’t be acquired with traditional payment mechanisms like credit cards due to legality or ‘moral blockades’ (read: pornography), virtual currencies are showing their value, which is nothing to scoff at; pornography gave us E-commerce. Years ago I used to joke with friends and co-workers saying gaming and pornography drove technology.

These issues will be solved over time as proper regulation, consumer protection and volatility all fall into line. What most people don’t seem to understand is that the current incumbents in the space aren’t just going to roll over and die. If cryptocurrencies break into the mainstream you will find traditional banking and payment processors will just enable them as payment options. Why wouldn’t they? They added credit cards, debit cards, Swift and even explored some of their own payment technologies like Interac here in Canada. At some point, assuming cryptocurrencies survive, your bank will offer a Bitcoin, Litecoin, Dogecoin or similar account, just like they offer you a CAD, USD or EUR account. IMHO this is what will define mainstream adoption. All the current virtual currency players at the time will either be acquired (Coinbase, BitPay, CoinKite) by large traditional institutions looking to move into the space or go out of business. This is what the VC firms are betting on. Either a large IPO or a large acquisition; one that gets them 10x return or greater. Unfortunately in this scenario, and at this time, there is very little room for a $500,000 wallet from Canada. There was room back in 2010, just not now.

I’m not disappointed though, and in fact I think I dodged a bullet. When you break it down to its fundamentals paying with Bitcoin is the same as paying with dollars or trading bartered goods (like a chicken). What most people overlooked initially, but are now coming around to, is the core piece of technology that enables cryptocurrencies, the blockchain.

The second half of 2014 will be interesting to see what materializes with the various technologies using cryptocurrency blockchains for other things.

Update: Visa Exec: Our Network Could Support Bitcoin Payments