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Why Apple Pay Is a Threat to Bitcoin

(@dannybradbury) | Published on October 11, 2014 at 15:30 BST

Apple Pay isn’t even here yet and, arguably, it’s already winning the war against bitcoin.

Like the digital currency, Apple is disrupting the payments system, but people will probably use it more than they use bitcoin.

Cupertino has carefully focused on three areas to make sure that happens: front-end experience, financial institutions, and merchants.

So what is the cryptocurrency community going to do about it?

Apple Pay’s holy trinity

Apple nailed the customer experience side. For starters, it rolled out the system with the new iPhone, and with the announcement of the Apple Watch, both of which garnered unprecedented attention from the tech industry.

It sold 10 million iPhone 6 models in the first weekend. The watch is going to sell in droves. Not all of these customers will use Apple Pay, of course. But many will. And far fewer people own bitcoin.

Then, there are the merchants. Apple snagged deals with major brands before Apple Pay was even announced. Retailers including Whole Foods, Bloomingdales, Staples, Walgreens and Subway are already signed up.

NFC POS system with phoneThe firm has also timed the system’s launch expertly: point-of-sale (POS) systems need Near Field Communication (NFC) capability to work, and POS systems that support these can be expensive.

However, many retailers will be mulling upgrades to their existing POS terminals anyway, thanks to a critical deadline next October, when US retailers will be required to use the chip-and-pin technology already available in major credit cards, as an added security measure.

If they don’t, then they could be liable for card fraud, rather than the card providers, who shoulder the responsibility today. If they are upgrading their POS systems anyway, NFC will seem like an easier decision.

On the financial side, Apple has secured Visa, MasterCard, and Amex, along with several major US banks.

Users will be drawn to the better security within Apple Pay, which prevents credit card details from having to travel through merchant networks. Apple Pay uses a token instead, to represent the card, along with a one-time dynamic number designed to help authenticate transactions securely.

Thumbs up for security

Then, of course, there’s the iTouch biometric system, which will be used to authenticate the user. iTouch may have its detractors, but is a lot better than the current paper signature system in the US (which retail clerks won’t necessarily even check), and will likely be better than PIN verification too, which as security guru Brian Krebs points out are easily skimmable.

Apple Pay may help to prevent credit card security breaches such as the Home Depot and Target thefts, which haunt the headlines on a worryingly frequent basis.

With conventional swipe-and-sign credit card systems as used across the US today, the card vendor is responsible for the data on the card’s magstripe. With Apple Pay, the merchant POS systems needn’t see the credit card at all.

New tricks, same old dog

All of this will be sweet music to banks, merchants and retail customers alike. It’s like nails on a chalkboard for the bitcoin community.

For starters, as some have already said, Apple’s partnership with the banks and payment processors still puts the incumbent system firmly in control. The only thing that really changes is the payment channel.

Apple Pay is therefore still anathema to bitcoin’s mission, which involves disrupting centralized control in the financial industry and returning real financial control to the user.

If the bitcoin industry really wants to take on Apple Pay, it has to reinvent itself.

Second, Apple is beating bitcoin in terms of the customer experience. Its ecosystem is exceedingly user friendly and customer focused.

The company has spent years perfecting a design and user experience language that is second to none in the tech business, and, whenever it turns its attention to an existing business model, it brings these tools to bear, recrafting entire industries in its own image.

People understand Apple phones, and thanks to Jony Ive’s team, they will quickly understand the Apple Watch. Moreover, they will crave these devices.

Bitcoin, on the other hand, is still striving for mainstream adoption. Notwithstanding positive news from the likes of PayPal, Circle, and Stripe, the concept is still opaque to many. The market for wallets is fragmented, and scandals like Mt Gox still scare many away.

By its very nature, bitcoin is a grassroots movement. It doesn’t enjoy the same top-down organisation that Apple does. That means that design, user experience, and security are inconsistent across its many implementations. That makes it hard for mainstream users to understand.

A craving for control

iPad with Steve JobsApple’s ability to control every detail of the user experience is also the source of one of its biggest threats: it is an inherently fascistic company. A penchant for total control is a dangerous thing in a company that likes to reinvent entire industries.

Ever since the early 2000s, if not before, Apple has thrived on locking people into its ecosystem, and it excels at cementing this structure up and down the supply chain. We saw this with the launch of the iTunes store, which Apple integrated with the iPod and iTunes products upon its launch in 2003, signing deals with the major labels.

Jobs admitted this fact not long before his death, explaining in an internal 2010 email that he wanted to “explicitly lock customers in Apple’s ecosystem”.

Apple has used its hardware and software innovations to strongarm companies – and customers – into deals. In 2010, shortly after the launch of the iPad, it made magazine and newspaper publishers wanting to sell subscriptions via iPad apps subscribe to an agency model, in which it kept all of their subscriber and credit card information. Even Rupert Murdoch had to capitulate.

Apple also agreed to pay $450m to settle a civil action lawsuit, after it was shown to have engineered retail prices on ebooks in collaboration with several top publishers, using the power of the iPad.

Since its App Store emerged, Apple has been infamous for the strong and often ambiguous control that it exerts over its ecosystem.

Although its policy on virtual currencies changed in June, leading to the launch of several bitcoin wallet apps for iOS, the fact remains that the fortunes of App Store vendors – including those offering bitcoin wallets – are entirely subject to Apple’s whim.

The struggle ahead

So, Apple Pay will probably succeed, as customers flock to it, unaware of the control that they are giving up, and of the benefits that bitcoin could offer. History has shown repeatedly that the majority will trade control for convenience. If you have any doubts, just look at Facebook.

There are positive upsides, perhaps, if you squint. Yes, perhaps Apple Pay will drive NFC into the ecosystem so that bitcoin can use it. But then, by the time that happens, Apple Pay will already be there.

Apple Pay won’t obliterate bitcoin, of course, but it is going to shine very bright as a payment channel. It will attract large numbers of users with the convenience of instant mobile payments just as bitcoin faces its next major challenge: to move from being a largely speculative asset into a true currency, used every day by millions of users around the world.

Bitcoin needs to continue that transition, to introduce more liquidity into the market and to meet its real potential.

So if the bitcoin industry really wants to take on Apple Pay, it has to reinvent itself. Make itself friendly. Market itself to people so technologically ignorant that they’re one step away from microwaving their iPhones. That’s a difficult task to pull off.

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.

iPhone and NFC POS system images via Shutterstock and iPad image via Bloomua /

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