San Francicso-based Stripe, a company that offers API-based payment systems, has published a blog post examining how it expects the bitcoin market to develop.
Titled "Bitcoin: The Stripe Perspective", the article examines what the company believes it may take for mainstream consumer adoption of digital currency to ignite.
The blog post explores bitcoin's possible use as a financial solution in nations with high-inflation currencies, as well as the technology's role in global payments infrastructure. Though largely positive in its conclusions, the company said that consumer protections remain a major unresolved barrier for bitcoin.
Despite potential obstacles to broader adoption, however, Stripe posits that digital currency and the underlying technology could be a valuable tool in solving some of the key challenges in payments today.
Although notable, this is not the first time Stripe has addressed digital currency. In March, Stripe announced that it would begin testing bitcoin payment support and, in June, CTO Greg Brockman said that bitcoin could one day unite the different worlds of finance.
To date, the company has raised over $120m from venture capital firms such as Andreessen Horowitz, Khosla Ventures and Sequoia Capital.
Purpose enables adoption
The post, which was authored by Brockman, indicates that, for the time being, most people in countries with strong fiat currencies have little incentive to switch to bitcoin. Yet, by identifying novel – and practical – use cases for bitcoin, the technology may catch on throughout the world, he said.
"Consumers mostly want a safe place to hold their savings, and the existing bank account insurances and consumer protections [in stable currency countries] have set a high bar," he wrote.
However, as Stripe suggests, there is a huge upside for countries whose economies are plagued by inflationary problems, such as Argentina, Venezuela and Iran.
Citizens of countries that must use high-inflation currencies have an incentive to find more stable monies. Stripe sees bitcoin as a possible tool in situations like this, owing to the digital currency's international profile.
Despite bitcoin's reputation for being volatile, some fiat currencies like the Argentine peso are even more erratic. These fluctuations can hurt long-term usage for unstable currencies – and boost the potential value of using bitcoin, the post reasons.
Additionally, digital currency can help dissolve antiquated border and capital control issues. According to Stripe, bitcoin presents a chance to rejuvenate the world's payments infrastructure.
The post notes:
"Traditional payment systems look a lot like computer networks before the Internet. Cryptocurrencies have given us a real opportunity to solve these problems."
Access via gateways
Stripe believes that the best way for people to be introduced to bitcoin is through gateways that specialize in digital currency.
Gateways, in theory, would be operated by financial companies such as payment processors, and these companies would be responsible for handling some of the consumer protection and legal issues related to bitcoin.
This proposal is similar to a system currently in use by Ripple Labs, which aims to allow third parties like banks to connect to its payments and smart assets protocol with what it also calls gateways.
However, the post cautions that gateways won't likely prove to be the real igniter of digital currency. Stripe noted that Ripple Labs and another alternative called Open Transactions have "failed to win the necessary user support" that would lead to broader adoption.
Bitcoin in the broader market
Comparing bitcoin to current payment processors such as Visa, Stripe believes digital currency offers a worthwhile way to move money and a system for validation built upon a set of rules. The combination of cryptography and decentralized transaction certification infrastructure represents a novel concept that has not yet been integrated with major payment networks.
In the end, though, it is Stripe's opinion that bitcoin fundamentally so far lacks the proper consumer protections that would make it a viable competitor to companies like Visa.
The post states:
"Unless we solve decentralized reputation, the bitcoin ecosystem will see the emergence of a few centralized consumer 'trust providers'."
Brockman is still upbeat about the future for bitcoin, however, rounding off the post with the words:
"We’re still in the very early days, but we can already start to see the shape of the potential impact of Bitcoin and other cryptocurrencies. If we get things right, life is going to be much better for billions of people."
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