You know what your problem is, Bitcoin?
Mastercard has been around a long time, since 1979 in its current form and is a global leader in payment services. To thwart this existential threat to their future thiefdom, Mastercard has crafted this response to Bitcoin and digital currencies, in general. This is after the United Kingdom released its "Digital currencies: Call for information" missive. Mastercard and Bitcoin are about as similar as tuna fish and peanut butter, but, feeling threatened, Mastercard couldn't help but give its two cents on the matter. Here we'll go over key excerpts of their argument against the generally unregulated nature of Bitcoin and digital currencies, in general. Plus, let's provide a point-counterpoint analysis of their information or misinformation on Bitcoin as a whole.
"Low transaction costs and faster processing are mentioned as providing particular advantages, as is the safety of the system. However, we would argue that, when compared to MasterCard’s network, the claims pertaining to the speed and safety of digital currencies does not hold up, not least given that on average it takes 10 minutes for a block to be verified and that digital currencies are far more susceptible to hacking attacks."
Speed: Bitcoin transactions are confirmed within 10 minutes, and after six confirmations, after approximately one hour, transactions are 99.8% guaranteed to be valid. This means both sides have had their accounts reconciled within an hour, and all funds moved and verified valid and fully transferred. Using Mastercard is not nearly as fast, nor as easily completed.
A Mastercard transaction is far more complicated, making many stops along the way to completion, illustrated by the image above. This process takes anywhere from 24 to 72 hours, depending on the location, amount and type of transaction. This factors in fraud prevention, managing counter-party risk, and paying and debiting debtors, payees, and taking a much larger cut of the action than a Bitcoin miner ever would. Last time I checked, a maximum of one hour is much faster than 1-3 days.
Security: The only "hacking attacks" Bitcoin has suffered have occurred when third parties have gotten involved in transactions, such as exchanges that act like banks, and were foolishly given private keys by customers. Or "Pump-and-dump" start-up exchanges that were schemes to steal Bitcoins from the start. Bitcoin's block chain has never been hacked in over six years, protecting billions of dollars. Mastercard, Visa, and other card providers have been hacked several times, costing tens of millions of user their identity information, which is never at risk in a Bitcoin transaction. Mastercard is so far off here, it smacks of a planned deception, counting on the general ignorance on the matter to prevail over the truth.
"....there is no central authority sitting behind the system itself. Regardless of the perceived security of the decentralized system, if a digital currency system collapses then all funds are lost. In comparison, depositors in the UK are protected by the Financial Services Compensation Scheme up to £85,000 per person per firm(£170,000 per joint account per firm)."
The only way the system would collapse is if the Internet itself collapsed, since Bitcoin's protocol is primarily web-based. In theory, as long as full nodes exist anywhere on earth, the network remains, be it through morse code, satellite transmissions, or writing hex diagrams on napkins. The value is a perception, based against fiat currencies for convenience if nothing else. Mastercard knows better than anyone funds aren't gained or lost, but merely transferred, from one perception to another, famously said by Gordon Gekko, played by Michael Douglas, in "Wall Street". If a Bitcoin owner has any reasonable amount of security, their Bitcoins are no more vulnerable than any amount of fiat currency on a debit card account. And that fiat currency is much more likely to "collapse" and actually lose value than a digital currency with a finite production schedule. There is nothing finite or inherently valuable about any fiat currency.
"In order for any payment system to be viable long-term and compete with more established payment systems, it must be trusted by a critical mass of those who use it. In order for this to occur, it can be visioned that a set of standards needs to be created."
Who is currently using Bitcoin for transactions that do not trust the algorithms and math behind the technology? People are using it more than ever each year because the apps, merchants, and websites are more enabled to handle its technology. User trust has never been an issue; the technology being ahead of its time has been.
As for a "set of standards", who should set those? Bankers who have a vested interest in maintaining the status quo in their favor? Or the trusted politicians, who are beholden to the bankers? Bitcoin is not a political football, but an economic alternative to inherently flawed and corrupt financial systems populating worldwide. It provides innovations and competition in industries like payments systems that desperately need new and better options for consumers. Why would Mastercard want more competition or innovation? Life was much easier when they had to just worry about being second-rate to Visa.
"Separate but no less significant are the digital currency payment system risks associated with Anti-Money Laundering (‘AML’). AML concerns emanate from the anonymity that digital currencies provide to each party in a transaction.....As we have learned from the Mt. Gox situation the existence of a ‘block chain’ does little to enable law enforcement, other government authorities or the public to identify the real identity of the parties to a digital currency transaction and therefore seek redress."
So-called money laundering practices are as old as the hills and are propagated through U.S. Dollars more than any other currency in the history of mankind. "Regulated" U.S. banks have been among the largest money launderers in history, which we will get to later on. Same goes for crime in general being the domain of fiat currencies worldwide, with the U.S. Dollar being the main conduit to criminality. No legislation has stopped crime or money laundering, and centralizing control over a decentralized network only strengthens banks and those beholden to them. If you hate privacy, fear conjured up "Boogie Men" who have never stolen from the common man like central banking has, and want all transactions run through less-than-trustworthy economic elitist looking to control the world, this is a valid argument.
And finally, Mastercard's solution to all of these major economic problems Bitcoin is heaping upon the global landscape, or just upon the declining interest in Mastercard (I'm having trouble telling them apart)......
"A requirement that all transactions go through regulated and transparent administrators subject to supervision by the relevant domestic, European or global authority, rather than just the current block chain process."
Feel free to laugh out loud. I know I did.
One, regulators in government and transparency are never destined to meet. President Obama said his administration would be "the most transparent in history". How did that turn out? If the President can't be even remotely transparent to the people he governs, why would any economic regulator ever be trusted, or held to a higher standard? When Freddie Mac and Fannie Mae were screwing over the nation's homeowners, what did regulators do about it? When Wall Street tried to crash the U.S. economy out of pure greed, regulators did nothing. Not one banker went to jail. AIG, Goldman Sachs, LIBOR, Comex, and the Futures markets all rigged from the inside by bankers. HSBC was found guilty of $881 BILLION in money laundering, over 19,000 counts of assisting the Sinaloa drug cartel, illegally, for many years. Who went to jail for that? How was that "regulated"? Who bailed them all out and said "Better luck next time"? And notice how they snuck in "global authority". What "global authority" are they referring to?
New technologies. Innovation. A smarter public. A better mousetrap has been invented, and Mastercard can't handle it, but they know people who might. Those of us who walk a path to decentralized economic freedom aren't going back to centralized banking control. Like going back to Shawshank. Bitcoin is not here to replace Mastercard or Visa. It's here to make them obsolete. Faster and more secure peer-to-peer global payments systems, with no easily corruptible centralized authority, identity theft, or massive transaction fees to worry about.
For everything else, there's Mastercard.
Image provided by Unibul Merchant Services and Shutterstock.
Can Mastercard scare U.K. regulators into an attack on Bitcoin, even after Chancellor Osborne has come out publicly in favor of Bitcoin? Share above and comment below.