Feature Friday: Bitcoin Payments
A payment protocol was added to the core Bitcoin system recently. The details on the Bitcoin Payment Protocol are here.
From that link, the key attributes of this payment protocol are:
- Human-readable, secure payment destinations– customers will be asked to authorize payment to “example.com” instead of an inscrutable, 34-character bitcoin address.
- Secure proof of payment, which the customer can use in case of a dispute with the merchant.
- Resistance from man-in-the-middle attacks that replace a merchant’s bitcoin address with an attacker’s address before a transaction is authorized with a hardware wallet.
- Payment received messages, so the customer knows immediately that the merchant has received, and has processed (or is processing) their payment.
- Refund addresses, automatically given to the merchant by the customer’s wallet software, so merchants do not have to contact customers before refunding overpayments or orders that cannot be fulfilled for some reason.
In my view, this is an important addition to Bitcoin and addresses a number of limitations on using Bitcoin for payments.
Our portfolio company Coinbase, which offers the leading Bitcoin merchant payment solution in the market, has implemented the Bitcoin Payment Protocol. Their blog post about this is here.
So if you are a merchant and you want to accept Bitcoin from your customers and you want the advanced functionality that the Bitcoin Payment Protocol offers, you should check out what Coinbase offers. You can do that here.
good stuff.by what measure is Coinbase the leading bitcoin merchant solution provider in the market?this is the US market, or the global market?
USi am pretty sure they have the most BTC volume going through their merchant platform in the US
volume – ok, got it.i haven’t looked at Coinbase since i unsuccessfully tried to open a Coinbase account last year (or was it the back end of 2012?).I was unsuccessful because i’m outside the US and didn’t (and still don’t) have a US bank account. Is this requirement still in place, and if it is is it restricting the company’s growth?
yes and we hope that won’t be the case for much longer
Please make sure we all know when this happens…. thx
These seem like some basic parameters that I would have thought already existed. This is a positive step, but makes me wonder why they weren’t implemented before.
you’d be surprised. the core bitcoin system is pretty simple. and changing it is not easy. and that’s a good thing.
Bitcoin will fail if it doesn’t succeed in Payments- from an implementation point of view, and consumer usage.I’ve said this before in a post- Let Payments Become Bitcoin’s First Beachhead http://startupmanagement.or…But this success will also depend on being adopted by existing payment players, because they have the majority of users.So, hopefully this step will help banks, credit cards, e-payment companies, etc. to implement Bitcoin on-ramps and off-ramps, and that would be a good thing.
yup, but at the same time they need a secondary market to hedge risk in. that way, merchants can hold bitcoin without fear.
i read somewhere there’s one starting up i think.
Do you think that is something that will allow it to hit critical mass?I don’t.The local butcher isn’t going to hedge against a payment system. Nor is the local restaurant.If you’ve ever sold to this market you would see that that concept (for this purpose) is a non starter.If you are talking about larger merchants fine but that’s not going to give bitcoin the needed critical mass to hit a tipping point.Discover didn’t exactly take the world by storm because it couldn’t provide enough clear benefits (to both parties) than Visa and MC. And it didn’t come with any risk (or need to hedge) either.Keep in mind that what is easy for you to wrap your head around (because of the business you were in) is not the same thing as the target market for this type of product.Now if the bitcoin provider wants to wrap in price protection in a way that the merchant doesn’t have to think about that issue that’s another thing.
Coinbase is doing this by offering merchants the option of instantly converting their BTC to USD upon sale.
what do you know about the maidsafe system?
its an experiment… very ambitious. Well intentioned, but I don’t get the feeling that they understand branding or commercialization principles or disruptive strategy. Like many in this space they are trying to offer a plethora of revolutionary innovations all at once. Many good ideas, I wish them luck.
I do know about it. Let’s email on this.
We’ve been planning to add Bitcoin payments (and in theory payouts) to Shapeways for quite some time but it never quite seems like the top priority so we keep putting it off.Oddly, very few if our (very technical) customers have requested it.Perhaps these new payment-focused features will be enough of a kick-in-the-ass for us to implement it 🙂
Presumably this is BIP70, which is a step in the right direction, but near real-time messaging is not the same as real-time processing/settlement. We need debit processors doing real-time auths.
At what point (if ever) do we see Apple change their stance on Bitcoin and get an update of the Coinbase app?
after their own mobile payment solution fails
when they make their own play into the digital currency arena… simple.
I hope that will happen this year
Aside from the increased peace of mind that these protocols will bring about for users, there is a certain measure of self regulation that is inherent in this development. The bitcoin arena needs to be regulated. If it doesn’t regulate itself, then it will be regulated from outside by the politicos, etc. I see this as the beginning of a movement that will bring Bitcoin in from the shadows where it is perceived to currently exist. Just my thoughts
Smoothing the edges for merchants and end users. Keeping true to its values and core principles. The drum beats louder.
Does Bitcoin have to become user friendly enough for the “normals” (I hate this term, but it makes the point) in order for it to succeed?
It not so much about being user friendly, its about marketing. And here the bitcoin world get a D-. The “normals” are not impressed with front end words like “Cryptocurrency” or backend words like “Mining” and “BlockChains”.
No, but it does need to find a market and use-case that can scale to support the value of the investments being put into it.
I think so
A payment protocol was added to the core Bitcoin system recently. The details on the Bitcoin Payment Protocol are hereActually this is a draft created in 2013 that Coinbase just announced they are supporting:http://blog.coinbase.com/po…That’s a bit different than “A payment protocol was added to the core Bitcoin system recently.”Unless we are now in “AOL is the internet” type thinking (sorry for that!)
I’m really impressed with Bitcoin ability to maintain a fairly stable “price” while the developer ecosystem and functionality explodes.From end user adoption point of view, price vol will likely be the key indicator, but for now it has to be nice building platforms/systems around something that is “weathering the storm”.
There are 2 things going on: Bitcoin the currency, and Bitcoin the system. Developers don’t “really” care about the price volatility because they are building solutions.
It certainly makes it unappealing as a user though. Watching my money fly up and down in value a lot makes me not want to store my money in bitcoin form, and why go through the bitcoin process to make a transaction if I can just use my card?
Too much volatility and Bitcoin is an investment or a tool for speculation but not a currency alternative. You’ve gotta bring that volatility down in order to get people to actually store money there and feel confident that it’ll be there for them to use.
It certainly makes it unappealing as a user thoughThe word I would use rather than “unappealing” is “non starter”.
Developers don’t “really” care about the price volatility because they are building solutions.Unless they are naive they should care because if you believe that the price volatility will effect adoption then you are wasting your time. And volatility will effect adoption.Otoh if you (want to) believe that the technology and time you spend developing and understanding it may be useful for another purpose, and are willing to accept the gamble, and forgo the opportunity cost of your time, that’s another thing.Even things that appear as obvious winners in business are not always winners.
It’s possible to use the blockchain technology without being affected by Bitcoin currency fluctuations. That’s what I was trying to say.
Staying anonymous seemed to be at the core of Bitcoin use cases. Does the protocol effect this?
You said the magic word (anonymous)! I’m sorry, this is gonna be long :)Bitcoin is not anonymous but pseudonymous. All transactions are public because they are in the blockchain. With some analysis you can know a lot of a given address. If you are business, that’s not good because your competitors can know what you are doing. If you an individual trying to stay private, it is not good either because with your payments history you could get identified. There are tools to help with hiding/obfuscating, but most are clumsy and there is no perfect one yet. The most famous is the recently announced Darkwallet, but it is based on a centralized server, which can be a weak spot.There are also a few other alternative coins focusing on privacy now. Darkcoin is the biggest one right now (3rd market cap, only smaller than Bitcoin and Litecoin, although still at only 61 usd mill). It is based in Bitcoin coin but it has embedded in its protocol a decentralized mixing system that lets the user decide if the transaction is public or private. The system is still at a very early stage and it is not fully open sourced yet, but it will be soon (disclaimer: I’m invested and involved with the community in several ways, forgive my optimism!).There is another one called Bytecoin (and some clones), which is based in a different tech (they mix using something called ring signatures). The tech is proven, but it would be more difficult to integrate with the current Bitcoin ecosystem and there are some problems of scalability because the blockchain becomes huge.There is also an announcement by some grads at John Hopkins (Zerocash/Zerocoin) that is based on some new super advanced cryptography, but it is not launched yet and it will be proprietary, which raises a trust issue.
great comment. Ill take the time to go through it in detail. Most of these protocols use a decentralized network to ensure that the data is secure from third parties. How do these systems operate if the one or more clients are not accessible?
The one I know best is Darkcoin. The protocol for sending anonymously is called Darksend and it is based in servers operated by volunteers called master nodes. To ensure that there are enough of them, the master nodes owners receive 10% of the newly mined coins. To avoid too many of them bloating the network, to operate a master node you need to commit 1000 darkcoins (around 14k usd as of now) to the master node. Payments to master node owners have not started yet (scheduled for this weekend), but there are already around 100 of them. This system also solves the lack of nodes Bitcoin is suffering because there is no incentive to run one.As for the others, I don’t have enough knowledge of them as to explain them with detail without risking making a fool of myself or being unfair 🙂 I’ve placed my bet on Darkcoin, but some of the other solutions have some merit too.edit: some punctuation
This is enlightening, Fernando. Thank you. The distinction between anonymous and pseudonymous is interesting.
My pleasure 🙂 You don’t want your checking account info out in the open, even if it doesn’t have your name next to it.
Bitcoin is pseudo-anonymous actually. if you want total anonymous, there is DarkWallet.
As far as I know, Darkwallet sends everything through a centralized server, which make it easier to compromise. Also, as it relies on a browser plugin, not a lot of users will install it and the mixing is more difficult.
Correct. I didn’t recommend using it. I said “there is”. 😉 IMO it’s a fringe experiment, and is barely 40 days old, out of the Toronto Bitcoin Expo Hackathon. Definitely not a mainstream way of using bitcoin, but am sure others believe something different.
Yeah, the developers talk so freely about money laundering that it feels definitely fringe 🙂
Yes. For transactions that require more information
Like most bitcoin payment systems this protocol tweak is still all about payments from client to server i.e. for web users to use a revolutionary P2P technology to pay for products or services on a tired old web. It represents ‘old thinking’… It is definitely not remotely Bitcoin 2.0The Bitcoin protocol hasn’t got close to solving the very important micro payments issue caused by the transaction fees charged by miners. (incidentally Coinbase proclaims that they do not charge transaction fees between ‘coinbase to coinbase’ transactions, but that is baloney, their fee-less service is intermittent at best, and fees are eventually charged) and they avoid dealing with the topic when repeatedly asked.When considering this issue ~ Ask: who is paying the payment? a) Is the user paying to the business… or b) is the business paying to the user? Then consider this: Which is more exciting for users in terms of adoption of Bitcoin?..the answer has to be ‘b’. and there are many enticing business systems that can be built around user’s earning Bitcoin rather than simply paying it, as if the only use-case is as a surrogate for Paypal.
give it up, freddy. bitcoin is old news.
Switching to human readable will make adoption grow. Long strings are just hard
We’re working on a wallet based off Master protocol smart property that will allow people to received token balances pegged to USD or EUR or other local currencies.It will obviate the need for a 3rd party to interact with the baking system in order to provide price stability.Combined with these features, it could hail the tipping point for this technology.