Paybefore required a love/hate piece on bitcoin. My writeup was the love piece. You can find the other piece and the full magazine for trial review on paybefore.com

1. E-print | Pay Magazine | Vol. 6 Issue 2 | Fall 2013 | www.paybefore.com
Bitcoin Brouhaha
B
itcoin has catapulted onto the payments scene. At one point this year,
the virtual currency was trading at more than $200. While some
applaud its decentralized nature, others, including regulators, have
become wary of its potential effects.
In Viewpoints, prepaid and emerging payment professionals share their perspectives on the industry.
Paybefore endeavors to present many points of view to offer readers new insights and information.
The opinions expressed in Viewpoints are not necessarily those of Paybefore.
©2013 Paybefore. All rights reserved. Forwarding or reproduction of any kind is strictly forbidden without the prior consent of Paybefore.
Bitcoin symbols: Nick Kinney/Shutterstock.com; thought bubbles: Danijela T/Shutterstock.com
Insights on the

2. E-print | Pay Magazine | Vol. 6 Issue 2 | Fall 2013 | www.paybefore.com
prepaid. mobile. emerging payments.
Bitcoin Challenges Us All
to Keep Innovating
Viewpoint
By Pervees Faisal Islam,
Centra Payments Solutions
B
itcoin (and the tsunami
that has ensued) has been
characterized as the next
stage in the revolution
of payments—more precisely, of
money. Many have called Bitcoin
a revolution, largely because of its
focus on decentralization; the
separation from a government and
the freedom from monetary control
(cue the cheering and Hacky Sacks).
While that freedom might have been
touted by the early adopters, the
focus for many has shifted. Various
venture capitalists, investment
bankers and other “suits” (yours truly
included), are plunging into Bitcoin
discovery from other points of view
and interests. Why? One reason: No
one is expecting another bubble so
soon after the last one.
Before we get into Bitcoin’s positive
attributes, let’s focus on why there
is opposition, move on to challenges and finally look at the
possible reasons this revolution is
occurring. Bitcoin represents more
than its monetary value, and something more important. Yes, there is
such a thing.
The Haters
Any new player in the payment space
always faces opposition as it gains
traction. Critics usually have a vested
interest in overemphasizing the
negatives as they might have direct
clients, ventures or partnerships with
mainstream or traditional payments
companies. This would be an
attempt to ensure that the market
share of established players doesn’t
erode. Receiving negative criticism
and regulatory pressure is a positive
for Bitcoin. Criticism from any
direction makes the system stronger
and presents in itself a self-defeating
action by that actor (read Antifragile:
Things That Gain from Disorder by
Nassim Nicholas Taleb). Bitcoin and
bitcoins represent, at least for now,
the hope for the movement of money
to be less disjointed, less possessive
and finally as low-cost as possible.
So let’s discuss the most common
talking points of the haters, although
there are many more.
Bitcoin is decentralized
and that is dangerous.
It represents a threat to
the fiat currency.
Weakness is exploited only when it’s
present. The threat to any currency
starts as soon as the currency is
used. If the bitcoin does topple the
fiat, then the fiat let itself be weak,
or at least its elected or appointed
custodians handled it miserably. As
for governments, they are not in the
least bit worried. As long as capitalism and democracy remain, the
taxation system that comes with it
will give the government as much of
a handle on its country and currency as it deserves. In that aspect,
taxation is elegantly agnostic.
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3. E-print | Pay Magazine | Vol. 6 Issue 2 | Fall 2013 | www.paybefore.com
prepaid. mobile. emerging payments.
The Bitcoin Brouhaha
Bitcoin is anonymous and
attractive to criminals.
Bitcoin is not anonymous. It is
actually, and sometimes unfortunately, with respect to merchants and
their privacy, the least anonymous
form of value transfer mechanism.
Every transaction is verifiable, posted
and immutable for as long as the
Internet is powered. What some tend
to confuse anonymity with is the lack
of identification. We compliance folks
refer to that as KYC (know your
customer) or CIP (customer identification program). Bitcoin gateways or
administrators might have that
burden in the context of regulation
and may not be exercising these
duties fully. In that situation, it’s a
case of assigning responsibility and
accounting for it, not a case of
anonymity for its own sake.
How much happier and more effective
would law enforcement be if someone
handed them a system where every
note of every paper dollar or euro
PRO
could be tracked throughout its entire
journey? Starting from print to circulation, law enforcement would be able
to identify all the points where the
money changed hands. The Bitcoin
network has that record, identifying
points where bitcoins changed
ownership. Aside from the fact that
receiving proceeds of crime in cash is
the most frictionless experience
compared to using Bitcoin, the fact
remains that every Bitcoin transaction
is forever documented and traceable
and public. Therefore, Bitcoin transactions are anything but anonymous.
Bitcoin prices are very
volatile and unstable.
Bitcoin is going through a phase of
discovery and experimentation. The
only thing larger than Bitcoin is its
own hype. It’s rigorously being tested
as a form of currency, commodity,
message transfer solution, information
storage, third-party signature verification and market uptake on new value.
Like any product during experimentation, it’s subject to all the various
components of its market—the media,
world events, large players in the
industry and even insider trading.
Bitcoin operators have
been shut down or seized,
due to …
There is no accounting for stupidity or
a shortage of those willfully ignorant
of the law. Also, let’s not forget
though the seizure, arrests, orders,
fines, penalties, deferred prosecutions
of operators of fiat currency in legacy
institutions that persist. Similarly, not
everyone deserves to handle Bitcoin.
Bitcoin has a commodity/currency
problem. Which one is it?
Most likely, both.
Where does it get its value
compared to a commodity
like gold?
Let’s put aside the aesthetic values of
gold that are sought after. Gold is an
essential component in electronics
and various other industrial applications. Its elemental properties are
responsible for that. Likewise, Bitcoin
is the foundation on which extremely
sophisticated communication models
can be built. After all, it is cryptography at its core. With the rage nowadays of government-spying, various
applications are being built on the
Bitcoin premise and offer a cryptographic form for everyday communication. What needs polishing is the
product branding and user experience. Bitcoin payment systems, wallets
or other applications typically aren’t
easy or intuitive to use.
©2013 Paybefore. All rights reserved. Forwarding or reproduction of any kind is strictly forbidden without the prior consent of Paybefore.

4. E-print | Pay Magazine | Vol. 6 Issue 2 | Fall 2013 | www.paybefore.com
prepaid. mobile. emerging payments.
Bitcoin Challenges Us All to Keep Innovating
My grandmother won’t understand and can’t use it; therefore,
it’s highly unlikely to take off.
A lot of grandmothers prefer waiting in
line and using a bank teller to pay
their bills. It’s the most adorable thing
and should continue.
The Bitcoin operators don’t
have principles of best practices
to abide by; therefore, security
is an issue.
True. There is no PCI-DSS comparative
to Bitcoin. Currently, operators are left
to their own methods of security but
aren’t shy of sharing their practices
and providing open-source applications. This is a constant work in
progress. Some would argue PCI
compliance is a constant work in
progress as well. That being said,
certain primary notions need to be
further discussed in the field of data
and hardware risk.
How is Bitcoin better?
For one, there are no groups or
associations in between, and no
middlemen between users and,
therefore, no interchange fees,
card association dues, acquirer fees,
ISO dues, etc. The whole hierarchy of
bank, acquirer, processor, third-party
processor is flattened to two players:
sender and recipient. In some cases,
there may be a middle party, but its
primary goal is traction and exposure.
The most common way to send bitcoins is to copy someone’s bitcoin
address into an email, paste it and hit
send. There are other ways using QR
codes, but that method is unlikely to
The most important thing about Bitcoin
is not that it’s creating a new payments
model, but rather shaming the current
payments models and disclosing their
flaws. Bitcoin demands that the current
leaders in payments constantly innovate.
—Pervees Faisal Islam, Centra Payments Solutions
become an optimal form of payment.
This opens the door for innovators.
The most important thing about
Bitcoin is not that it’s creating a new
payments model, but rather shaming
the current payments models and
disclosing their flaws. Bitcoin demands
that the current leaders in payments
constantly innovate. Bitcoin also has
accelerated the impetus of regulators
to be more vigilant about the shift in
the payments landscape. Overall, it has
turned the discussion of how we move
money upside down.
ensure that the complacency to
innovation is constantly averted. If
some unknown guy can develop
something that in five years gains the
largest market share in the news and
worldwide discussion of payments,
somewhere out there, some product
and marketing managers need to be
shown the door.
Pervees Faisal Islam serves as director of
compliance advisory services for Centra Payments
Solutions, a compliance consultancy based in
Washington, D.C. An AML, compliance and
fraud-prevention practitioner at heart, Islam
frequently advises companies with a variety of
Whether it’s Bitcoin or another cryptocurrency, or some other form factor
that becomes the next craze in payments, one thing is certain: Traditional
payment companies have to exert the
most amount of pressure on their
product and marketing managers and
payment platform and nontraditional money
transfer systems. He has held several executive
positions at payment processors, money transmitters and online payment firms. Islam is a critical
tactician for Centra’s social commerce, e-commerce and payments systems clients. He can be
reached at p.faisal.islam@centrapayments.com.
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