This post is also available in: Deutsch
MasterCard has fallen under pressure to monitor payments to “far-right” political groups, increasing the attractiveness of decentralized cryptocurrency for payments.
According to Yahoo Finance, activist group SumOfUs has succeeded in pressuring MasterCard to hold a vote at the annual shareholders meeting on June 25th on whether or not to implement a special “human rights committee” to investigate if the company was supporting customers to groups and individuals on the political right in an effort to disassociate with and ostracize those deemed to be extremists. According to SumOfUs Communications Director Jamila Brown, allowing paying customers to belong to certain groups can have the effect of legitimizing their voices due to the significance of the MasterCard brand:
“What MasterCard is doing, without them realizing it, is they’re legitimizing these right-wing extremist and white supremacists by having that there. They’re a reputable brand.”
While still a dominant form of payments, credit cards have a mounting list of potential drawbacks, particularly risk of censorship for fringe groups as well as citizens of countries with complex political situations, as in the case of the US government considering sanctions on Visa and MasterCard for supporting payments to Venezuela. Additionally, credit cards have experienced a high degree of data breaches recently, with 500 million Marriott hotel customer accounts compromised last year, millions more card numbers compromised this year from a popular chain of restaurants, and the discovery of man-in-the-middle attack vectors for compromising mobile point-of-sale card readers last year. Card companies have also shown a proclivity to compromise user privacy, as was the case in MasterCard’s deal with Google to track customer spending habits. Finally, card companies recently announced plans to raise fees across the board, further complicating their value proposition.
Cryptocurrency’s success in two of three key censorship resistance areas
Complications facing credit card customers provide a potential industry entryway for peer-to-peer digital currencies to join the payments industry due to their relative advantages. Overstock in particular claims that accepting cryptocurrencies for payments is much cheaper than credit cards due to the lack of a need for a 40-person fraud department. Cryptocurrencies such as Bitcoin offer advantages over fiat currencies by providing censorship resistance in two of three key areas: inflation control/store of value, and confiscation resistance, where coin supplies and properties have a fixed course not alterable arbitrarily by single parties, and funds cannot be confiscated without possession of the owner’s private keys.
If you want to use Bitcoin as a method of payment, this strategy is more rational and convenient than doing lots of on-chain tx’s:
1. Spend with your credit card with no debt on it.
2. When your credit card bill comes, sell just enough bitcoin to pay the bill.
— Jimmy Song (송재준) (@jimmysong) October 8, 2018
In the third aspect, that of censorship resistant payments, however, Bitcoin has not yet proven to be competitive due to low transaction capacity, high fees, and long and inconsistent confirmation times. Bitcoin Core developer Jimmy Song encouraged users to use credit cards for everyday payments and sell off enough Bitcoin to pay the bill. Former Blockstream CTO and Bitcoin Core developer Greg Maxwell famously advocated for the use of cards for payments:
“Bonus: The credit card can give you a 2% (e.g. citi double cash) to 3% (e.g. alliant visa) cash back, super consumer friendly anti-fraud (virtually no questions asked fraud reversals, plus things like prices rollback)… and you don’t get forced to do business with crappy “bitcoin payment processors” that pump altcoins, work like junk, instantly convert most payments to fiat anyways, and charge a hefty fee/spread for the privilege.”
Additionally, former Bitcoin Core developer Peter Todd recently pointed out areas in which Bitcoin does not remain competitive as a payments method, stating that “Visa and Mastercard already won in many respects.” At time of writing, the average Bitcoin fee is nearly $1 per transaction, and the current mempool of backlogged transactions is about 15MB, representing several hours worth of queued transactions.
Dash’s focus on uncenorable payments
Dash, meanwhile, delivers on the same essential technology as that behind Bitcoin, while promising several important advantages in the area of payments. The current median transaction fee is a small fraction of a cent, with a stress test proving similar fees at a level of three million transactions per day, with scaling research from Arizona State University indicating Dash could easily reach several times that. Additionally, Dash recently activated InstantSend by default, instantly locking nearly every single transaction by default, adding value for Dash to a growing list of exchanges and services that will now accept Dash transactions instantly as confirmed.