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Analysis of Virtual Currencies, Micro-payment, Lending & Donation solutions

Posted by bryan on April 19, 2011 in E-Business with No Comments

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I’ll start with a slideshow I’ve done on Virtual/Digital Currencies as a good visual explainer to set the tome:

The rest of this article will be as opinionated a review of the current landscape as I can possibly muster ; )


PaySwarm | BitCoin | OpenTransactions


Flattr | Pledgie


Kiva | Kickstarter


Paypal | Google Checkout | Moneris | 2checkout | MoneyBookers



Rating: 8.5/10
Their approach to aim for an open W3C payment standard is the right approach. However, I’m concerned about the implementation and the lack of representation of various schools of thought on alternative monetary systems.



Rating: 8/10
Unfortunately BitCoin’s goals of being a decentralized currency are foiled by the fact that the programmer now assumes the role of policy setter, central banker, and issuing authority. The total number of BitCoins in circulation is hard-coded into the P2P software. As of this posting, the limit has been set by the BitCoin founder along with some input from the other developers in the community at 21 million (see:…). The problem is that this limit has been decided at all, and hasn’t been to scale and grow naturally based on the number of holders of BitCoin currency and the economy therein created (i.e. rates of expenditure and exchange of BitCoins for items).

Thus, I see three problems with BitCoin in its current iteration:

1. For a currency to be truly decentralized it must scale based on the number of users.
2. It claims that it removes the “middleman” but based on my understanding of how the bootstrapping mechanism works, the IRC server is a middleman for announcing who you can connect to initially. (Once you’ve connected to enough peers though, you technically should be able to find any node or peer using your local store.)
3. If it is fiat it is no better than paper money. To be a non-fiat currency it must be backed by something tangible and limited in existence (i.e. Gold, Silver, etc). Limiting inflation through CPU power over the network is a neat concept, but unfair to those who can afford fiber optic hi-speed connections, multiple machines and/or run parallel on super powerful machines with many virtualized instances. In this sense, computing power is infinite but the money supply is not (21 million), thus money can quickly gravitate to those with the iron/optics (which takes today’s money).

NOTE: #3 is not a stated goal of BitCoin to deal with necessarily, but it should be of any currency dubbing itself as “the new money” or as any kind of replacement for what we already have today.

Some benefits of the BitCoin architecture are:
1. Transactions are tracked by each node in the system and non-reversible (less fraud)
2. The algorithms for currency allocation are open source for the world to see (better transparency)
3. Once you have BitCoins you can freely use them, gift them or exchange them without taxation or service fees (no corrupt skimming or fleecing the depositor/holder).

For more interesting thoughts on BitCoin checkout this post from Niklas Blanchard. I’m hoping BitCoin can solve some of the big issues they face, since the global monetary system is certainly in need of fixing…



Rating: 7.5/10
Good approach which implements David Chaum’s vision for an unencrypted digital coin which can only be transferred 2 times before becoming worthless. Only downside is the fact that the coin might be copied more easily since it uses no difficult to reverse engineer encryption and lacks another form of privacy assurance.



Rating: 7/10
I was originally extremely intreagued by the premise of Kiva, which makes the idea of venture capitalism and philanthropy accessible to a non-traditional audience of middle class investors, who don’t typically invest heavily in individual businesses, but rather hedge their investment risks through mutual funds, stocks and bonds. With this service, people around the world can support worthy causes and business entrepreneurs with a good idea but no access to venture capital (the service is mostly used for funding development efforts in so-called “developing nations”). For this reason, it certainly has a noble goal and the execution is almost spot on. The only thing I’d do differently is require a minimum amount of quarterly updates from entrepreneurs you’ve sponsored or donated to, in order to better track the progress and effectiveness of your contributions. Often, language is a barrier but the investment groups that connect investors to entrepreneurs should surely have the resources to offer basic translation services.



Rating: 6.5/10
Very nice donation service which is the best example of crowd-sourcing I’ve seen executed successfully thus far. It combines the current economic system with a new mechanism for person-to-person or person-to-project (P2P) donations. If it offered an alternative valuation other than the existing fiat money system, it would possibly be the best service.



Rating: 6.0/10
Flattr is a nice idea towards the crowd-sourcing concept of receiving project funding or financial support from a specific community, by community interests and needs. The only downside is the minimum monthly payment (5 flattrs) which is required per month to remain an “active” member. This means that no matter how much you give in other months, or how much you want to give, in order to stay active as a Flattr user, you are requried to pay out 5 Euros per month at a minimum, which can be pricy if your aim is to merely support a few little causes here and there. Obviously, its not too pricy overall, but compared to micropayments it is much more restrictive. This is why I’m giving it the slightly lower rating above; otherwise a nice service.



Rating: 6.0/10

Kickstarter is a useful service but it requires a substantial effort to bring awareness to your project via viral marketing and social media. In and of itself, Kickstarter is simply a time-limited place to host a fundraising campaign for a specific project, product, service or idea. It falls a bit short by not actually connecting people more closely to collaborate and acheive project goals together (i.e. by offering long-term project hosting or project management tools), and thus leaves alot on the shoulders of the project organizer. It also does not seem to offer project sponsors many options to follow-up and check on project status after their donation. Worst of all, it offers no ability to exchange goods, services or necessary equipment, and thus it could be accused of yet another source for simply “throwing money at a problem” and hoping for the best. However, it does offer a new approach to crowd-sourcing projects via the existing fiat money system, so it is a step in the right direction. Hopefully they expand their offerings into the sharing of duties and long-term project tracking by combining other services such as SCM (i.e. GitHub’s GIT or SourceForge’s SVN), File Hosting (i.e. DropBox or EasyShare), a Bug/Issue Tracking sytem (i.e. Trac or 16bugs), workforce management (i.e. Salesforce or SlimTimer) and resource management tools (i.e. Basecamp or BananaSCRUM). Addition of some or all of these features would really set it apart from the other crowd-sourcing tools, show its dedication to be more than a fiat moneypit, and increase its rating significantly.



Rating: 5.5/10

PayPal is hands down the most widely accepted and utilized service for e-payments, however since its acquisition by eBay it remains to be seen how much of its autonomy it can maintain. It has been focused as a solution for buying and selling used items via eBay auctions, but is also used to make and accept donations, transfer money between businesses, and pay for online services. It gained its wide acceptance and popularity primarily from its ease of use, external usage API, clear documentation on privacy, non-restrictive usage terms, and security mechanisms created by some of the best security specialists (not to mention founders and developers who have since gone on to start many other successful businesses that all tended to be PayPal friendly, if not having their payment mechanisms rely entirely on PayPal). Its biggest shortcoming is the fact that it, like most other e-payment services, does not take into consideration alternate forms of currency or value exchanges. This is due primarily to legal considerations and the fact that it is owned by a large corporation (eBay) that could be sued if it encouraged obvious systems which would be more useful for users, such as barter or direct-goods exchange.
UPDATE (2012-04-17): Hot on Google’s trails, PayPal has acquired some startups of their own (BillMeLater, Milo, WHERE, and partnered with and released the PayPal Digital Wallet.

Google Checkout

Google Checkout & Google Wallet

Rating: 5.5/10

Google Checkout has an interesting new micro-payment offering called One-Pass coming soon. This service makes Google Checkout much more than a Google-owned PayPal clone, and makes it infinitely more useful to content-focused businesses looking for a low-cost platform from which to charge for on-demand (i.e. pay-per-view or pay-as-you-go) access to their intellectual property. One-Pass is also an answer to . Although Google has several unacceptable product/service categories it is at least made clear in their terms of service. Rounding out Google’s financial transaction arsenal is Google Wallet, which is a mobile app (currently Android only) that securely stores your credit cards and offers (i.e. coupons or in-store discounts) on your phone. Brick-and-mortar stores can accept Google Wallet by using an NFC reader extension that sits on top of their usual credit/debit terminals (or a new terminal with built-in NFC). You can pay and redeem offers quickly just by tapping, bumping or hovering your phone nearby the scanner at the point of sale. Convenience aside, this really just sounds like a way to get consumers to spend more money, as does the video itself, which doesn’t do much to help us get back to sound money and living within our means. That said, there is an undeniable appeal to the simplicity of the technology itself, however one detractor is that it requires your phone to have an embedded NFC chip or some kind of ugly extension, and most merchants worldwide do not and would not likely be willing to quickly adopt NFC readers unless they were given away for free and/or sponsored to do so.



Rating: 5.0/10

As good as any ATM service provider or online banking solution provider could be, they power Interac terminals in banks and stores across North America. The only downside is that they merely broker the digital transactions, and can not be used for alternative currency transactions. In addition, their security protocols and code are all private commercial intellectual property protected by copyrights and definitely not available for open source community development or any form of public scrutiny. If some of their underlying mechanisms could be analyzed, weaknesses could be discovered and fixed; however the system itself is fairly reliable with only a few obvious attack points (man-in-the-middle, phising or contact/swipe interceptions at an actual terminal). Swipeless or contact-less versions are substantially more vulnerable and would receive a lower rating (see CASHLESS SYSTEMS).



Rating: 4.0/10
About the same as PayPal but with more stringent requirements on sellers, thus making it slightly more reliable but certainly less convenient. In addition, the last time I used it (admittedly in 2008) they had higher transaction fees and more red tape to become a user, let alone seller. This higher bar of entry means that fewer people are able to facilitate and/or make use of this payment gateway, giving it a lower value of network membership.



Rating: 1.5/10
This payment service provider felt like a scam to me back in the day (2003) when I first signed up. Since then, I’m sure they’ve made many changes to their services and processes (hopefully) so reader beware that this low-rating might be well worth revising. I remember getting a call from a rude and/or rushed sounding customer service representative when my one payment claim for a really small amount was disputed. In addition, they required me to send a scanned colour-copy of my passport and driver’s license, which I really don’t feel makes the service any more secure (as these documents are easily and regularly forged worldwide) but does certainly give the business access to true copies of your vital personal information. For these inefficiencies and my own perceived decreased level of privacy in using the service, I had to give it a lower rating, but if someone has had a better (more recent) experience please feel free to comment below.

Current System

Current Global Money System

Rating: 0/10
This one’s a wash… it just plain sucks!


Cashless Systems

Rating: -10/10
Think of today’s monetary mess, exponentially compounded, and that’s the place that various cashless systems such as RFID or NFC-based chip or card systems inevitably take us to. The system is ripe for abuse at all levels, and the individual chips themselves (whether implanted in a human limb or plastic card) have been proven to be unreliable, easily hacked and could perhaps even emit radio-waves, heat/energy waves, or other signals that are hazardous to the health of their bearer over a long period of time.

The following video summarizes the lack of reliability of “Cashless Systems” quite well, security holes discovered all the way back in 2008 still haven’t been fully patched:

End wage slavery now, nobody should have to toil for their next meal and live paycheque-to-paycheque (which many people, even in the self-proclaimed “developed world”, are now forced to do due to a weakened economy suffering through increasing under-employment rates, constant inflation and deflation via “quantitative easing”, artificially low interest rates, fake boom and inevitable bust economy cycles, price fixing, money laundering, counterfeiting, excessive printing by central banks, wild speculation by derivative and investment bankers, unreliable investment advice, sky-rocketing costs of living, etc).

With the financial system in tatters, it is clear that the world is now ready to move to a new alternative for managing the exchange of value and goods. When all that stands before an individual (or family) and their next meal is the stroke of a few keys to place some imaginary digits next to a name, there is a serious threat to freedom and mobility. This author hopes that a unified one-world currency is not offered as the only solution; rather, a return to many independent local currencies would be a much more viable (and in this author’s opinion, sustainable) solution.