Online payments with Bitcoin

Hi,

I think the crypto ecosystem would benefit from mapping, so I’ve started writing a series of blog posts to this end. I’ve just published the first one which introduces mapping through a simplified example of Bitcoin payments:

It was hard to balance what to include/omit and I’m grateful for all feedback!

Best regards,
Agost

It’s a very solid analysis, thank you for that!

Map 3 is the best, and I think it could serve as a basis for further analysis - if fiat currency addresses the same user need as BTC, then what is advantage of BTC in that context?

I would love to see a bit more about legal and risk aspects (f.e. what happens if you accept a fraudulent transaction, how to protect from those, etc).

The “clearly superior technology” is a bit misleading to it. It is obviously more advanced, but superiority has to have fitness function defined. In the end, the ‘advancement’ of a technology does not matter that much, what counts is how well the end user need is met.

Map 6, as I read it, detaches BTC from Blockchain. A very good observation!

Oh, and if this is your first attempt to draw a Wardley Map, you have done an awesome job!!!

Hi Chris,

Thanks a lot for your quick answer, you made very good points and your course was very helpful to me in gaining confidence with mapping.

I’ve picked the somewhat contrived example of Bitcoin payments due to its familiarity for the introductory post, but people have mostly abandoned the idea of using Bitcoin for day-to-day online payments, so in the next posts I will focus on 3 areas of payments: settlement systems (Ripple, Stellar), stablecoins (incl. GlobalCoin by Facebook) and anonymous payments. Legal and risk aspects are very important for all of these, so thanks for pointing it out, I’ll make sure to detail them. I’m also very curious to find out what a stablecoin brings to the table over just having a settlement system and dollars and I will build on Map 3 and its variants for this analysis.

Also, you’re right that “clearly superior technology” sends the wrong message (most misguided crypto analysis comes from this angle), so I’ve replaced

The original goal of the Bitcoin paper was improving online payments, but the maps that we have developed so far paint a bleak picture of its prospects of replacing credit cards. Yet Bitcoin is clearly superior technology, so let’s see if we can devise a plan as an exercise to reach the paper’s original goal.

with

The original goal of the Bitcoin paper was improving online payments, but the maps that we have developed so far paint a bleak picture of its prospects of replacing credit cards. Yet there is clearly room for improvement, so let’s see if we can devise a plan as an exercise to reach the paper’s original goal while building on Satoshi’s technological breakthroughs.

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The point I wanted to make is that “clearly superior” most probably meant “more advanced” (you know, math and all that stuff), and that it does not have to be superior at all (that might be just my opinion). The ultimate fitness function is how good is a given component at providing value to end users, and more advanced version of payments (based on crypto) does not have to be better here than fiat currencies (which are way simpler, but, perhaps, have much lower overall costs associated with them).

This is me throwing my 0.02$, so feel free to ignore it :slight_smile: .

I appreciate you taking the time and I think I agree with your point, but haven’t conveyed my meaning properly: When I wrote “clearly superior”, I meant more advanced technology that promises faster and cheaper payments (this is the core value proposition of the Bitcoin paper) and then in the edit I meant that there is clearly room for improving online payments from the end user’s perspective. But as you say (if I’ve interpreted correctly) and as I infer in the post, just because there is a more advanced piece of technology in a value chain that promises greater value to end users, it doesn’t mean that the value will be realized.

I made an other sneak edit, as I haven’t circulated this post beyond this forum yet. Replaced:

The original goal of the Bitcoin paper was improving online payments, but the maps that we have developed so far paint a bleak picture of its prospects of replacing credit cards. Yet there is clearly room for improvement, so let’s see if we can devise a plan as an exercise to reach the paper’s original goal while building on Satoshi’s technological breakthroughs.

with

The original goal of the Bitcoin paper was improving online payments for both merchants and consumers, but the maps that we have developed so far paint a bleak picture of its prospects. Yet there is clearly room for improvement, so let’s see if we can devise a plan as an exercise to reach the paper’s goal of cheaper payments while building on Satoshi’s technological breakthroughs.

The reason I stick with the Bitcoin paper’s goals instead of looking at online payments from first principles is just to keep the introductory post compact and coherent. (I always refer to the Bitcoin paper’s goals instead of Satoshi’s and Bitcoin’s goals, because the latter are subjects of frequent flame wars in the crypto community that I try to keep out of. :slight_smile: )

I wrote a follow up post to map the challenges involved in launching novel payments solutions: https://agost.blog/2019/06/mapping-crypto-common-pitfalls/

One thing I struggled with was marking circular dependencies between merchants accepting and consumers making payments. Is there a common symbol for this?

Nope, I am afraid we do not have anything for this.

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Great analysis. My initial reaction was to challenge whether the analysis truly looked at things from an end users perspective and on a closer read I felt that it did.

A couple of things that did come up as questions for me were:

  1. Trustlessness

The biggest challenge for merchants seems to be operating a full node which is advisable for better security. Running a full node can not be outsourced, as that would negate the core value proposition of Bitcoin: trustlessness.

I could be mistaken but I think one of the things that Wardley maps account for is evolving needs / wants. From this perspective, how many merchants are adopting Bitcoin because they don’t need to trust anyone to transmit their transactions to the network? I don’t think consumers care so much, but to your point perhaps merchants should. I’m just not sure it’s going to be all that important to a Merchant not to trust a 3rd party to transmit transactions to the bitcoin network. I think the greater risk is ensuring 51% attacks are mitigated but that’s not where Full Nodes play (AFAIK).

So what I’m wondering is whether merchants needs will evolve over time to trust a set of 3rd parties to maintain secure and resilient Full Nodes for reliable transaction transmission to the Network? I don’t know the answer to that but am interested in how that would be reflected in a Wardley map …

  1. Duplication
    You’re right in that ideally cryptos should leverage well established practices for invoicing etc. Do these practices need to evolve further before they are truly standardized to the point where all that is needed is an API call to a well established global invoicing / accounting / taxation API? Or put another way, why is so difficult to draw that line from Full Node to the utility invoicing and taxation node? (what’s the root cause of the challenge). My assumption is it has more to do with those practices not being as evolved as they need to be. E.g. why does each region of the world have it’s own tax laws — is that a problem worth solving? Should cryptos challenge the status quo? etc
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Thanks, Raj!

Re 1: I agree that trustless payments is not interesting for the majority. The point I was trying to make is that trustlessness is the hard technical requirement for Bitcoin to be a standalone currency and if trustlessness is given up, the only advantage of Bitcoin payments is supposedly lower transaction costs, but there is no need for a new currency any more (which is a big burden for adoption as detailed in the post). Instead, Bitcoin can be delegated to the settlement layer as sketched out in the last part of the post. So I don’t think this is an issue of evolving user needs (the status quo is that online payments are routed through trusted third parties anyway), but a question of how a new entrant to an established market should position itself for best chance of success.

Re 2: That’s a very interesting point you raise regarding a global standard for invoicing, accounting etc. That would certainly make crypto adoption much easier. (I think Stripe is actually working on becoming the API for business on the internet.)

Specifically the biggest challenge with duplication for Bitcoin comes down to trustlessness again: it requires generating a unique address for every invoice and this can not be outsourced. I think it’s important to see that even if an other cryptocurrency can solve this specific problem, the whole problem of duplication goes away if the US dollar is kept as the unit of account.

I’ve written in a little more detail on the evolutionary barrier and duplication problems in the follow up post.

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