Money ideas

Bitcoin has been described as many things. It’s been compared to tulip bulbs, called internet gold and e-money, and labeled libertarian, as if a technology protocol can have a political ideology. At its core, though, bitcoin is a protocol for transferring value across the internet: in other words, programmable money. It may not be the optimal protocol, but it offers advantages over the incumbent financial services infrastructure, such as eliminating or drastically reducing the 2.5 percent “tax” levied on every payment transaction today.

Given the magnitude of this problem, it’s no surprise there have been multiple attempts at solving it. One of the most interesting came to light shortly before the Christmas holiday when the United States Patent and Trademark Office (USPTO) published a patent application for “Gift Tokens” submitted by eBay on June 18, 2012. For reference, a similar virtual money patent application submitted by JP Morgan was rejected earlier this year.

As is the nature of patent applications, eBay’s is predictably vague and broad in its language. But at the core of the application is a description of programmable money very similar to bitcoin. The application reads:

Systems and method are disclosed for giving gifts or payment instruments in the form of security or payment tokens…A gift or payment instrument can be given from a user of a payment provider, such as Paypal, Inc., to a gift recipient…The recipient can use the token to purchase a product using the payment provider. The purchase can be made from a brick and mortar store or an online store. The purchase can be made without requiring the user to create the user’s own payment provider account.

To boil this down, eBay is proposing a system for storing and exchanging value that is independent of the current financial services system – no credit cards, no bank accounts, and no state-issued currency.

This is similar to the vision Andreessen Horowitz partner (and PandoDaily investor) Chris Dixon explained as his underlying motivation for investing in bitcoin. Dixon writes:

…if the technology industry wants to change the financial services industry, it can’t just build new services on top of existing financial services companies. That would be like trying to disrupt Google or Apple by building services on top of their platforms. To actually have an impact (and create large businesses) you need to create services that completely bypass incumbent financial companies… At some point, I had an “aha!” moment and realized that Bitcoin was best understood as a new software protocol through which you could rebuild the payments industry in ways that are better and cheaper.

Dixon explains that such a programmable money system, should it gain widespread adoption, could enable new businesses and services like micro-payments. For example, online publishers could one day charge pennies or even fractions of a penny to read an article or view a video, providing a monetization mechanism independent of advertising and more palatable than large, all-encompassing subscriptions. This is not possible today, in large part, due to the cost of payment processing.

Of course, one of bitcoin’s most celebrated attributes is its independence from any central governing body, be it governmental or corporate. A programmable money system created by eBay, JP Morgan, or any other institution would not offer these same benefits. If the goal is to disrupt the existing financial services infrastructure this is a distinction worth considering.

EBay’s Gift Tokens are little more than a concept today and may never come to fruition. Bitcoin similarly may never reach the critical mass and broad adoption required to solve many of these foundational financial services problem.

But, make no mistake about it, we are racing toward a future when money could move as freely and quickly as information does today. The problems are significant enough and the value in solving them great enough that eBay, and, soon, I suspect, other big players, will continue to put forth potential solutions to ensure we get there.

[Image via BounceEnergy]