Page 371 - Introduction to Electronic Commerce and Social Commerce

358 11 Electronic Commerce Payment Systems and Order Fulfillment

• Free from Government Manipulation. In many develop- word. This is why users are encouraged to back up their
ing countries and a number of developed countries, the private keys to paper or some other medium.
currencies have been subject to governmental fraud and • Problems with everyday use. Traditional currencies and
illegal manipulation. On an individual level, accounts cards are easier to use both off-line and online and are
have been frozen or expropriated by national govern- accepted virtually everywhere. Virtually every online
ments. On a national level, governments have illegally retailer who accepts bitcoins sets their prices in conven-
manipulated the circulation of currency, defaulted on tional currencies and determines the bitcoin cost based on
debts, etc. all of which impact currency valuations. In exchange rates against those same currencies. So, from
Bitcoin no one, governments or otherwise, has direct con- the perspective of everyday use, bitcoins offer little
trol of accounts, the bitcoins in circulation, nor their advantage.
valuation. • Network latency and issues of scalability. While the sys-
tem is designed to verify transactions on average every
On the other side of the coin, Bitcoin has equally vocifer- 10 min, sometimes it can take hours. It is hard to image
ous detractors and opponents. The list of disadvantages they how this could support the transaction volume of even a
cite include (CoinReport 2014): reasonable sized retailer or replace a system like Visa that
handles thousands of transactions per second.
• Not yet widely accepted. Even though there has been sub-
stantial growth in the number of merchants accepting Bitcoin Competitors and the Future
Bitcoins, the number of transactions, and the valuations of Math-Based Currencies
of the currency, it has yet to reach the “critical minimum.”
The pace may get increasingly slower as governments There are over 700 cryptocurrencies being traded in online
move to place regulatory controls on aspects like the ano- markets. Only ten of them have market caps above $10 mil-
nymity of accounts which provides cover for money- lion and only three have market caps above $100 million
laundering and the finance of terrorism. (recall that Bitcoin’s was about $7 billion). The three include
• Fluctuating valuation. While all currencies have swings (coinmarketcap.com):
in valuation, the value of a bitcoin has had a history of
volatile swings. This means there is substantial risk for • Ethereum (ethereum.org). Valued at close to $750 mil-
owners, much like the risk associated with stock invest- lion, Ethereum was crowdfunded in 2014 and developed
ments. For example, the value went from $120 in October by Ethereum Foundation, a Swiss nonprofit. While
2013 to $600 in January 2014 to $225 in July 2015, to Ethereum is a decentralized blockchain technology that is
$408 in November 2015, to $367 in January 2016, to traded as a virtual currency, it is actually a development
$462 in April 2016. While it’s been on the rise lately, platform with its own language that can be used to create
there’s no assurance that it will continue this way in the other distributed applications like SmartContracts that
future. Besides the risk, this also makes it hard for mer- can be run “without any downtime, fraud or third party
chants to know how many bitcoins to charge and how to control.” In contrast to Bitcoins, it confirms blocks in sec-
handle returns. For merchants it is more like dealing with onds not minutes. Recently, Ethereum has partnered with
the exchange rates for a foreign currency rather than the Microsoft to offer Ethereum Blockchain as a service on
domestic currency. Microsoft’s Azure cloud.
• Transactions are irreversible. This is both good and bad. • Ripple (ripple.com). Ripple has 35 billion shares versus
It’s bad in the sense that if a buyer makes a purchase and Bitcoin’s max of 21.5 million. Each share is valued at
the merchant fails to deliver the goods, there is no recourse $.007 per share for a market cap close to $230 million.
because the transactions will already be committed. A Ripple was originally targeted as a distributed, open
variety of external controls have been suggested but many source, consensus ledger with its own currency XRP (rip-
of them are an anathema to the underlying tenets on which ples). More recently, the system has been repurposed for
the system operates. banks and payment networks as a real-time cross- currency
• Private keys can be lost. As noted earlier, if a user loses settlement system that can support applications like inter-
his or her private key(s), they are simply out of luck. Keys national money transfer.
can be lost in a variety of inadvertent ways (e.g., disk • Litecoin (litecoin.com). Valued at $170 million, this dis-
crashes, file corruption, stolen hardware, and the like). tributed, peer-to-peer cryptocurrency is almost a clone of
Even though the transactions and public account numbers Bitcoin. Where it differs is its speed (about 4X faster), its
are visible, there is no way to sign a message to execute a proof-of-work algorithm (called “scrypt” vs. ‘SHA-256’),
transaction, and there is no central authority or adminis- and the maximum units of currency (84 million vs. 21.5
trator who can issue a new key. It’s not like losing a pass- million).