Putting bitcoin aside for a minute, he concept of financial security, and faithful transaction, is at the root of any stable monetary system. Mainstream adoption of anything, from credit and debit cards to online payment mechanisms such as PayPal and Skrill was reliant upon users feeling like they could send and receive money without fear of fraud, theft and data compromise. Of course, these things happen, and will likely continue to do so across whatever means with which we transact, but the organizations behind the processing of these methods all have policies in place that compensate users in the event of fraudulent transactions (in most cases, at least).
Banks will generally reverse transactions, or compensate account holders, when somebody steals their cards and spends funds. The same is true for things like PayPal, which has a resolution center and offers users the ability to reverse payments (somewhat controversially, but there we go).
We’ve had some pretty big fundamental developments in the bitcoin space over the last couple of weeks, with China pushing for the distribution of its own digital currency, and the Australian Stock Exchange setting its sights on becoming the first organization of its kind to settle transactions using the blockchain, and now the head of a hugely important organization in the financial-sphere has weighed in on blockchain technology and – specifically – bitcoin and its path to mainstream adoption. The man is Greg Medcraft, the organization is the International Organization of Securities Commissions (Iosco), and here’s what he had to say in an interview with The Financial Times earlier this week:
One way to get consumer confidence is that someone has to look after the issue of fraud… At least at the start, exchanges will have to guarantee the customer behind [the trade].
The organization Medcraft heads up is responsible for the overseeing of all of the worlds major securities commissions, which in turn are the bodies responsible for overseeing the various global securities exchanges (think SEC and NASDAQ in the US, or the FCA and LSE in the UK). As such, he is specifically referring to guarantees put in place by those parties on each side or a securities based transaction, but the concept can – and should, in this author’s opinion – be applied to other sectors of the bitcoin space. Without this extended application, mainstream adoption is nigh on impossible.
So what would this involve? Well, just as major banks offer protection from fraud and, as mentioned, reverse fraudulent transactions, exchanges, commercial wallet providers and payment processors should do the same. We know this sort of thing is in place with some of the major service providers – Coinbase, for example insures against loss that comes about as a result of a breach of our physical security, cyber security, or as a result of employee theft – but its not enough.
It’s obviously a controversial issue. Should we expect companies like Coinbase to reimburse us if our log in details are compromised, for example? At the moment, they don’t. But this is comparable to HSBC reimbursing us when our card is stolen, is it not? Yes, we should do all we can to avoid our accounts being used fraudulently, but there needs to be contingency in place for if (more like when) it happens to someone.
Without this contingency bitcoin won’t achieve mainstream adoption.