Typography

I recently spent some time on Twitter discussing the monetary wonders of Starbucks. In this post I'll bring a bunch of tweets together into a single blog post. I don't go to Starbucks very often, so I only recently learnt that the company has succeeded in getting many of its customers to stop using cash and debit/credit cards to buy coffee. Instead, they are using  Starbucks's own payments option: Wow Starbucks, what a great gig. Starbucks has ~$1.6 billion in 'stored value card liabilities' i.e. the Starbucks Card. So ~6% of the firm's liabilities are comprised of coffee addicts paying 0% for the privilege of lending to their supplier. Source: https://t.co/nGH2arujYz pic.twitter.com/cGcSW3L4MM — JP Koning (@jp_koning) August 11, 2019 Starbucks has around $1.6 billion in stored value card liabilities outstanding. This represents the sum of all physical gift cards held in customer's wallets as well as the digital value of electronic balances held in the Star...

Some payments systems are so awkward they scare away the average user. The only people with the patience to stick around must have a motivation for doing so. These include ideologues with an ax to grind, hobbyists who happily embrace complicated features, and criminals/weirdos who are shut out of everything else. Here are a few examples of awkward payments systems: -Local Exchange Trading Systems, or LETS -Bitcoin/Dogecoin - Labor notes - Stamp scrip When usage of a payments system is confined to a narrow group of like-minded individuals, this may stigmatize these systems, scaring away mainstream users. Stigmatization only compounds the initial awkwardness. After all, if fewer venues accept the stigmatized payments option then it becomes harder for the small band of users to make purchases. A vicious circle has been created. Initial awkwardness leads to stigma which leads to more awkwardness etc. While this vicious circle is the death knell for a payments system, it is less of a pro...

When it comes to financial privacy, good old fashioned banknotes and privacy cryptocurrencies like Zcash & Monero get all the attention. But as I recently wrote for the Sound Money Project, let's not forget about prepaid debit cards. Having written a bunch of posts over the last two years about financial privacy, I recently decided that it was time to step up my own personal financial privacy game. A few months ago I walked into my local pharmacy and bought my first non-reloadable prepaid debit card (i.e. gift card), a Vanilla card. You've probably seen the rack of prepaid cards near the front of pharmacies and department stores. Some of them are closed-loo p cards. They can only be used to buy things at the issuer, say Tim Horton's or Starbucks. But some of them, like my new Vanilla Prepaid card, are open-loop cards. That means they can be used wherever Visa or MasterCard are accepted. In Canada, Vanilla cards are sold in denominations from $25 to $250. The Vanilla c...

Ok, another Sweden post. I keep returning to Sweden because no country has gone further down the road to being cash-free. Since all of us seem to be following the same trajectory, we should probably be paying attention. Lucky for us, every two years the Riksbank—Sweden's central bank—-carries out a payments surve y and puts the data up on its website. One of the most interesting questions that is asked is "which of the following payments methods have you used in the last month?" I plotted out some of the data and tweeted the result: Sweden is at the forefront of digital payments. I made this chart with data from the Riksbank payments survey: https://t.co/WTZlFYOl2Y : 1. Debit cards are universal, beating out credit 2. Cash use is plunging but still high 3. Swish adoption is exploding 4. Not much bitcoin usage pic.twitter.com/fal0pfYdMz — JP Koning (@jp_koning) February 20, 2019 What follows are a few observations. Swish beats cash Only 61% of Swedes used cash in the las...

Earlier this month the following tweet elbowed its way onto my Twitter timeline: The tweet comes from Anthony Pompliano, aka Pomp, who works at Morgan Creek Digital Asset where he runs a cryptocurrency fund. So, have I been wrong all along about bitcoin? As anyone who has been reading me for a while will know, I've been skeptical of the bitcoin-as-money story. Rather than fulfilling Satoshi Nakamoto's vision as being a next generation medium of exchange, bitcoin has gone mainstream as  a new type of gambling technology—an exciting decentralized zero-sum financial game . This is a somewhat useful role, but let's face it, it's not quite as revolutionary as digital cash. But if Argentinians are indeed hailing rides and paying drivers directly with bitcoins, as Pompliano seems to be saying, then maybe I've been too quick to dismiss the bitcoin-as-money scenario. Paying for stuff is exactly what Satoshi Nakamoto intended bitcoin to do, right? So I dug further into the t...

Satoshi Nakamoto kicked off his famous 2008 white pape r with the line: "Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. " He created Bitcoin, a form of decentralized cash, to deal with this problem. But as Meltem Demirors points out , Bitcoin adoption seems to have peaked. Eight years after Nakamoto published his paper, not many people are using the stuff as money. Here's a way to get more people using bitcoins as money on the internet: Commerce on the Internet has come to rely on a  Visa/MasterCard pricing standard . Although a few online stores like Dell , Expedia , and Microsoft accept bitcoin payments, they still set their prices in terms of Visa/MasterCard dollars. Because the dominance of this pricing standard is preventing innovative money like bitcoin from emerging, it needs to be hacked. The Visa/MasterCard standard Credit card issuers aren't mere interme...

A while back I was paying for gas at a nearby gas station when the clerk fumbled my credit card. When he bent down to pick it up he momentarily disappeared behind the counter. Because credit card transactions are always such repetitive affairs, this slight break from routine raised my hackles. Might the clerk have done something with my card while out of sight, perhaps taken a quick photo of it? Credit and debit payments require the relay of personal information. But this information-richness is also their weakness, since valuable data can be "skimmed" and used to attack the payer later on. That's why an anonymous payments medium is so important; it provides buyers with a shield from everyone else involved in a transaction. The next time I payed for gas at the nearby station, I bought myself some peace of mind by handing the clerk a few $20 notes instead. Like banknotes, bitcoin is a (near) anonymous payments medium. My gas station doesn't accept bitcoin, however, nor...

Statistical agencies employ data collectors who walk up and down aisles with hand-held computers gathering sticker prices for things like frozen french fries and bicycles. The data they collect gets amalgamated into an index and passed on to central bankers who use it as the basis for rate change decisions. It seems simple enough, but what happens if the source material has been corrupted? Might central bankers be reacting to mere shadows on the wall? Here's how prices might go bad. Start with the U.S. and Canadian payments systems. For each credit card payment, a North American merchant must pay 1-2% in fees to the card networks Visa and MasterCard. Retailers in both countries have very different strategies for coping with this burden. In the U.S., retailers are permitted to offload network fees onto customers by asking them to pay a surcharge on each credit card payment. Because Canadian retailers are prohibited from surcharging customers, they react by marking up every sticker p...

Over the last few decades, dollars have become incredibly heterogeneous. People can pay for stuff with traditional paper bank notes, debit cards, or a plethora of different credit cards. Each of these dollar brands comes with its own set of services and related costs. On the no frills side is cash. Paying with paper still incurs the lowest transaction costs, although at the same time it offers its owner no associated perks. On the fancy side is an American Express card, which costs around 3.5% per transaction but is twinned with a raft of benefits including reward points, the right to dispute a transaction, and insurance coverage. Mastercard and Visa come somewhere between. As you can see, spending one sort of dollar is very different from spending another sort. The free banking era and the "multitude of dollars" problem There's a precedent for this sort of dollar heterogeneity. During the U.S.'s so-called "free banking era" that lasted from the 1830s until ...

It's pretty simple, really. For any medium of exchange to displace another as a means for buying stuff, users need come out ahead. And this isn't happening with bitcoin. We can break any exchange medium's user base into consumers  and sellers . Now we know that sellers love bitcoin—they've been adopting it at a blistering pace, from Amazon to Microsoft to CVS. No wonder when we consider the cost savings they enjoy. A merchant is required to pay around 1.5-2.0% for each credit card transaction. Bitcoin payment processors like Coinbase, Bitnet, and Bitpay charge just 0.5% while simultaneously absorbing all of merchant's forex risk. A retailer with $1 million in sales that converts all of its shoppers from Visa/Mastercard payments to bitcoin has just earned themselves $10,000. It's a no-brainer. While sellers are jubilant, consumers aren't. Tim Swanson shows that bitcoin payments haven't budged in over a year with bitcoin processor Bitpay's transaction...