Tech, policy, liberty, voice

Line by Line Response to MasterCard's Matthew Driver

05 Dec 2014

Mr. Driver,

In only a few hours you’ve seen an overwhelmingly negative response to your December 3rd video entitled Perspectives: Matthew Driver “Trust Is A Critical Component” on YouTube.

I trust that as President, South East Asia, for MasterCard Worldwide, you’re curious to know why this video has been so poorly received. It would be simple to dismiss the response to this video as a reaction from a passionate - often called rabid - group of Bitcoin defenders, who will loudly object to anyone who opposes their precious digital currency. To do so would be a mistake. The negative reaction is due, in large part, to you making inaccurate statements about Bitcoin, and also for making claims that are remarkably out of tune with the younger generation of internet users that you presumably want as customers.

I’m going to explain this line by line, on the off-chance that you genuinely are interested in hearing feedback from someone who is knowledgeable about Bitcoin and its community of users.###Video transcript and comments

Today we are seeing a huge change in payment technology, whether it’s digital convergence or cryptocurrencies.


There’s a huge opportunity in Asia, so it’s very important for us to look and understand what are the real benefits that are being put into the system by these new technologies.

Your interest is understandably in Asia. I would note here that cryptocurrencies are not restricted to any geographic area.

If you are a consumer or a merchant, a government, even a financial services provider, what’s really critical is that what you’re putting into the marketplace is solving a need for a customer and is trusted.

Here is where your first fundamental misunderstanding of Bitcoin is revealed. Your criteria for a successful product are something that solves the needs of customers (no disagreement there) and something that is trusted. The financial system prior to Bitcoin did indeed run primarily on trust, but this was a bug, not a feature. In fact, the entire reason that Bitcoin was created was in order to use a trustless system. As Satoshi Nakamoto, the creator of Bitcoin, said in the first sentence of the introduction to his original paper:

Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model .

In case this isn’t clear enough, the first sentence of the conclusion states, “We have proposed a system for electronic transactions without relying on trust.” Bitcoin is entirely about having an alternative to the model of trusting third parties, such as MasterCard, and instead trusting in cryptography.

You continue:

Trust and security, a stable form of value are incredibly critical if you’re going to be able to get acceptance for the services that you’re looking to provide.

Trust we’ve already discussed. Security is another thing entirely. As you’re well aware, services such as MasterCard are “pull transactions,” meaning that consumers give access to vendors to pull funds from their account. This system is inherently insecure; it leads to massive databases of credit card numbers which incentivizes criminals to break into those systems and steal that information. Home Depot and Target alone were many tens of millions of cards stolen. I’m sure several million were MasterCard.

There’s a far more secure system available. It uses “push transactions” meaning that the consumer does not give access to the vendor to pull funds from their account, but instead they push the amount to the vendor. This means there are no massive databases of numbers to steal, and no one has access to the funds except the user themselves. Bitcoin isn’t an insecure pull transaction system like MasterCard, it is a secure push transaction system.

The challenge with cryptocurrencies like bitcoin is that they’re unstable in terms of their intrinsic value, they don’t offer perhaps the recourse that consumers are naturally expecting that comes from using cash in the day-to-day, and they’re also there to serve a purpose that’s not necessarily completely clear.

You lay out three challenges with cryptocurrencies:


**They’re unstable in terms of their intrinsic value.*

**They don’t offer the recourse that consumers are naturally expecting from using cash.*

**They serve a purpose that’s not completely clear.*  


1. This is disappointing coming from a man who was educated at Columbia and the London Business School. Intrinsic value doesn’t exist. A piece of paper, plastic, or even gold only have value due to the belief that other people will agree they have value. Entries in a digital ledger are no different. It is true that bitcoins have a volatile price, but it is set by market forces, meaning that regardless of your dislike of Bitcoin, others find it valuable and give it a price.

2. Strange argument; what recourse does a user have when they spend cash? Unlike Bitcoin, cash has no permanent record of a transaction having taken place, nor is there any way to prove ownership over cash in the past. Bitcoin has far more recourse than using cash, and the same systems that people use for settling disputes with cash (receipts, courts) are also available to Bitcoin users.

3. Bitcoin’s purpose is entirely clear. I’ll quote Satoshi Nakamoto a second time, filling in some details to make it easier to understand:

“We have proposed a system for electronic transactions without relying on [trusted third parties such as MasterCard, PayPal, Bank of America, JP Morgan or the Federal Reserve].”

Is that a clear enough purpose?

Let me give you an example: bitcoin and a lot of concerns related to bitcoin are because they are looking to guarantee anonymity, essentially electronic cash if you will.

Bitcoin doesn’t guarantee anonymity. Every Bitcoin transaction is recorded permanently in the public ledger called the blockchain. It’s simple to think about Bitcoin as electronic cash, but it’s not as anonymous as cash, or pre-paid MasterCards purchased with cash.

And what Mastercard is critically looking at is: how can we move to this world beyond cash, how do we actually use electronic payments to combat the inefficiencies of cash and really create a more transparent and inclusive financial system.

Bitcoin isn’t cash. Bitcoin is an electronic payment system. Simply calling Bitcoin electronic cash doesn’t mean you can then disregard is as sharing the same inefficiencies as cash. What’s more similar to cash: an electronic payment system that relies on a cryptographically secured public ledger that isn’t controlled by any organization and has no physical representation, or an electronic payment system that is reliant on a monetary system controlled by a single organization and is used by accessing a piece of plastic in your wallet (instead of a piece of paper)?

You mentioned transparency. The blockchain is perhaps the most transparent financial instrument in history. An organization that uses Bitcoin could literally have every single aspect of their finances transparent. Are you willing to submit MasterCard to that level of transparency?

Lastly, you mention an “inclusive financial system,” which is interesting coming from a credit card company. MasterCard’s rules for merchants are right here - please be warned Matthew, that’s a 274 page pdf, you might not want to download it. I was going to post the table of contents for illustrative purposes, but they were 13 pages long, so here’s a single chapter:

Chapter 3 Customer Obligations

This chapter contains Rules relating to Customer obligations. 3.1 Obligation to Issue MasterCard Cards Transactions 3.3 Transaction Requirements 3.4 Authorization Service 3.5 Non-discrimination—POS Transactions 3.6 Non-discrimination—ATM and PIN-based In-Branch Terminal Transactions 3.7 Integrity of Brand and Network 3.8 Fees, Assessments, and Other Payment Obligations 3.8.1 Taxes and Other Charges 3.8.2 Maestro and Cirrus Card Fees and Reporting Procedures 3.9 Obligation of Customer to Provide Information 3.10 Confidential Information of Customers 3.11 Use of Corporation Information by a Customer 3.12 Confidential Information of the Corporation and the Corporation’s Affiliates 3.13 Data Protection—Europe Region Only 3.14 Quarterly MasterCard Report (QMR) 3.14.1 Report Not Received 3.14.2 Erroneous or Incomplete Report 3.14.3 Overpayment Claim 3.15 Cooperation

I’m not sure that merchants in developing countries will consider this an inclusive system. Bitcoin only needs an internet connection. It’s free.

If you really want to do that, it’s quite hard to understand what the appeal is of a cryptocurrency, when that currency is really essentially electronifying cash.

It’s not about “electronifying” cash. It’s about having an electronic payment system that isn’t controlled by any organization.

It seems to be pretty inefficient.

It’s not. This is an inefficient system.

Innovation in payments and frankly any industry is critically important to maintaining a healthy competitive environment and driving improvements and experiences for consumers and businesses.

Bitcoin is a fundamental innovation in both the computer science field and in the monetary space. Does MasterCard claim to be innovative? You’ve been using the same “priceless” ad campaign since 1997. Perhaps your innovation is in suing people for making parodies?

Innovation is something critically important to what MasterCard does and MasterCard is particularly focused on ensuring that we’re delivering safe, simple, smart solutions to consumers.

I’ll have to take your word for it, I’m a Bitcoin and Visa user myself.

When we look at the markets across the world, 85% of the world’s retail transaction are cash, so what we’re trying to ensure is that we are building compelling, interesting, secure and convenient payment solutions that encourage merchants, consumers, governments and other participants in the financial system to move to adopt electronic payments.

Let’s ask Vib Prasad, head of MasterPass Global, for his opinion on electronic payments:

I’m going to kid myself and think I’m going to have millions of people download a MasterPass app ,” Vib Prasad, head of MasterPass Global, told Mobile Payments Today in a recent interview. “Fundamentally what MasterCard has really been successful at is enabling partners to help embed the MasterCard brand into their own experiences, and we’re doing the same thing with digital.

“If it’s a mobile banking app, we want to be integrated into it. If it’s a merchant’s shopping app, we want to be integrated into it. It’s less about creating something new .”

Well, that doesn’t sound innovative at all.

Vib and Matthew, you know what electronic payment system has millions of users downloading apps and programs on their smartphones and laptops? Bitcoin.

With a big increase in Internet traffic, convergence with mobile and everything digital, there’s huge interest in cryptocurrencies and what perhaps they can create in the marketplace.

Yes, the numbers above highlight just how huge this interest is. Interestingly, even though you admit there is a huge interest in cryptocurrencies, you never give an answer to why this is. Since you are so quick to point out the faults, do you believe you are uniquely capable to see its faults and millions of people are all being hoodwinked?

Now we at Mastercard are not completely comfortable with the idea of cryptocurrencies, largely because they go against the whole principle that we’ve established our business on which is really moving to a world beyond cash and ensuring greater transparency and security and simplicity in the way people live their lives.

Your entire anti-bitcoin argument rests on the fact that Bitcoin is cash, and therefore MasterCard is better. As I’ve explained already, Bitcoin isn’t cash. Surely you can see how a digital currency is necessarily an electronic payment system?

Greater transparency is a ridiculous claim, as I’ve mentioned. Same with security.

If you think about it, cash is a problem for a number of countries.

Many people have thought about it, which is why they propose an electronic payment system. You can use centralized electronic payment systems that censor your transactions, charge fees, and need a 274 page manual to understand. Or you can use an electronic payment system that is censorship-resistant, nearly free to use, and requires no applications to file or manuals to read.

Cash really facilitates anonymity, it facilitates illegal activity, it facilitates tax avoidance and a range of other things that aren’t going to drive an efficiency in an economy.

We get it, you don’t like cash. Also, I’m not sure what you mean by “efficiency in an economy,” but having people use their medium of exchange however they see fit is more likely to lead to an efficient economy than locking them out of actions they want to take.

Trust is a critical component of any payment system, so if you think about the idea that all of a sudden you’re having cryptocurrencies being manufactured if you like on an anonymous computer, in an anonymous location, it’s completely legitimate to have some concerns about how that might be working.

Actually, these concerns are completely illegitimate, and here’s why: it doesn’t matter where the bitcoins are being “manufactured,” they end up in the system all the same. Just like printed cash or gold, the end-user doesn’t care where it came from. Also, you seem to believe that simply asserting that bitcoins are being mined anonymously is enough to “have some concerns.” Why would an anonymously created bitcoin be any different from a bitcoin created by an identifiable person? The system is regulated by math, and those bitcoins are identical to an algorithm.

What a regulator wants to do is ensure that there is a fully compliant root to the transaction.

I’m sure that you place a strong emphasis on making regulators happy. I don’t personally care if regulators are happy, and if they have a “fully compliant root” or not. Guess what? Neither do your customers, except when they face fines or punishment from you or the government.

That they understand who is making a transaction, who that payment is being made to and that they have a suitable record, so that they can ensure that there’s prudential control over the system.

The fact that you actually used the line “prudential control over the system” as something positive to strive towards is exactly why Bitcoin exists and is growing in popularity. People don’t want you and government bureaucrats to have this level of control over their own finances and trade. Prudential control be damned.

If it’s an anonymous transaction, that sounds like a suspicious transaction. Why does somebody need to be anonymous?

There are many ways to respond to this, but I’ll just quote a headline:

Mastercard under fire for tracking customer credit card purchases to sell to advertisers

I prefer anonymous transactions so that companies don’t track my purchases and sell my information to advertisers. Given your company’s track record, I’m not surprised you don’t understand this.

I certainly don’t want anybody mining technology or mining financial services away from my control, particularly if they’re gonna represent something for me.

We understand. You like control. Enjoy it while it lasts.