Turning Bitcoin into burritos: still not as easy as you'd think

Almost 10 years after its launch, Bitcoin remains difficult to use without a bank account. Eric Solis describes a workaround that requires only a smartphone.

Eric Solis is a full-stack entrepreneur with more than 20 years’ experience in finance and technology. He is the founder and CEO of MovoCash.

Laszlo Hanyecz famously made the first bitcoin purchase in May 2010.

The Florida developer bought two pizzas for 10,000 bitcoin (an exceptionally expensive pizza at today’s exchange rates). Tellingly, the transaction involved an intermediary—a young man who accepted Hanyecz’s crypto and then bought the pizzas on his behalf.

Today, a small cadre of merchants accept bitcoin as currency, allowing you to buy flights on Expedia, a dining room table from Overstock, or the latest Xbox game from Microsoft. Daily bitcoin transactions routinely top $1 billion, but the ability to transform cryptocurrency into what you need—right when you need it—remains a challenge.

"The Florida developer bought two pizzas for 10,000 bitcoin. Tellingly, the transaction involved an intermediary."

Even in 2019, if you want to buy a burrito with bitcoin, you need to have a bank account and connect back to the world of traditional money. It’s not yet what many crypto-enthusiasts envision: a transparent financial system independent of legacy institutions.

There are still many hurdles to using cryptocurrency without banks. At MovoCash, we’re working on a tool to help move wealth outside of the legacy financial system. This technology will soon be unnecessary—but for now, we need a bridge, one that makes it possible for more people to access crypto and become a part of the next financial revolution. (article continues below)

Eric

Underbanked, by circumstance and by choice

Whether you’re using cryptocurrency or just digital money, spending it often requires that you have access to a traditional bank account.

Even in the U.S., being “unbanked” remains a challenge for many. The FDIC reports that 6.5% of American households don’t have a bank account, and another 18.7% are underbanked, meaning that they relied on products or services outside the banking system. All told, that represents more than 32 million people.

At any given moment, you can experience what it’s like to be underbanked. Say you have an employee expense card, and one Saturday it randomly gets declined. You call your business banking team, but you can’t get ahold of them because it’s the weekend. In that moment, both you and the company are underbanked.

"More than 32 million Americans are unbanked or underbanked. Every year, they spend between $200 - $500 to access their money."

For a middle-class person who is reasonably well-integrated with the financial system, this kind of thing constitutes, at most, an annoyance. You might go on to use a personal card and submit a receipt for reimbursement on Monday, or ask a friend to spot you.

But the experience of being unbanked or underbanked is significantly more disruptive for those at the margins. In fact, NerdWallet reports that unbanked individuals spend on average between $200 and $500 in fees annually to access their money.

Even in an era of digital payments, you still need a traditional bank as your intermediary, the equivalent of a teenager bringing you the pizzas. One thing I’ve learned during a 20-year career in the financial services industry is that many people have money in PayPal that they can’t access because they don’t have a bank account. It’s essentially trapped on the platform.

The promise of crypto

Some people intentionally choose alternatives to traditional financial services. As the generation that came of age during the Great Recession, just 8% of Millennials say they trust financial institutions. An alarming 77% believe that “bad behavior” in the financial services industry will lead to another economic crisis.

Perhaps for that reason, nearly a quarter of affluent Millennials own cryptocurrency, and another third are interested in doing so. For them, crypto presents the opportunity of a future where financial transactions outside of banks are not only commonplace, but also immutably connected to individuals, easily tracked, transparent, and transferable.

"Just 8% of millennials say they trust financial institutions."

The big promise of crypto is a financial system that’s more accessible and more equitable, because the power is dispersed back to individuals. It’s a promise that has motivated my entire career.

I remember a time when I was twelve years old, shortly after my parents’ divorce was finalized. I came home from school and found my mom crying on the floor of her closet. I asked, what’s the matter? She replied that was worried she wouldn’t be able to support us or pay her bills.

I did what any twelve-year-old would do: I got down there on the floor of the closet with her. We hugged and cried. It made me angry that we were in that position, and the experience has stuck with me ever since.

Now, in 2019, I read articles about big companies vying to control the choke points of the internet, especially as it relates to payments. It makes me think back to my mom. I think, what if, instead of making rich people richer, we could build a financial system with the end-user in mind? (article continues below)

Eric and mom

Making crypto more accessible

The industry is exploring ways to make life easier for the unbanked and underbanked. MovoCash is the one my team is pursuing; it allows users to send and spend money from their mobile phones—without needing a bank account. With MovoChain, we’ve taken a step further and created an app that converts bitcoin into ready-to-spend cash.

From a tech perspective, we’re enabling cross-function, peer-to-peer payments.

Say you bought me a ticket to a movie, and I wanted to pay you back with bitcoin. Only, you don’t have bitcoin, let alone a way to accept it. MovoChain creates what’s essentially an invoice off the blockchain to pay you in dollars. It liquidates the bitcoin and drops the money into a settlement account tied to a 16-digit Visa debit card number, one it has generated for the purpose.

That debit account is connected to your mobile phone number, which becomes the unique identifier. You create a MovoCash account using your phone, and we have a ledger that notes you’re owed $50. The app sends you the money via the 16-digit number, which you can then use as you would any other debit card.

"We've turned your phone into a micro-merchant. Like Square, but without the toggle."

It all happens within minutes. The easiest way to think about it is that we’ve turned your phone into a micro-merchant—like Square, but without a toggle. Now you can send and accept Visa payments from your phone without ever utilizing the broader banking system.

Our tech makes crypto more usable, even if that means (for now) converting back into fiat dollars.

A financial identity all your own

Today, if you want to interact with the financial system, you need a bank account. In order to get and use that bank account, you must establish your identity. That means sharing government-issued ID with third parties who may or may not keep it safe.

Think about it this way. Most online transactions require multiple forms of ID, yet relatively few merchants and banks have a solid track record when it comes to authenticating the person behind the funds. Only 54% of businesses are currently “somewhat confident” in their ability to detect fraudulent activity, according to a 2018 survey by Experian.

"Blockchain solves this problem by keeping your money—and, one day, perhaps even your identity—outside the flawed system of government, banks, and merchants."

These identity issues are a double-edged sword, impacting consumers and merchants in multiple ways. In the same survey, 67% of businesses reported that undetected fraudulent activity was most costly to their company, while 33% said legitimate transactions inaccurately deemed fraudulent were the biggest problem.

As a result, identity theft and fraud continue run rampant; they cost U.S. consumers $18.6 billion in 2017 alone.

Blockchain solves this problem by keeping your money—and, one day, perhaps even your identity—outside the flawed system of government, banks, and merchants. Instead, these items would be stored safely and synchronized instantaneously on many computers around the world, on what’s known as a distributed ledger. The ledger isn’t owned by anyone; rather, it belongs to everyone.

In the future, it may even be possible to tokenize your identity. Under this model, banks and merchants would never actually see your sensitive information. Instead, they would make a digital request to the relevant blockchain and (assuming everything checks out) receive a token signifying that the person making the transaction is, in fact, you.

That’s where we’re headed. The transition may be disruptive, but using technology to level the financial playing field is ultimately in everyone’s best interest. In the meantime, the crypto movement, and tools that eliminate the friction between the two existing worlds, provide a path for the underbanked to participate in the financial system now.

Eric Solis is a full-stack entrepreneur with more than 20 years’ experience in finance and technology. He is the founder and CEO of MovoCash.

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