The recent data breach at JPMorgan Chase is said to affect 83 million households and 7 million businesses, impacting more than the previous breaches at Home Depot and Target[1].  According to 2013 census data that amounts to two-thirds of American individuals and ninety-one percent of American businesses. The magnitude of the breach’s impact is alarming and points to a clear danger in centralized trust. Consumers need a system where integrity does not collapse when one company is hacked and consumers have a greater degree of control in the custodianship of their own personal data and personal wealth.American consumers have always faced an uphill battle in knowing which banks to trust with their money.  Historically, the basis for assessing the trustworthiness of a bank has been limited to assessing the economic solvency of the bank itself.  Even in this area, though, American consumers have often placed their trust in institutions unworthy of being trusted.The most famous of these instances is the panic of 1933, when depositors ruxshed to remove their funds from banks.  To quell the panic, FDR proclaimed a six-day bank holiday.  When it was over, the country had four thousand fewer banks than it did at the beginning of 1933.  This is when the government officially realized that consumers should not be responsible for assessing a bank’s solvency, and should not lose their funds (up to a guaranteed amount) if their bank fails.

The government created the Federal Deposit Insurance Company (FDIC) and has insured deposits in checking and savings accounts ever since.  This policy has boosted depositor confidence more than any other single measure but remains nothing more than a Band-Aid on top of a system that cannot inherently protect depositor funds.

Today a consumer is not only asked to make a judgment call as to the continued economic viability of a bank but also as to the strength of a bank’s ability to defend against cyber security threats.  Consumers are simply unequipped to assess financial institutions in this manner.  Consumers have neither the expertise nor the access to corporate controls requisite to accurately interpret these risks.  When an institution they trust suffers a data breach, consumers lose trust in that institution but generally do not have their lives irreparably ruined as a result of the theft of their data.

Fraudulent charges are refunded—usually at the expense of the merchant—and new credit and debit cards are issued, at the expense of the bank.  All these costs are eventually passed on to consumers in the form of higher credit card fees, costs of goods, and lost time.  The methods of protecting consumers from data breaches are no more than a Band-Aid built atop a legacy technological back-end that does not inherently protect consumer payment data.

In a recent interview with Bloomberg[2], venture capitalist Marc Andreessen articulated the inefficiencies and antiquated nature of our current financial systems, “You shouldn’t need 100,000 people and prime Manhattan real estate and giant data centers full of mainframe computers from the 1970s to give you the ability to do an online payment … You would not today, starting from scratch, invent any of these financial businesses in the same way.”

But what if there was a different system, one in which the very core was built to protect the ownership of funds and data? Enter Bitcoin.

Of every alternative financial system ever proposed, Bitcoin has achieved the highest level of consumer and merchant adoption, institutional investment, and mainstream media attention.

Bitcoin’s benefits for merchants are compelling: no fraud, no chargebacks, and smaller transaction fees. Companies like Dell, DISH Network,, Newegg, and TigerDirect accept Bitcoin. You can use Bitcoin to buy a ticket to space with Virgin Galactic or you can purchase a digital game from Big Fish Games.

For consumers, Bitcoin promises something even more powerful: financial freedom and financial privacy rolled into one.

Bitcoin is technology innovation. For the first time in history, financial transactions can be settled and verified without a centralized clearing party like Visa or ACH. Bitcoin, the network, settles transactions publicly on a distributed and decentralized ledger, and those transactions are conducted in bitcoin, the unit of value.

In five short years, Bitcoin has gone from technophile obscurity to achieving mainstream buzz. The rate of company creation and venture capital financing in the Bitcoin industry has outpaced that of the commercial Internet in the mid 1990s.

And here’s why: Bitcoin is simply a better financial system than what exists today and we are running out of room to patch our existing systems. With each major breach in our incumbent system that impacts tens of millions of consumers, the writing on the wall becomes more and more legible.

Like any new technology innovation, from the Internet to social networking to mobile communication, Bitcoin has been both dismissed and feared. However, it’s clear that some of the smartest people on the planet are now dedicating their careers and lives to Bitcoin.

Bill Gates recently called Bitcoin “better than currency,” describing a world in which financial transactions will eventually “be digital, universal and almost free.”[3]

Also, following in the footsteps of past transformational technologies, Bitcoin is now experiencing an industry-led move toward standards.

Think back to the state of the Internet in 1993. It was not safe to put your credit card number online. Consequently, Netscape developed a technology called SSL and Verisign created a trusted authority of SSL certificates so that everyday consumers could feel confident engaging in e-commerce when they saw the Verisign logo.

In Bitcoin, the first major standard has arrived and it is called multi-sig, short for “multi-signature.” Pioneered by Bitcoin security leader BitGo, multi-sig is the digital equivalent of a safe deposit box, meaning that there is always more than one party to a transaction. With multi-sig, Bitcoin holdings are protected from theft and loss by distributing authority, not centralizing it. Since the advent of multi-sig in 2013, other leading Bitcoin companies, such as BitPay and Circle, have embraced the model.

Imagine a world where JPMorgan Chase, Home Depot, and Target did not need to hold personal financial data in their repositories. Rather, the consumer holds it. And when transacting with one of these players, they are simply a party to a transaction. For example, when selecting the “Save my card number for future transactions” feature that so many merchants offer, no actual actionable information is retained in a multi-sig transaction. That means that there is no honeypot for a hacker to attack and impact the lives of 83 million people.

howitworks_graphic1bConsumer protection is at a crossroads. We can either continue to hopelessly patch the existing system with Band-Aids and centralized trust systems. Or we can embrace technologies and models that emerge as the new standard.

Of course, it is hard to do this wholesale. The current market capitalization of Bitcoin is about $5 billion while Visa has a market cap of more than $125 billion and JPMorgan Chase is valued at over $200 billion. Perhaps market cap is not the right metric for revolutionizing our financial systems and increasing consumer protections.

The simple call to action—for financial services companies, consumer advocates, payment processors, and regulators alike—is to approach Bitcoin with an open mind; do not reject it for being new. Understand what Bitcoin is, why it is capturing the attention of the world’s brightest minds, and find a way to incorporate Bitcoin into your business.

Bitcoin is also evolving rapidly. When you study the leading Bitcoin companies, you will see that some have developed and embraced models, like multi-sig, that will make Bitcoin safe, reliable and convenient for consumers.

All told, what’s truly promising about the Bitcoin industry, with its limited 5-years history, is that its members have been more innovative and disruptive than the incumbent financial services industry collectively has been over the last 50 years. This means that change is underfoot and consumers will benefit.





joe colangelo headshot
Joe Colangelo, Executive Director, Consumers’ Research –  Joe is the Executive Director of Consumers’ Research, America’s oldest consumer organization.  Established in 1929 and headquartered in Washington, D.C., the organization works at the intersection of emerging consumer trends and public policy.  He has advised policymakers on the impact of regulations on the evolution of financial technology and the crypto-currency ecosystem.  Joe graduated from U.C. Berkeley with a major in Political Science and served in the US Navy.will-bitgoWill O’Brien, CEO, BitGo, Inc. – Will is seasoned technology executive and entrepreneur, and has built businesses in the consumer, payments, financial technology, and publishing industries. As CEO, Will leads BitGo, the leading bitcoin security platform and a pioneer in multi-sig technology. Will has been featured in the Wall Street Journal, New York Times, Forbes, Fortune, AllThingsD, BusinessWeek, and various industry press. He is a regular presenter at industry conferences and appeared on television. Will holds an MBA from MIT Sloan School of Management and a B.A. in Computer Science from Harvard University.