Crypto’s new path for payments
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Why we use QWERTY keyboards remains a mystery.
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The standard theory is that the awkward rearrangement of the alphabet was designed to slow us down.
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Early typewriters were prone to jamming, and by keeping commonly used letters further apart from each other, typing would be slower, making it less likely that the typebars would collide and jam the typewriter as they struck paper.
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One hole in that story, however, is that E and R are right there in the middle of QWERTY.
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A revisionist theory is that today’s keyboard is a relic of the telegraph era.Â
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An academic study found that telegraph keyboards “accidentally grew into QWERTY among the different requirements” for typing out Morse code — and the design was simply ported to the first typewriters.
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Either way, QWERTY makes little sense for anyone other than morse-code or antique-typewriter enthusiasts — but it nonetheless maintains its 100% market share.
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This is called path dependence: We use it because we’ve always used it.
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We may not always use it: KALQ is a new keyboard layout designed for phones that may catch on in the current age of thumb typing.
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It takes a paradigm shift to break a habit entrenched by path dependence.
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Thumb typing may be that shift for keyboards — and crypto may be that shift for payments.
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How it started
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Today’s payment rails are a relic of the 1960s.
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When BankAmericards (later renamed Visa) were first introduced, all purchases above a limit (typically $50) required at least one phone call.Â
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Before proceeding with your purchase, the merchant’s check-out clerk was required to call the credit card’s “authorization center” and explain the transaction to an “authorizer.”Â
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The authorizer’s first job was to check whether it was their bank that had issued the card — if so, the transaction was known as “on-us.” If not, it was an “interchange” transaction.
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In the case of an on-us transaction, the authorizer would proceed to check the bank's records to determine if the transaction should be approved.
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This involved a lot of paper and no computers.
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First, the authorizer would cross-check your credit card number against a print-out of “hot” cards (cards known to have been stolen).
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Assuming there was no match, the authorizer would then consult a thick binder of customers’ “account sheets” and, finding yours, check that your balance was looking healthy enough to make the transaction credit-worthy.
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Next, to ensure you weren’t at the tail end of a giant shopping spree, the authorizer would check a hand-written list of the credit card transactions you’d made since the most recent account sheet had been printed out.
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If all was in order, the authorizer would tell the clerk, still on the phone, to proceed with the transaction.
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For an interchange transaction, however, where your credit card was issued by another bank, the authorizer would of course not have any of your banking records.
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In that case, your card’s authorizer would call an authorizer at your bank, relay the transaction details that had just been relayed to them, and wait on the phone while that bank’s authorizer went through the same process of checking lists, print-outs, and binders.
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So, to buy something with your BankAmericard, you’d often have a long wait while the check-out clerk waited on the phone with one bank, which was waiting on the phone with another bank.
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This of course all happens much faster today.Â
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But the process is basically the same because, like the keyboards we use, our payment rails are highly path dependent.
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Crypto might change this.
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How it’s going
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Today’s payment rails were designed for in-person transactions and, as a result, the system is highly susceptible to fraud, cards are not everywhere accepted, merchants often have long waits to get paid, and everything is 3% more expensive than it needs to be.
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Still, the current system is so advantageous to credit card issuers that they’re willing to absorb an estimated $40 billion a year in losses from fraud.
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They also, however, remain open to rethinking the entire thing — possibly with crypto.
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In announcing its latest crypto project, Visa (née, BankAmericard) said they “see potential for the Solana blockchain network to…help power mainstream payment flows.”
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Those flows could be USDC moving in real-time from the customer’s bank, to Visa, to the merchant’s bank — no phone calls (or the modern equivalent thereof) required.
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That would solve a lot of legacy problems in payments if it were to catch on, which it might not.
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So far, crypto is to payments only what the KALQ keyboard is to the QWERTY one you’re still using — a sensible alternative to a less sensible but deeply entrenched legacy system.
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There are also lots of reasons why Visa’s crypto experiments may not work at scale.
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But it’s at least worth a try — because if we keep doing what we’re doing, we’ll keep getting what we’ve got.
