Legal Seminar, Denver, CO

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[m7;July 3, 2018;21:58]

JID: CLSR

computer law & security review 000 (2018) 1–8

ments bent on using the data to achieve social control. 44 After all, not all governments are as supportive of privacy values as the European Union or as committed to a laissez-faire ap- proach as the United States. The fact that some consumers do not accept this tradeoff and have the freedom to pursue other alternatives– provides an impetus for innovation, which is discussed further below.

a market share approaching 90% of the electronic payments in China and they compete with China’s state-run credit and debit-card network, Union Pay. 39 The AliPay and WeChat Pay platforms present lower fee structures than the payment card systems in the U.S., which may be attributed to vertical inte- gration that allows these payment firms to profit from other transactions within their marketplace. 40 Moving payments to cheaper platforms presents a market- ing challenge for the consumer side of the equation, which is not easy to surmount. For example, merchants benefit from lower cost structures associated with debit card transactions, which are less expensive to process than traditional credit card payments. 41 But many consumers apparently prefer the benefits that come from their credit cards. When the costs of those benefits are embedded into the prices paid, the con- sumer incentive for switching to a payment technology that saves money for the merchants is limited indeed. Merchants risk disrupting their cash flows by moving to new technologies and those new technologies face the uphill battle of overcom- ing the inertia of established networks and systems. Electronic payments may also allow others means for profit, which may benefit those on the selling and financ- ing side of the equation. A typical cash transaction generates comparatively little information from the purchaser, as the data necessary to complete an in-person cash transaction is generally limited to a fairly simple question: did the person tender the appropriate amount of cash in exchange for goods or services? Electronic payment systems change this balance of information. In a typical payment, not only does the iden- tity of the payor become known at least somewhere within the network, but the record of the transaction is created in a form that is potentially accessible and searchable in an effi- cient manner. Both government and private industry see util- ity from this treasure trove of data. Consumers can also benefit from the use of their data to the extent that they participate in marketplace rewards. For example, some consumers may obtain access to credit through the application of data analytic methods to their social media or commercial contacts, which might not oth- erwise be available through traditional credit-scoring chan- nels. 42 However, such benefits are subject to an important trade-off involving the sacrifice of personal privacy, as well as concerns about the accuracy of the algorithms and data ac- cessed. 43 Many consumers simply accept this tradeoff in fa- vor of the benefits from participating in electronic transac- tions. Others are forced to accept this regime from govern-

3.

Cryptocurrencies: promise or perdition?

The emergence of distributed ledger technology nearly a decade ago presented a new idea that has been working its way through the payments ecosystem. The pseudonymous publication of a white paper under the name of Satoshi Nako- moto 45 exposed a new, open-source technology that was par- ticularly adapted to transmitting value between parties with- out the use of trusted intermediaries. Bitcoin emerged as the first of many so-called cryptocurrencies based on distributed ledger or “blockchain” technology. Through combining pub- lic/private key encryption technology with a set of public pro- tocols for information exchange adopted voluntarily by partic- ipants in a distributed network, individuals would be able to transmit Bitcoin to other participants in a reasonably secure and comparatively anonymous manner. 46 Bitcoin faced a colossal problem: how do you convince oth- ers to accept a novel electronic cipher as medium for ex- change? Unlike a fiat currency sponsored by a state govern- ment, there is no centralized authority to require anyone to accept Bitcoin. Indeed, the early adoption of paper currency in China was purportedly reinforced with a death penalty for those who refused this form of payment – something that was clearly not going to work in a diffused and comparatively free marketplace. 47 Somehow, Bitcoin overcame this challenge. Some com- mentators suggest that prospects of a stateless currency to fund criminal activity fueled the initial impetus for adop- tion. 48 Indeed, Bitcoin offers several advantages over typical fiat currencies in this environment that might be particularly attractive to someone who wants to violate state-imposed restrictions on one’s conduct. First, Bitcoin can be transmit- ted over the Internet, avoiding traditional channels that are ubiquitously populated with intermediaries charged with en- forcing rules and restrictions designed to identify suspicious transactions and thwart criminal activity. 49 Even where cash 44 See, e.g., Frances Martel, China Celebrates Social Credit System Blocking People from over 11 Million Flights (May 21, 2018), http://www.breitbart.com/national-security/2018/05/21/ china-celebrates-social-credit-system-blocking-people-11- million-flights/ . 45 Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash Sys- tem (2008), https://bitcoin.org/bitcoin.pdf . 46 See generally Jillian Friedman, Cryptocurrency 123-27, in Elec- tronic Payment Systems: Law and Emerging Technologies (Edward A. Morse, ed. 2018). 47 See David Wolman, supra note 6, at 1-2.

39 See id. 40 See id.

41 See Justin Pritchard, Why the Choice Between Debit and Credit Matters, https://www.thebalance.com/debit-or-credit-315293 (up- dated April 24, 2017). 42 See generally Nizan Geslevich Packin & Yafit Lef-Aretz, Access to Payments and Credit in the Age of Big Data 259, in Electronic Payment Systems: Law and Emerging Technologies (Edward A. Morse, ed. 2018). 43 See id. at 280-85 (criticizing “black-box decision making” and raising prospects of social polarization in response to known al- gorithms).

48 See, e.g., Steve Forbes & Elizabeth Ames, Money 36 (2014). 49 For an overview of these regulations, see Eileen Lyon, Money Laundering and Tax Enforcement: US Foundations 169; Paul Lanois, Money Laundering and Sanctions Regime: Cross-Border Please cite this article as: E.A. Morse, From Rai stones to Blockchains:The transformation of payments, Computer Law & Security Review: The International Journal of Technology Law and Practice (2018), https://doi.org/10.1016/j.clsr.2018.05.035