Innovation and Cryptoventures: Understanding Credit Cards and Cryptocurrency
Explore the comparison between credit cards and cryptocurrency as payment mechanisms, highlighting differences in confirmation times, transaction fees, security, and control. Learn about checksum methods for credit card validation and the unique characteristics of cryptocurrency in terms of money, censorship resistance, and financial control.
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FUQINTRD 697: Innovation and Cryptoventures Credit Cards Campbell R. Harvey Duke University and NBER
Checksum Last digit on credit card deterministic based on Luhn formula Checksum makes sure there is not error in transmission of the number Campbell R. Harvey 2020 3
Checksum Campbell R. Harvey 2020 4
Checksum (1) Account Number (2) Double every other (from right) (3) If > 9, sum digits, i.e. 16=1+6=7 4 7 1 5 2 9 1 1 0 0 9 1 0 5 3 x 8 7 2 5 4 9 2 1 0 0 18 1 0 5 6 x 8 7 2 5 4 9 2 1 0 0 9 1 0 5 6 x Sum row (3) = Check digit (x) = 59 1 (9xsum) mod 10 Campbell R. Harvey 2020 5
Checksum Method Write down credit card number replacing the last number with x Working from right, double every second number If any number>9, then sum the digits, i.e. 16= 1+6=7 Multiply the sum of the 15 numbers by 9 Mod 10 the sum You have last number Campbell R. Harvey 2020 6
Differences Cryptocurrency is money. VISA is a transfer mechanism. VISA can be used to spend dollars, euros, - and potentially even cryptocurrencies VISA is not money. It is a way to transfer money (and not a very secure way). Cryptocurrency is money. Receiving party for VISA cannot confirm the reception of a payment for 90 days (i.e. may get funds earlier but it is reversible) Cryptocurrency transactions can be confirmed within one hour. VISA transactions fees 2-3%. Cryptocurrency transaction fees far smaller Campbell R. Harvey 2020 7
Differences Cryptocurrencies are money. VISA is a token. Cryptocurrency txs are uncensorable, VISA txs are censorable Cryptocurrency balances are unseizable, VISA balances are seizable Cryptocurrency monetary base (such as bitcoin) is disinflationary, VISA fiat monetary base is inflationary Cryptocurrency works in all countries, VISA fiat is sub-regional Cryptocurrency is a P2P open source network, VISA is a private corporation Cryptocurrency inert cold storage is in your sole control, VISA balance is in their sole control Campbell R. Harvey 2020 8
Differences VISA does have some advantages Able to handle very large throughput of transactions which is not currently possible with cryptocurrencies Provides credit (you don t need to have the funds to buy something). It is possible that you could get third party credit with cryptocurrency too, such as a VISA card based on bitcoin or ethereum. However, for an on-chain transaction, you must have the coin to spend. Campbell R. Harvey 2020 9
