Financial History Repeats Itself: The Adoption Process of "70s VISA" Mirrors that of Cryptocurrencies

The well-known blockchain media Bankless invited former PayPal engineer Emanuel Coen to write an article about the development of VISA and cryptocurrency. Emanuel Coen, while reading about the history of the payment system VISA, kept drawing parallels between it and cryptocurrencies, which led to the creation of this article.

At the beginning, Emanuel Coen quoted a saying by Bill Gates: "People overestimate what they can do in one year and underestimate what they can do in ten years."

Emanuel Coen mentioned that he is accustomed to learning from the past and, after reading the book "Electronic Value Exchange," he discovered many similarities between cryptocurrencies and early VISA.

Advertisement - Please scroll down for more content

What is VISA?

Emanuel Coen stated that before discussing the similarities between VISA and cryptocurrency, we must first understand what VISA is. It may come as a surprise to many that VISA itself does not issue cards.

VISA is not a bank, a public entity, or a government organization. VISA does not issue credit cards to the general public, maintain their accounts, recruit merchants to accept cards with their logo, or produce and sell card terminals used by retailers.

So what is VISA exactly? What does it actually do?

VISA is an authorization organization. For most of its history, it has been a non-profit cooperative membership organization owned and governed by a group of financial institutions it serves.

Emanuel Coen wrote that VISA provides a technical and organizational infrastructure where multiple competing financial institutions can collaborate, offering services that no single institution could provide alone.

In simple terms, VISA enables the movement of money.

Here are the five most similar signs Emanuel Coen believes VISA and cryptocurrency share in their adoption process. Original article "5 Ways Crypto is like early Visa"

#1 Money-Related Memes

It has been proven that changing the public's habits of using money and their perception of the nature of money is not an easy task. VISA's founder, Dee Hock, understood this, and he needed to first get people used to "electronic payments" so that they would believe this new way could transfer value on cards and checks.

This is why Dee made advertising a personal mission. From media ads to flyers and business cards, everything that would influence how the public viewed VISA had to be personally overseen by him.

"Think of it as money"

This was VISA's slogan and the top ad campaign that received extensive exposure on TV and in the news media. Interestingly, the ads were not funded by VISA alone but were a collaborative effort by all banks.

Today in the crypto industry, memes are a powerful way to promote the utility of cryptocurrencies without the need for institutional advertising. In the crypto world, every investor is a stakeholder, and memes such as "ETH is money" or "Money Legos" naturally emerge within the crypto community.

#2 Airdrops!

VISA knew that every payment system relies on network effects for success. For VISA, this meant developing a business model that could both accept VISA and deliver credit cards to users.

To expand the user base, VISA's partner banks actually sent credit cards to people's homes via mail (airdrops) at no cost. Once users started using VISA cards, banks could better understand user behavior and adjust credit limits accordingly.

This practice was later deemed illegal by the U.S. Congress, as encouraging people to take on debt not only sparked controversy but also raised security concerns. Credit cards were often stolen from mailboxes, and some people were unaware that they had a credit card sent to their homes until they received the bill a month later.

Does VISA's early practice remind you of the internet scams in the crypto industry and the negative portrayal of cryptocurrencies in the media?

#3 Poor User Experience

We often mention the poor user experience of cryptocurrencies, but credit cards in the 1970s were no better.

Let's walk through a traditional credit card transaction process to see if it's true. Suppose you are a VISA cardholder and want to buy a TV using your card. However, the transaction exceeds the store's limit, so the merchant must call the acquiring bank and provide detailed transaction information for authorization. The acquiring bank then calls the cardholder's issuing bank and manually checks:

• If the card is on the "blacklist"

• The user's current balance, credit limit, and usage history

If everything checks out, the issuing bank provides an authorization code to the acquiring bank, which then provides the code to the merchant waiting online. The merchant needs the user's signature, written on the sales slip along with the code. The entire process takes an average of 15 minutes.

Don't ask me why anyone willingly paid this way.

For the user, the story ends here, but for the banks, it continues because the payment is only cleared, not settled.

Subsequently, the merchant must mail the sales slip to the acquiring bank, which manually categorizes all received sales slips to collect payments from the issuing bank. Finally, the issuing bank settles this payment via the check clearing system.

Unsurprisingly, this process is prone to errors, and disputes between banks are common.

To achieve a perfect payment experience, significant technological innovation and experimentation are needed, which is not something that happens overnight. Yet you find sending transactions using MetaMask (an Ethereum wallet) extremely challenging!

#4 Revolution

The transformation VISA underwent upon its inception bears a resemblance to the current state of cryptocurrencies. In fact, Dee Hock (VISA's founder) would undoubtedly be a fan of cryptocurrencies in modern times. Dee once said:

"If electronic technology continues to develop, it is certain that the dominant position banks have held for two centuries in trade, credit, and currency transactions will shatter."

The national monopoly on issuing and controlling currency will wither away... The majority of the system's advantages will fall to those who are best at using extremely rigorous program code to handle and guarantee value data.

All of this could be the origin of a new form of global currency.

Dee gradually realized that "money" would become code that guarantees value, and the traditional banking system's relevance would diminish in the future.

Using blockchain code to guarantee value, there's no better way, don't you think?

#5 Reliable Neutrality

Dee knew that to get banks on board, the network had to remain neutral. Although banks were members, they were essentially competitors. This is why VISA became a joint organization (without stocks, dividends), with all profits used in daily operations.

Establishing an organizational structure that balances interests and ensures even smaller banks have a say is crucial. Thus, the core of the VISA network consists of a series of regulations:

This includes card design, fees all parties must pay, and responsibilities and obligations in transaction disputes. VISA must act as a quasi-judicial body in these matters and build trust among members, which is crucial for the system's functionality and growth.

Blockchain has incorporated these operational principles into its protocols and eliminated the need for dispute mediation. Furthermore, they have significantly relaxed participation requirements. Issuance and settlement must be done according to blockchain protocols, rules executed by code and maintained by user community consensus.

Interestingly, Dee later mentioned that he always wanted to include merchants and credit card holders as part of the VISA organization, but this idea faced strong opposition from licensed banks.

Conclusion: Authorization Organization vs. Authorization Platform

Emanuel Coen stated that if VISA is an authorization organization, then cryptocurrency is an authorization platform, and there are some key differences.

Take Ethereum as an example; you no longer need an organization to control the network because the blockchain provides economic certainty, and transactions are non-disputable. Network participants can collaborate, and Ethereum's composability allows developers to embed their existing programs, creating services they couldn't provide alone. Assets transferable on the Ethereum network range from fiat currencies, securities to digital collectibles.

Moreover, Ethereum is open to everyone and every organization. In other words, decentralized networks like Ethereum are the logical future development of value exchange networks. Despite these differences, VISA and today's cryptocurrencies share many similarities. Money-related memes, airdrops, UX issues, revolution, and convincing neutrality were important for VISA in the 1970s and remain crucial for cryptocurrencies today.

Emanuel Coen reiterates, "The way we exchange value is about to change."