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Updated: A debit card for bitcoin: Xapo could solve the payment problem with help from banks

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This story was updated at 9:52am PT to reflect the fact that Xapo does not have a formal relationship with MasterCard, but only that it hopes to have one through a partner bank. This is contrary to earlier claims made by Xapo to Gigaom both in person and in writing that Xapo would issue a MasterCard-branded debit card. A MasterCard representative confirmed that it has no relationship with Xapo.

Bitcoin has a long-standing problem. Despite all the hype over the digital currency, almost no one uses it in real life for day-to-day payments: the process is cryptic and cumbersome, and simply impractical compared to using credit cards or good old-fashioned cash.

Xapo, a bitcoin storage and wallet service, says it is poised to change all that. On Thursday, the company is launching a debit card that will let users spend their bitcoin anywhere in the world where MasterCard is accepted, with the same speed and ease as a credit card. The Xapo debit card can be used online or, if users want a physical card to use in shops, they can obtain one for $15.

The service is the first to overcome the long-time bottleneck in the payment space, and could ultimately lay the groundwork for bitcoin’s arrival as a mainstream form of money.

How it works

Xapo is one of many companies that offers a “digital wallet” service where users can store bitcoins, and send and receive payments using an email address or the wallet’s numeric address to identify themselves. What Xapo has done that is different is to strike a deal with MasterCard that allows it to piggy-back on the credit card provider’s widely used payment network.

In practice, it works like this: Sally spends $10 at her local coffee shop and elects to pay with her Xapo debit card. When the barista swipes her card, MasterCard will confirm over its network whether or not the funds are available. So long as Sally has $10 worth of bitcoins in her account, she will be able to have her coffee.

On the backend, what could happens is that Xapo’s partner bank will confirm to MasterCard whether or not Sally has the funds — and it will know this because it knows how many bitcoins Sally has in her wallet. And when the coffee shop transaction occurs, Xapo will immediately debit her account by selling the appropriate amount of bitcoin on the Bitstamp exchange. MasterCard will then pass on the $10 that Sally spent to the coffee shop, minus its customary commission fee of 2 or 3 percent.

Xapo later said that it is working with an undisclosed U.S. partner bank and an overseas bank, which will in turn issue Xapo-branded debit cards that will operate on the Visa or Mastercard networks. A MasterCard spokesman said that would-be card issuers must first obtain permission from MasterCard (this is why there are WalGreens pre-paid MasterCards but no such product from “Larry’s Strip Club.”) It’s unclear if Visa or MasterCard would grant an issuer permission to issue a bitcoin-related debit card.

Sally can also, of course, use the Xapo debit card online to buy songs from iTunes(s aapl) or place an order from Amazon(s amzn).

Will anyone use it?

Until now, it’s been possible to buy things using bitcoin but, unless you’re doing transactions through an obscure online marketplace, there is no practical reason for doing so.

For starters, bitcoin is slow: it can require waiting up to an hour for the bitcoin network to receive six confirmations that a transaction has cleared. Meanwhile, some popular workarounds — like exchanging bitcoin for cash at an ATM machine or a proposed China-based debit card — are impractical because the customer has to pay a premium to use them.

In the case of the Xapo debit card, however, the customer does not incur a charge for using the service, and it’s as convenient as a credit card. But will anyone use it?

Wences Casares, CEO of Xapo, told me this week that he expects the initial users to be those people who bought a few bitcoins when they were cheap and want an easy way to spend some of their profits. He points out that most people in the world don’t have access to regular credit cards, and the Xapo card will provide them with an easy way to buy things on the internet.

Most importantly, however, Casares believes he has found a way to make bitcoin safe and easy for everyday people.

7 Responses to “Updated: A debit card for bitcoin: Xapo could solve the payment problem with help from banks”

  1. Xapo is from the same CEO that created the Lemon Wallet that just had to be pulled from all of the app stores. LifeLock (ticker symbol LOCK) said the Lemon Wallet (which they bought from the Lemon people, could not even comply with the basic credit card protections in PCI-DSS. Why would anyone trust Xapo to protect against the world of hackers? And some fools put over 20 million dollars into funding the incredible “safety” of Xapo. Maybe they should search Google News for what just happened to LifeLock’s stock after trusting a Lemon like the Xapo people.

  2. Michael Moriarty

    Xapo is rubbish. The cards are not even available yet. They will only be offered in a few countries. Also they will require ID verification and report all your finances to the IRS. BitPlastic is ALREADY the leading Bitcoin Debit Card company and reports NOTHING to the government:

  3. afsaf1213

    “Bitcoin has a long-standing problem. Despite all the hype over the digital currency, almost no one uses it in real life for day-to-day payments: the process is cryptic and cumbersome, and simply impractical compared to using credit cards or good old-fashioned cash.”

    I use it a lot both online and in physical stores. It is not that hard, open mycelium scan qrcode receipt generated by seller and press send. After that i enjoy the warm fuzzy feeling knowing that no personal data about me is being sold by hackers.

    “For starters, bitcoin is slow: it can require waiting up to an hour for the bitcoin network to receive six confirmations that a transaction has cleared. ”

    This is not actually true. For the payment to be broadcasted to the network it takes around 2-5 seconds and it’s pretty much cleared. The only problem with accepting 0 conf transactions is the possibility of a double spend attack which is really hard to do successfully and you would have to be really dumb to try this in physical stores.

    Anyway 6 confirmation is just an arbitrary standard set a while ago, there is no noticeable difference if you wait for 3 or 6 and as far as i am aware there was no successful double spend even after 1 confirmation.

    I also want to note that credit cards actually take a lot more to clear even weeks pass before merchants get those funds, with bitcoin after you receive the transaction those are yours and there is no entity who could meddle and block, seize or reverse a payment.

    There’s still room for improvement and this will happen in the next few months. The pace at which things change is unbelievable even if you compare things today to 1 year ago you would be shocked at the changes.

    And I can use bitcoin to buy at most retail stores and fast food trough gyft (there is also egifter and some others)which sells vouchers for bitcoin and even give extra rewards for those who pay in btc because they pay just 1% to coinbase and have 0 volatility risk as opposed to credit cards that charge 30 cents+2,5%

  4. Michael Moriarty

    XAPO is absolute rubbish. It is the same thing that happened with CaVirtex and other so-called Bitcoin Debit Cards. They received a huge round of VC funding and now they feel the need to tout some kind of innovation. Go to their site – you still can’t get the card! It is in ‘pre-order’ and will most likely never work. If it does work, expect to submit all kinds of identity verification documents and have your bitcoin funds reported to the IRS. If you want a REAL Bitcoin Debit Card that ACTUALLY WORKS and requires NO IDENTITY DOCUMENTS, then try !!

  5. stencil

    May be a solution for the customer, but not the merchant. He still pays the standard 2%-3% transaction fee. Aren’t minimal transaction costs one of the benefits, and real selling points, of bitcoin?

  6. OK, So I lose my wallet, visit target or my credit card number ends up in on the internet. Someone spends all my bitcoin on my Xapo Debit card. Unlike a traditional credit acrds that have fraud protection I presume I am SOL. Therefore DOA