BIP-70 (protocol used by BitPay) provides a useful mechanism that can enhance user experience and prevent payment errors. The protocol offers payment improvements by signing each transaction and reducing the complexity of cryptocurrency transactions. BIP-70 provides proof of the identity of the receiver, which significantly reduces the possibility of an erroneous transaction. Is this too good to be true?
You might be wondering how BIP-70 works. We’ll break it down for you:
- Click ‘Pay’ or scan the QRCode on your mobile.
- It will open your wallet in a specific parameter
- Your wallet will request information from the server
- The wallet and server exchange information and the wallet sends the correct amount of Bitcoin to the specified address
How Does This Differ from Traditional Payment Techniques?
Many people scan QR Codes to send Bitcoin to addresses. In essence, there is no real difference in using this method to transact payments – the specified amount of Bitcoin is sent to the correct address. Both are specified in the QRCode. Many people click on BIP-20 URI– it then opens their wallet and sends the correct amount of Bitcoin to the correct address. Both are specified in the URI.
BIP-70 does nothing to reduce the complexity of the transaction.
The benefit of using BIP-70 comes down to the transaction being signed with a proof of address – it verifies the Bitcoin has been sent to the correct address.
Bitcoin addresses can be confusing, which can make errors costly, especially with frequent business-related transactions. BIP-70 allows the bitcoin to be sent to a domain, not to an address.
Problems arise because Bitcoin payments cannot be reversed, and Bitcoin addresses do not provide needed clarity to who was sent the money. BIP-70 provides peace-of-mind for businesses and individuals who want to ensure they are directing their funds to the right location.
Why It Might Be Too Early
While BIP-70 provides greater clarity for Bitcoin transactions, there are still flaws in the system. At present, many wallets, hardware wallets, hosted accounts, and marketplaces do NOT support the BIP-70 protocol. This creates a security risk for individuals who value their privacy.
Many virtual computers and workstations are not configured to start BIP-70 compatible wallets.
There is no doubt that BIP-70 is an excellent protocol that many companies will benefit from. It is an effective way to help individuals process payments for goods via websites. But a more classical approach should also be made available for customers who understand Bitcoin addresses and QR Codes.
BitPay has upset a significant portion of the crypto community by imposing BIP-70 as their sole solution for purchasing goods via their service. And while BitPay may be right in thinking BIP-70 is the future of Bitcoin transactions, you should be careful about entering the market too early.