Coinbase now supports the Bitcoin payment protocol, which serves to make transactions between merchant and buyer more secure and user friendly.

The protocol was developed and rolled out in 2013 and is now being integrated with wallet and payment providers. Others looking to support it include BitPay, MultiBit and CoinPunk.

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The benefits and features of the protocol are outlined on Github. They are (1) a human-readable presentation of a payment destination, as opposed to a 34-character string, (2) a secure proof of payment (receipt), useful in the event of disputes (or business expense reporting?), (3) resistance to man-in-the middle attacks which replace the merchant’s address with the attacker’s before the transaction in authorized in a hardware wallet, (4) messages confirming receipt of payment by the merchant, and (5) the ability to “refund”- in the traditional sense i.e. return a payment to the address of origin, as opposed to hunting down the original payer and make a custom payment to offset the original.

What is Bitcoin payment protocol?

The protocol is well explained on Bitcointalk. Ironically, the protocol resurrects elements of Satoshi’s original which were later phased out. Originally, Satoshi thought that payments will be made in two ways- either to a Bitcoin address or an IP address. People eventually stopped using the latter because it wasn’t secure- anyone sharing your wifi can steal coins sent this way. Also, there weren’t online stores yet accepting Bitcoin and you never knew if the recipient was online.

Bitcoin addresses have their own issues though. In the words of Mike Hearn, “Lots. They lead to privacy leaks, they are inflexible and tough to extend with new features, they aren’t authenticated and they’re one way only.”

So Satoshi’s concept was brought back and improved. A series of messages and data are exchanged, securely linking the sender and receiver. It also embeds instructions on how the payment should be routed. Thus, you don’t need to rely on an internet connection to make payments. The protocol allows for customizing instructions for the method of payment. Via Bluetooth, an Android user can securely send payments to another Android user without having to rely on an IP. Memos can also be embedded, similar to what was observed with the “stoned” virus. These can be useful to describe details of the transaction.

In addition to making payments more secure, the protocol makes payments private, effectively achieving the objective sought by Darkcoin. The protocol breaks up the payment into many outputs, negating any single path to retrace origin.