Difference between revisions of "Redeemable code"

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(Add See Also section with link to Digital currency article. Add to category Financial.)
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[[Category:Digital currencies]]

Revision as of 20:17, 1 March 2012

A financial instrument whose value is accessible by redeeming the code.

Redeemable codes are generally considered "bearer" instruments such that whichever party is first to redeem the code becomes the owner of those funds.

Some bitcoin exchanges offer redeemable codes as a method that allows funds to be transferred from one user to another. These codes might be denominated in bitcoins (BTCs) or they may be denominated in a government currency, such as USDs.

The term Redeemable code was first introduced to the bitcoin community by MtGox but the concept had been in use previously under a variety of terms. MoneyPak, for instance, refers to the code underneath a scratch-off protective layer as the "MoneyPak Number". Other terms that may refer to the same concept are recharge codes, scratch codes, single-use vouchers, etc.

The vendor of a redeemable code will have terms for how the code is used. Funds redeemed using MoneyPaks, for instance, might not be available instantly or are subject to being clawed back if the vendor feels the party that redeemed the code had violated their terms of use.

As-of December 28, 2011 the exchanges MtGox and BitStamp offer redeemable codes and both offer the codes redeemable in either BTCs or USDs.

The code only has value if the vendor will grant funds to the party that redeems it. The code could be considered to be a digital currency as it is issued by a vendor and can be used to transfer value electronically.


A redeemable code can be redeemed by any party that knows the code. As a result, the use of this delivery method carries risks. When a trader is sending the code to a trading counterparty, only secure communication methods should be employed. E-mail, for instance, sends data in the clear and thus the code sent in an e-mail would have been visible to dozens of computing devices (routers, mail servers and relays, etc.) before reaching the intended recipient. Standard IRC private messages even are not secure though there are methods for improved communication (SSL). For consumer-level transactions some parties are willing to transact using non-secure methods as the risks of the communication being intercepted and fraud being the result have not yet materialized.

Aside from using encryption, the risk of exchanging a redeemable code can be casually mitigated somewhat by sending half of it through one channel (e.g. e-mail), and sending the other half through an independent channel (e.g. over a phone call).

See Also