Cryptocurrencies have come a long way since Satoshi Nakamoto introduced Bitcoin to the world. But there’s a long way to go.
The goal: widespread adoption
What use is a coin that can’t be used for daily essentials?
“Something is only worth what someone is willing to pay for it.”
- Publilius Syrus
Syrus was born in 85 BC so he wasn’t definitely wasn’t talking about cryptocurrencies. But his statement still applies. A currency must facilitate trade for the average person to use it.
Today’s breed of cryptocurrencies are missing a couple of properties to take them to the next level of adoption. I consider these to be the holy grails of cryptocurrencies. For a cryptocurrency to take on fiat currencies and become widely adopted, it must be:
- Stable
- Scalable
- Accessible
- Regulated
Stability
Who wants to spend an asset that might be worth double in a few weeks? And who wants to accept a payment that might be worth half in a couple days?
Boy: Dad can I borrow $20 of Bitcoin?
Dad: $18.58? What do you need $21.23 for?
Volatility is the most important problem blocking the path to wider adoption. If there was a Millennium Problems equivalent for crypto, there would be a $1,000,000 prize for whoever solves stability for cryptocurrencies.
It’s no secret that cryptocurrencies are being used for speculation rather than payments. Only speculators want to expose themselves to the risks of cryptocurrencies. Companies want to focus on their business, not how Bitcoin is performing. Consumers need a predictable budget they can build their lifestyle around.
Cracking the stability puzzle would have positive implications beyond the crypto world. If a stablecoin were reliably pegged to the CPI (Consumer Price Index), Citizens of countries with unstable currencies would have an alternative that could help pull them out of crisis.
The most promising projects tackling stability are:
These projects look like they’ll work when prices are increasing but whether or not they work when prices decrease is a point of contention. Some argue that stablecoins are impossible and are the financial equivalent of financial perpetual machines. There’s only one way to find out, and that’s to try it in the real world.
Scalability
Mainstream coins like Bitcoin and Ethereum are plagued by scalability issues related to transaction times and transaction fees.
Crytocurrencies are constantly being compared to Visa which handles an average of 150 million transactions per day and is capable of handling 24,000 transactions per second. This means on average they’re handling roughly 1,700 transactions per second, but can still handle the inevitable sudden spikes.
- Raiblocks: Raiblocks is an exciting project that’s recently garnered lots of attention. It uses a novel block-lattice architecture that allows transactions within seconds and with no fees.
- Ripple: Ripple claims that “XRP consistently handles 1,500 transactions per second, 24x7, and can scale to handle the same throughput as Visa.*” I’m not sure how this works out since it implies it’s handling 129 million transactions per day. This begs the questions “who’s using it?” and “why doesn’t it appear as #1 on Blocktivity?” If their claims hold true, they’ve achieved something impressive.
- Ethereum: Ethereum’s scaling issues are often misrepresented, considering it’s one of the most highly used cryptocurrencies. Proof of stake, Raiden, and sharding are all protocol upgrades that Ethereum is planning for the near future that’ll drastically improve its throughput.
- Dash: Dash doesn’t scale as well as other projects, but it’s worth mentioning its InstantSend feature. Powered by Masternodes, it allows users to transact instantly at the cost of higher fees.
Regulation
Many governments and banks aren’t too thrilled about what’s happening in the crypto space. They want to retain the control they have over the financial system, and these projects make it possible to subvert their efforts.
Regardless of how you feel about governments and regulation, they’re a fact of life and projects must learn to navigate it them if they want to become adopted.
- Ripple: So far Ripple is doing well partnering with banks and working within the law.
- Neo: Neo is emphasizing regulatory compliance.
Accessibility
Accessibility is essential for opening adoption to the public. If only proficient computer users can access it with 1990s style software, it won’t get adopted beyond them.
Everyone should be able to spend at the average restaurant, mall, or online store.
- TenX: TenX is tackling accessibility directly by developing a card which allows you to spend your cryptocurrency at a standard cash register. It leverages the current financial system to it doesn’t have to replace it. Unfortunately, its users are still exposed to the volatility of cryptocurrencies.
Conclusion
At the end of the day, what product has all of the holy grail problems solved?
Fiat currency.
With a debit or credit card you can easily and instantly spend your stable USD in a way approved by governments.
Currently no crypto project solves all four of the holy grail problems at once. No crypto project is even tackling them all at once. Fiat currency is here to stay for a long time.
But you probably aren’t reading this if you’re rooting for fiat. So of course: it’s not decentralized, a country’s economy could destabilize it, and it requires much more infrastructure than just internet and smartphones.
I hope to see more teams gather to work on solving these problems. 2018 will be an interesting year.
