Electronic Money: How Close Are We?

In a talk in South Africa, a little over a year ago, one of my heros, Andreas Antanopolous says

“The killer application of blockchain is money. Real Estate, Voting, Retail Markets — these will all happen, but the use of blockchain as currency will happen first”

I totally agree with Andreas. The first killer app of the Internet was email. Email had to happen before the web happened, before search happened, before e-commerce and Amazon happened. In the same way, Blockchain is (in the words of Brock Pierce) “completely replace the Internet”, but first, it’s got to prove its killer app: digital money.

So how close are we from using Blockchain as a simple way for A to pay B?

Well, iteration one started with Bitcoin, 10 years ago. We now have a peer-peer currency, independent of any authority, and immutable. If I send it to you, you have it. Full stop. But there are three key problems:

  1. It’s hard to buy crypto (it takes a while to open an account and get it)
  2. It’s relatively hard to send crypto (its complex, takes time, and fees are too large for small transactions
  3. its too volatile (the value of crypto could fall too much between when you buy it and when you sell it.

Problem 1: Buying Crypto

The first problem, getting the crypto in the first place, would be almost impossible were it not for CoinBase. The problem is that the exchange of cash currency for Crypto is heavily regulated, and requires in the US, Money Transmission Network permits (MTN) in every state in which you operate. This is expensive — and something CoinBase has invested in, but no other exchange (to my knowledge) has done in all 50 states.

But while CoinBase is compliant, and has a great user interface, it still is a major speed-bump on the road to adoption. First of all, it takes time to get started — on the order of three or four days to upload your identity and proof of residence and tie in your bank account. Second, CoinBase only supports a few crypto-currencies, such as BitCoin and Ethereum, but not the kind of next-generation Stable Coins that would really represent “electronic money”.

CoinBase currently has order of magnitude 20 million users. Growth is accelerating, and it looks like it on a doubling every year. At this rate, it will take 6 years to hit a billion users (20,40,80,160,320,640,1B+)

But it could happen faster and the reason is Banks and Stable coins. Although most crypto exchanges don’t have MTN permits, all national banks do. For them selling Bitcoin makes no sense, but selling Stable Coins makes all the sense in the world. (Think AMEX travelers checks). More on this later, but for the moment, lets just not assume CoinBase has a monopoly on onboarding.

Problem 2: Sending Crypto

On the second problem more progress has been made. Bitcoin Cash and the lightning network solve (to some degree) the raw speed problem. And thanks to Ƀrock Pierce , Dan Larimer and crew we finally have EOS, a new platform that has been proven at 3,000 transactions per second, and has an extremely low fee structure.

But the fact that you can send transactions quickly doesn’t mean that it is as easy as Venmo to do so. As much as Roger Ver and others would like Bitcoin Cash to succeed, the infrastructure for sending Bitcoin Cash (or Ethereum, or LiteCoin) is just too complex for most people.

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EOS, with its 12 character account names makes this much easier. Just send any amount of EOS to fredfredfred and I will get it, pretty much instantly. Global EOS usernames is a really big deal.

Front end software is also a really big deal. Venmo works because it has a very simple, easy to understand user interface. My Ether Wallet (MEW), the leading ethereum wallet, does not.

For EOS we’re working dramatically simplifying the UX for the average consumer. http://eoslynx.com) This is critical if we want to see adoption.

Problem 3 Volatility

The third big problem is volatility. If a currency is to be used as a day to day means of payment, its purchasing power cannot drop 10% (or more) in a single day. Bitcoin, Ethereum and EOS all can, and have.

As a journalist recently asked Roger Ver:

“How can BCH be used as cryptocurrency or any coin for that matter with the extreme volatility? I don’t understand.”

Ver hedged. But the real answer is it can’t. We need crypto that is tied to known non-volatile metrics, like the USD, JPY, EUR or a basket of currencies.

This is the promise of Stable Coins such as TrueUSD, USDC, Stably, Carbon and others. These coins still need to move to a fast scalable platform like EOS, but at least they exist.

IBM has recently announced their entry into this game with an FDIC backed stable coin on the stellar network. It’s now just a matter of time before other banks and financial institutions jump in bed with crypto teams and consumer tech companies to provide this hookup.

Conclusions

We are getting much, much closer to a simple model where crypto can be used, worldwide as a payment mechanism, a true substitute for cash+credit+bank wires+paypal+venmo. The elements are falling in place. It would not surprise me that the hockey stick adoption happens now in the next 12 months.