The Future is Cash-Free

Every successful emerging technology is first tried to be applied literally for everything. Email, search, social networking – each passed through own “this will solve all our problems!” stage before it was figured out what were its proper utilization and limitations.

A blockchain cryptographically protects you or anyone else from making a copy of the Bitcoin you just bought. You’ve probably heard about the popularity of Blockchain tech in the financial business. In fact, anything that you can make a list of, you can manage with Blockchains. Ambitious developers and entrepreneurs are aiming to use Blockchain to rework everything: from how land ownership is tracked to how medicines are distributed.

Is a blockchain really needed to operate an online payments for news services? Whether it is or not, in 2018, we’re probably going to see this tried. That’s partly because of a glut of venture capital and the salivation of investors thrilled by Bitcoin’s wild ride.

Initial Coin Offerings (ICOs), which introduce new crypto currencies to the world, have raised $4 billion so far, mostly in the last year – and that has turned them into a crazy self-absorption. However, a future in which each of us has our own personal currency remains improbable. But there’s a probability, that each big tech platform is likely to issue a token as the coin of its realm quite soon.

Before that can happen, here are three issues that the industry will need to resolve:

• Are ICO tokens primarily investments, or just tools?
• Can we give up the idea that crypto currencies are a new species of traditional cash?
• Сan developers put an end to the plague of technical problems surrounding Bitcoin and every other crypto coin?
• The continued rise of crypto currencies in 2018 will depend on how much progress the crypto world can make on these questions.

What Is a Token?

Initial Coin Offerings (ICOs) started out as an alternative means for funding the new protocols and infrastructure in the crypto universe. Throughout this process, companies create and sell tokens; the tokens can be hoarded as investments, or used to accomplish tasks on their platform.

Some projects, hoping to reassure skeptics and qualify for more institutional capital, explicitly base their cryptocoin projects on traditional investment vehicles. The startup incubator “Science”, for instance, raised $12 million in an ICO aimed at taking advantage of ICO-mania to kickstart a whole venture fund’s worth of investments in Blockchain-related companies. “Science” structured its ICO to meet Securities and Exchange Commission rules, and investing into this ICO was not that different from buying into any other seed investment round.

Others take a more complex view of the role of tokens. Sure, they can fluctuate in value and serve as investments, but Bank4YOU Group creates them because tokens have a job to perform in making a new technology work. Engineers building new protocols and platforms don’t just take the cash raised in the ICO; the tokens they sell also create incentives and perform basic functions in the systems they’re building, so the tokens won’t just be stored on investor’s accounts.

Right now, the ICO world happily embraces both these models. A year from now, we should have more evidence to show which one makes more sense. The investment model offers more assurance that any particular ICO won’t be an outright scam; the “put tokens to work” approach opens up more revolutionary technical possibilities.

Bitcoin was first explained to the public as a form of digital money, and that is how its successors and competitors – like Litecoin, Filecoin, and Ether – have been framed as well. Each of these “currencies” resembles traditional money in certain ways –

• they’re abstractions of economic value;
• they can be traded;
• they each use unique symbols.

But none of them is suited to playing the most basic role of currency, as a relatively stable medium of exchange – that is, as a simple way to buy and sell stuff. There’s too much friction involved. Each transaction takes too long, uses too much energy, and involves too many risks. (Bitcoin, for instance, is shockingly easy to lose – one misplaced password and you’re in trouble.)

Nearly a year ago – back when Bitcoin was trading for a mere $1000 and people rolled their eyes! – Cade Metz was arguing “Bitcoin will never be a currency.” But that idea isn’t dying gently. Here, for instance, is the latest sad tale of a Bitcoin owner who tried to sell some of his holding and found himself in a labyrinth of trouble.

In 2018, the smartest move on the part of companies making ICOs and Bitcoin-related products will be to wean the public and the media off the “digital cash” concept. It’s a metaphor that no longer makes sense, and it’s getting in the way of our properly understanding a new technology that’s looks like money but really isn’t.

Still Working Out the Bugs

The biggest problems with Bitcoin have emerged because the mechanics of buying and holding bitcoins are so inscrutable that nearly everyone pays third parties to handle them. Those wallet-service middlemen become points of failure for the whole system. They get hacked; their systems go down; they get ordered by governments and regulators to report transactions that users thought would be anonymous.

In 2018 you can expect to see an escalating competition among providers of these wallet services to earn users’ trust. It won’t be easy, since the inflation in Bitcoin’s price has driven a frenzy of participation that strains these companies’ capacities. But if the Bitcoin world doesn’t solve this problem, it will sour the entire industry’s prospects, as it crops up for each new coin or token that catches fire.

Each of these three challenges that cryptocurrencies face come down to a question of trust. Ironically, the libertarian dreamers who conceived of Bitcoin and its brethren imagined a world of “trustlessness,” in which you didn’t have to assess the reputation of the counter-party in any transaction, or any middleman institution, because the whole process was guaranteed by the blockchain’s irrefutable, crypto-secured record. But nothing that’s happening in the world of ICOs and Bitcoin today has moved us any closer to such a trust-less state.

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