Crypto for your coffee?
On August 3, Starbucks, more known for its coffee than its interest in cryptocurrency made a significant announcement which was barely noticed and could have tremendous repercussions in how we transact. With over 27,000 physical retail locations across the planet, Starbucks wields significant clout not just from physical points of sale, it also has 15 million active users of the Starbucks Rewards system — a prepaid stored value app which entitles users to free upgrades and other rewards from prepaying into the Starbucks Rewards app — full disclosure, I too am one of those 15 million. But if the Starbucks Rewards system sounds familiar in relation to cryptocurrencies — that’s because it is. Initial coin offerings (ICOs), taking a leaf out of the Starbucks playbook, offered early purchasers of their issued tokens special discounts and privileges for use of their tokens to purchase the ICO’s goods and services down the line — presumably when it actually produced any goods and services. Given that the majority of ICOs were conducted last year and through most of the earlier part of this year, ICO token holders are understandably still waiting for an opportunity to be able to use their tokens. But for Starbucks Rewards system users — the gratification is here and now. Which is why it looks as if Starbucks, as unlikely a candidate as it may be, may have its sights set on entering the cryptosphere.
Teaming up with an unlikely partner, the Intercontinental Exchange (or ICE), Starbucks will be launching a new company known as Bakkt. For those of us less familiar with ICE, other than the cubed kind, it runs the crucial marketplace infrastructure for important financial institutions such as the New York Stock Exchange as well as derivative and over-the-counter markets — a key component in a cryptocurrency exchange of the future. And Bakkt has already stated that it intends to make available physically deliverable Bitcoin futures for trade (which will no doubt attract institutional investors) — but what does all this have to do with Starbucks?
Barter — the direct exchange of one commodity for another is one of the earliest if not the earliest known form of trade. If I need a goat and you have some wheat, I can trade you the wheat directly for the goat. The problem with barter started to come in because it was relatively inefficient. What if you didn’t want my entire goat, but maybe just a leg? So barter eventually gave way to currencies. Because currencies were divisible, you could now get the goods and services that you wanted using a representation of value, that society would now accept as being able to convey as well as to bear value. But fiat currency suffers from several drawbacks — counterfeiting, transaction slippage, transfer costs, exchange rate costs, theft and inflation. With cryptocurrencies such as Bitcoin, which are divisible to 100 million units, the smallest of which is cutely named a Satoshi after it’s eponymous founder, many of the drawbacks of fiat currencies to facilitate transactions are addressed. Imagine when commodities are tradeable once again directly for other commodities — the need to horde cash (which is an extremely inefficient use of money) may subside. If I can trade directly for what I need when I need it, hoarding cash then becomes counterintuitive, because as the world’s assets become increasing digitized, they open themselves to tokenization and the tokenization of assets will allow for them, divisible to sufficiently fine levels to be traded directly for each other. Be it Bitcoin for a Bentley or Litecoin for a latte, the possibilities of cryptocurrency-enable direct barter trades are limitless.
Which is why the move by Starbucks shouldn’t be viewed lightly, but may mark a turning point for cryptocurrencies in general. And it’s not just Starbucks who has gotten in on the game — Microsoft will provide the cloud services to the venture and a long list of the technocrati have also stumped up to provide funding (fiat of course) to the nascent cryptocurrency startup. All this portends well for the adoption of cryptocurrencies. And while those of the cyperpunk persuasion may argue that the involvement of traditional legacy giants such as ICE, Starbucks and Microsoft (ugh) are anathema to the ethos of the Bitcoin purpose of decentralization, it may be a precursor of that quest for decentralization. In the immediate future, it is unlikely that full decentralization will be possible. Intermediaries are still required until and unless the user interface and user experience for cryptocurrencies becomes more streamlined and friendly. And while we can be sure that credit card companies and financial institutions such as banks will fight to keep their turf and protect their transaction fees, the arrival of Starbucks (an unlikely candidate) to the cryptocurrency scene may ultimately mean that consumers will ultimately gain. Already, there are no transaction fees for customers who prepay for their Starbucks using the Starbucks Rewards app. The same way ICO token holders who are able to eventually use their tokens to purchase the ICO’s products and services will also not have to pay any transaction fees. While we may not yet be able to lay down some litecoin for a latte, perhaps that day is not too far into the future.
