The Capital
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The Capital

What problems do cryptocurrencies solve? Here’s Six.

  • How bad is this erosion over time? The astounding image below visualizes the debasement of the US dollar over the last century:
Credit: I did not create the above image. Author unknown.
Credit: Mike Hewitt, Money Supply and the Purchasing Power of Fiat Currencies
Credit: Jonathan Cheesman — Why Bitcoin & why sooner rather than later?

2. Foreign Exchange Fees

Imagine if every retail store had its own currency, and in order to use the currency in the store next door, you had to forfeit 30% of the value. At a macro level, this is analogous to what happens with fiat currencies. There are 180 currencies recognized by the United Nations, and these people owning different currencies are dis-incentivized from transacting with each other. Foreign Exchange fees are possibly the most unnecessary surcharges on people transacting with each other, and were unavoidable — until now.

3. Inefficient transfer of payments

Fiat money is inefficient to move around. As a result, we have to rely on various intermediaries, who each take a share of profits in order to relay money to the next recipient. Working in financial services, I’ve observed up close how inefficient today’s correspondent banking system is. If you’ve sent a wire transfer to another country, it may take up to five days (!) for the recipient to be able to access the money. These high fees and long settlement times are justified to us by saying these intermediaries are the trusted guardians of the walled money system.

Cross-Border Payments: Challenges and Trends

4. Limited divisibility and incompatibility with micropayments (future use case)

What’s the smallest unit of a dollar? Under the current paper and coin based money, the answer would be $0.01, even though mathematically the number can be smaller. These are artificial constraints, because technically we should be able to transact in half cents, a tenth of a cent, or even a smaller fraction.

5. Threat of Confiscation and privacy of asset ownership

For many parts of the world, the threat of your savings being seized is a real concern. Most of the world population (4 billion people) still lives under autocratic rule where property can be confiscated. This isn’t just a problem for citizen’s fleeing war torn countries. Even authoritarian leaders themselves can have their bank accounts and Gold holdings seized by others.

6. Financially including the globally unbanked

While we take access to bank accounts for granted, over 2 billion around the world still don’t have a bank account. Infrastructure and paperwork requirements prevent large number of people from participating in global commerce.

Credit: The World Bank, Who are the Unbanked?
Photo Credit: Accenture, Afghan schoolgirls demonstrate Bitcoin’s transformative potential

Conclusion

Most people first get interested in crypto because it can make you rich. I’ve deliberately stayed away from any price discussion or predictions, because price is a function of demand, and demand is generated and sustained by value. And cryptocurrencies offer value propositions today that are impossible to compete with.

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Ammarooni

Technology, Media, and Crypto. I have some thoughts on a few things.