ZTX Explained: Cryptocurrency Adoption & Institutional Support
This is the first article in what will be an ongoing series about how our native cryptocurrency, ZTX, will function within the ecosystem of products and services we’re building in support of our mission to bring cryptocurrency access to the world. We’ll explore some of the main issues facing the blockchain industry, and in particular, we’ll discuss how we’re building real solutions to help stimulate widespread adoption.
In a previous article, we recently discussed two important cryptocurrency adoption challenges: user experience and accessibility, and how Lite.IM’s integration with social messaging apps can help us meet those challenges.
This article will discuss another significant challenge: institutional and organizational support for cryptocurrency adoption.
When Bitcoin first sparked the cryptocurrency revolution, it did so in a way that was anti-institutional: decentralized, peer-to-peer, and pseudoanonymous. It was a middle finger to the financial establishment and the corruption that characterized the public-private regulatory paradigm. Of course, this anti-institutionalism was intended as a fundamental feature, not a bug.
Indeed, there’s an important role for highly decentralized, peer-to-peer, and (pseudo)anonymous systems. But if we want blockchain technology to have a widespread impact, it means understanding that real adoption implies institutional adoption, and that the forces of regulation aren’t going away any time soon.
So, the question becomes, how do we develop systems that maximize decentralization, individual choice and sovereignty, financial freedom, and privacy, while also meeting the basic requirements for widespread institutional adoption? How do we balance the desire for decentralization with an understanding that institutional and regulatory considerations are key for truly scalable solutions?
Institutions don’t like fully decentralized systems because there’s no one point of accountability, and they create a nightmare for compliance issues. And compliance requires some form of intermediary. If something goes wrong, there’s nobody an organization can call up on the phone and hold accountable when it comes to, say, the Bitcoin blockchain. Again, for Bitcoin this is a feature, not a bug, but institutions don’t see it that way, and that’s why so many of them are developing their own private/closed/permissioned/centralized blockchains.
But not only is institutional/regulatory support required for truly widespread adoption, it also contributes to market confidence — something our industry could desperately use at the moment.
The Zulu Republic Passport
One of the products we’re developing to help meet this challenge is the Zulu Republic Passport, a digital, self-sovereign ID solution with institutional KYC applications. “Self-sovereign” means that individual choice and privacy are placed at the center of the design, while also meeting the compliance needs of the institutions verifying identity claims. This is where fintec meets regtech. For a more in-depth discussion of self-sovereign ID systems and why we think they’re the future of privacy rights, go here.
When it comes to deploying ID functions, updates, claims, and requests to the network, the Passport will be powered by, that’s right, ZTX. Every form of interaction with the Passport system will require a small amount of ZTX, and with institutional scalability in mind, that can start to add up pretty quickly.
In this sense, ZTX will be an essential component of our digital ID system aimed at institutional adoption. Ultimately, what good is a digital form of identity if no institutions accept its validity? That’s why institutional appeal will be paramount for the Passport’s success.
Of course, the payments context will be another important sphere of institutional adoption. After all, there’s little incentive for people to use cryptocurrency for daily purposes (beyond speculation) if there’s nowhere for them to spend it. And we’re still a long way off from institutional retail adoption.
That’s why we’re building Zulu Pay to appeal to individuals, merchants, and organizations alike, incentivizing in-network ZTX transactions with a generous 5% token rewards bonus. Not only will this encourage people to spend ZTX for eligible purchases, it also incentivizes businesses by increasing the value proposition they offer their customers, thereby increasing sales revenue.
However, in order to be truly scalable, these systems (Zulu Passport and Pay) cannot rely purely on he public blockchain to power every single transaction and interaction, but will need to involve off-chain state management side-by-side with on-chain settlement.
We will discuss the purpose and the promise of these off-chain solutions (as well as where ZTX fits in) in greater detail in future articles in this series.
Ultimately, adoption comes in phases, phases that include both individual, bottom-up dynamics and institutional, top-down dynamics. While peer-to-peer functionality is important for the former, organizational functionality is important for the latter.
ZTX maintains a high degree of decentralization (relying on the Ethereum blockchain) and peer-to-peer utility, yet we’re also designing it to function smoothly with institutional imperatives. This, we believe, will be crucial not only for the success of the Zulu Republic ecosystem, but for the future of cryptocurrency adoption in general.