Spoilers: No. We are not all going to be using our cryptocurrency of choice on a daily basis any time soon. Here in our comfortable first world existence, the vast majority do not have a need for an alternative to established national currencies. However, there are emerging patterns and pockets of adoption which merit scrutiny. In my forthcoming book Blockchain Hurricane I’ve looked at the journey of cryptocurrencies from inception and through the era of scams to our present, where there are real examples of adoption through need.
Stability and perspective
Recent heightened tensions between the United States and Iran caused a frisson of excitement in the cryptocurrency community. The price of Bitcoin rose on major exchanges, causing some eager commentators to suggest that Bitcoin is claiming its place as “digital gold”. The more down to earth observers, as reported by the Financial Times, pointed out that while gold is a safe haven investment, Bitcoin is still in the realm of speculation. What is more interesting is the underlying story of increased Bitcoin purchases in Iran itself. A flurry of activity in a time of instability is indicative of a conscious step towards what Andreas M. Antonopoulos describes as ‘money of the people’. There is a fascinating case study of Bitcoin use in Venezuela, where trust in government-issued monies has all but disappeared. Rampant inflation of the Bolivar, reported by the IMF to have reached over one million percent in 2017, and utter distrust of the country’s national cryptocurrency, the Petro, have stimulated illegal mining and use of Bitcoin. Earnings are converted on receipt to preserve their value. Day to day spending on coffee, food and clothes is made by SMS transfer of Bitcoin. In Columbia, there are convenient Bitcoin ATMs at the Venezuelan border for people leaving the country for good, and independent reports also suggest that the main users of Columbia’s growing Athena Bitcoin ATM network are Venezuelans transferring cash back home.
While we see Bitcoin and other established crypto coins as unstable compared to our own mainstream currencies, in some economies they are comparatively steady and also offer a unique opportunity for the individual to take hold of the keys to their safe. It is all a matter of perspective. Where once citizens of countries with difficult monetary climates used the US Dollar to achieve stability, people now have the option to use decentralized, cross-border currencies.
There is also a fundamental difference between the monetary stability we expect from our national currencies and the systematic stability which cryptocurrencies have by design. As Wall Street veteran and blockchain champion Caitlin Long explains, government money is manipulated for price stability by monetary policy, whereas decentralized currencies have to respond to demand. Her analysis published in Forbes last year on price volatility versus systematic volatility is well worth reading.
Breaking down barriers
Holding the keys to your cryptocurrency may be a unique selling point, but it is also a significant barrier for many prospective users. What happens if you lose the keys, by carelessness, error or theft? What happens if you make a mistake in a payment? It is estimated that of the over 17 million Bitcoin already mined (out of a maximum possible supply of 21 million), around 4 million have been lost down the back of the virtual sofa. There are considerable efforts across the globe to make use of cryptocurrency simpler and safer. In Vietnam and Japan, the team behind Bitcoin Cash (BCH) are working with merchants to bring straightforward crypto payments into daily life. Today, you can buy your coffee in certain districts of Tokyo using BCH. In the United States, technology developed by Austin-based firm Abstrakt aims to deliver high levels of security for the cryptocurrency user, protecting against both external threat and user error. Regulated custodianship is also a path being explored by exchanges such as Gemini, whose founders, Cameron and Tyler Winklevoss, started out by acquiring a banking license before launching their cryptocurrency exchange.
Moving to the mainstream
Cryptocurrency is still largely speculative and investment-driven, but becoming more fluid where its use is driven by need or by utility. Blockchain gaming is an area where cryptocurrencies are in regular use, and are building much greater complexity onto the rich history of the Second Life Linden Dollar and the more recent Fortnite VBucks. Keep following my articles for more on this exciting sector.
There are challenges to overcome, not least scrutiny of the climate impact of Proof of Work energy usage, but cryptocurrencies offer a genuine utility in specific circumstances. Where users want greater control, there are barriers to using traditional systems, or cross border transactions are significant, they already offer benefits. It may not be in one year, or five, but Magic Internet Money is coming to a high street near you.
Originally published via LinkedIn Pulse, January 2020 https://www.linkedin.com/pulse/magic-internet-money-going-mainstream-kate-baucherel/