Money has come a long way from dusty ledgers, oversized check-books and waiting in long lines at the bank.
In fact, consumers are so frustrated with “Big Banks” failure to innovate that one in three of us believe traditional banks will cease to exist in 5 years.
Most people don’t even use physical money anymore. The mobile-payment market has made cash a relic in Asia, with 1.4 billion monthly users on China’s two biggest platforms (or roughly 18% of the world’s population). Though mobile payments are growing, there’s something even more revolutionary to the traditional banking sector:
The introduction of cryptocurrency as a real alternative for payment.
In South Korea, consumers can use crypto to pay at thousands of retail outlets, and 30% of the population owns cryptocurrency. In the west, retailers are taking note — brands like Microsoft, Paypal and Expedia accept bitcoin as payment. Overstock announced they’re using bitcoin to pay state taxes this year, and even accepts coins like Ethereum, Litecoin and Dash.
These innovations don’t provide the final solution to money management, but they’re a step in the right direction. There’s still a large gap between the facility and security in paying with fiat and the relatively inaccessible forms of payment with volatile cryptocurrencies. And this is where cryptos will need to progress before being considered a viable alternative to fiat.
But there’s a breed of crypto that helps close this gap, providing a real bridge between fiat and crypto and catering to consumer desire for accessible and secure digital currencies.
They’re called stablecoins, and they’re here to bring trust back to crypto’s reputation, bring user’s finances into the 21st century, and spur mass adoption of cryptocurrencies.
Why Stablecoins Are The Solution To Crypto Woes
After 2017’s bull run, we’ve seen a “crypto winter,” where speculator’s lost almost half a trillion dollars. And cryptocurrencies aren’t expected to recover anytime soon.
Bitcoin’s volatility (see: the famous example of the 10,000-bitcoin pizza, which in 2010 was valued at ~$30, and at the end of 2017: $82,000,000) has staved off full-scale institutional, commercial and popular adoption.
And governments aren’t engaging with the digital currencies as hoped. Just this week South Korea, the world’s largest crypto market, maintained its ban on crypto ICOs. And the recent scandal at QuadrigaCX, where users lost $190M when the sole password holder died, illustrates just how powerless regulators are in this type of centralized exchange. Bitcoin, Ether, Ripple and other brand-name cryptos are failing consumers. But this isn’t happening to all cryptos.
We’re seeing growth in stablecoins.
The general idea behind a stablecoin was proposed over 40 years ago by Nobel Laureate F.A. Hayek. Now, we’re beginning to understand just how they fit in with our institutions.
Considered the “
Holy Grail of Crypto,” stablecoins are price-stable cryptocurrencies whose market price is collateralized by another stable asset.
They’re also regulated, deemed “safer” than other cryptocurrencies. But this is where it gets really interesting:
When stablecoins are pegged to a national currency (most are pegged to the US dollar), they offer an easy bridge between fiat and crypto. This is traditionally a huge barrier for entry in the crypto market (as illustrated by the prevalence of crypto “How To” guides and The New York Times’ landing page). And beyond just offering a safe-haven for traders, stablecoins provide an avenue for an easy, and cheap, exit from other cryptos. It’s the perfect way to take your crypto profits back to fiat.
In many ways, this makes stablecoins like digital national currencies, or DNCs, which are growing popular around the world:
Stablecoins provide all the innovations unique to cryptocurrencies — access to a decentralized, immutable ledger on the blockchain, financial inclusion and democratization of currency — all while bringing currency into the 21st century.
Stablecoins Have Benefits Other Cryptos Lack
Stablecoins are simply the best of both worlds. They provide price-stability against other cryptos and solve some of the lagging issues in banking institutions.
It’s no wonder 2019 has been called the year of the stablecoin.
Think about it like this:
Stablecoins are a technologically-efficient alternative to cash — backed by fiat currency and ensure secure payment systems and models. They provide the framework for peers to trust each other because every transaction is tracked on the decentralized ledger that cannot be altered (read: immutable). And by trading on a decentralized exchange, they allow users to transact peer-to-peer (P2P) in real time — dis-intermediating the “traditional” banking model.
There are many benefits of P2P payments.
Bypassing the banks will save you a lot of money. And by creating the bridge between fiat money and cryptocurrency, you’ll be able to get your money in and out of the volatile crypto market whenever you want — and can store it in an off-bank network.
But this is just the beginning of P2P applications. It solves for crypto’s transaction time issues, allowing instant transfers between trusted parties. And the applications in foreign exchange (forex) are just as important. With stablecoins you can create pairs and exchange currencies directly on a rate you decide, bypassing the expensive and old SWIFT system initially established in 1973.
Paired with the acceptance of cryptos in international markets, stablecoins are no longer just a hedging tool. They now have real purchasing power.
Blockchain, and the decentralized ledger technology, has arrived in many (if not all) industries. And with declining services and confidence, fintech is in desperate need of innovation.
In A World Of Blockchain, Stablecoins Are The Next Step For Digital Currencies
Yes, the future is now. No, it doesn’t have to be a scary place.
Not only are we seeing the development of DNC projects (the five listed above are just the tip of the iceberg), we now have entire governments finding a home on blockchains, as in the Digital Republic of e-Estonia.
Meanwhile in the US, we’re failing to realize the variety of services stablecoins provide. As we’ve seen traders (unsuccessfully) rushing to get their profits back to fiat currency, a stablecoin’s utility as bridge, and an “insulator” for crypto assets is not being taken advantage of. In addition to the undeveloped applications of stablecoins in e-commerce and forex, stablecoins have not been pushed to their potential.
But the world waits, and interest is growing. Fast.
In practice, we already have a regulated stablecoin in the US. The GUSD brings the price-stability of the U.S. dollar with blockchain technology and official regulation, and it’s passed a security audit by the external firm Deloitte.
Meanwhile, another “Big Four” firm, PwC, has partnered to create a new USD stablecoin.
A recent report illustrates just how widespread institutional engagement with stablecoins really is. There are 57 stablecoin active projects, 23 of which are already live. And it’s easy to see why, beyond the benefits they provide to inflationary economies, stablecoins provide:
- All the benefits of a blockchain-based currency: decentralized, transparent, immutable
- A price-stable entry point to crypto novices against a highly volatile market
- A bridge between crypto and fiat for entering AND exiting the market
- A system for P2P payments between trusted parties with huge benefits in forex
- An off-bank network for secure storage of currency
Innovative fintech companies are already clamoring to find a niche in this exciting new market. The firm Interblockchain is making this available to the masses by integrating cryptos into the world’s first browser-based payment app. It’s already embedded into billions of browsers.
Since the Winklevoss’ have already started the revolution with Gemini, it’s safe to say the next Zuckerberg is just around the corner.