One of the many great contradictions related to the explosion of interest in cryptocurrencies is that for all the hype surrounding blockchain, distributed ledger technology (DLT) and the digital currencies it underpins, it has yet to attract widespread adoption or investment from outside the global tech communities. So, could this state of play change any time soon?
According to a recent survey by CreditCoin, a leading cryptocurrency purchasing platform, which analysed responses from 1,000 consumers in the United States (U.S.) in February 2018, almost 40% in their sample revealed had owned a cryptocurrency.
And, of those surveyed who did not own cryptocurrencies, a slightly higher figure – 42% – said that this was because they did not know how to purchase digital currencies.
It is perhaps not hard to see why when one boils things down from their perspective. Setting up a digital wallet can be cumbersome and requires many technical stages to be completed. And, purchasing some digital currencies can only be undertaken through bitcoin or other more established currencies.
Some might say why does its appear such an apparently complicated process, especially when one considers that whole point about crypto was to remove the complexity and streamline things – particularly on the payments front.
Then factor in the innate volatility of cryptocurrency valuations, potential security threats and high-profile cyber hacks, and it is easy to see why people have their reservations about investing their money in this space.
Hacks at crypto exchanges do not appear to be waning, which has hardly helped matters on the confidence front for bitcoin, which is now slightly above a quarter of its value from the end of 2017.
It is also seems odd that whole proposition around crypto and blockchain was that it is touted as dead secure, yet hacks on exchanges clearly highlight this not to be so.
As Jordan Hiscott, chief trader at ayondo markets in London, posited this past Friday in relation to bitcoin’s “summer of discontent” and the main crypto exchanges not having cold storage wallets, said: “Importantly, these storage applications for crypto assets operate on an offline basis, so the chances of hacking should be massively reduced.”
Some argue though that once the “accumulated pus”- as one British tech developer put it to me – around certain blockchain projects that have been hyped up and so far few if any valid use cases subsides, the merits of the remaining initiatives in the space that do actually stack up with real business use cases will shine through.
Reaching Full Potential
However, for blockchain technology to reach its full potential and disrupt the current retail financial services sector, mass adoption will be one of the cornerstones to achieve this according to Alex Mashinsky, CEO of Celsius Network, a blockchain-based borrowing and lending platform, founded in the U.K., whose bold goal is to bring the next 100 million people into cryptocurrency.
The company he founded aims to disrupt the mainstream financial services sector by enabling people to deposit their digital currencies and earn up to 5% interest on their cryptocurrency, like bitcoin and ethereum.
Mashinsky’s conviction is based on his previous experience disrupting a different kind of industry, namely the telecoms industry back in the mid 1990’s. As one of the inventors of the Voice Over Internet Protocol (VOIP), he sees many parallels between the complacency of mainstream telecom companies back then with new technology and banks today.
“I’ve seen this movie before during the early Noughties (2000’s). Companies that never thought technology could touch them suddenly saw themselves out of business,” said Mashinsky. “And, while many industries have been completely disrupted by the Internet, the banks have only grown stronger.”
The New York-based executive added: “This new wave of technology being ushered in by the blockchain will finally deliver on the Internet’s promises to fundamentally change the way the banking system works. For the first time in modern history, the 99% have the chance to get in on something before the 1%. Wall Street is late to this particular party.”
Many senior Wall Street figures have also denounced bitcoin as a fraud and blockchain technology as a solution in search of a problem.
Even Warren Buffett, CEO of Berkshire Hathaway and ‘The Sage of Omaha’, has slated the merits of Bitcoin as an investment in recent interviews in the midst of the company’s AGM. This came close on the heels of his conglomerate having become a member of a recent IBM blockchain consortium focused on the supply chain and provenance of gold and diamond jewelry via Berkshire subsidiary Helzberg Diamonds. The initiative co-ordinated by IBM – aka ‘Big Blue’ – is based on the Hyperledger Project, in which IBM is a founding member.
According to certain pundits and industry protagonists like Apple co-founder Steve Wozniak and former Overstock.com CEO Patrick Byrne, some Wall Street figures have failed to recognize the potential that decentralized currencies and DLT can bring.
The complacency exhibited by the banking industry can in large part be attributed to their failure to innovate on behalf of their retail customers. And, virtually a week does not pass in the U.K. without another banking group announcing more branch closures and job losses.
No Better Technology Than Blockchain?
Siim Õunap, COO of blockchain and crypto marketing agency Savii Digital and FX advisor, commenting on the present landscape said: “Blockchains are being developed to address a number of problems, which have been highlighted regarding the use of current technologies. Cryptocurrency is just a by-product for most of these platforms, although there is no better technology than blockchain, as it makes transactions transparent, faster, more secure and independent from centralization or third parties.”
The Estonian, who studied Technology and Management in at Aalborg University in Denmark and divides his business activities between London and Tallinn, added: “These qualities can be used not only for transactions involving money, but for numerous applications including data transfer, trade, voting, notarizing documents and much more.”
One thinks further that once Artificial Intelligence (AI) really begins to dig its teeth into organizations in service centers through chat boxes and “digital assistants” like Amelia in the U.S. and Europe developed by enterprise-AI leader IPsoft, it might already be too late to catch up. And, the full magnitude of how some banks have been slow to step up to the plate in terms of innovation will likely become very apparent.
This technology is already being used by Spanish bank BBVA and in Japan (branded as COTOHA) by NTT Communications and for its customers, can be programmed in around 100 languages to handle customer inquiries – without the need for human employees.
Clearly, the banks have been very successful at serving their shareholders and employees. However, all too often this has been at the expense of their deposit holders to whom they owe their existence.
On top of that, interest rates in the U.S. have been stubbornly low – albeit that the Federal Reserve has hiked twice so far this year and there might be a further two more on the cards before 2018 is out. And, aside from ATMs, financial innovation over the last half century has been focused on products that serve a very small group of elite customers. So is there any hope for the rest of us?
The aftermath of the financial credit crunch and the dawn of blockchain technology provides what some see as a unique opportunity to define what role banks play in our society, and how people can take a more proactive role in shaping the financial ecosystem.
But before we get carried away, at the time of writing digital currencies have few practical benefits apart from as a storage of value and to gain from price appreciation. There is currently no way to earn interest on cryptocurrency assets directly without taking on significant risk. In addition, there are only a handful of ways that cryptocurrency can be used directly without needing to first convert it to a fiat currency.
Crypto is almost exclusively viewed as a speculative asset class that has in the last five years generated both startling returns and crushing losses. And, it is incredible to look back now and think people were mining bitcoins when the price was less than $1.
To prove the point, in Bratislava recently I met with Matej Michalko, CEO of Slovakian blockchain start-up DECENT and studied computer science at the Swiss Federal Institute of Technology in Lausanne, who was engaged in this very mining activity at that price level in bitcoin’s infancy.
DECENT, which was one of three largest Initial Coin Offerings (ICOs) in 2016, seeks to revolutionize content distribution on the Internet. With a number working use cases through its DCore blockchain platform it is developing new partnerships with a key aim to “liberate” the digital content market from oligopolies. And, to further spread the word the firm is holding a hackathon event later this July in Berlin.
And, with the decline in the ‘Big Daddy’ of cryptocurrencies since last December, its current value still stacks up pretty well by comparison to a sub-$1 level. Notwithstanding that bitcoin has fallen from the heady heights of around $20,000 a pop, this past Friday it was standing at c.$5,800 – with a significant support level of $5,500 now well in sight.
That said, some who invested from the second half of last year will still be nursing heavy losses and rue the day they ever dipped their toe into the market.
Pooling Digital Currencies
Celsius Network is looking to change matters and envisages a world where people can put their digital currencies to use by pooling them in large deposits that earn up to 5% interest for the loans, which it issues to institutional investors such as hedge funds and crypto funds who want access to large quantities of cryptocurrency in order to short the market.
In the near future, anyone, irrespective of their technical background will be able to buy digital currencies using their debit cards and then deposit their coins to be used in exchange for fiat loans without any credit check being needed.
It is explained that this new breed of crypto-to-fiat loans will not rely on credit scores simply because the loans given out are fully secured by cryptocurrency collateral. And, lenders do not need to rely on credit history to ensure the strength of their balance sheets.
Governments, central banks and traditional financial intermediaries will be side-lined, it is argued, as people put their savings to use and create a parallel financial ecosystem that serves the customers’ needs first, along with the broader public – and with rates far better than the current incumbents.
No one discounts the fact that many retail banks have lasted centuries for a reason. Their ability to adapt new technology and innovations to their services is tried and tested. However, for the first time in history the political, regulatory and financial underpinnings to fiat currency have a credible alternative.
Digital currencies enable anyone, anywhere in the world to buy and sell across borders and record transactions over an immutable ledger instantly and at a fraction of the cost it would normally take.
The potential economic benefits are considerable too. A recent study by McKinsey has estimated that inclusion in the digital economy could boost GDP of all emerging economies by 6%, equivalent $3.7 trillion, by 2025.
The technology and infrastructure now exists to empower people to take control of their finances and play a more proactive role in how their savings are used and the channels for their distribution.
Since bitcoin came into existence nine years ago, much has been achieved, as blockchain pioneers demonstrate how financial transactions, data management, logistics and investing can be reimagined.
Yet for these dreams to become reality, people will have to start participating en masse by engaging with blockchain technology and cryptocurrencies. The tools to recreate the current financial ecosystem are certainly in front of us and they have never been easier to engage with. The 64 billion dollar question though remains, will people take this chance? Only time will tell on this score. Carpe diem.