Decentralized Balance Transfers
Decentralization. This buzz word has too many facets, and for now I want to focus on the main one: decentralization of trust.
Bitcoin and company. You don't have to trust the government or the banks, even though they suit our purposes just fine now. They are backed by the government, and we saw how that worked to the bank's advantage in the last crisis. But will it really always be reliable?
Yeah, you may label us/them all crackpots now, but it's easy to point to unsustainable debt and think that maybe we need something that can survive if the current system fails. Or how about, not having to worry about it at all... Remember the Great Depression? Well I certainly don't, and I hope not to have to worry about such a thing.
At its core, Bitcoin is a decentralized balance holding and balance transfer service. That's pretty much it. Looks like it might be augmented with extra powers later but let's just focus on this property alone.
The incentives are set up so that miners are rewarded for validating and committing transactions to the blockchain. But the total supply is well understood, and cannot easily be manipulated, and it certainly can't be manipulated without people knowing about it.
What are the fundamentals of this platform?
It's really not clear. Most comparisons go for comparing currencies and value stores, and there's so much misinformation around this that it makes me want to gag. First you got the whole money "backed by something" crowd, whether it's physical assets, or government violence. Second you got the "gold is trusted for millennia and is useful" crowd. Fine, those are all factors into demand, but none of this gets to the real economics of money, supply and demand. We have an imperfect understanding. We have models like the quantity theory of money for which there seems to be consensus in terms of the long term picture, but not the short term. More on this for another time.
But today, I don't want to think about money. Let's go from the angle of the service. Let's just look at a market that we can measure: the remittance market. Interestingly, I stumbled upon this article that gives a comprehensive survey of this landscape. It claims that the costs of transferring money has less to do with the actual moving of money than it has to do with legal barriers. Any transfer startup that is trying to use cryptocurrencies for the mechanism of transferring will run into the same issue. Many Bitcoin based startups have tried and failed to get anything that could rival the likes of Western Union. On the other hand, the article acknowledges that there are possibilities for cryptocurrencies to fit into the space, though it seems to be skeptical in its power to completely disrupt the sector. At least for now.
However, I'd argue that we shouldn't be looking at these Bitcoin based startups trying to get a cut. I think Bitcoin itself is the eventual disrupter, as well as an enabler. There are two milestones to think about:
- Cryptocurrencies stabilize in value, and people are accepting of it and have access to a Fiat gateway.
- Cryptocurrencies achieve widespread merchant adoption, and people carry it around for day to day use.
In these cases, why bother signing up for a money transfer service at all? DIY money transfer, just send your relatives Bitcoin. We're still not at that awareness level yet, and possibly some trouble with fiat gateways in other countries.
For example, GDAX lets me swap to and from USD and Bitcoin with no fees on top of market exchange rate. If everywhere were like this, hell I'd spread the word that one need not bother with money transfer services at all. Yes, there may be friction right now, and generational trust issues with new technology, but it's really a no-brainer.
Just thinking about this application is enough for me to believe in the hype. And that's a very narrow application for cryptocurrencies.
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I didn't know that GDAX is allowing such a cheap buying method. I might be able to sell the idea of bitcoin to many more people knowing this. There are many who struggle to swap money from currency to currency and to transfer between people.
But with this ease to just transform the fiat into crypto, transfer, then transform it back to fiat, I think that many people will be sold on it (like my family!).
Gdax (under coinbase) is limited to a few countries though, so I think we may not be quite there yet. But there should be plenty of others cropping up I should hope. One of the tricky parts is that local banks and governments have to play along for this.
Nice article, Eon. I've got the UK government~banking working against me. In order to use GDAX, I need to send my money to a European bank. This costs a fortune for every transaction. It's either that or let the brokers cream a fat share. It's inhibiting. UK apparently wants its people to stay away from crypto freedom. Bah!
That's terrible.... Do you keep a set balance in euro? Too bad they always kept their currency separate. Well it won't matter when people use Bitcoin right. Har har
No, I'm in GBP. I've no use for Euros unless I'm holidaying in one of the Euro countries... we don't use them in the UK at all.
Yeah, roll on cryptos being a proper international currency. :D
Thank you for the image (such as it is.) At least today you gave me something.
<3 anyway ... despite how you make my life harder.
Ok ... <3 for real. Square?
Circle!
I can see both of those milestones coming to pass. It will definitely take some time though especially with the generational trust issues as you mentioned and also the fact that the idea of crypto currency is still so new to many people. It’s really hard convincing people to try a new system other than what the have been using for years (the banks). Especially when they put so much trust in those institutions. Eventually our goal is to be done with banks altogether and just rely on doing our own transactions within the decentralized world.
I enjoyed reading your article :)
Thanks! I've definitely enjoyed writing about it, I guess I'm going through another write about crypto craze lately...
Sure! That’s no problem at all. I learn a lot when reading others posts about crypto ;)
I think a lot of skepticism and volatility will go away once we start to have stable regulatory response. I think that's the main hurdle, the technology will figure out all other issues eventually.
Yeah that's very likely. Interesting that we are still early. Sometimes it doesn't feel like it....
I think we are the pioneer participants if not the pioneer inventors
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