Private Digital Currencies Will Lead To Cryptocurrency Mass Adoption
I know lots of you rolled your eyes when you read my headline. Bear with me while I play devil’s advocate for a while. JP Morgan Chase and Facebook are both working on private digital currency projects. Private digital currencies are permissioned blockchains, meaning they’re governed by a central entity. JP Morgan announced on February 14th the launch of their own cryptocurrency, JPM Coin. While Facebook had signaled its' entry into the market as early as 2018.
Cryptocurrencies or Digital Assets?
These corporate coins have been widely termed as cryptocurrencies. But calling a private digital currency a cryptocurrency is an oxymoron. Many people don’t know what a private digital currency or a permissioned blockchain is, so cryptocurrency is the terminology being used.
A cryptocurrency is defined as “a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrencies use decentralized control as opposed to centralized digital currency and central banking systems”.
So these new corporate coins are really digital assets and not cryptocurrencies. But does this really matter?
JPM Coin will be a stable coin pegged to the US dollar. Stable coins are digital assets that have their value derived from another underlying like, in this case, the US dollar. JPM Coin will be used by JP Morgan internally and for international payments for their institutional customers. However, household consumers could one day be using the coin. Jamie Dimon recently stated that “JP Morgan Coin could be internal, could be commercial, it could one day be consumer.”
It’s not clear if or when JPM Coin might be available to the public, but if it were it would be a boon for the crypto industry. JPM Coin isn’t the only private digital currency being launched.
Facebook is working on private digital currency to be used on it’s messaging service WhatsApp to facilitate mobile payments. WhatsApp has more than 1.5 billion users in 180 countries and has more users than Facebook Messenger and WeChat. Facebook Coin might also be used in Facebook Messenger which has another 2.32 billion monthly users. The potential market for Facebook Coin is massive.
According to @nytimes, @facebook held conversations with unidentified crypto exchanges about selling its stablecoin, that should be out in the first half of the year. A question for Facebook: how much control will it retain over the coin? #decentralized or #centralized? pic.twitter.com/oy6YjKaG1y
— xcoex (@xcoex) March 1, 2019
Mobile Payments Industry
The mobile payments industry was worth $601 billion in 2016 and is growing at 33.5% per year. Mobile payments are projected to reach $4574 billion by 2023. The biggest players include Google Wallet and Apple Pay. Significant growth in mobile payments is occurring in the Asia Pacific region, mainly due to the relatively young populations.
While the SMS segment is currently the largest in the market, that would rapidly change if payments could be made quickly in messaging apps. SMS payments involve sending an SMS to a merchant for a purchase, then the cost of the purchase is charged to the phone bill or debited from a prepaid balance by the mobile phone company.
Cryptocurrencies have struggled to achieve mainstream adoption. The cryptocurrency industry has grown in leaps and bounds since the advent of Bitcoin but it isn't in widespread use yet. Cryptocurrencies are plagued by user experience issues, custody (lost keys), exchanges hacks, and scam ICO’s. No wonder the average person doesn’t want a bar of it.
“Until my 92 year old Grandfather is using crypto, then we haven’t reached mass adoption”
Most of us don’t understand what money is let alone a cryptocurrency. Explaining what money is, is a subject for another whole series of articles… But that’s just the point. We don’t need to understand how an engine works to drive a car, only that it’s useful and makes our lives easier. That is the only way digital currencies, and cryptocurrencies will be widely adopted - when they make our lives better.
The Cambridge University Global Cryptoasset Benchmarking Study has shown that the crypto sector is growing strongly. The number of cryptocurrency users grew from 18 million in 2017 to 35 million users in 2018. While this amounts to growth of 94% in a year, it is only 4.73% of the global population. But until my 92 year old Grandfather is using crypto, then we haven’t reached mass adoption.
The Answer Lies With Private Digital Currencies
The digital currencies proposed by JP Morgan Chase and Facebook could be the solution to mass adoption. Billions of people already have their apps installed on their devices. It doesn’t require a leap of faith to think that people might then take the extra step - to send value with one of those centralised coins. It could be things so simple as sending that friend who moved to Japan that $100 that you owe them, or buying credits for your favourite console game. Once you’re used to using forms of value other than your local fiat currency, using true cryptocurrencies doesn’t seem so foreign.
A Wolf In Sheep's Clothing?
Centralised digital currencies do have inherent risks, risks that cryptocurrencies were built to circumvent. JPM Coin will likely be pegged to the value of the USD while Facebook Coin is rumoured to have its value tied to a basket of three fiat currencies. In the next global financial crisis, these assets (or credit notes) will be subject to the same risks as the fiat currencies that prop them up. Facebook could freeze your assets because of a politically unpopular post you made. Could your JPM Coin be seized by the US Federal Government like gold was in 1933? Facebook's ban on sponsored cryptocurrency related posts could be a signal of anticompetitive behavior from the internet giant, given that they've been working on Facebook Coin for some time. Facebook has since relaxed the ban, allowing 'preapproved' adverts, but they still have a blanket ban on ICO's. Lawsuit anyone?
Centralized Digital Currencies Are No Substitute True Cryptocurrencies
Cryptocurrencies will always have a place in the global monetary system. There are just too many geopolitical risks for us to store all of our value in fiat or fiat-pegged assets. Precious metals have existed since before the creation of currency, and are still widely held now for the exact same reasons. Central banks tend to have vast gold reserves because they don’t trust the value of currencies printed by other central banks. You only have to look at countries like Venezuela and Zimbabwe, for example.
“The future is uncertain which is why I’m certain cryptocurrencies are here to stay”
While cryptocurrencies are still not user-friendly they have numerous characteristics which make them an excellent way to diversify away from the inherent risks of traditional asset classes:
- Permissionless. Anyone with an internet connection can access them. Even with no internet connection, you can transact with NFC (near field communication) from mobile to mobile.
- Immutable and irreversible. A transaction can’t be reversed once it's included in the blockchain. If the transaction contains information, that information can’t be suppressed.
- Privacy. Some cryptocurrencies allow for complete anonymity which makes it hard for someone else to know how much you have, or to take it from you.
- Fast, low-cost transactions. Cryptocurrency transactions are much faster than bank transfers. Ethereum has an average block time of fourteen seconds.
- Known supply. Cryptocurrencies are programmable money, and those characteristics are predetermined. We know there will only ever be 21 million Bitcoins. We have no idea how many US dollars will be printed over the next decade. While the parameters of cryptocurrencies can be changed, it only happens by consensus within the community.
- No charge-back risk. Merchants can take solace knowing that transactions can’t be reversed like they easily are with credit cards. Paypal has similar charge-back issues.
— Jerry Brito (@jerrybrito) February 14, 2019
Blazing A Trail
The advent of JPM Coin and Facebook Coin will be positive for the cryptocurrency industry. Value can exist and be transferred in many forms which users will be introduced to via these everyday apps. Some of these users might then migrate to ’true’ cryptocurrencies at a later date. It could be because they’re curious, or it could be due to the next global financial crisis. The future is uncertain which is why I’m certain cryptocurrencies are here to stay.
About the author:
CEO of BitPrime. A devotee of blockchain, crypto, entrepreneurship, life, and literature. A proud father, perennial student, and dreamer. “Question everything”.
Disclaimer: The above references an opinion and is for informational purposes only. BitPrime does not provide financial or investment advice. The opinions expressed by the author do not represent the opinion of BitPrime.
Last updated: 10/03/2019