Awaiting Demand: Innovation, Necessity, and the Future of Internet Currency

Tyler Sack
November 18, 2019

Recent sentiment on cryptocurrency has been focused on how values haven’t been living up to the hype from past years. The expectation that hasn’t become reality yet, is that we have not made any fundamental changes in how we conduct or participate in business. Enthusiasts maintain that cryptocurrency is, or soon will be disruptive to the economy from peer-to-peer transactions to international commerce.

In the case that this disruption does not take place soon, we still can’t really say that cryptocurrency is dead or dying, even if it appears that way after a crash in price or stagnation in news, I don’t think we will ever live in a world where it will not exist again.

That doesn’t mean that it will continue as separate and distinct from fiat currency, it is very possible that we will eventually see governments adopt the technology as a centralized digital currency. Then again, the decentralization could be more beneficial to a lot of people for a lot of different reasons. Whatever the future, no matter how uncertain, we can be sure that there will be some use for the technology.

Some research suggests that in the history of new technologies the companies that are first to market have a 6X greater chance of failing to their immediate followers. In the areas of cryptocurrency, more initial coin offerings indicate new technologies, they are iterations of the same idea but offer some improvement such as faster transaction speed, scalability, smart contracts, and new use cases. The technology is clearly advancing but still struggling to become mainstream in its use, at the same time more people are shifting to digital transactions either through online banking, credit, or services like Paypal, Venmo, Apple Pay, and Cash App.

The question remains, what are people buying with cryptocurrency? It turns out that due to the volatility in price and the prospect of large returns on modest investments, the majority of people who own some form of cryptocurrency see more incentive in holding on to it than spending it. Most purchases with cryptocurrency turn out to be another form of cryptocurrency, say Bitcoin for Litecoin, etc. With no trends in purchasing goods or services it is difficult to convince mainstream adoption of cryptocurrency, people need to know what they can buy and what the advantages is to switching from their present day practices. It is said that necessity breeds invention, but in this case the innovation may have gotten ahead of its need.

Jack Dorsey, Co-Founder and CEO of Twitter and Square, believes that Bitcoin has the potential to be the Internet’s native currency. The idea is a global currency, if you were to imagine the Internet as a country and Bitcoin would be the national currency. The idea becomes paradigm shifting, and changes how we think about what it might be used for, when we can trade internationally online with the speed of and cost of sending a text.

In June 2019, Facebook announced that it was developing Libra, a stable coin backed financial assets contributed by the Libra Association who each commit $10 M USD. They plan to have 20 partners on opening day, sometime in 2020, and the plan is to grow the ecosystem to 100 members with representation from payment technology, telecommunications, blockchain, venture capitalist firms, and non-profits. This organization removes the volatility that typically comes with cryptocurrency because its value is pegged to the financial assets that are invested into the association. The collaboration could reinvent the global economy, enabling anyone who is connected to the Internet with the means to use money internationally without the high cost of using a bank.

While Libra addresses scalability and volatility, there is still the issue of trust given Facebook’s past missteps with security and privacy. Though their strategy for encouraging mainstream adoption is sound, recently, several partners who were previously committed to being founding members have backed out of the Libra Association. Additionally, government regulators have outlined several risks associated with Libra’s plan, including money-laundering, terrorist funding, tax compliance, and data protection.

While we continue to speculate, there is no way to predict how or what we will use a stable coin for. During a recent conversation at a lunch and learn session we attended, someone remarked that we could not have predicted Google, Amazon, or Twitter in the early days of the internet, we will see how people adapt to the new technology when it arrives.