I have been thinking more and more about the problems of mass crypto adoption and I think you break them into three categories:
- Getting on the Crypto Highway from Fiat
- Managing Crypto Volatility
- Getting off the Crypto Highway.
The On Ramp
The single hardest problem in all of crypto is the on-ramp. Taking people’s money and handing them crypto for it is governed (in the United States) by FinCen’s Money Transmission Laws. These are laws designed specifically to thwart illegal money laundering.
To stay legit, you need a money transmission license in the state where you are taking the fiat from, as well as federal license. These are quite expensive and time consuming to get.
So far, only CoinBase (to my knowledge) is the only entity that is licensed to accept fiat and sell crypto in all 50 states. Gemini does not operate in Hawaii and Arizona. Bittrex operates in CA, NY, WA and MT.
The process of setting up a CoinBase account can take several days to a week. You need to specify proof of identity, go through a multi-day background check, and hook up a bank account to get the funds. It’s not easy, and it’s not likely to get any easier anytime soon.
Now there are two other ways you can get crypto:
- you can be given crypto
- or, you can earn crypto for services.
Any crypto wallet, such as “My Ether Wallet (MEW)”, can send crypto to another crypto wallet without any AML / KYC at all. This is the very nature of crypto, and it’s power. All you need to receive crypto is a receiving address.
With EOS (and our own upcoming EOS wallet) this has never been easier. Instead of a 20 character hash, all you need is a username like “workcoinfred” and you can instantly send money anywhere in the world. And for free.
The advent of these wallets and the release of the EOS platform is likely to really increase the viability of people informally sending crypto to each other in much the same venmo is used today. It has to start somewhere (from a CoinBase account for example), but the effect is likely to be multiplicative (in the Keynesian sense).
Further integration of crypto into apps like WorkCoin will allow new crypto users to earn crypto for doing work. They still won’t be able to pay their rent with this crypto just yet, but their first crypto will be earned, not bought. This is a key difference.
The second big problem once you have crypto is volatility. This “problem” has been up until now a “feature” — meaning the inherent advantage of crypto (electronic money) comes with long term price appreciation via a scarcity model.
No need to rehash “hodling” and how Bitcoin has appreciated every other asset class over the last 8 years. The problem is now, as we get closer to mass adoption, the idea that your crypto holdings typically have 1–5% daily volatility is truly a problem.
The solution is stable coins. Tether, Basis, Reserve, Maker DAI, TrueUSD, Carbon and Stably are some that I am aware of. They are typically bought on an exchange for fiat or exchanged for another crypto (BTC), and often have some explicit redeem-ability for fiat.
Overall it’s early days. There still is no simple bank that takes in USD and dispenses stable coin for an average US consumer. At least not to my knowledge. Some banks (https://www.signatureny.com/) do it for entities such as Bittrex, but it’s more of a B-B not a B-C function. You still, as a consumer, need to go to one of the centralized exchanged to buy a Stable Coin.
Having an easy way to buy stable coin is important. Right now if you start with $1,000, transfer it to CoinBase, but BTC with it, move the Bitcoin to another exchange and swap it for a stable coin, you are left with something closer to $950 in value, assuming the price of Bitcoin itself doesn’t move (you are dealing with a full bid-ask spread, plus a fee on the stable coin).
Still, the future is bright. There is certainly no reason why Selling BTC is better (from a regulatory perspective) than selling TrueUSD. And banks can and will get their heads around stable coin prices, whereas they fundamentally are not in the BTC business.
I would estimate that at some point in the next few years banks will step in and start offering stable coins, backed by deposits in their accounts, to end user consumers. ChaseUSD anyone?
Hard to see Warren Buffet characterize things like TrueUSD as “rat poison squared” either. They are just cash. Not investments.
The Off Ramp
The off and on ramps are not quite symmetric. As crypto gets more mainstream, using crypto as a payment becomes its own off-ramp. The point of buying crypto then becomes sending it to somebody else (in exchange for a service).
If you do need cash, we are still, for the moment locked in to the centralized exchange system, with their toll booths that have made them into cash generation machines.
But Stable Coins, with their inherent ties to fiat, promise to change things over the next two to five years. “Pay me in Stable Coin” will be much more common for everything from mowing a lawn to hiring your accountant.