One Problem Preventing Widespread Use of Cryptocurrency

My aim in these posts is to address the genuine concerns people have about blockchain projects and the potential near-term use cases. When applied correctly blockchain technology can solve specific problems better than any other technology which currently exists. Unfortunately, the vast majority of projects in this space are either focusing on use cases which we will likely see in the late adoption period, or use cases that have no relevant reason to use cryptocurrency. The question we hope to explore in this post is this: is there an undeniable use case for cryptocurrency which cannot be performed by traditional payment networks?

Blockchain is not the web 3.0

The best analogy for blockchain adoption is not the adoption of the Internet. I often hear blockchain compared to the internet and I don’t believe that the comparison is very helpful because prior to the existence of the Internet there was no other technology that was remotely like it. The reason why the adoption of cryptocurrency is so hard is because we already have systems in place which can provide for every reasonable use case cryptocurrency seems to offer.

Cryptocurrency is not a better payment system. It is a more complicated payment system that provides censorship resistance and irreversibility of transactions. How often do your friends and relatives need payments with these features? This is why the stereotype that Bitcoin is only useful to buy drugs online is so persistent.

In the early days of the Internet (mid-1990’s) the ability to email someone didn’t replace the ability to call and speak to someone by phone. Speaking by phone provided a human connection to others, email however was viewed as cold and impersonal. The ability to email someone also didn’t replace the need to send a fax. Fax communication was a secure method, email an insecure method. As a testament to this fact, consider the fax’s pernicious persistence in our healthcare infrastructure. These are three very different technologies which serve different purposes.

The Internet as a publishing platform also did not replace the usefulness of public libraries. Hobbyists were creating communities on platforms such as GeoCities with names such as Area51 or CollegePark. On the Internet, people were publishing and consuming information but not of the sort which could be found in a library or even seen in mainstream magazines. The types of information and interactions which the Internet-enabled looked very little like the media people were consuming offline.

Sometimes inferior technology can still win

If you are looking to compare blockchain with a historical emerging technology, the best analogy is instead to look at the adoption of Voice-over-Internet-Protocol or VoIP. Today VoIP is the dominant technology for deploying new enterprise phone systems, but initially, it was viewed as an unnecessary, expensive, and unreliable competitor to the existing use of the PBX. A PBX or Private Branch Exchange is a switching system that connects a corporate office to the public phone system’s network.

There was no good ROI that would provide businesses with a meaningful reason to justify the expense of a forklift upgrade to a newer, less reliable technology. PBX phone systems worked reliably. VoIP IP-PBX systems however were new, the phones looked sleek and stylish. VoIP was the future and it promised amazing new features which were just over the horizon. The phones themselves were little computers that could merge the worlds of data, voice, and potentially video into a new world of unified communications! Whether or not anyone seemed to need these features at the time was irrelevant.

In 1998 Cisco acquired Selsius Systems and 2 years later Avaya entered the market as a competitor. Today these two companies own half of the US market share for VoIP enterprise phone systems. The turning point where VoIP began to dominate in the implementation of new phone systems was likely in 2010, when Microsoft Lync’s corporate vice president declared, “The era of the PBX is over.” Today it is far more expensive to install a new PBX system than it is to install a new VoIP solution. VoIP, the initially inferior product, has won.

When we look back it is hard to imagine how this shift took place. The PBX had been so reliable and the initial VoIP systems were notorious for poor call quality. With this change, voice traffic was forced to traverse the same network initially built for data. Quality of Service prioritizing voice, over data required more than just a forklift upgrade of the phone system💰. This meant that the entire data network had to be upgraded to accommodate voice traffic sensitive to bandwidth and latency issues💰💰. Suddenly the cost savings of free long distance between branch offices seemed laughable🤣.

In a very similar sense, we will likely look back and wonder how a shift to decentralized financial instruments took place. We already have effective means to pay one another. We already have the means to enter into contracts with one another. We already have the ability to do today everything that crypto seems to want to promise us. Why then build financial apps on decentralized platforms?

If you were a VoIP salesman in 2005, everything was all about the future. In the future, everything would be a computer. How could a corporation fail to adopt a communications system capable of combining voice, data, and video together into one seamless experience! Forget that it was precisely because the PBX used a dedicated network for voice traffic (not shared by data) that voice quality was more reliable. Forget also that the VoIP phone systems of that time were largely unable to pull off this “seamless experience.” Still, the promise that this was possible was undeniable. Cisco TelePresence (introduced in 2006) allowed teams separated by hundreds of miles to appear to be in the same room sitting right across from one another! These were things your old PBX couldn’t even dream of doing, the possibilities were endless!

The lure of automating financial contracts is likely very similar. In today’s world, the requirements for creating a new financial product or service is governed by an alphabet soup of regulations and regulatory agencies. AML, KYC, CFPB, FINRA, SEC, CFTC to name a few. Whenever a corporation takes ownership of other people’s money they must comply with the regulators. To comply, a corporation needs an army of accountants, lawyers, and auditors to secure promises that a business will legitimately use customer funds to provide the financial services as advertised. The protections afforded by our legal system to consumers are extensive. For businesses to comply with these regulations is also very expensive.

With cryptocurrency, however, you don’t have to be down with OPM (Other People’s Money). Now new financial instruments can be crafted which never create third-party liability. This means that it’s possible to innovate in financial services without assuming regulatory risk. Since the providers of these new financial products and services never hold customer funds, the opportunity to misappropriate funds is greatly reduced. In this new paradigm, smart contracts hold funds, not institutions. These smart contracts do so transparently and the software code written into them governs ownership of the money. If it is possible to understand the code then it should be possible to determine who the future owners of the money will be.

There is room to argue that developers are still subject to regulatory liability, but until actual cases pass through our court system this argument has yet to be demonstrated as true. In ideal cases, the regulatory scrutiny formerly imposed on financial service providers, which previously had to take custody of funds, can now be circumvented. This avoidance of unfavorable and costly regulations has a special name, regulatory arbitrage. Cryptocurrency’s ultimate trick is making expensive regulations disappear. And this is the magic of regulatory arbitrage!

Not seven problems — just one

The primary reason why people underestimate cryptocurrency is because they cling to fallacies. These fallacies mandate that cryptocurrency be a better payment system than the payment systems we see today. This becomes a problem when the assumptions people have about cryptocurrency blind them from seeing the few valid use cases that platforms like Ethereum actually have. This lack of vision is the number one problem hindering the adoption of cryptocurrency today. Cryptocurrency is not a better payment system and it will never be a better payment system.

Cryptocurrency is the ultimate system for achieving regulatory arbitrage. If you are not attempting to use it for this use case, then your concept is wrong, your approach is wrong, and your estimation as to the technology’s usefulness is wrong! Let me be perfectly clear, the majority of projects in the cryptocurrency space are utterly worthless and will result in complete failure. The projects which end up failing will not be salvageable, not because of a failure to execute on their idea or a lack of effort by the team. Most ICOs and crypto-projects are focused on use cases that were never valid. Anyone who assumes that a valid use case is just a better, more decentralized version of some system we already have in place currently, is likely operating under a fallacy. As illustrated previously, this was not initially true with the Internet, this certainly wasn’t true for VoIP adoption, and it likely isn’t true for cryptocurrencies. Focusing on use cases for cryptocurrency that traditional payment systems are incapable of providing, is a more rational approach given the adoption path of earlier cutting-edge technologies.

This doesn’t mean that you can’t use cryptocurrency for adorable collectible card trading games such as CryptoKitties. Surely you can do this, it will just never reach a mainstream audience. The first decentralized financial app which reaches a mainstream audience will undoubtedly be one which leverages the power of cryptocurrency to achieve regulatory arbitrage.

This is because there has never been, nor will there ever be, another payment technology in all of human history more uniquely suited to achieving regulatory arbitrage.

The reason why this is so is because of the special attributes the technology possesses. Cryptocurrency protocols enable the following unique features which no other payment system on earth can provide:

1. Payments that are censorship-resistant and irreversible and not subject to payment friction imposed by governments or other authorities.
2. Escrows remove third-party custodians from holding funds that do not belong to them.

Now you know, and knowing is half the battle.

TandaPay solves all seven problems

TandaPay leverages the unique features of a cryptocurrency payment system to provide value to consumers in a way that other payment systems are unable to do. Cryptocurrency exists for users who need payments that are censorship-resistant and irreversible and not subject to payment friction imposed by governments or other authorities. Cryptocurrency is also an escrow system that enables the removal of third-party custodians from holding funds that do not belong to them.

TandaPay will be the first open-source protocol using Ethereum to enable peer-to-peer insurance. This is why it needs payments that are censorship-resistant and irreversible; and why it requires the removal of custodians who hold funds. We need a payment technology that allows insurance premiums to move directly between policyholders and claimants. Ethereum is the only platform with payment systems that are capable of enabling peer to peer insurance in 2019. For more background as to how TandaPay provides these features to users or how it works please follow the link.

1. Ease of use: 98% of TandaPay users never even know they are using cryptocurrency. The app provides a useful service to users without them ever having to create an account on an exchange, or know that they hold cryptocurrency on their phone. The users purchase cryptocurrency by interacting with someone they consider to be a close personal friend. They then use this cryptocurrency in the app with the tap of one button. One button allows them to pay their premiums in cryptocurrency. It does not get any easier than this.
2. Security: No one ever holds more than 35 dollars in cryptocurrency on their phone. The low value at stake means that, from the consumer’s perspective, very little is at risk. In addition, someone whom the user considers to be a close personal friend is there to guide the user on security best practices, specifically when it comes to backing up their keys. This person is able to answer every question the user has and lead them every step of the way. If their phone is lost or stolen, the friend can help the user retrieve the backup of their keys stored in cloud storage and recover the funds in their cryptocurrency wallet.
3. Acceptance: The TandaPay wallet doesn’t require anyone outside of the TandaPay community to accept cryptocurrency in order to provide a useful service to the community. There is no need that anyone other than community members accept cryptocurrency as payment. Even when TandaPay members do utilize cryptocurrency, it can always be converted back to USD by someone whom the user considers to be a close personal friend.
4. Stability: TandaPay uses the DAI, an instrument created by MakerDAO. The DAI is a stablecoin that is always worth one dollar. Before 2018 it was impossible to create blockchain insurance products for consumers given the price volatility of cryptocurrency. To create consumer products you needed a stable currency pegged to the dollar. Now with the innovation of MakerDAO’s DAI we can offer insurance products to consumers without them even knowing that they are using cryptocurrency.
5. Liquidity: DAI offers 100% guaranteed conversion directly into cash through the TandaPay website, or into ETH at a price of 1 DAI:1 USD on exchanges everywhere.
6. Regulatory clarity: TandaPay is speech. TandaPay cannot be regulated. If the government doesn’t like it, then let them face the wrath of angry liberals who were told in 2012 that corporations are people who can spend unlimited amounts of money in political elections because money is speech. If the government was stupid enough to say that the Citizens United ruling does not apply to a TandaPay premium, then it is stupid enough to have the blood of patriots and tyrants refresh the tree of liberty. Such a government will be labeled as captured by corporate interests and enslaved to corporate money. In which case there will be bloodshed in the streets until such time that said government is dismantled brick by brick, since it no longer serves the interests of the people but rather the interests of corporations.
7. Infrastructure: TandaPay does not need any infrastructure because all conversions from USD into cryptocurrency, or from cryptocurrency into USD, are performed by someone whom the user considers to be a close personal friend. If the secretary fails to perform this function, then the TandaPay website portal will serve as a backup to provide conversion of funds from DAI to USD.

To sum it up

The primary reason why people underestimate cryptocurrency is because they cling to fallacies that cryptocurrency can be a better payment system. This concept is wrong. Cryptocurrency is the ultimate system for achieving regulatory arbitrage. Successful apps built on blockchain technology will likely leverage the following unique features:

1. Payments that are censorship-resistant and irreversible and not subject to payment friction imposed by governments or other authorities.
2. Escrows which remove third party custodians from holding funds that do not belong to them.

Cryptocurrencies have a unique and powerful feature set, but if we don’t use them for the right reasons how can we expect the ecosystem to develop? Apps that leverage the functions of cryptocurrencies in an essential way will make the entire ecosystem more valuable.

In designing apps around cryptocurrencies core features we will transform an “inferior” payment technology into a dominant payment technology in the same way VoIP has come to dominate telecommunications today.