Bitcoin and other cryptocurrencies are still not usable for everyday commerce and transactions. Here’s how to change that.
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El Salvador’s Bitcoin Experiment
When El Salvador became the first country to adopt Bitcoin as legal tender earlier this month, it was seen as a major step in cryptocurrency going mainstream. A digital currency presents incredible potential and could enable instant, convenient and cheaper transactions, especially for the roughly 70 percent of Salvadorans who don’t have access to traditional financial services. Yet, the initial rollout has been fraught with instability and confusion.
The country’s early experience highlights the fact that building a payment system people trust takes time. El Salvador is now realizing the implications of trying to utilize an incredibly volatile currency for everyday transactions. These are the same critical challenges that most crypto projects have tried for years to overcome in order to grow their ecosystems to a broader business and consumer audience.
After all, the opening line of Satoshi Nakamoto’s 2008 Bitcoin Whitepaper outlines the goal of creating a “purely peer-to-peer version of electronic cash” for online payments without the need for financial intermediaries. But now 13 years later, despite the growth of Bitcoin, Ethereum and other cryptocurrencies, this vision has not yet been realized.
This is because, by definition, usable money needs to have three functions: a medium of exchange to facilitate transactions, a store of value, and a unit of account to provide a common measure of the value of goods and services being exchanged. While Bitcoin and other cryptocurrencies are commonly used as a store of value (that is as investment vehicles) they are not yet widely used for payments and other transactions.
Using Bitcoin For Payments Is Too Confusing
Early news reports have highlighted that many Salvadorans will be unlikely to use bitcoin for payments for the same reason that crypto projects never go mainstream: it’s simply too confusing to the average person and is not trusted. As one labor representative told Reuters, “We know this coin fluctuates drastically. Its value changes from one second to another and we will have no control over it.” Every crypto project faces this same hurdle when trying to convince people to buy and use their own native token.
Simply put, communities using cryptocurrencies do not have full control over their money today. To use a comparison from the world of centralized banking, cryptocurrency is often really valuable in your savings account but can’t be readily used in your checking account.
But thankfully, there is a solution that gives any community control over all of the functions of their money and their own Decentralized Monetary Authority. Using ICHI, any community can easily create and control its own branded dollar worth exactly $1 that is uniquely backed by its own native token and over collateralized to limit risks. These dollar equivalents are a reliable unit of exchange that businesses and consumers can easily trust and understand.
By giving anyone access to usable digital cash, the potential of peer-to-peer finance can finally be realized. A student in El Salvador no longer needs to pay transaction fees to buy books or send money to his family overseas. A pupusa vendor in San Salvador no longer needs to pay a credit card company to accept payments from her customers. In fact, she can now offer special discounts to customers who use her business’ branded cash.
Simply adopting, or even creating a cryptocurrency is too narrow of a goal for El Salvador or any crypto community. For the true promise of DeFi and cryptocurrency to be realized, people must have complete freedom over how they spend, invest, save and otherwise use their money. It’s time for people to take control over their money.
About the Author
Bryan Gross is the lead steward at ICHI, the world’s first decentralized monetary authority (DMA) and former principal product manager of IBM Blockchain and advisor at Dapper Labs.
Updated on Oct 5, 2021, 4:31 pm