In recent years, much of the conversation surrounding cryptocurrency has been centered around its investment potential. The dominant narratives focused on alternative forms of crowdfunding (initial coin offerings or “ICOs”), often to support fantastical new technologies that promised to revolutionize everything from voting in national elections to global supply chains, and Bitcoin as a “store of value” akin to digital gold. These two narratives explain why many people, from retail investors to venture capitalists, buy and hold (or “HODL”) cryptocurrencies.
However, the original intent of cryptocurrencies was to enable global and permissionless payment networks. Bitcoin is described as a “peer-to-peer electronic cash system” in its seminal document or “whitepaper.” The first few years of Bitcoin evangelism were primarily about getting people to spend Bitcoin and getting merchants to accept it as payment. Proponents of Bitcoin as a new form of cash, controlled by people and not governments, touted the low fees and fast clearing times it offered to users. Some of this early evangelism was successful, and thousands of merchants were on boarded, with people selling anything from adult entertainment to cups of coffee for crypto. Even large companies like Expedia accepted Bitcoin as payment for plane tickets, and journalists couldn’t get enough of stories about people buying illegal goods using crypto on the darknet.
Things really began to change when the overall market capitalization of cryptocurrencies exploded in 2017. As the price and popularity of cryptocurrencies rose, so did transaction fees and wait times. Many sensational articles were penned about ten million dollar pizzas or million-dollar Priuses describing very early Bitcoin purchases. New readers were flabbergasted to learn that spending crypto, and not holding it, was once the most talked-about use case and that the man who spent 10,000 BTC for two pizzas claims to have no regrets. The tension between which use case to prioritize, spending or holding, led to a contentious split or “hard fork” of the Bitcoin network into Bitcoin and Bitcoin Cash in 2017. As these debates raged and people pushed the underlying blockchain infrastructure of cryptocurrencies to their limits, many merchants, including Expedia, quietly stopped taking crypto as a payment method.
Clearly, the price volatility that makes crypto so attractive to investors and traders presents a serious problem for crypto as an everyday payment method. After all, why would someone want to spend something they think may dramatically increase in value in the near future? Why would a business owner want to accept a form of payment that could lose 20% of its value in a flash? Enter “stablecoins”, a form of cryptocurrency meant to be stable in value, often with the goal of maintaining a $1 USD peg. Stablecoins come in many varieties, and people have been experimenting with them since 2014. Some are backed one-to-one by reserves of US dollars, while others are backed by assets like gold, or, more commonly, other cryptocurrencies. There are even some that are not backed by any underlying assets and are instead controlled by a purely algorithmic monetary policy.
I personally believe that stablecoins currently offer consumer the best way to spend crypto. Despite the difficulty in acquiring stablecoins (or crypto in general) and merchant adoption being low, stablecoins simply offer the best combination of tradeoffs for users who wish to use crypto as payment. They shield users from the extreme volatility of other cryptocurrencies and generally offer low transaction fees and fast clearing times. Also, stablecoins can serve as a bridge between people in countries with weak or corrupt monetary policy and countries with stable currencies. People in countries like Venezuela that see their life savings are eaten away by runaway hyperinflation would surely prefer to store their value in US dollars. Stablecoins can potentially allow this access without people having to smuggle in physical currency or deal with byzantine legal and financial regulations.
As an industry, we need to work on making it easier for consumers to obtain stablecoins and for merchants to accept them. Evangelism and hustle can go a long way, but if it isn’t easy to use, non-speculators will not adopt crypto. Although I am an investor, having participated in the Ethereum crowdsale among others, I am, first and foremost, an entrepreneur. Nothing gets me more excited than building a product and seeing it have a positive impact on real users in the real world. That is why I founded Origin Protocol, a platform for peer-to-peer marketplaces that allows buyers and sellers from around the world to trade goods and services for cryptocurrency. Very early on, my co-founder and I made the decision to support stablecoins, as well as some of the more volatile cryptocurrencies, by default on Origin-powered marketplaces. We believe stablecoins offers the best experience for users. Many other crypto marketplace projects only allow their users to spend that project’s volatile “utility token” in exchange for goods and services as a way to drum up demand for these tokens, but this clearly creates a worse experience for users. We think this is a short-sighted strategy.
There has been considerable hype surrounding cryptocurrencies but not enough real-world usage yet. However, many quality teams are working very hard to change this, which includes application developers, stablecoin issuers, crypto exchanges, banks, and liquidity providers, amongst others.
We look forward to a future where stablecoin cryptocurrency transactions drive large amounts of global GDP.
About the Author:
Matthew Liu is the Co-founder of Origin Protocol, the blockchain platform that enables true peer-to-peer commerce. He is a serial entrepreneur, having built several successful companies. Matthew was previously the third product manager at YouTube (acquired by Google), and a VP PM at Qwiki (acquired by Yahoo) and Bonobos (acquired by Walmart). He holds an MS in Management Science and Engineering and a BS in Electrical Engineering from Stanford.