Stablecoins May be the Future of Money 

Stablecoins dominated the cryptocurrency space in 2018, and they show no sign of losing traction. These tokens achieve lower volatility.  They are an easy way for traders to seamlessly lock in profits. However, it has since become clear that they show tremendous potential in everything from day-to-day commerce to international remittance.

Stablecoins combine the best of both cryptocurrencies and fiat currencies – operating in a trust-minimised fashion, they can be used for cheap and rapid transfers of value whilst maintaining a peg with fiat (whether through algorithmic means or via backing with full/partial reserves), making them suited to use cases where volatility concerns rule out offerings like Bitcoin or Ethereum.

Usability Obstacles

For all the promise stablecoins show, and though they may hold value like fiat currencies, they’re functionally identical to cryptocurrencies (and thus, prone to the same arduous processes for storing receiving and sending coins). As a recent study demonstrated, cryptocurrency infrastructure has a long way to go before its users can feel confident in their transactions.

The sending workflow is unintuitive and overly complex. Lengthy public addresses must be queried from receivers for every transaction. In addition, mining fees must be calculated. Many wallets are incapable of gauging these based on the state of the mempool. Users need to triple-check that they haven’t made any errors with regards to the destination or amount of funds. Once a transaction has been included in a block, it can’t be reversing a transfer is not possible.

QR codes are for encoding public keys. These codes allow sidestepping the time-consuming process of entering a cryptocurrency address manually. It’s hard to dispute the convenience of being able to scan the address with a smartphone’s camera. Unfortunately, the applications for QR codes are limiting the available options.  Two devices are necessary for this task (i.e. one displaying the code, and one scanning it). This  means that they’re of little use outside of in-person transactions.

In order for stablecoins (or, indeed, any cryptocurrency) to see mass adoption, the wallet learning curve must be gentle enough for any newcomer to easily and confidently manage their funds – think a trustless alternative to Venmo or PayPal.

Conquering Online Commerce?

Many wonder, now having addressed bitcoin’s volatility problem, whether stablecoins will start to be used in everyday commerce. Unfortunately, there are a number of technical issues that need to be overcome before stablecoins can start challenging Visa or PayPal’s share of online retail payments.

Most notably is the fact that most regulated stablecoins are built on top of the Ethereum blockchain. Which has not only faced scalability issues – the Ethereum congestion caused by CryptoKitties in 2017 was a stark reminder of the limitations of blockchain networks. However, the distributed ledger would need to be capable of handling huge amounts of users. This is key to later attracting merchants or consumers.

Reliability Concerns

But also reliability issues remain as well. The 51% attack on Ethereum Classic at the start of the year brings to light many questions around whether the security of the blockchain supporting the stablecoin makes it prone to block reorgs, which can undo transactions, defeating the notion of transaction finality. Will ecommerce providers want to risk accepting stablecoins if there is a chance that payments can be undone?

The allure of stablecoins in commerce undoubtedly stems from the fact that they’re more analogous to digital cash than centralized payment networks, which have the ability to interfere and cancel/censor/rescind transactions. Nonetheless, some are currently attempting to hybridise the approach. Such efforts include combining the widespread acceptance of credit/debit cards with cryptocurrency field.

Coinbase recently announced the launch of their own Visa card. The card has features that allows holders of cryptocurrencies to spend their (exchange-held) coins. On the surface, it’s an interesting offering. It enables users to pay for goods in cryptocurrency anywhere. That said, the idea goes against the core concepts of cryptocurrency. Users still prefer to avoid entrusting a centralized service with their funds.

Time For a Standard

Instead, coordination between all of the stakeholders in the cryptocurrency space to create an industry standard is needed if stablecoins are to be adopted in commerce. Blockchain technology powers entire economies of technical users. However, wallet providers need to build on top of the base tech to streamline the experience for the masses.

In addition, a new standard requires new technical aspects for blockchains. Likewise, interoperability should be the current focus for companies. The features and UI/UX we’re familiar with in existing payment processors – ’pay your contacts’ functionality, attaching metadata to payments, invoicing, etc. –  need to be ported into the trustless paradigm that blockchain technology is bringing to life.

A former dot com entrepreneur and 11+ year venture capitalist, David Gold is CEO of Dapix, Inc who has launched the Foundation for Interwallet Operability (FIO) and FIO Protocol.

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