When will crypto currencies go mainstream?

A case for private blockchain ecosystems

Digital currencies work, and surprisingly better than anyone ever imagined. The question on everybody’s mind today is when will crypto-currencies go mainstream? When, for example, will I be able use my favorite crypto currency to buy my next cup of coffee at Starbucks?

The answer, in our humble opinion, is “soon”, but probably not in the way we all imagine.
After almost a year of noodling on this very issue, we’ve made a few cold hard observations:

Companies Listen to Governments

CEOs and Boards of all our favorite global franchises work very much within the boundaries of local laws (obviously). While that may seem like a dumb statement, we often forget that the starting point for any analysis of the potential mass adoption of crypto currencies is the future path of government regulation.

In order for big global businesses to start accepting crypto currencies, corporate decision makers need to see one of two things happen.

First, a major country (or state) could declare crypto “legal tender”. “Legal tender” is essentially a formal pronouncement that whoever uses crypto currencies to pay for something, cannot be refused by a merchant to sell you that product. The US dollar, for example, is legal tender. If you want to buy a product with dollars, merchants in the US cannot, by law, refuse to accept those dollars that you offer up.

As you can imagine, the whole notion of “legal tender” was conceived by governments, for governments. Dollars must be honored, and the full weight of the legal system ensures this.

So, what is the likelihood of any developed economy declaring today’s crypto coins as a form of legal tender?
I hate to say it, but probably zero.

No matter how widespread or popular crypto currencies become, it is difficult to imagine a scenario where a major developed economy would declare any of today’s popular crypto currencies as legal tender. Governments simply do not have any vested interest in today’s most popular crypto currencies.

However, what we do see on the horizon is that governments themselves will start issuing their own fiat-ed crypto currencies. As soon as transaction processing speeds improve, the crypto version of the US or Singapore dollar, for example, is within shooting distance. And in order to ensure the success of the future introduction of any new government crypto currency, the first thing that will happen is legislation confirming that those new government cryptos are “legal tender”.

But let’s leave aside the whole subject of legal tender for now. Whether crypto currencies ever will, or won’t, become legal tender is actually entirely irrelevant to the question of whether they will go mainstream.

This leads me to my second point. Crypto currencies don’t need to become “legal tender” in order to go mainstream. Governments simply need to take the position that accepting crypto currencies is not an illegal activity for big business.
Let me go back to my Starbucks coffee example.

We have already established that if I present US dollars to the Starbucks barista, by law, Starbucks must accept my dollars just because dollars are “legal tender”.

However, what would happen if I presented something else other than dollars? Japanese Yen for example.
The Yen is obviously not legal tender in the US. I cannot expect Starbucks to accept them. However, and you may be surprised to hear this, there is no law preventing Starbucks from voluntarily accepting Yen if it chose to do so.
In fact, Starbucks could voluntarily elect to accept anything I presented as a form of payment, provided the US government has not outlawed the use of that thing as a medium of exchange. This is barter, pure and simple, and there is nothing illegal about that.

There are some practical limitations to this scenario, of course. Starbucks could not, for example, accept illicit drugs, or stolen goods in exchange for a double espresso — simply because there are other laws around these things that make trading them completely unlawful.

When it comes to crypto currencies, major governments around the world have not made holding or using crypto currencies an unlawful activity. If they were to do so, then this would bring an abrupt end to the crypto-party.

Will government’s ever go so far as to outlaw the use of crypto currencies? I very much doubt it. Outlawing businesses from accepting crypto would be akin to treating crypto like illegal drugs, stolen goods, and pornography.

A much more likely scenario is that governments will simply choose to say “nothing”. And frankly, saying nothing is just as good as endorsing crypto currency use.

AML and CTF are Big Issues

Anti-money laundering (AML) and counter-terrorist financing (CTF) compliance for global corporations is a huge deal.
There is not one global franchise today that isn’t acutely aware of the risks involved in failing to comply with regulations aimed at combatting global money laundering and terrorist financing activities.

Having worked at the World Bank for a good part of a decade I could see just how much resources and political capital has been mobilized to ensuring that the global banking system and international business community supported AML and CTF compliance initiatives.

What this means for crypto currencies is that in order to go truly mainstream, global businesses must fully comply with their AML/CTF obligations when using cryptos and remain squarely within the good graces of the largest developed economies in the world.

And here lies the rub.

In a completely distributed world of crypto currencies, it is extremely difficult, neigh impossible, to identify the actors operating on the blockchain. While one can see precisely how much was sent, and to and from which account, there is no way of identifying precisely who owns these accounts. Account owners are anonymous. Hence there is no easy way to establish the true source of crypto funds if used in trade.

This presents an enormous headache for any global business thinking of accepting crypto currencies as a form of payment. It would be all too easy to inadvertently exchange their reputable products for cryptos that were derived from illegal activities, such as money laundering, drug trafficking and extortion.

The Solution

To usher in the new age of mass adoption of crypto currencies, both governments and businesses will need to feel “safe” to allow crypto currencies to circulate in general commerce. By “safe” I mean that global businesses will know, with absolute certainty, that they can fully meet their regulatory obligations on issues like AML/CTF.

There is a solution, which is surprisingly simple. Private chains.

Rather than re-imagining a world in which all our data and every day transactions occur over a massive distributed public chain, we see the evolution of hundreds, if not many thousands of very efficient private chain ecosystems.

On private chains, the identity of customers is known to merchants, and merchants exercise varying degrees of controls over the network to ensure regulatory compliance.

Private chains still have the desirable advantages of today’s blockchain technology, such as data integrity, security, transparency. But, they also allow operators to introduce basic levels of control, such as user identification, coin tracking and program modification.

A Social Bargain

While this solution may seem antithetical to the utopian ideals of the founders of blockchain, we think a social bargain between consumers and businesses is necessary, and perhaps the only way to truly move forward. By agreeing to surrender some level of control over our personal data, merchants will return the favor by providing their products and services to a mass consumer audience.

Might this lead, once again, to big business abusing our personal data? Time will tell.

The saving grace is that in a world of multiple private chains, consumers do have a choice to elect those networks on which perhaps the right balance between personal freedoms and mass convenience are struck.

Businesses do spend millions of dollars establishing trust and integrity with their consumer base. At least on the blockchain, all actions are transparent, and consumers are able to view with clarity the level of reach businesses will have over our data.

Finally, let me make a shameless plug for our own system GATCOIN. We believe the answer to mass adoption of cryptos is a hybrid public-private blockchain solution. To this end, we are hard at work developing high-speed mass data networks on which mainstream global companies will feel comfortable deploying cryptos to sell their products. We are aiming for transaction processing speeds equivalent to, or better than Visa and Mastercard, but have also introduced controls that will satisfy big business concerns about regulatory compliance.

We think this is a small, but important step forward towards the mass adoption of crypto-currencies.

*The author Simon Cheong is Founder and CEO of GATCOIN, a blockchain engineering company that enables mainstream enterprises to issue branded digital currencies to a mass consumer audience. Cheong is a former Senior Counsel of the World Bank’s International Finance Corporation.

Originally published by my colleague on Medium, posting here as I think the Steemit Community will be interested