Your work life is lived in email and your personal life is lived in text messages, but if you owe your friend ten bucks, odds are good that the digital buck stops then and there. You’ll resort to passing paper money to settle your debt, or at least you will if you’ve actually got a ten spot or your friend can change a twenty.
There are a whole gaggle of companies looking to make this ten-buck transaction among friends digital and easy, of course. Not a one of them is using blockchain technology to do it.
Think about it. Blockchain—yeah, ok, it’s about all sorts of distributed ledger things and smart contracts and so on, but seriously—it’s about money. It is the money. So it’s not exactly a ringing endorsement of blockchain that the Venmos and Apple Pays of the world haven’t seen fit to deploy it, right?
Consider Venmo, which is estimated (by eMarketer) to have had 22.9 million users this past year. It’s a mobile app and part of what it offers is, somewhat weirdly, a social network. Download Venmo, hook it to your checking account, and you can get down to the real business of the app and transfer ten bucks to your friend’s Venmo account. Even if your friend doesn’t use Venmo, the money sits there waiting for him or her to wise up, download the app, and claim it. This is easy, right?
Because it’s a social network, there’s even the equivalent of a tweet to let everyone know you sent your friend some (the amount isn’t disclosed) bucks–you can turn this behavior off, but where’s your sense of joie de vivre?
Venmo is alone with the social networking aspect, but otherwise is of a piece with offerings from Square Cash, Zello, Apple and Google. All of them simply make it possible to make individual bank transfers of the sort you’d use to make a digital bill payment to your utility company.
Same as cash?
Colloquially these are referred to as cash transactions, but they aren’t anything like a cash transaction insofar as they are monitored and recorded, could theoretically be rolled back if something had been done improperly, and can’t be carried out anonymously. They are credit cards without the cards, not cash without the bills.
If you think about actual cash, it’s not like Venmo at all. A cash transaction can be genuinely anonymous, can’t be tracked unless a separate receipt of some kind is generated, and if you lose the cash, you’re out the money plain and simple.
Ah, and one other thing: there’s generally friction in the form of a transaction cost to using “fake cash,” as opposed to using real cash. While it’s currently free to send money through Venmo from your bank checking account, there’s a 3% charge if the money comes from a credit card account. All the current players are largely working within the realm of credit and debit card transactions, where a 2-3% charge per transaction is the norm.
What’s missing from this picture is the emergence of a player that wants to disrupt our current 2-3% surcharge economy. This is what, at least theoretically, could happen with a blockchain-based cash platform. It’s not that blockchain magically would make there be no cost to making transactions (if nothing else, there’s always the cost of keeping the computers humming), but the costs could be spread out across the participants in the system, with those maintaining copies of the transaction ledger being paid a highly competitive (and therefore lower) price for their work.
For better or worse, this “blockchain cash” approach could work like real cash, anonymous where desired (though it wouldn’t have to). I think what would drive people to use such a system would be the lower cost. The business model is to disrupt the credit card industry’s expense structure.
As far as I’m aware, no one is trying to do cash transactions with blockchain technology. But if blockchain is all it’s cracked up to be, shouldn’t there be entrepreneurs and venture capitalists ready to jump on it in a heartbeat?
I suspect that the problems boil down to fundamental (not unfixable, but nevertheless deep-rooted) problems with blockchain:
- The concept of proof of work is still in flux. The original PoW as implemented in Bitcoin literally requires too much work to be scalable. Ethereum offers PoS, but while it’s better we’re probably still looking for the best solution here.
- It’s too complex, so Mom and Dad won’t trust it. I’m not sure I even trust it myself.
- We need a hybrid model that provides some kind of centrally locatable throat to choke but that isn’t a fat-cat bank. We’ll need, for instance, a single app for the wallet part of the arrangement.
- Direct tie to dollar value – in other words, it will be a ledger of dollar and cent transactions, not a currency that floats against other currencies.
If Blockchain’s so great, why doesn’t Venmo use it?
Meanwhile, there are plenty of people who will tell you that there are a lot of uses for blockchain as a distributed ledger, but as far as I can see, we’re still waiting for the really disruptive stuff to be practical. One early possibility that might be more feasible than “fake case”: IoT security. A report just out from Gemalto says adoption of blockchain has doubled from 9% to 19% in the last 12 months. Of those not using blockchain, 9 out of 10 say they’ll be looking at blockchain for future use.