Blockchain Bubble or Revolution: The Future of Bitcoin, Blockchains, and Cryptocurrencies by Detroja Parth & Agashe Aditya & Mehta Neel

Author:Detroja, Parth & Agashe, Aditya & Mehta, Neel
Language: eng
Format: epub
Publisher: Paravane Ventures
Published: 2019-06-10T16:00:00+00:00

$10

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Free

$1

$10,000

$300

Free

$1

$10 mil.

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Free

$1

The approximate costs of sending money through various means within the US.

Amount sent to Indonesia

Mail cash via UPS

Bank transfer

Bitcoin

$10

$30

Impossible

$1

$10,000

$150

$400

$1

$10 mil.

Impossible

$400,000

$1

The approximate costs of sending money through various means from the US to Indonesia.

This means that, compared to the status quo, paying with cryptocurrencies is underwhelming for small domestic payments but game-changing for large or international payments. Cryptocurrencies are far, far better than the status quo for sending money internationally, which is exactly why Facebook, which is seeing most of its growth coming from the developing world,[843] is so keen on using Diem for payments.

Struggles

The business case for Diem makes sense, and its design managed to avoid a lot of the pitfalls that usually trip up cryptocurrencies. Diem is pegged to a basket of fiat currencies,[844] thus reducing its volatility and making it a suitable candidate for payments. Facebook and its partners hold almost total control over Diem’s future, thus reducing the risk of rebellions or hard forks splintering the currency.[845]

However, Facebook quickly ran into problems. US Senators grilled Marcus about Diem, saying it was “delusional” to trust Facebook with people’s money.[846] The media and the public were skeptical of Diem given their widespread distrust of Facebook’s privacy practices.[847] And, worst of all, the major payment processors that partnered with Facebook to launch the coin, including Visa, Mastercard, Stripe, eBay, and PayPal, all quit within just a few months of the currency’s announcement.[848]

But why? It might be that Diem was trying to have it all. Crypto enthusiasts were turned off by Diem’s centralization of power in the hands of major tech and finance companies — the exact opposite of cryptocurrencies’ usual ethos of democratization, decentralization, and cutting out financial middlemen.[849]

Meanwhile, payment processors were afraid of running afoul of strict fraud and money-laundering laws, which Diem seemed to want to avoid whenever possible.[850] They were, no doubt, spooked by a letter that two US Senators sent to them:

Facebook appears to want the benefits of engaging in financial activities without the responsibility of being regulated as a financial services company… If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related activities, but on all payment activities.[851]

The verdict

Diem is an ambitious project — perhaps too ambitious for the time when it launched. The regulation wasn’t yet in place, nobody knew the right model for how private companies could and should use cryptocurrencies, and most of Facebook’s finance-industry partners weren’t ready to take the plunge. Libra’s future remains to be seen, but it’s clear that it won’t be easy.

Looking at the bigger picture, Diem is the prime example of how cryptocurrencies are being used in ways antithetical to their founding spirit. Bitcoin was invented to cut out middlemen, work around banks, make transactions transparent, and give average users a way to earn money and be part of the currency’s future (as via mining). Diem is the exact opposite: it’s run by gargantuan tech and finance companies, all payments and data will flow through Facebook,[852] the blockchain may not be publicly viewable,[853] and ordinary users get no say in its future.

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