It is inevitable that the masses will adopt cryptocurrencies.
These continuously evolving technologies, with assistance from mobile phones, will enable a world where the average consumer will be able to use different currencies. Such currencies include loyalty-redemption points that can be freely traded, community currencies backed by municipal bonds, certificates with instantaneous spot markets, and of course, virtual currencies backed by arbitrary and trustless crowds like bitcoin.
Eventually, physical cash will disappear and the phone will become the new wallet. In fact, we are starting to see this transition already. Unlike a physical wallet, mobile wallets can contain many different kinds of currencies. From reward points that are tradeable between programs to foreign fiat currencies and gold certificates - when it comes to software, these can all be handled and traded very easily. Likewise, for vendors, supporting and exchanging many forms of currency to purchase goods and services is a straightforward process. This is not possible in a cash world and exemplifies why mobile phones are a requirement for a world of many currencies. In some respects, this resembles the free-banking era.
The “Money Cloud” clearly needs to be cryptocurrency based. This is because the cost of handling transactions and exchanges across multiple electronic currency systems with mainstream technologies is prohibitive. The type of future I have described, with an arbitrary number of currencies, cannot happen with our current systems.
Cryptocurrencies are not only blockchain based. This is because cryptocurrencies are a constantly evolving group of technologies. At their core, these technologies provide a tokenized medium of exchange whereby transactions and the creation of tokens are controlled and secured by cryptography.
The actors, whether they are the senders or the middlemen, give guaranteed attestations and receipts with respect to a transaction. Notably, it is inconsequential if the middle man is a mining majority or a trusted third party. One of the significant advantages of these systems is because of the cryptographic attestations. Transactions can span across multiple ledgers and enable a very cheap and efficient way of interconnecting ledgers or currency systems, similar to how TCP/IP enabled interconnected networking.
One example of this, which we will see this year, is the ability to make payments across different blockchain systems, or cross-chain payments. For example, a user will be able to send and exchange funds from their litecoin address to another user who has a bitcoin address without a trusted third party gateway.
Decentralized off-chain networks like the lightning network and state channels, together with related developments, are the missing piece for developing such cross-chain networks. However, this feature of cryptocurrency protocols doesn’t stop at blockchain based systems. The idea can be generalized to protocols that can internetwork any two ledger based payment systems, securely and without the need of trusting a third party. This is very different from a manual and labor intensive interconnect system like SWIFT.
Ultimately, I envision a world where cryptocurrencies enable a future of many currencies. This is because cryptocurrencies also constitute a group of universal and open APIs that provide transactional guarantees and protection by mathematical law rather than just human law. These aspects make cryptocurrencies very easy to program as well as incorporate into applications.
Shidan Gouran is CEO of Gulf Pearl and an investor in financial technology and payment startups.
