Nick Hubble – Capital and Conflict (United Kingdom) –
The bitcoin price crashed… sort of. From above US$3,000 to below $2,500 is hardly a hiccup given bitcoin’s past volatility. But for those who invested very recently or a long time ago, it’s a big loss.
And that’s the trouble with bitcoin. The volatility makes it a dangerous game to play. And playing dangerous games hardly lends itself well to a day-to-day payments system, which bitcoin is supposed to be in the end.
But bitcoin is not alone. There are potentially more remarkable innovations on the currency horizon. You just have to know where to look. Perhaps the past gives us clues…
About ten years ago, mobile phone companies started testing their mobile payment systems where you’d least expect it. Not in Silicon Valley, New York or Tel Aviv, but in Nairobi.
These days, farm stalls on the side of the road in Kenya and Afghanistan will take your money by phone using the same system. Cash is old fashioned, dirty and dangerous to Kenyans. According to The Economist, two thirds of Kenya’s population are up and running on the mobile phone based M-Pesa system and 25% of the country’s GDP flows through it. It’s especially popular in slums and among ethnically shunned groups.
You might say it has empowered them
As with all great inventions, the M-Pesa system was designed for something else – microloans. But thanks to violence, discrimination, the cost of bank transfers in Kenya and the dodgy banking system, M-Pesa boomed as a payment system instead. A study claims that households using M-Pesa increase their income by between 5% and 30% over time. As it matures, the lending features of M-Pesa are becoming popular too, as originally intended. And there are hundreds of other local startup ideas which integrate the system.
Then there’s India and its own more advanced version – IndiaStack. Alongside mobile phone based banking features, IndiaStack is designed to allow many other functions, such as insurance of crops. The aim is to allow electronic agreements, cashless transfer of money to any location, instant confirmation and approval, with documentation provided electronically. In other words, the economic life of an Indian farmer can be entirely on their smart phone. This escapes India’s famously disastrous institutions and distances.
The idea that innovation happens in technologically backward places seems odd at first. But technology proves itself where it solves problems. And Kenya and India sure have plenty of those.
But nowhere is as disastrous as the UK. Especially when it comes to opening up a bank account.
Governments create the need for innovation
Usually people complain about government retarding innovation. Or they point out how subsidies support it. But there’s a third option. Governments’ stupid rules make life so inefficient that a technological innovation can gain an enormous edge by skirting those rules.
This is especially true in the overregulated and arcane financial sector. Norris Koppel founded Monese after he realised just how painful opening a bank account is in Britain. The idea of Monese is to offer bank accounts to people who can’t get them in the UK – especially newly arrived foreigners. Usually this is because they don’t have a proof of address, as most accepted proof of address documents require a bank account.
Think about this for a moment. A financial startup company wins international acclaim by providing basic bank account functions in one of the most developed and international places on Earth. How badly must our financial system be messed up for this to happen?
It’s utterly pathetic
You can open an account with Monese using just your phone. What makes Monese special is that it is solely designed to skirt regulations on two fronts. Although customers use it like a bank, it’s not a bank. It uses a bank to do its business of moving money around. Not being a bank allows Monese to avoid all the banking regulations.
Secondly, Monese reinterprets the dreaded “know your customer” regulations by using technology to achieve the requirements. Apparently it achieves a higher level of knowing its customers than some banks do.
The list of financial innovations to solve incredibly simple problems continues to grow. Bitcoin’s ability to evade Venezuelan and Chinese controls is the most famous example, but there are hundreds of others.
This creates a new problem. Which financial innovations do we really need? Which ones will survive? And which ones will deliver you outrageous profits like those bitcoin delivered to early investors?
Currencies by purpose, not nationality
It’s not fair to compare Kenya’s and India’s online payment systems with bitcoin. They serve different purposes, have different features and are used in different ways.
But that’s an incredibly profound idea. What if the type of money you use isn’t determined by nation but by purpose. If you need anonymous transactions that are secure, use bitcoin. A smart contract based relationship? Use Ethereum. Want to pay at a farmer’s stall during your holiday to India? Use the local mobile payment app. New to a country with stupid banking laws? Use Monese. Want to support your local agricultural community? Found a community currency – a digital one.
This might seem arcane and annoying to you at first thought. But if you have relatives in Venezuela that need money for food, bitcoin is a godsend. If you’re a Kenyan farmer’s housewife whose husband periodically takes all the cash in the house to the pub, M-Pesa offers financial stability. If you’re an Indian farmer hours from any city, IndiaStack’s crop insurance could save your family from starvation. And if you were me in 2015 trying to open a bank account in London, Monese would’ve saved a month of outrage and hours of waiting at bank branches, including falling asleep at one.
The glory of Russia
None other than Vladimir Putin has cottoned on to the idea that a currency can be tailored to a purpose. His purpose is of course power, the glory of Mother Russia and embarrassing his international detractors. Cryptocurrencies offer a rather wonderful opportunity to achieve all three.
Having met with the founder of the cryptocurrency and smart contract platform Ethereum, Putin told the St Petersburg International Economic Forum that “the digital economy isn’t a separate industry, it’s essentially the foundation for creating brand new business models.” Rumour has it that Putin wants a Russian cryptocurrency. And he’s putting his money where his mouth is.
The state development bank of the country is using Ethereum for part of its administrative functions and a Russian steelmaker is using it to get letters of credit from international financers. In other words, the system works. And the traditional enemy of the West is up and running.
The problem with all these innovations and the remarkable booms they trigger is that it’s a royal pain in the neck keeping up with them all. But one man does it for you. And he has identified the three cryptocurrencies that you need to own if you want to make money from the new currency booms.
A “virtually invisible” crypto
What I didn’t realise is how newer and better and more purposeful cryptocurrencies are constantly being devised. Keeping a tab on them as my friend Sam Volkering does for his subscribers could mean an opportunity to invest before they gain popular traction. That’d be like owning bitcoin when it was worth a few cents…
Sam thinks he’s found one cryptocurrency that he says is “virtually invisible” to investors for now. Better still, it might be better than bitcoin thanks to a brand new feature.
But you have to buy it in a very particular way that he explained to his subscribers. The price is up thousands of per cent already, but it was still valued at less than 20 pence when Sam recommended it recently. Just like Russia’s support for Ethereum, it’s backed by a country that just formally opened its doors to cryptocurrencies and ways to invest in them.
In other words, now is the time to buy.
Until next time,
Capital & Conflict