The revolutionary crypto assets known as stablecoins will lead to the demise of Bitcoin (BTC). In the process, stablecoins will totally transform banking and completely disrupt payments.
In fact, I think stablecoins will wreak havoc in banking, credit credits, big tech, retail, e-commerce, and several other industries when somebody perfects them. Moreover, I predict stablecoins will wipe out several businesses; including wire transfer and money changing, before they are through.
To explain, a stablecoin; like Tether (USDT) is a digital asset that combines a cryptocurrency with a payment mechanism. In detail, the payment mechanism is a smart contract they program to pay a buyer in fiat currency when somebody spends a token.
To clarify, they keep the fiat currency in a trust account. For instance, the Gemini Dollar (GUSD) smart contract releases US dollars they keep at the State Street (NYSE: STT) bank. Hence when you spend a Gemini dollar you are telling the smart contract to pay the recipient in USD from State Street.
Why Big Retail will Accept Stablecoins but not Bitcoin
In contrast, all the value in traditional cryptocurrencies like Bitcoin; and Ethereum (ETH), is in the currency’s Coin Price.
Consequently , you can argue Bitcoin has no value in the real world. To clarify, you cannot take Bitcoin; or Steem (STEEM), down the supermarket and buy food for your kids with it. Furthermore, I cannot imagine grocery giants; like Walmart (NYSE: WMT), Kroger (NYSE: KR), Tesco (LSE: TSCO), Aldi, or Carrefour, accepting Bitcoin at their registers.
However, I can imagine Walmart; or Tesco, adding an app to its point of sale (POS) systems that facilitates instant payment in dollars or pound sterling. Essentially, that is exactly what a stablecoin is, a payment application inside a cryptocurrency.
Will Walmart Accept Stablecoins?
To explain, the stablecoin is a delivery mechanism for a widely accepted and legal means of payment – fiat currency. Hence, Big Retail could accept stablecoins in its stores.
Notably, Walmart is experimenting with Walmart Pay, a digital wallet based on a similar technology; Quick Read (QR) code. To elaborate in QR Code apps, a cash register generates a unique bar code that a payment scans via a phone’s camera.
Thus, Walmart is experimenting with a kind a of encrypted payment in its stores now. Thus, I can easily imagine Walmart accepting stablecoin payments. That will be highly disruptive because Walmart is the world’s largest retailer, operating over 5,000 stores in the USA alone.
How Stablecoins can Kill Bitcoin and other cryptocurrencies
Consequently, stablecoins can kill the demand for Bitcoin by providing an encrypted alternative that retailers will accept. In addition, entities like banks, utilities, governments, small businesses, and individuals will be more likely to take stablecoins.
For example, an American could keep her USD stablecoins in an FDIC-insured bank account that pays interest. Importantly, the Federal Deposit Insurance Corporation (FDIC) is a US government agency that insures American bank accounts.
Thus, funds in a USD stablecoin will be far safer and more secure than money in Bitcoin. In addition, big banks could offer a “stablecoin app” that allows people to spend funds from their accounts anywhere. For instance, the American could access her FDIC-insured bank account when she is on vacation in India.
I cannot imagine the average person or company touching Bitcoin if there is a government-insured alternative available. Under these circumstances, stablecoins could destroy all of Bitcoin’s value.
How Stablecoins could Democratize Banking
Additionally, stablecoins could disrupt banking by allowing people anywhere on Earth to access American, British, Singapore, or Swiss bank accounts instantly. Hence, stablecoins are a Swiss banker’s dream come true and a tax collector’s nightmare.
To explain, with a stablecoin app the average Venezuelan could keep her money in a Swiss bank account her government’s thugs cannot touch. Hence Stablecoins can democratize banking by allowing everybody, everywhere, access to the banking services only available to the rich.
What happens to national sovereignty; and Central Banks’ authority, when every citizen can around his government’s currency controls with a free app on his phone. How will governments respond, shut down the internet or send the army out to confiscate phones? Historically, such policies lead to riots and revolutions.
How Stablecoins will Kill Wire Transfer
The business stablecoins are most likely to kill first is the money or wire transfer industry. To explain, most individual transmissions of funds between countries go through wire transfer services like Western Union (NYSE: WU).
However, wire transfers can be very expensive for individuals. For example, the Word Bank estimates it cost 7.1%; or $14.10, to wire $200 in 1st Quarter 2018. Hence, wiring money to your grandmother in the homeland is an expensive proposition.
Theoretically, stablecoins could reduce the cost of wiring money to zero. For instance, a stabelcoin platform could theoretically enable a person to transmit dollars from the USA to Guatemala at the touch of an app. In the process, the stablecoin will eliminate the need for the wire transfer company and its brick and mortar stores.
Why Stablecoins could be Big Business
Moreover, the stablecoin app could send the dollars to bank account that a person could access through a digital wallet or ATMs. Thus, the person could get cash or buy at brick and mortar stores with stablecoins.
Stablecoin developers will enter remittance or money transfer business because cross-border payments are big and growing business. Specifically, people sent $613 billion worth of remittances worldwide in 2017, the World Bank calculates.
In addition, the remittance grew by 7% from $573 billion to $613 billion in 2017. Plus the World Bank expected the remittance volume to grow by 4.6% to $642 billion in 2018.
Cross-border payments between banks and businesses could be even more lucrative than remittances. For instance, McKinsey estimates that revenue from cross border payments grew by 11% to $1.9 trillion in 2017. Moreover, McKinsey projects cross-border payments revenues could grow to $3 trillion by 2023.
How Stablecoins could greatly expand the digital economy and cross-border payments
Stablecoins could increase the volume of cross-border payments by making such transactions available to ordinary people. For example, a gaming platform with a stablecoin payments mechanism could accept payments from players in dozens of countries at once.
Moreover, a job crowdsourcing marketplace like Amazon Mechanical Turk could use a stablecoin to pay tens of thousands of workers in dozens of countries at once. Consequently, stablecoins could expand the digital economy and cross-border payments to all corners of the globe.
For instance, an employer could pay a worker in Kenya instantly with shillings or M-Pesa for jobs he completes on the MTurk, SyncFab, or Aitheon platform. Consequently, we could see the first genuine global workforce.
Why Stablecoins need an Upgrade
However, I think today’s stablecoins will need a complete upgrade to become big business.
In particular, we need a stablecoin that pays in several fiat currencies. This is theoretically possible because you could program a smart contract to release payment in several fiat currencies.
For example, the stablecoin could release payment in dollars from a trust account at an American bank, and pound sterling from a trust account at a British bank. Hence, I think it is possible to create a “basket stablecoin” that could pay in several fiat currencies.
The Stablecoin of the Future
Notably, one existing Ethereum cryptocurrency Bancor (BNT) offers access to a liquidity network that offers instant conversion of a wide variety of cryptocurrencies.
Hence, I suspect the next big cryptocurrency, or stablecoin, will work like a “Bancor for fiat currencies.” To clarify, that stablecoin will give you a choice of several fiat currencies to pay from. Thus, you could pay your contractor in Austria in Euros by stablecoin.
To explain, you could use the stablecoin, to make payments in Yuan in Shanghai, or rupees in Mumbai. Meanwhile, your funds could be in US dollars in your account at BNY Mellon (NYSE: BK) back home in New York.
Plus, you could make additional income with a money market account or exchange traded fund (ETF) built into your stablecoins via a smart contract. In addition, you could keep part of your funds in Bitcoin (BTC); or Ripple (XRP), but instantly convert the funds to pound sterling when you need cash in Glasgow.
Moreover, any ATM could accept your stablecoins, so you will never need to go to a money-changing shop again. In fact, you could even convert paper cash into cryptocurrency; or foreign fiat currency, via an automatic teller machine and the stablecoin app. Consequently, the clerks at Western Union will need to look for a new career.
The Danger from Central Bank Stablecoins
An even more disruptive crypto asset will be a Central Bank stablecoin that represents a fiat currency. For example an America Coin that the US Federal Reserve issues.
A Central Bank stablecoin will be super disruptive because it could be fiat currency. Today’s stablecoins merely offer a promise to pay in fiat currency. In contrast, a central bank fiat currency will be fiat currency. For instance, a Federal Reserves stablecoin will be the US dollar, and pay in US dollars from a Federal Reserve trust account.
Thus America Coin could wreak havoc because it could allow the Federal Reserve to compete directly with commercial banks via a smarpthone app. Moreover, America Coin or China Coin, could allow the Federal Reserve or the People’s Bank of China to dictate monetary policy to smaller countries by controlling other nations’ money supply.
For instance, what happens to worthless currencies like the Venezuelan bolivar, when the average Venezuelan can access U.S. dollars; or Euros, through her smartphone? Will any business in Venezuela accept the bolivar, if the owner knows everybody has access to US Dollars via their phones.
Hence, Stablecoins could completely disrupt the world’s economy and lead to a new monetary system. Therefore, we need to talk about stablecoins now before they change everything.