“A price-stable currency, such as a token pegged to the US dollar, is critical for enabling mainstream adoption of blockchain technology for payments as well as for supporting maturation in financial contracts built on smart contract platforms, such as tokenized securities, loans, and property. There are several interesting approaches to solving this need, spanning algorithmic re-imaginations of money supply to crypto-backed tokens to fiat asset-backed tokens.”
In an attempt to “institutionalise” cryptocurrencies, Goldman Sachs backed Circle just announced that through CENTRE (open source framework), they will issue their own Circle USDC (US dollar coin) which is going to be pegged to the US dollar one-to-one and will be made available to the general public for everyday buying of goods and services. In other words, leave real dollars at home or in the bank and go shopping with your Circle coins securely stored in your crypto wallet.
For a financial behemoth such as Goldman Sachs to issue (via its Circle startup) a cryptocurrency is remarkable, to say the least, and can only mean two things :
- The financial markets are ready for an alternative to cash and fiat money in the form of asset-backed stable coins
- Financial institutions have come to the realisation that cryptos have become mainstream and therefore they want to grab a share of the global crypto market
At this stage, however, it is not clear how Goldman Sachs/Circle will monetise their USD Coin issuance other than via their wholly owned subsidiary CENTRE and service provider interface, which will be necessary in order to participate in the network and earn fees from the services that they will provide to the transacting network members.
Furthermore, it appears that Circle is prepared to forego big profits (at least in the beginning) in the search for market share and wide-scale adoption. And more importantly, Circle is stating that eventually and in due time, CENTRE will be made a completely independent entity, governed by its members.
By issuing the first crypto that is almost immune to volatility (except for the pegged dollar volatility) and controlled by a major financial institution (through CENTRE which is on an open source framework with an open membership scheme that eligible financial institutions can participate in), Goldman Sachs is breaking new ground and going for a major land grab in the emergent global crypto market.
Notably, Goldman Sachs could, in the foreseeable future, add other Circle Coins pegged to other currencies such as the pound or the euro, and even offer its coin framework to corporations and government institutions seeking to jump on the cryptocurrency bandwagon.
“It’s a very important enabler for a private central bank. Currencies can do good or bad things, so we need a certain framework to limit money laundering risks. If we have an open platform we can limit the potential negative things”
Should Goldman Sachs succeed in their endeavours, it would create the first “institutional” central bank. Of course, Goldman Sachs (via CENTRE) could not raise or lower interest rates or decide on monetary policies, but it could expand or constrain the supply of their Circle coins at will.
This might seem like nothing important at first if wide-spread adoption and acceptance of Circle coins comes about, then one centralised private institution will control the supply of digital money. This could be deeply disruptive as well as ground-breaking, but it could also spell the end of truly decentralised cryptocurrencies. Unless other “stable” cryptos can provide better stability and scalability, wider adoption and a more compelling use-case, it will indeed be a very challenging future for all the current cryptocurrencies.
There is, however, a big difference between centralised cryptocurrencies using distributed ledger technology (DLT) and decentralised cryptocurrencies on blockchain. Whereas cryptos on blockchain such as bitcoin are without any “central control”, permissioned DLT is always subject to some sort of central control or governance, hence the requirement to have permission to access the DLT network. Prime examples are R3 Corda (a consortium of big banks and financial institutions developing their own DLT) and Ripple.
For the global crypto and blockchain community, anything that is not truly decentralised is not crypto, merely a deliberate but futile attempt to try to centralize control of the decentralized revolution.
Crypto-as-Service by Goldman Sachs
“Circle USDC addresses these problems by providing detailed financial and operational transparency, operating within the regulated framework of US money transmission laws, and reinforced by established banking partners and auditors. It is built on an open source framework with an open membership scheme that eligible Financial Institutions (FI) can participate in (CENTRE). USDC will be ERC-20 tokens minted, issued, and redeemed based on network rules defined by CENTRE.
“Circle also states that CENTRE’s standards will be open source. Its governance model will allow any exchange, bank or financial institution to join and that transactions will be at the “speed of the internet”.
In the meantime, Blockchain week NYC 2018 has come to a close and there has not been a shortage of innovative, ground-breaking and pioneering blockchain inventions.
So the timing of Goldman Sachs’ announcement could not have been better or worse, depending on which side of the crypto equation one finds themselves.
R3 and Ripple are making strides in developing blockchain protocols that can scale and ensure faster transactions, hoping to grab a bigger market share of the global cryptocurrency market, currently estimated at an astronomical $400bn.
Despite its high volatility, bitcoin holds the lead and commands, on average, 40% market share of the global crypto market.
Bitcoin will also remain the global market cap leader simply due to its first mover advantage, legendary status and ensured scarcity. For bitcoin miners and true fanatics, bitcoin is the only “real” crypto, the crypto of all cryptos.
Goldman Sachs is attempting to change all of that, and only time will tell if they will succeed.
Crypto-as-Service business model has just been launched in stealth and could disrupt and reshape the entire crypto world.
The Facebook Coin
“There are important counter-trends to this – like encryption and cryptocurrency – that take power from centralized systems and put it back into people’s hands … i’m interested to go deeper and study the positive and negative aspects of these technologies, and how best to use them in our services.”
Although still just a rumour, Facebook appears also to be planning to issue a coin that will enable Facebook users to use digital currency on the social media site.
With a massive user-base that has surpassed the 2bn mark, a lot is at stake.
Facebook could go about it in many different ways. It could do a “soft” launch providing early adopters incentives to transact Facebook coins on its massive user platform. Or it could engage in a “hard launch” where Facebook users are simply “forced” to sign-up and use Facebook coins in the same way it launched its messenger service.
Either way, Facebook could benefit hugely from its own utility token, especially at a time when Facebook is under intensive scrutiny as well as painful user-churn and defections due to a privacy breach involving Cambridge Analytica affecting 87 million Facebook users.
We Run Ads
As Mark Zuckerberg recently stated at the Senate Committee hearings :
“Senator, we run ads.”
Facebook users voluntarily provide all their personal data to Facebook in exchange for being able to use the Facebook platform for free. And because of the fact that the “Facebook users are the product of Facebook”, Facebook has the enviable platform monopoly to sell advertising to a captive audience. Additionally, and more importantly, it can sell the private data of Facebook users for big profits to third-party data brokers such as the recently disgraced Cambridge Analytica.
Should Facebook manage to entice and convert just 5-10% of it’s 2 billion user-base, that would mean a staggering 100-200 million Facebook Coin users.
Monetising this monopoly with the Facebook coin is the ultimate dream of Mark Zuckerberg.
The Bitcoin Bull
Trading bitcoin is like riding a one-ton bull on steroids.
For some, it has been a tsunami of profits, for most, however, owing to ignorance and wild speculation, it has resulted in massive losses.
So, is bitcoin to be avoided at all cost? Definitely not.
Many insiders and prolific traders predict that bitcoin will surge past $25,000 before the year’s end and some diehard opportunists predict even surpassing the $100,000 mark within a few years.
Again, only time will tell.
In the meantime, bitcoin is consolidating and oscillating between the range of $7,000 and $10,000, in bitcoin terms, this means “relative stability”.
As a result of the volatility of bitcoin and all major cryptocurrencies, asset-backed stable coins have entered the fray, only to be pushed aside by the surprise introduction of a “centralised coin” by a financial behemoth, non-other than Goldman Sachs.
It is only a matter of time before Jamie Dimon changes his stance on cryptos in a decisive 180-degree turn and JP Morgan joins the centralised coin experiment.
The Coin To Rule Them All
In the long run, big banks, financial institutions and the gatekeepers that control money are all aiming to bring to the world a single global digital currency to replace fiat money. For some this sounds far-fetched, for others, it is almost reality.
Sweden currently has the lead with over 90% of payments transacted electronically using credit and debit cards, with cash money slowly fading in importance.
The biggest crypto battle will develop between truly decentralised cryptocurrencies and centralised sovereign, institutional and private currencies.
Will the masses adopt cryptos or will the crowds go for the apparent security of a government-backed sovereign digital currency?
At this juncture of technological progress and global financial uncertainty, the world at large will most probably stick to the status quo, that is, real cash money is here to stay.
For the less risk-averse, cryptos will offer many opportunities for profit making and financial gains, allowing the market dynamics of supply and demand to determine the value of any cryptocurrency.
Centralised cryptos will only become, at best, a boring addition to central bank controlled fiat money. Without the possibility of intensive speculation of cryptos, the global financial markets will simply function as silos of capital and digital assets as opposed to enabling real opportunities of profit making for retail investors and the decentralized mass market consumer.