By Joseph Raczynski
This is the second post in a three-post series about blockchain, an online public ledgering system, and how it will soon significantly impact many aspects of the legal industry. In the first post, I demonstrated the potential and the pitfalls of Bitcoin and its underlining blockchain technology. The intent of this post is to describe what full global adoption of a cryptocurrency would entail.
Part 2: Future Legal Payments Through Cryptocurrency
First, I have little doubt that in a decade or less we will have a world currency akin to Bitcoin. The implications on both the legal world and government legislation will be significant. Right now there are dozens of cryptocurrencies out there: Dogecoin, Litecoin, Peercoin, and there are many more are on the horizon. Each has unique aspects but all have at their focus: security, ease of electronic money exchange, and the avoidance of a centralized banking system. Certainly the most popular cryptocurrency to date is Bitcoin which started the concept in 2009 after its creation by an anonymous inventor known as Satoshi Nakamoto, a Japanese equivalent to “Jim Smith”.
Bitcoin is incredibly intriguing because it is a natural product of the Internet, a decentralized forum of exchange and connectedness. Currently, for two people to exchange money we typically have to route money through various exchanges which all take fees merely for passing the money along. The success of cryptocurrencies demonstrates that those traditional fees are outdated and excessive for current transactions. While traveling in Thailand recently I took $100 out of an ATM. With the fees — i.e., Thai ATM fee, foreign transaction fee, and a cut of the exchange rate my bank charged — I spent $23 to get that $100. The fee for a similar transaction from dollars to Bitcoin would have been in the neighborhood of 20 cents. The fees of yesterday by the banks made sense decades ago, but now given today’s advanced and speedy technology those extraordinary fees bear little relation to the actual cost of transferring money.
Where do I see a cryptocurrency taking off?
- Micro payments — Premium content on the Web will be changing. If you want to avoid the dominate Internet model of advertising, think about cryptocurrency micropayments. That is, with Bitcoin you can pay people in tiny fractions of a cent. You could then create an account with The New York Times that every time you wished to read a story you would click a link and automatically you would pay ½ a penny. That may not seem like much, but if everyone embraced this model, content providers would actually be paid rather than having to serve you ads to pay for the content. This model is similar to music providers offering unlimited music for a monthly fee, but with that fee broken down into per-play royalties.
- Developing Countries — Instead of a widely vacillating currency in a country, people could rely on this world currency to be sturdier, because it is not solely dependent on how a single country’s economy is performing, but rather on the stability of the whole world’s economy. Local government action would not be a factor. In addition, money would not have to be printed, but people could exchange money from person-to-person on their phones. This is already being done in African countries as people send money via text messages. Having a cryptocurrency would be much more secure and reliable than the text exchange of money which is currently happening.
- Small Fees — As I mentioned previously, with a cryptocurrency, Visa, American Express, Master Card, Discover Card and all of the other credit cards could be potentially threatened. In fact, most of their business potentially could go away, especially with those people that use debit cards or pay their bills monthly. Banks could also be threatened. Some ask, why would I house my money in a bank which has a set of rules and a multitude of fees and regulations? In addition, a lack of convenience with banks means walking or driving to receive money. All of that could be avoided with a digital wallet where the individual is the person in complete charge of the money.
The market for growth in this arena will increase substantially in the years ahead. That said, there is little question that several challenges to cryptocurrencies persist. One, a lost electronic wallet is gone forever. If you have not created a backup or saved it digitally in a safe place, you could lose all of your assets. Two, insurance does not exist. Cryptocurrency is not FDIC insured as are bank deposits. Again, it is the responsibility of the individual to own this and make sure they have diversified their assets in safe locations.
In my next post, I will review the countless — and there are legion — legal hurtles ahead. The legal industry will play a significant role in further defining cryptocurrencies and how its underlining technology, the blockchain, will be used.