Challenges Also Abound Slowing Crypto For Good
This post was originally produced for Forbes.
This article is the second in a series on #cryptoforgood. Here is the first part of the series.
Despite the explosion of cryptocurrencies, including many with clear social impact agendas, big challenges remain in the process of making them part of mainstream society and to the successful implementation of their social objectives.
Most people still don’t own any cryptocurrency and aren’t sure why they should. Whether you are a regular Forbes reader or a goat herder in Kenya it may be difficult to conceive of what problem blockchain-based currencies solve for you. In fact, much of the enthusiasm for cryptocurrencies has come from the meteoric rise in the value of Bitcoin, the first cryptocurrency, and the wave of speculation surrounding it. Without speculation, would there be such a rapid proliferation of cryptocurrencies?
Even if the rise in value of cryptocurrencies is fully and fundamentally justified, it will almost certainly stop at some point. The utility of the coins will then be paramount.
The most common concern expressed by crypto practitioners and experts for this article is that there simply isn’t rapid enough adoption, largely due to the current complexity of using cryptocurrencies and secondarily due to fear.
Ryan Scott, of ICO IMPACT CO, sees parallels to dial up internet. “Crypto software needs to become easier to use. It reminds me of the early days of the internet where it was difficult – and sometimes literally impossible – to get online. The only difference is that with crypto, we now have a very powerful tool to accelerate our progress that we did not have before: the internet itself.”
Wes Finley, a crypto enthusiast at Facebook, observes, “Everyone needs easy access to an exchange. You can’t experience the freedom crypto provides until you can obtain cryptocurrencies.”
Mark Jeffrey of Guardian Circle, agrees. “Wallets currently use long address strings that are incomprehensible — it’s like using the internet using IP addresses instead of URL’s. We have to bake cryptocurrency deeply into apps, obfuscate the complexity and make it one-click simple to send to someone using just their phone number.”
Alex Linebrink of PassageX agrees that the user experience is simply too difficult. “Put differently, people see way too much of the blockchain fundamentals. Blockchain should be invisible.”
Matthew Loughran of Uulala notes that education is key. “The number one problem that needs to be overcome is education about cryptocurrencies to mainstream markets. Over the last year, we have seen cryptocurrencies gain a lot of headlines, but the average person still has no idea of the impact cryptocurrency can have on their daily life.”
Darryl Garth of Solomonstouch notes that the proliferation of coins itself is a problem. “I would say the vast amount of different coins in conjunction with the compatibility of different platforms. The Ethereum blockchain has well over 100,000 tokens created on their network. Believing that users will enjoy going to multiple websites, download multiple wallets, serving multiple functions is a faint dream at best.”
Luc Lapointe and Christopher Georgen of TOPL highlight the media-induced fear preventing adoption. “While the problem is not limited to developing countries, most people have a tendency to associate cryptocurrency to a few well-known cryptocurrencies such as Bitcoin and Ethereum. The lack of knowledge about blockchain and the media focus on a few well-known cryptocurrencies also generate fear within the social sector.”
As you might imagine, crypto practitioners and experts don’t all agree on regulation, but most agree that it is a problem.
Linebrink says that trust is the key. “The current crypto environment has led to a lack in trust and uncertainty when it comes to regulatory concerns.”
Jonathan Johnson of Medici Ventures/Overstock.com (OSTK) [disclosure: I own shares of OSTK] says, “Overzealous or misguided regulation, including tax policies which make using cryptocurrencies on a regular basis difficult, create a challenge to quicker widespread adoption of cryptocurrencies.”
Linebrink suggests a regulatory solution, albeit a difficult one both technologically and philosophically for the libertarian-leaning crypto community: “Tying digital identities to physical identities. Getting this nailed without a ridiculous level of difficulty could solve a lot of regulatory and anti-money laundering (AML) issues.”
Ogundele Olawumi Mayowa of Agroplexi also highlights the need for cautious regulation. “I feel it should be regulated in some way but not to stiffen its underlying benefits.”
Scott of ICO IMPACT CO sees entire countries missing the boat due to lagging regulation. “The challenges in cryptocurrency are that we’re currently experiencing a very uneven distribution of clarity around regulation. Some countries are going to fall far behind as money moves to where it is most appreciated and accepted.”
Joshua Shepard a crowdfunding associate at Windmill Communication + Design also sees problems stemming from ambiguity in regulation. “Major challenges right now [include] government regulation and understanding exactly how to work with cryptocurrencies given our traditional financial system, given those regulations.”
Telly Valerie Onu of Beyond Capital Markets points out a problem central to this article’s thesis. “Some policy and regulatory environments do not specifically allow for social impact projects.”
Adoption and regulation are certainly not the only issues that the crypto community faces, even if they are the biggest.
Onu notes the two primary ways that transactions are validated are both socially flawed. “The proof of work consensus uses up a lot of electricity, which adds to social costs; the proof of stake also creates more inequity as it favors those with wealth, hence not necessarily creating a social impact in its application.”
Darryl Garth of Solomonstouch emphasizes the environmental impact of mining. “We spend too much electricity on keeping the blockchains up to speed. The amount of electricity Bitcoin uses a year is enough to provide power for the entire country of Costa Rica. I do however, feel this issue is on the verge of being solved with new protocols being adopted such as proof of stake which uses a lock and key sort of verification that eradicates mining equipment and high electric bills.” His concern ignores Onu’s.
David Silver a partner at the law firm Silver Miller highlights another big problem with a bit of hyperbole. “More money has been stolen in cryptocurrency than in history to date.” Hyperbole aside, the issue is ironic to say the least. The premise of the blockchain is that it creates security that prevents an asset from being stolen. In practice, that hasn’t proven to be the case. In January, hackers stole over $500 million of cryptocurrency in Japan.
Jay Singh of ClearCoin blames anonymity. “The anonymity causes hackers and scammers to run wild.”
Theft by hackers is one concern. Theft by thugs who might injure someone is another.
Mark Jeffrey of Guardian Circle says, “One worry I have in the developing world is that because crypto is cash-like, it may be currently far too easy for bad people to start robbing people directly for the crypto on their phone.”
He proposes a solution. “We need decentralized custody of funds, yes, but probably balance that with centralized security and ability to restore funds. This is something a lot of people are working on (EOS has announced some of this capability). There’s got to be someone you can call when you lose your crypto or it’s stolen.”
Derek Chen of Wolverine Crypto Trading, a student-led organization at the University of Michigan, worries about bugs in the code. “It will be catastrophic if the code contains bugs that might compromise the integrity of the cryptocurrency (example: POWH token overflow problem allows users to send more tokens than he or she owns).”
Medici Ventures’ Johnson identified the settlement delays caused by processing transaction as a problem that needs to be addressed. “Distributed consensus can make processing really large numbers of transactions difficult. Still, even with this limitation, cryptocurrencies settle transactions days faster than traditional payment methods.”
Windmill’s Shepard sees fundamental challenges in scale, identify and the unpredictability of fees.
Luc Lapointe and Christopher Georgen of TOPL highlight the need for local engagement in socially-minded solutions. “From having receptive public policies in the targeted countries to finding local talents to help implement an initiative; the solutions put forward must engage local actors in the development of the solution(s).”
Guardian Circle’s Jeffrey sees entrenched interests as the biggest threat to social progress via cryptocurrencies. “Banks and governments have in many cases attempted to fight cryptocurrency proliferation or paint it as ‘dirty’ somehow. They are reacting much as taxi interests did when Uber came along — and with good reason: this is indeed a reboot of money and banking. But the existing systems don’t work well enough for most people on earth. New, peer-to-peer systems have a real shot at making a real difference. Their adoption is critical to lifting millions out of poverty.”
Ogundele Olawumi Mayowa of Agroplexi sees a problem that will slow implementation among the people we most want to help. “Most people that would be affected by cryptocurrency are illiterate and don’t have access to technology to link them up to the Internet.”
Raul van Riezen of MediChain sees too much effort to implement a financial coin where none is needed. “A disconnection with finance needs to be made; current tokenization highlights money, including its volatility, and this issue should be accounted for while designing a tokenized model or ecosystem. In MediChain’s case personal medical data storage for patients and sharing with doctors is free.”
Van Riezen identified another constraint. “A current limitation is the amount of data to be stored on a blockchain, as exchange of value is not only monetary and increasingly digitized; this should improve.”
Another huge potential constraint was highlighted by Beyond Capital Markets’ Onu: skilled people. “There are not enough innovators that know how to design networks and cryptocurrencies complex systems, where social challenges can be complex.”
She also sees a risk with smart contracts. “The other problem is the security challenges around smart-contracts and wallet infrastructures, these pose a lot of risk and therefore foster a lack of trust.”
Onu made a final, critical observation. “Crypto is not a magic bullet and it will not solve all the social problems that exist.”
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