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Challenges and Friction in Crypto Land
As I reflect on where we are in crypto land, I see two classes of friction: systemic and extrinsic.
The systemic challenges are internal to the system. The extrinsic challenges are imposed by external players or factors.
Internal challenges range in variety, but the principal ones relate to the overall quality and progress of blockchain-related projects, especially in its underlying technology, new protocols and the supporting middleware components that would allow software engineers and entrepreneurs to develop the next generation of applications.
Blockchain middleware is still in its infancy, and we will need to see much easier to use tools that can attract the millions of mainstream web developers. For these developers, they want to write to the blockchain as easily as they are writing web applications without excessively worrying about scalability or security issues. I’ve already lamented last year that we need further evolution in the area of blockchain standards and basic API calls, in The Blockchain is Still Waiting for its Web, Here is a Blueprint for Getting us There.
With the web, you can’t fake it. Either the app runs on the web or it doesn’t. On the blockchain, how can you be sure that you are using the blockchain, and using it properly? We are still learning how to prove this. Of course, each blockchain has its set of explorers and tools, but they are very technical and are not appealing yet to a general purpose user audience.
With external factors, the key ones relate to the friction between the existing financial system and its players during interactions with the blockchain-enabled financial system and world that are emerging and developing. This includes pressures from existing regulators who prefer to impose their current regulations rather than try to go the extra mile in regulatory innovation that goes outside of their old boxes.
Along with that comes the friction of moving money between fiat and cryptocurrency accounts. I don’t understand why traditional large banks continue to frown at legitimate businesses and individuals who are making bona fide earnings in crypto land, and won’t let them make fiat deposits that originated in cryptocurrency. Citing AML uncertainty is an excuse more than a reason, because we have made some good advances in AML and KYC practices for blockchain networks.
This is why new alternative jurisdictions with friendlier fiat-to-cryptocurrency practices are emerging in Liechtenstein, Malta, Gibraltar, Caymans and Estonia. In the US, Silvergate Bank, Cross River Bank, and Metropolitan Bank are other smaller banks that are also friendly to cryptocurrency originated accounts, although their bar is high for on-boarding institutional clients. In Switzerland, Falcon and Vontobel are two banks that are also friendly to cryptocurrency, in addition to Zuger Kantonalbank, the regional cantonal bank in Zug (assuming your company is based in Zug).
Cryptocurrency custodial practices is another area with friction, and we have just written-up about the many solutions (and their characteristics) that exist in this sector, Where Are All The Cryptocurrency Custody Solutions?
Over the long term, the blockchain financial system will grow on its own as an alternative financial system to the current one. These friction points will eventually fade away, or become less of an issue, as the blockchain financial system matures and gains wings of its own. Eventually, I am sure that some cryptocurrency exchanges will start to become like banks, and that should be an interesting development to see.
In the meantime, let us continue to work on lowering the blockchain evolution friction points via:
1) the development of easy-to-use blockchain middleware
2) stronger blockchain infrastructure and protocols
3) more acceptance of attempts in bridging the cryptocurrency and fiat worlds together
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Block-chain is not cost effective anymore, so this is my simple, but in my mind genius attempt to bridge crypto-currency and the fiat worlds together.
I propose a solution to the double-spending problem by using a peer-to-peer network organization where tokens in essence do not circulate.
Token offspring are created by dividing the parent token. All tokens are accompanied with a generation counting DNA family tree ledger, which includes time, location, and the entity address of where, and when, and by what, or by whom it was divided. The tokens that are deemed valid are those that have not been divided yet, and awaiting a new entity, with the new location, and new time for a division. All generations of the previous parent token, with the same origin, are deemed expired once divided, and only exist for verification purposes. The idea is that an updated token can only exist in one specific time, and space. The entity doing the division chooses the address the answer is to be sent. As soon as a token has been divided by its own value, all generations after it must be divided by its own value. Only tokens with a value of 1 are deemed usable.
This method will eliminate the need for the distributed ledger including the complicated proof of work method that is currently used by Bitcoin and other so called “crypto currencies”.
The unexpected advantage of this process is:
– All tokens can mathematically be traced back to the Genesis (origin) token to prove authenticity.
– A token can only have one specific address at a time the solution of the division could be send to, so a
token cannot be double spent, and this is ensured by the division rules. (smart contract)
– Once a token was divided by its own value, it can only replace itself, and this is also ensured by the division
rules.(smart contract)
– Tokens cannot be double spent,
– All tokens have the same origin, simplifying the exchange process.
– Instant almost free worldwide payments.
Claims:
1. A single genesis token is created and published and is accompanied by the creation data.
2. A specific token may not be divided by the same entity more than once per generation.
3. The genesis token divides by any number to create offspring, all accompanied with the division data.
4. Subsequent generations may also be divided by any number.
5. Only a token that has not been divided yet, is deemed valid.
6. Only tokens with a value of 1 are deemed usable
7. To enable value transfer, tokens divide by its own value and the solution is send to the beneficiaries
address. Example: 0.00005/0.00005 = 1
8. Once a token divides by its own value, all generational offspring after it must also divide by its own value to
enable the transfer of value.
This method has endless possibilities because of its single point of origin. This method explains only one of the family trees of the second generation. Bear in mind that there are still 99 999 (or more) other potential family trees available from the original genesis token. This will enable many parallel economies with tokens that may be exchanged between one another all with a single point of origin. The exchange would be simple because the tokens automatically expire when changing hands unlike bitcoin and etherum that wants and needs to be in existence forever because of the large cost needed to create it. Because it wants to be in existence indefinitely it is an asset, but an asset of what? A pointless complicated question and answer?
Imagine many family trees where the specific 2nd generation family tree tokens are secured individually by all the currencies of the world and many others not even created yet.
– Custom representative currencies may even be extended by securing the tokens with the client’s assets as security. Assets could be anything from fixed property to tools or equipment etc..
– Custom promise to repay currencies could be created from scratch with a whole spectrum for risk appetite that will enable access to credit for even the unbanked.
– Custom commodity backed currencies may be created using even non-traditional commodities like sugar and wheat.
Let me know your thoughts on this