Bank of England governor Mark Carney responded to a question about bitcoin at Regent’s University in London in February, saying: “It has pretty much failed thus far on … the traditional aspects of money. It is not a store of value because it is all over the map. Nobody uses it as a medium of exchange.”
It was hardly his most controversial observation.
Sure, cryptocurrencies showed signs of stabilizing in mid-February, with bitcoin hovering once more around $10,000, roughly where it stood three months ago at the start of December.
But its vertiginous rise to $19,930 just before Christmas and subsequent 70% fall to $6,116 in early February has rather tarnished the brand.
“The Bank of England governor has joined the growing list of people who know what they are talking about stating the obvious: that things like bitcoin are not going to be currencies,” says Paul Donovan, global chief economist at UBS.
Last year’s dramatic price rises – bitcoin stood at $973 at the start of 2017 – might be the worst thing ever to happen to cryptocurrencies. People stopped using them to try to buy stuff, hoarded them for speculative gains instead, and then grumbled when exchanges were hacked, their windfalls stolen or frozen and many of the altcoin offerings turned out to be blatant frauds.
Will any cryptocurrencies ever gain widespread acceptance as currencies, or will they only be remembered as what Elliott Management’s Paul Singer has called “one of the most brilliant scams in history”?
Dash might be worth a look.
It is the 10th largest cryptocurrency by market cap – worth just under $5 billion in mid-February compared with bitcoin’s $169 billion.
It runs on a system set up after bitcoin to improve on it, with a network that rewards participants not just for mining and verifying blocks of transactions but also for providing and building network capacity, so improving on bitcoin’s slow pace and lack of scalability.
Ryan Taylor, Dash
“Price volatility does impact the ability of users to feel confident in using it as a currency,” concedes Ryan Taylor, chief executive of the Dash core team that serves the Dash network.
“But growing numbers of merchants will accept Dash, knowing they will receive payment speedily at lower cost to them than processing credit card transactions – which may charge 3% to 5% rather than 1% with Dash – and much lower costs on cross-border payments.”
Around 2,000 merchants now accept Dash, though many of them are in the cloud, internet and crypto world of selling password storage and the like, but some will sell you coffee or a meal.
Taylor claims: “Dash has had lower volatility than bitcoin, even though we are just a fraction of its size and I partly attribute that to attracting less speculative attention, relative to the actual use for payments.”
Euromoney goes to the charts. They suggest that the dollar price of Dash has risen from $0.21 when it first appeared in February 2014, to $767 at the start of December 2017, peaking at $1,542 before Christmas before falling to $475 on February 6 and recovering to $604 at mid-month.
So that pretty much tracks bitcoin, with a similar 70% peak-to-trough fall.
But Taylor tells Euromoney: “In the fourth quarter of 2017, we did $16 billion equivalent of payment transfers across the network through close to 900,000 transactions, and to give you an idea of the growth rate, $8 billion of that – or half the quarterly value – was in December alone. And by early February we were on pace for one million transactions this quarter.”
This year, Dash has signed an agreement with online payments processor GoCoin, whose chief executive Margot Ritcher enthuses: “People can now buy flights, movie tickets and houses, amongst many other products and services, using Dash.”
The Dash network is unusual for its ‘masternodes’. Participants running clusters of high-speed servers must invest 1,000 dash to become a masternode – pricing it today at over $600,000 – a status which allows them to take a share in mining rewards in return for maintaining a specified up-time hosting high-speed data services.
What, Euromoney innocently wonders, does all that mean?
“It means our network is amazingly fast,” says Taylor.
Masternode incentives ensure the network hardware can support much higher transaction volumes than other networks that don’t incentivize operators of network servers. This enables large blocks to propagate the Dash network rapidly.
So, for example, 10 masternodes working together can validate an ‘instant send transaction’ in seconds, rather than minutes taken on bitcoin and days if cross-border through the conventional banking system.
Taylor says: “Blockchain technology was first developed by brilliant cryptographers and data scientists who perhaps didn’t know quite so much about payments. What we are now doing is applying best practice from the payments industry to that technology.”
Dash will later this year come out with its first big upgrade, called Evolution. Taylor says it will seek to expand its network of buyers and sellers.
“If you look at PayPal, that first grew on eBay’s closed ecosystem of buyers and sellers,” he says. “Sellers added it as a payments option, buyers liked it for ease of use and it worked its way up to the larger merchants. I believe Dash will see a similar pattern of adoption.”
He adds: “A buyer will land on the checkout page and see the ‘pay with Dash’ button. He or she enters their username and their phone buzzes with a request asking for a Dash payment authorization. You authorize it with your thumb on the phone. This vastly reduces fraud for buyers.
“And for sellers, this is how conversion rates – when goods in checkout baskets actually get bought – rise from 60% to 90%. That’s huge for merchants. And this is possible when payment falls into the background and becomes easy and safe instead of a burdensome extra task.”
Who knows if it will work. At least they’re trying to make cryptocurrency function like real money.