There’s no denying that cryptocurrencies have changed the conversation in payments and banking, for better or for worse. If you ask nanopay CEO Laurence Cooke, it’s decidedly for the worse.
“Everybody from young kids to my parents are talking about investing in cryptos,” Cooke said. “There’s a mad rush of people getting into stuff they don’t really understand.”
Many who are investing in initial coin and token offerings (ICOs and ITOs, respectively) may not fully grasp what they’ve gotten themselves into, said Cooke - they're just jumping on a hot trend.
Meanwhile, the companies behind the ICOs and ITOs started with the intent of doing payments, only to have every transaction bogged down by the weight of speculators buying and selling the currency, which has ground many platforms to a halt.
The CEO said there are a few reasons why cryptocurrencies and blockchains aren’t scaling well — and perhaps can never scale well — in the payments space.
First, it can take longer than a day to complete a payment. That’s simply not workable in an environment where such a high premium is placed on speed and immediacy, Cooke said.
Second, cryptocurrencies have a liquidity problem. For cryptos to work and to move real value, he said, they need liquidity — something that the banking system has, but which cryptocurrencies cannot hope to achieve.
Third, as many experts have pointed out, the volatility in value makes cryptocurrencies impractical for use as a payment mechanism because so much value can be lost between the acts of buying and selling.
Together, Cooke believes these factors make cryptocurrencies far less useful than the people pouring money into ICOs and ITOs seem to believe.
“The value of a token is equal to the utility of the token,” Cooke said. “We haven’t seen any tokens being used for anything other than speculation. The currency has no utility. It’s like the Kardashian effect in currencies: They’re celebrities because they’re celebrities, not because they did anything.”
Cooke has put a lot of thought into this subject, since nanopay’s technology could be used to create a new currency and issue an ICO. However, Cooke said, that’s not the platform’s intended use case. The intent is to enable merchants and retailers to create their own “currencies” as rewards mechanisms.
Nanopay could also be used to digitize existing currencies. Cooke said that many banks are exploring digital versions of fiat currencies, an innovation that could ease significant pain points around the availability of physical tender in countries like Zimbabwe.
Cooke explained that using a digital currency would create an electronic, risk-free claim against the central bank, remove the cost of delivering cash and could even help reduce financial crime and graft by making it difficult to accept bribes.
He believes that this approach delivers the best of both worlds by giving customers a frictionless experience and privacy in transactions with merchants, while still offering oversight from central enforcement.
That’s a little more useful than a bitcoin.