Startup Check-In

Nanopay: Just Say No To Cryptos

The irony of cryptocurrency is that, the more mainstream it gets, the less it’s able to do what it was designed to do — that is, transfer monetary value between parties. That, said nanopay CEO Laurence Cooke, is why it will never have a future in payments.

With a hundred users, Cooke said, cryptocurrency works all right. But when millions jump on the bandwagon to speculate on the currency’s value, it slows down the processing speed so much that those who wish to use the blockchain to transmit payments are effectively unable to do so.

Bitcoin specifically has a few issues that Cooke said make it unworthy of the hype. First, it’s slow, processing only seven transactions per second. Second, it’s expensive, siphoning huge sums of electricity to mine it. Furthermore, said Cooke, as the cost of a cryptocurrency goes up, so does the cost of using it. For a transaction to be completed at a $0.05 fee, the value of a single bitcoin would have to be about $10, not $10,000 (as it currently sits).

These issues alone have spurred bitcoin to remove two key claims from its website in the past month: That it delivers fast payments, and that those payments are cheap. These claims may have been true in the beginning, said Cooke, but bitcoin’s success has come back to haunt it.

Yet Cooke sees a bigger problem for bitcoin and for all cryptocurrencies.

Blockchain allows people to transact with parties they don’t know and don’t need to trust. There is no other use case in which this is legal, said Cooke. The closest thing is paying cash in a retail setting — and even then, both parties are standing in the same room. The very concept of blockchain undermines the all-important KYC (Know Your Customer) process, opening merchants up to risks, such as anti-money laundering (AML) violations.

Some believe the primary value of cryptocurrency is not its real-world utility but its function as a store of value. Yet Cooke said there are very few scenarios in which this application of blockchain is actually needed. If people truly feel a new method of storing value is needed, he said, it would make more sense to create a digital version of fiat currencies.

A digital U.S. dollar would have the same liquidity as the currency has today, he said, and would enable banks to continue providing the lending functions people rely on them to provide.

That’s because, within the environment they’ve created, banks can effectively create money out of thin air when a customer needs a loan, said Cooke. But there’s no way to create new bitcoins. What’s there is what’s there, and it’s owned by who owns it.

Trying to switch out dollars for cryptocoins would be more than foolish, Cooke said; it would outright cripple the economy.


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