Bitcoin and Ethereum Were Never Meant to be a Medium of Exchange

Bitcoin and Ethereum have been around for many years - in almost ten years Bitcoin came a long way from digital money for geeks and a token for drug dealers to a billion-dollar asset.

Ethereum became the largest decentralized network with thousands of developers, and their numbers are only growing over time.

But still, they can’t be used as a medium of exchange. Only a few stores currently accept Bitcoin and almost nobody accepts Ethereum. Why is that the case? 

If you can’t make it fast, you can’t make it slow

The reason for this is the lack of scalability in these networks. Both Bitcoin and Ethereum have a very low throughput - around 7 TPS for BTC and 15 TPS for ETH. This is the legacy problem of both networks, as they were the first blockchains aimed at solving their specific problems.

Ethereum wasn’t even considered to be a potential medium of exchange, it was designed to be a decentralized computing network. 

Anyway, these are the two largest networks and they can’t even be used to buy a coffee. What happens if you try to buy coffee with Bitcoin? It will cool down long before your money will reach the wallet of the coffee seller. If the whole world suddenly had to switch to Bitcoin in its payments, the lines at the store checkouts would be enormous - the whole network would be overloaded and stuck.

Its developer, Satoshi Nakamoto, probably didn’t think that his creation would gain such popularity, so he sacrificed scalability to make it as secure and decentralized as he could. Scalability was a concern far from his mind at the time. 

Source: xkcd.com

Today, though, is a different story. Since Bitcoin can’t be used as a means of payment, it’s often called “digital gold”, and it’s just as cold and as hard when it comes to spending it as gold is. If we want cryptocurrency payments we have to search for other ways or... other networks. 

Fast payments for the Century of Speed

Nowadays, many people try to solve the scalability issues, paying instantly with low commissions, cross-border remittances, and to cash out to fiat money. Among these efforts, only three solutions come close to creating a real cryptocurrency-based medium of exchange: Libra, TON, and Plasma. 

Libra is a stablecoin introduced by Facebook and 26 other companies. Their goal is to create a stablecoin, dubbed Libra Coin, that could be used to pay remittances and become a universal medium of exchange. The stablecoin is backed by a basket of various bonds from the stock market.

The same stocks of the companies acting as founding members of the Libra Foundation. As one of them is Uber, it means that soon you’ll probably be able to pay for an Uber ride with Libra.

Sounds great, right?

Of course, there are some downsides. It also  means that you’ll hand over the control over your money to Uber, Facebook, and other parties. Maybe you’ll even have to give control to the US government, as they underwent a lot of effort to prevent its launch. 

(Source: twitter.com/SarahJamieLewis)

Anyway, the overview by trusted companies isn’t something bad, if they don’t cross the line. That leaves the question, how far will their control extend? But it’s impossible to answer this question right now. At least Libra network has a well-formulated goal to become a global currency for payments and an API interface for developers to build on. 

Telegram Open Network (TON) by Pavel Durov, Telegram’s founder, has a similar goal: create a global network to enable private transactions between people, allowing payments for services and goods in its native currency, GRAM.

The TON network is actually a more complex ecosystem that would support smart contracts, instant payments, proxy, and storage. All of this would work on a dPoS protocol powered by 100 delegate nodes, chosen by the users in the network. In the future, this number should grow to 1,000, but let’s focus on the present.

The whole idea is that TON shouldn’t be controlled by governments and it should be a “people’s blockchain”, contrary to Libra’s corporate blockchain. People should be able to pay for anything using Telegram messenger, in a similar manner with the Chinese WeChat.

It will support thousands of transactions per second, making it very convenient for payments. The problem is that it’s unknown what obstacles TON will have to overcome to popularize itself - it’s possible that by trying to scale as much as Libra it will face government opposition. Also, it has a very hard coding language, called Fift.

It’s a lot harder than any existing blockchain network’s language so far, and it seems that not many developers would want to write code on it; meaning that it would hardly get as much development as Ethereum, and that’s not good for a new network. 

The last one, and possibly the most well-rounded one, is PlasmaPay who is offering blockchain-based financial and payment services for individuals, commercial companies, financial institutions, and banks. In the last six months, they have already onboarded more than 150 companies, wanting to use their network.

PlasmaPay currently has Visa and MasterCard processing and is connected to some of the top-100 banks in China, Vietnam, Indonesia, and Thailand. 

With such a great demand we should understand if PlasmaPay has the infrastructure to sustain it. It’s built on its own PlasmaDLT blockchain, which supports more than 100,000 transactions per second with more than 42 stablecoins pegged to various world currencies. On top of these, there’s Plasma main token which is a stable currency based on the basket of all assets in PlasmaDLT blockchain: fiat, commodities, indexes, and stocks.

The network is powered by a LpPoS protocol, having 21 block producers, but anyone with a higher deposit can take their place anytime. That allows them to make it decentralized, yet it ensures the high scalability of the network and protects against attacks. 

Most importantly, it has Plasma API for developers, allowing them to write smart contracts in JavaScript; something that TON fails to offer. Overall, it’s a well-rounded blockchain, and the only problem it has yet to solve is marketing - it has a long way to go to promote itself, build partnerships, and become widely used. It doesn’t have the brand recognition that Facebook and Telegram have, but with enough time and ingenuity, they are sure to get there soon enough.

What makes a Blockchain ideal for payments?

Here’s a short summary list:

• Speed of transactions
• Control over money
• Possibility of fiat withdrawal
• Convenient tools for third-party developers

Some of the reviewed blockchains have some of these traits, some of them don’t. For example, PlasmaPay and Libra have a simple API and coding language for developers and TON doesn’t have it. That means PlasmaPay and Libra could get more developers writing smart contracts on top of them. This is what made Ethereum popular and it can work well this time too. 

Also, PlasmaPay and TON don’t take control of your money, Libra does. Is it good or bad, it depends on your stance towards the corporate companies and government. Some people tolerate it, some people don’t; ultimately, it’s up to you. But one feature is essential: the possibility of fiat withdrawal - PlasmaPay currently supports various fiat currencies, while it’s unclear how Libra and TON will handle withdrawals. 

Source: dilbert.com

And of course, speed of transactions - several modern blockchains claim to offer high speed, putting them at an advantage over old blockchains. That’s one of the most important traits, and it’s a necessary one needed to move blockchain finance forward.

When payments get processed fast and the onboarding for new businesses is easy, there’s no reason not to join. Most of the newest solutions already come with transaction speeds up to payment processors standards. This makes us bullish on decentralized finance and the possibility of a spike in the demand for cryptocurrency payments!

The author is not associated with any of the projects mentioned.