In 1903 George Bernard Shaw wrote “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” Read enough books and articles on innovation or disruption and you will come across this quote numerous times. The essence is usually along the same lines…. To do something really new you do not adapt what already exists, you create what was not there before.

 

Whilst this holds true for many things — from the jazz of Charlie Parker to the laser — it is equally untrue for many others from the iPhone to the Blockchain. Bringing together a new type of databasing informing with decentralised consensus protocols and secure encryption is certainly an exciting development but if you believe that the fundamental building blocks of blockchain technology and cryptocurrency appeared in the last10 years with Bitcoin, Ethereum et al then do a search for “DigiCash” or Nick Szabo’s 1996 article “Smart Contracts”

What Blockchain offers us is the ability to do existing things in new ways, be that making payments, transferring value, validating identity or removing intermediaries from contracts. However, in the (gold) rush to launch new businesses and services on this undoubtedly exciting new technology the vast majority of ideas seem to be built around the premise that the whole ecosystem needs to be in some way blockchain based. Imagine if, 200 years ago the first trains were not steam engines but high-speed bullet trains. They would be far faster, better and cheaper than any traditional mode and have the potential to open up access to new geographies and services. However, without stations for them to stop at prospective passengers would have stood wondering what use this invention was to them, possibly admired the ingenuity, and got on with their walk or horse ride to the market.

 

Back to George Bernard…. Sure, if I was an unreasonable man or organisation I would expect the world to adapt to using blockchain based DAPP’s and services around me. But the reality today is that this is a flawed premise. I’m certainly one of those people who expect blockchain to transform many of today’s traditional interactions over the next 5–10 years but we are not going to change the way the vast majority of people interact with financial and government services today overnight. The world is not going to adapt to Blockchain services quickly no matter how “unreasonable” their creators and backers are. We risk building the rails and trains without building the stations.

We have of course got fiat to crypto on and off ramps. If I want to buy something I can set up a digital wallet and an exchange account linked to my “real world” bank/card account. I can then buy some crypto and send it to another wallet. If I want to borrow some money I can download MetaMask and a DAPP, put my crypto as security into a P2P decentralised lending platform and (via a smart contract) hopefully receive a crypto loan. And if I want to send money abroad I can use my bank account or credit card to utilise a blockchain remittance service and pay less fees whilst still enjoying ultra-secure and almost instantaneous transmission (provided my recipient also has a bank account to receive the money into).

 

But what if I do not have a bank account or credit card? Where can I take my physical cash and utilise these or other blockchain services? Assuming you are reading this on Medium, LinkedIn or elsewhere my guess is you are not one of the 2 Billon people without a bank account. But even those with access to bank accounts still utilise cash. In terms of transaction value the use of cash has dipped below 50% in the US and in parts of Europe but globally cash still accounts for over 75% of all consumer transactions. Ripple in particular may be making inroads into bank-to-bank transactions but those involving actual consumers are still predominately done in cash.

If I want to walk into a local convenience store or up to a kiosk, hand over my coins and notes and purchase a blockchain based service can I do that today? No, not really.

New technology, be it a blockchain DAPP or any form of digital money needs to be intuitive, simple and easy to use for the average user and ideally for even the most basic of users.

 

The Construction Problem

There are several challenges to be tackled to get us to the point where a user of a blockchain based service can use fiat cash easily and seamlessly. In my last article I focused on remittance services so will stay with this example.

1. Integrating the points of presence on the high street that users are familiar with today — convenience stores, post offices etc.

2. Taking money from customers (the “senders”) over the counter in most parts of world involves conforming to some form of both KYC (Know-your-customer) and AML (Anti-Money Laundering) regulation. Users must be registered and legally verified.

3. If a public, crypto based blockchain is used then the fiat must be converted into crypto and the inherent volatility issues dealt with during transmission.

4. In the destination country crypto must be off-ramped and converted back into fiat currency.

5. Finally, the cash needs to be accessed by the beneficiary — through convenience stores, cardless ATM’s ( no need for a bank card just a code) post offices etc.

The Blueprint

We can bypass some but not all of these challenges by using a private blockchain solution. This removes the issues with volatility (and of course the current transactional volume bottlenecks in most public Proof Of Work blockchain solutions). By utilising a non-crypto DLT we can create a virtual stable coin (e-money) which we can exchange into another currency at a rate referenced by near real-time FX rates (i.e. e-pounds to e-dollars at the same rate as the actual £:$ rate applicable at the time of transaction.

To conform to KYC/AML we would need to use mobile phone verification. Smartphone penetration globally currently sits at around 35% of the world’s population. Whilst this solution therefore does not give the utopia of “Blockchain access for all” it does give 2.5BN people potential access. In comparison there are roughly 25 Million crypto wallets in use today or 1% of the smartphone users.

Finally, integration with stores, self-service tills and ATM’s is relatively straightforward in a world of open APIs. Every Western Union “agent” store, MoneyGram Post Office and prepaid debit card outlet has this in place already. Utilising the 3rd-party providers of these solutions is a matter of commercial contracting.

Any provider of such an infrastructure would still need to be licensed by the relevant financial regulator (e.g. FCA in the UK) and have to deal with the off-line treasury and fiat FX processes.

But if all the above was in place then we would be bringing the speed, security and low-cost of cash-based blockchain remittances to potentially huge numbers of uses. We would be having not only the rails and trains but the stations.

I will update you on the launch of such a service next week. In the meantime if you would like to find out more please feel free to contact me.