Are Stablecoins Blockchain’s Springboard to Mass Adoption?

Alex Mashinsky is CEO of Celsius Network, the Blockchain-based lending platform. He is one of the inventors of VOIP (Voice Over Internet Protocol) and is now working on MOIP (Money Over Internet Protocol) technology.

 

The blockchain industry has made several attempts at scaling in the past 30 years (it was invented in 1991, not by Satoshi, for the younglings out there). The space has tried privacy nets, private chains, functioning as a replacement for cash, payment systems, store of value, and more. We keep passing the baton, hoping that the next wave of adoption will scale the technology and discover more use cases.

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What have we learned?

Blockchain is the slowest and most expensive database ever invented. It’s only good for a few things:

1. Keeping track of who owns what on a trustless public network

2. Keeping immutable records on an open network

3. Enabling p2p transfer of value that is censorship resistant

4. VOIP is one of the largest and most decentralized applications on the Internet. We are now trying to scale MOIP (Money over IP) to do the same for money.

In the last 10 years, Bitcoin was created, along with 2,000+ other digital currencies, to test the crypto concept as a replacement for fiat digital currencies we use every day. You know that your credit card is using digital dollars not, real ones, right?

Ten years later, Bitcoin has shown mixed results. With fewer than 30 million active users, Bitcoin has a hard time competing as a payment platform or as a fiat currency replacement for even third-world fiat currencies.

Yet, despite all of these drawbacks, I still contend that blockchain and crypto are only just getting started and will soon cross the chasm and scale to mass adoption.

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The reason? Stablecoins.

Stablecoins are cryptocurrencies pegged to a stable fiat asset. Several hundred stablecoins have already been created, including popular iterations like Tether, TrueUSD, Gemini Dollar, and USD Coin. By carrying the value of one or more fiat currencies, stablecoins provide a smart contract based digital representation of their value and can be utilized via DAOs running on different blockchains. Most stablecoins use the ERC20 protocol, which runs on the Ethereum network. As institutions and companies learn to trust and implement this new and amazing global infrastructure to instantly exchange value and process payments, we may finally see mass adoption of blockchain technology

This adoption will drive Web 3.0 and demand on the Ethereum platform and increase in the price of ETH, as one can easily use discounted cash flows to value the network and its future fees. I predict that if even a fraction of the dollar payments transacted through banks and credit card companies move to this instant and low cost infrastructure, ETH will be trading above $500 by the end of 2020.

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Furthermore, two of the biggest obstacles blocking mass adoption of cryptocurrency are the high barriers to market entry and difficulty mitigating risk. Because cryptocurrencies fluctuate in value significantly day by day, holders need to be able to trade their coins quickly and with minimal friction. However, without stablecoins, crypto must be traded for fiat on exchanges, requiring conversion and bank fees much higher than normal crypto-to-crypto trades, which negates the purpose of these cryptocurrencies. Stablecoins enable people to move their fiat funds to a relatively stable asset even as the BTC or ETH market fluctuates without incurring the steep costs of changing their coins back to fiat. By storing value in stablecoins, users can then get back into the trading game quickly and easily when the market changes or use them for commerce in a fast-growing network of firms that accept such coins as settlement.

The implementation of stablecoins also solves a lot of the regulatory and compliance issues crypto projects face today. It's what the industry needs to scale to the next level and gain broad adoption. Most stablecoins are not securities by definition, as they are pegged to other assets and their buyers do not expect them to appreciate in value (they do pass the famous SEC Howey test). Therefore, stablecoins discourage speculators from buying them just for the purpose of their increase in value.

All eyes are on the speed of scaling and daily use of stable coins to see if they will deliver, fail, be replaced by another killer app, or force all of us to fall into the tech chasm where HODLers will lose the value of their investments.

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So far, Ethereum had two great leaps forward

  1. It invented the smart contract and created hundreds of use cases for cryptocurrencies.
  2. It enable the ICO revolution, freeing capital to fund and build the cambrian explosion of the crypto revolution.
  3. With the mass deployment of stablecoins, ETH has the opportunity to scale to the next level of mass adoption, which will include using stablecoins to settle payments and value transfer across Ethereum and other public blockchains.

We all need a stepping stone to mass adoption, and stable coins are a great step forward which garner widespread support. The blockchain industry must do everything in its power to support and encourage widespread utilization of stablecoins if it’s going to thrive against traditional financial institutions.

Brazil Is for Blockchain but Against Crypto

Brazil, or the Federative Republic of Brazil, is a Portuguese-speaking state in South America with more than 200 million inhabitants. It is in fifth place among all countries of the world in terms of area and sixth in terms of population.

The Brazilian economy ranks ninth in the world in terms of nominal GDP and seventh in purchasing power parity. The country is a member of the UN, G20, WTO, Mercosur and the Union of South American Nations, and is also one of the BRICS countries.

Despite the active development of IT in the country and massive investments in this industry, large investors and financial institutions have preferred to stay out of cryptocurrencies. Brazil has tightened crypto control: investment funds are now banned from buying cryptocurrencies, and banks have demonstrated unfriendly attitudes by blocking the accounts of cryptocurrency companies and crypto owners.

Nevertheless, Brazil is actively integrating blockchain technology into its infrastructure and economy and even launching its own instant payment system. More on that in the article written by Solomon Brown, Head of PR for Freewallet, a cryptocurrency wallet developer.

Cryptocurrency Regulation in Brazil

Interest in the crypto industry is growing in Brazil, and regulation is slowly catching up. The main managerial authority that currently deals with crypto companies is CADE - Council for Economic Protection of Brazil. Regulators have still not taken decisive action. They first showed their willingness to do so in November 2018, submitting for consideration a bill on the taxation of crypto assets.

On May 31, 2019, the chairman of the Brazilian Chamber of Deputies ordered the creation of a commission to consider cryptocurrency regulation in the country. The commission is tasked with overseeing the digital asset industry. Also, the Brazilian Federal Revenue Office (RFB) has issued new rules requiring cryptocurrency exchanges to inform the regulator of user transactions in order to detect tax fraud, local news outlet Livecoins reported.

The guideline states that cryptocurrency trading platforms in Brazil have to inform the agency about the movement of user funds in cryptocurrencies and comply with the requirements of standard 1.888 / 2019, published last May, “whenever the monthly volume of operations exceeds 30,000.00 Brazilian reals ($5.140).” In addition to the transaction volume, operators must also provide additional data including the citizenship of the owner of the digital currency, his place of residence, registration number and a description of the crypto assets used in the transaction.

At the moment, there are no other specific laws regarding holders: those who store crypto without transferring their assets to fiat don’t have to pay income tax. Some investors have to report to the tax service — there is a provision requiring you to pay a 15% income tax on earnings of more than 35,000 reals per month, which is approximately $6,000.

Meanwhile, the four largest financial agencies in Brazil have teamed up to create a regulatory sandbox and develop regulation for new technologies, including blockchain. The Ministry of Finance, the Central Bank, the Securities Commission and the Superintendent for Private Insurance of Brazil announced their intention to put together a set of rules for fintech and cryptocurrency businesses.

Regulators said the new rules will affect Brazil's securities, finance and capital markets. In addition, institutions will create a normative sandbox to facilitate new developments in technology.

A new regulatory initiative came soon after the announcement of plans to establish a Cryptocurrency Regulatory Commission in Brazil. Although new regulatory efforts are defining the boundaries of using cryptocurrency and blockchain technologies in business, many cryptocurrency sellers are still not classified in the financial market.

The Minister of Finance has hailed the benefits that DLT technology has brought to Brazil's financial markets, also mentioning cryptocurrencies and ICOs in the field of finance. Brazil currently has the largest number of cryptocurrency users in Latin America and ranks fifth in the world in this respect. According to experts, at the end of 2019, 8% of the Brazilian population owned some form of crypto asset. But with all that red tape, a basic question arises: How do locals buy cryptocurrencies?

Cryptocurrencies in Brazil: Where to Buy and How to Spend

Local Bitcoin Exchanges

Despite the government’s bearishness, Brazilian cryptocurrency exchanges and exchangers still exist and are operating, but not actively enough, compared to the countries that are more friendly to the crypto industry. Here is a summary of the volume data of Bitcoin buy and sell transactions collected from 40 local exchanges, such as BitBlue and Braziliex.

According to Cointrader Monitor, a local website monitoring cryptocurrency quotations in Brazilian brokerages, exchanges reported having handled 395,209.48 Bitcoins from January 1, 2019 to March 31, 2020. The highest volume exchange was demonstrated by MercadoBitcoin with 120.889.34 Bitcoins traded, corresponding to 30.58% of the national market.

The day that registered the biggest Bitcoin movement in the period was June 26, 2019, with 5,070.38 BTC. And the day with the least movement was January 1, 2020 with 64.90 BTC. Analysts suggested that the downtrend might be a consequence of cryptocurrency companies having lost credibility due to litigation with their clients.

Talking about the BTC trading volume, it is interesting to note that the 2020 numbers are encouraging, compared to the figures from the first quarter of 2019.

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Source: CointraderMonitor

From January to March 2019-2020, the national Bitcoin market saw a 32.64% increase. Thus, if the trend continues, we can expect a volume of more than 480,000 Bitcoins traded in Brazil in 2020.

These figures prove a considerable number of Brazilians are sticking to local crypto services, exchanges and wallets. Nevertheless, the country is in Freewallet’s top 20 list by number of users, which makes us extremely proud.

What to Buy for BTC

In the Brazilian city of Fortaleza, citizens will be allowed to pay for public transport with cryptocurrency, according to Cryptoglobe, which cited local media. The Ceart State Autonomous Carrier Cooperative (COOTRAPS) announced that a new function for buying tickets via QR codes will appear as part of a special application. Currently, debit and credit cards are the supported means of payment.

COOTRAPS is also considering adding cryptocurrencies other than Bitcoin. City authorities want to increase the efficiency of the payment system, reduce its cost and attract more people who will use this service. This is a way to reduce bureaucracy and make the system easier for users with the help of crypto.

In December 2018, Oásis Supermercados began accepting cryptocurrencies as a payment method. Now, shoppers in Rio de Janeiro can pay for purchases with Bitcoins, Bitcoin Cash and Litecoin. For this, the supermarket chain is working with CoinWISE. In this arrangement, the withdrawal of cryptocurrencies to fiat occurs every three days.

In Brazil, more and more local companies are beginning to support crypto. Clients of the Technisa construction company can get a 5% discount when paying with Bitcoins. Bitcoin Cash and Litecoin are accepted by transport companies Brasil Sul and Viação Garcia and metro operator Metrô Brasília.

In 2017, Dash announced a partnership with the Brazilian platform CoinBR. After that, the altcoin began to be accepted in 13,000 stores. Earlier Dash announced a collaboration with the Uphold platform.

According to a statement by Dash CEO Ryan Taylor, this will allow 94 percent of the population to use tokens in everyday life. Simultaneously with these events, the digital currency rate has more than doubled, since November 2017, when the coin was worth $300.

Analysts even believed at one point that, due to its widespread distribution in Brazil, the price of the altcoin would rise to $1,000, which wasn’t that far-fetched back when the price was around $840.

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Source: newsbtc

But, as we all know, nothing lasts forever, and Dash is currently trading around $74, according to CryptoCompare.

Brazil: Blockchain for Good

Unlike crypto, which hasn’t been warmly welcomed, blockchain is employed in many Brazilian social institutions.

In early September 2019, the first birth certificates were issued exclusively through blockchain technology without having to go through registration in the registry office. A new type of registration project was developed by technology company Growth Tech in partnership with IBM. Registration is done through Growth Tech’s Notary Ledgers platform, which provides virtual notarial services.

The Brazilian Ministry of Education has proposed the creation of a blockchain platform for the issuance of digital certificates of education among non-state universities in order to combat the falsification of diplomas. Brazil Education Minister Abraham Weintraub said the government is considering this opportunity. The resources for financing the development of the platform will come from private educational institutions themselves, as they will be solely responsible for issuing diplomas.

In addition, to implement this measure, the ministry will require universities to create independent departments responsible for managing the blockchain-based platform. Local media have also reported that at least 14 private universities have already shown interest in the government’s proposal. Gilberto Garcia, the former president of the National Board of Education, said the initiative also includes all educational institutions in the system, which will support the concept of transparency that the blockchain can offer.

PIX: The Prospects of Cryptocurrency in Brazil

Brazilian cryptosphere has had a bumpy road due to the slow development of crypto regulation in the country. For instance, recently the XDEX Brazilian cryptocurrency exchange, owned by the largest brokerage company in Latin America, XP Investimentos, announced its closure. And it’s not the only company that has had to make this difficult decision due to disappointing market forecasts. A lot of cryptocurrency companies have had  to continue fighting banks in order to be provided with financial services. Just recently the Mercado Bitcoin exchange won its court case over a bank closing its bank account this March.

Nevertheless, the government is eager to implement blockchain decisions to improve the lives of its citizens. For instance, this February, the Central Bank of Brazil launched the PIX instant payment system which uses QR-codes and doesn’t require personal data. This initiative is a tool to fight against alternative digital payment means, including cryptocurrencies.

The system, which involves all state banks, will allow for almost instant payments using mobile applications, Internet banking and ATMs 24/7. Hopefully, this measure will add to the blockchain adoption that’s happening right now in Brazil. And, who knows, maybe after PIX proves the benefits of anonymity and cashless transfers, cryptocurrencies will also get regulated and be welcomed by the state.

Featured image by sergio souza on Unsplash


Solomon Brown, Head of PR at Freewallet. Drawn to the blockchain space by a belief in its ability to restructure global finance and passionate about telling stories, Solomon cut his teeth in blockchain startup promotion before joining Freewallet's Team in 2018. LinkedIn