This is a continuation of the last post on payments and will further expand on digital currencies and its evolution into digital dollars.

Digital currencies have evolved over the last 10-11 years. As mentioned in the previous post, Bitcoin started it all and introduced cryptocurrencies and digital currencies. Bitcoin was initially introduced as this “Peer to Peer Electronic Cash System” in 2009 by Satoshi Nakamoto with the famous whitepaper.

Here’s a link to the whitepaper – I highly recommend reading it. https://bitcoin.org/bitcoin.pdf

There have been two blockers for bitcoin in being a mainstream payment vehicle:

• Speed/scalability
• Price volatility

Bitcoin transactions are slow and can take up to 1 hour for full confirmation that the transaction has been completed. There are many projects out there, such as the Lightning Network that is looking to solve this problem, but until then, it is quite challenging to have a quick transaction at the point of sale with bitcoin. Imagine having to wait for 1 hour to see your coffee transaction be approved and completed.

The second dominant blocker is probably an essential part of bitcoin, which is price volatility. Bitcoin has evolved to be more akin to digital gold vs. payment vehicles. Merchants do not have the risk appetite to accept bitcoin, as it could have significant economic implications for their business. It would be quite hard for a merchant to rebound if the bitcoin value dropped 10% in a single day.

Overall, bitcoin has some fantastic characteristics such as pseudonymity, censorship-resistant, decentralized, no third party, scarcity, and a significant savings technology with a possibility of appreciating significantly long term. I’m a big believer in bitcoin and believe that everyone should buy a little bit on a bi-weekly basis. Please do your research before doing so. I do not trade bitcoin, but simply see it as an excellent long-term investment.

Bitcoin led to the creation of multiple different cryptocurrencies, but the most important for payments is stablecoins or cryptodollars. Stablecoins are digital currencies that are backed 1:1 by fiat currency like the US dollar. For every 1 US dollar that is held in reserves, there is precisely one stable coin minted.

Stablecoins emerged in 2014 and have grown exponentially, with over $7.5 Billion’s worth in circulation. Stablecoins have some of the significant characteristics of cryptocurrencies but with the stability of fiat currencies. Some of the more notable stablecoins include Tether (USDT) and USD Coin (USDC)

Some call stablecoins the “killer app” that blockchain and crypto have been missing. Stablecoins have been effectively able to help push a tokenized version of a fiat currency globally through the blockchain. To add more fuel to the fire, Facebook spearheaded the Libra association, a group of major corporations like Shopify, to create their stablecoin backed by fiat currencies. Facebook has about ~2Billion users, and so this project is one of the most ambitious plans that we have seen in the crypto blockchain space and can change payments and commerce as we know it.

What are the use cases of these dollar-backed digital currencies or digital dollars?

• Quick exposure for people outside of the US to get access to US dollars without opening a bank account
• Remittances of USD to friends and family in countries outside of the US – I can send digital dollars to anyone in the world as long as I have their digital currency. The recipient can exchange US dollar-backed digital currency for their local currency
• Cross border payout for merchants and marketplaces where they need to payout artists, influencers, or sellers in different parts of the world. If you are Airbnb, you can now pay any host globally as long as they have a digital wallet instead of building capabilities for ACH, wires, Payoneer debit cards, Western Union, Debit cards, and more. Payment teams can effectively shrink to just digital currencies
• Digital dollars can move quickly over the blockchain in less than 10 minutes vs. days for traditional rales
• Digital dollars are technically API for dollars – you can enable new types of uses cases such as a decentralized lending model where software manages lenders and borrowers. Lenders deposit digital dollars into the software while borrowers take a loan directly from the software in digital dollars
• Access to financial services with their mobile app without needing to have a bank account – serves underbanked areas
• Serves new micropayment use cases for tiny transactions for pay as you use matters. Today, currencies are constrained by two decimal points. Digital currencies can be sliced even smaller to form new use cases.
  • Pay for ten bps for every page you read in a book or microtip artists on the internet.

However, this is just the beginning of digital dollars. Money is now accessible for developers to build new exciting projects and products.

Stablecoins or digital dollars are essentially become API for dollars.

This new API for dollar concept is already breeding more use cases than we can’t even imagine today.