This Cryptocurrency Could Be The Next Social Networking King
Cash may be king, but digital money fans aim to overthrow it. Stablecoin, a type of cryptocurrency linked to real assets, is gaining powerful backers in technology and finance who hope to seize a crucial role in global trade and the economic world order.
Unlike Bitcoin, Ethereum and many other digital currencies, stablecoins have backing from actual reserves of gold, dollars, euros or other assets. The idea is to reduce volatility.
Social media king Facebook (FB) and bank giant JPMorgan Chase (JPM) each have plans for a stablecoin. Amazon (AMZN) may jump in too as it expands into more markets. Meanwhile, China’s central bank has its own stablecoin in the works that analysts warn could take over emerging markets.
Facebook may be in an especially strong position if it can leverage its 2 billion users. That may help explain why Facebook is pushing its Libra stablecoin forward, even as partners drop out and governments cast suspicious eyes.
International Monetary Fund officials seemed to describe Facebook’s cryptocurrency ambitions in a recent blog post. To be sure, stablecoins promise seamless payments and an open architecture.
“But the strongest attraction comes from the networks that promise to make transacting as easy as using social media,” IMF analysts Tobias Adrian and Tommaso Mancini-Griffoli wrote in September. “Payments are more than the mere act of transferring money. They are a fundamentally social experience linking people.”
Future Of Cryptocurrency?
Like other cryptocurrencies, stablecoin has its foundation in blockchain, a distributed ledger technology that records transactions. Tether, which has dollar backing, is the most popular token of this type at the moment. It has a market cap of just over $4 billion, according to CoinMarketCap.
The market is flashing signals that stablecoins could be the path forward. Analysis by Binance Research shows that as a group they now dominate cryptocurrency market share in terms of trading volume. Their share reached 61% of the market in May 2019, compared to just 36% in 2018.
Bitcoin is still the largest cryptocurrency in terms of market capitalization. But such cryptocurrencies without asset backing are still recovering from an epic boom and bust. The lack of such volatility in stablecoins has made them more attractive as methods of payment.
The stakes in the stablecoin race are rising. The booming global payments market is expected to swell to $2.7 trillion in 2023 from $1.9 trillion in 2018, according to McKinsey & Co. That includes point of sale purchases, bill payments, electronic funds transfers and all other forms of payments.
“The payments sector has always struck me as an area where there is a massive opportunity,” said Catherine Tucker, a co-founder of the MIT CryptoEconomics Lab and a member of Libra’s advisory board. “The fact that we spend so much money on payments — percentage points rather than a fraction of percentage points — is quite surprising when you think about the promise of the digital economy.”
The Benefits Of A Stablecoin
Within payments, cross-border payments alone account for $230 billion and are a ripe target for a cryptocurrency. Right now, businesses can’t directly transfer funds between banks in different countries. Instead, they must go through correspondent banks, which have relationships with both the sending and receiving banks.
Transactions take three to five days to clear. Goldman Sachs estimates the transaction and currency exchange fees average 4%-4.5% of volume. A cryptocurrency could settle the transaction instantly, cutting out middlemen and slashing costs.
The volatility of a cryptocurrency like Bitcoin makes it tricky as a payment option. A stablecoin offers more predictability along with the streamlined payments and security features of blockchain.
Stablecoins will also help bring smart contracts into the mainstream. These self-executing contracts with terms written into lines of blockchain code allow agreements to move forward without a central authority or other third party.
Business-to-business payment “is probably the most immediate part where you could see some traction, and you are already seeing that with intrabanking,” said Wedbush Securities analyst Moshi Katri.
Networking Consumers Via Cryptocurrency
In addition to business-to-business payments, analysts see benefits in the consumer space. One example is avoiding high remittance fees expats pay when sending money home.
MIT’s Tucker also noted the problem of being “unbanked” in much of the world, including the U.S. She pointed to the value of mobile payments as a way around obstacles to accessing traditional banking systems. In addition, in countries with banking stability issues, such as Venezuela, she hopes a cryptocurrency will offer a valuable alternative.
The overlap with social networking and stablecoin is key. “Stablecoins offer the potential for better integration into our digital lives and are designed by firms that thrive on user-centric design,” the IMF analysts wrote in their September blog post. “Large technology firms with enormous global user bases offer a ready-made network over which new payment services can quickly spread.”
Facebook says Libra users anywhere will be able to transfer money to friends and family with the company’s WhatsApp messaging service. Oanda senior market analyst Alfonso Esparza told IBD that Facebook has an opportunity to be a first mover and bypass barriers to entry in markets where the financial system is not strong. “It is not that far-fetched that we could have a Facebook bank open in India in the next five years,” he said.
This article originally appeared on investors.com To read the full article and see the images, click here.
Nastel Technologies uses machine learning to detect anomalies, behavior and sentiment, accelerate decisions, satisfy customers, innovate continuously. To answer business-centric questions and provide actionable guidance for decision-makers, Nastel’s AutoPilot® for Analytics fuses:
- Advanced predictive anomaly detection, Bayesian Classification and other machine learning algorithms
- Raw information handling and analytics speed
- End-to-end business transaction tracking that spans technologies, tiers, and organizations
- Intuitive, easy-to-use data visualizations and dashboards
Nastel Technologies is the global leader in Integration Infrastructure Management (i2M). It helps companies achieve flawless delivery of digital services powered by integration infrastructure by delivering Middleware Management, Monitoring, Tracking, and Analytics to detect anomalies, accelerate decisions, and enable customers to constantly innovate, to answer business-centric questions, and provide actionable guidance for decision-makers. It is particularly focused on IBM MQ, Apache Kafka, Solace, TIBCO EMS, ACE/IIB and also supports RabbitMQ, ActiveMQ, Blockchain, IOT, DataPower, MFT and many more.
The Nastel i2M Platform provides:
- Secure self-service configuration management with auditing for governance & compliance
- Message management for Application Development, Test, & Support
- Real-time performance monitoring, alerting, and remediation
- Business transaction tracking and IT message tracing
- AIOps and APM
- Automation for CI/CD DevOps
- Analytics for root cause analysis & Management Information (MI)
- Integration with ITSM/SIEM solutions including ServiceNow, Splunk, & AppDynamics