Dom Alhambra

I said that on this blog, I would write about very disparate topics that even run counter to my core interests about our role on this earth. That is because, despite my philosophies and conceptions about modern culture and technology, I still live in this culture and use these technologies. Hence I will write about crypto currency, which I believe is a technological abstraction upon the already abstract reality of our economic system.

When you talk about “cryptocurrencies”, 60% of people will pair the term with Bitcoin, 30% will add on recognition of Ethereum, and that last 10% of crypto enthusiasts consider the vast ecosytem of “altcoins”. The largest misconception about cryptocurrencies is that every altcoin is an attempt at taking on Bitcoin or Ethereum in a mutually-exclusive battle of technologies. However, there are a growing number of altcoins that aren't interested at all in being used as the “medium of exchange” that currencies are defined by.

Notice how this nuance is already being integrated into the narrative around Bitcoin: The technological faults of Bitcoin run counter to its creator's original vision to create a “peer-to-peer electronic cash system” because it is slow to process transactions and has extraordinary fees in order to process those transactions (I think I've paid seven or eight dollars to send some Bitcoin to a wallet!). Thus, since 2020, the prevailing narrative of Bitcoin is that it is a “store of value”: Its technological failings are repurposed as defining features—like holding gold, it is better to accumulate Bitcoin rather than actually use it. You then leverage your Bitcoin holdings to secure low-interest loans in order to actually use its value.

Ethereum, slightly faster in transaction processing but also cursed with ungodly transaction fees, adopted a “store of value” narrative along with the additional feature of programmability that has given rise to the decentralized finance (DeFi) movement that several other altcoins adopted as well. People characterize Ethereum as a “decentralized computing system” that extends beyond DeFi, providing enough feature differentiation with Bitcoin so that they don't have to fight the mutually-exclusive battle.

The re-narrativization of Bitcoin and Ethereum away from “medium of exchange” was integral to their growing adoption over the past 3 years. Rather than trying to compete with nationalized currencies, they backtracked and said “actually, we just complement you!” In a bid for international legimitimacy, legal acceptance, and mainstream adoption, top cryptocurrencies have been willing to give up thoughts of privacy and mutual-exclusivity. It will not be long before DeFi applications will butt heads with traditional finance and find ways to comply with existing systems or face legal repercussions.

Nano, an altcoin quite far down the top 100 cryptocurrencies by market capitalization, did not get the memo that the “medium of exchange” promise had receded to niche circumstances like privacy-seeking individuals and under the table exchanges. Its small but fierce group of evangelists pop up in Bitcoin discussions, always citing its two main features: Super fast transactions, and completely fee-less transactions. To these supporters, Nano is the embodiment of Bitcoin's old promise.

However, we have to consider when Bitcoin's old promise was stated: In 2008, before digital cash exchanges like Venmo and Cash App exploded onto people's phones, before it was viable for a national body to develop a fully digital, QR-based currency due to the smartphone's nascent existence. The Bitcoin promise did not take into account that the stampede of technological development over the next decade will include traditional finance, and that even for cryptocurrencies the rule still applies: “If you can't beat 'em, join 'em.”

Given the technological developments in consumer and traditional finance, the question must be asked: “Do we need Bitcoin's old promise anymore?”

Below are the typical arguments for Nano. I will respond to them by reminding them about our modern circumstance.

Nano is the fastest transaction processor and fee-less as well.

It is not easy to access Nano, and Nano followers are willingly negligent about that. Living in the United States, I had to open up a Kraken exchange account as Coinbase doesn't support Nano. As of this moment Kraken doesn't have direct ACH connections, meaning I had to send Bitcoin/Stellar Lumens from my personal wallet to Kraken, sell it for USD on the exchange, and finally purchase Nano with USD. This Nano is then sent to a personal wallet. This incurs a lot of time, room for error, and exchange fees.

With Venmo, I select a friend, send them money. They receive it instantly and fee-lessly (yes, the fees are eaten by Venmo to maintain consumer convenience).

No amount of speed in transaction processing and supposed “fee-lessness” is going to make Nano well-adopted with current circumstances.

If Nano had more fiat on and off-ramps, then everyone would use it.

Let's say that it was completely fee-less to exchange USD for Nano, so I could enjoy the “speedy” and “fee-less” transactions. Why am I doing it? I could have just sent my friend or a business money with Venmo, and then I wouldn't even need to exchange for Nano. What was the point of Nano again?

Businesses wouldn't have to pay credit card fees if they received everything in Nano.

So with this statement you have to accept two non-existent premises: 1) There are many fiat on and off-ramps, making it easy for both consumers and businesses to use Nano, 2) It is fee-less, and worth exchanging from fiat to nano for some reason.

Let's say both are true: This statement still doesn't hold up. It's a logical folly that I see a lot in Monero discussions as well. Yes, just like with cash, a fee-less transaction is nice. But do you know how debit and credit card companies revolutionized modern capitalism? It was because Visa and Mastercard would settle a transaction between consumer and business, and if fraud occurs on either side, Visa and Mastercard would foot the settlement bill in an attempt to make both parties as happy as possible. 

This is a bigger deal than one might think. A cash-only society had confidence in two things: That the cash would retain value for the foreseeable future, and that during the transaction, and that the cash would physically move from one pair of hands to another. This is a trustless transaction. There are no promises that the money would come later, the money appears immediately in your hands once you render goods or services. Mastercard and Visa created a trust system: The merchant receives money from the credit card company, and the credit card company trusts that you can pay them back in full or in payments along with high interest.

This was a cultural paradigm shift in consumer spending. The consumer could now buy more expensive things, even if they didn't have the cash on hand. The consumer could also make riskier purchases because the credit card company would warranty these purchases and provide chargeback services if products and services were not fulfilled. The merchant could also sell to riskier consumers who can defraud the merchant, because the credit card company could eat the costs incurred. The development of trust—an abstraction from peer-to-peer transactions—reduced cash into a very contextual mode of transaction—for privacy-oriented individuals, under the table transactions, or specifically trustless exchanges (Craigslist for example).

So it's not hard to conclude why Nano, a decentralized, trustless payment system, will not appeal to merchants who have been protected by nearly a century of trust-filled transactions facilitated by credit card companies.

The solution for Nano and other cash-oriented cryptocurrencies (Monero, for example) to be better adopted by merchants would be this: Include a third-party to facilitate the transaction, so that if fraud occurs on the consumer or merchant's side, the third-party would be able to settle the conflict. In exchange, the third-party would receive a small percentage of each transaction they secured. Does that sound familiar?

Maybe it's already too late for the West, but developing countries could benefit.

As long as developing countries do not issue their own digital currency, Nano has a chance. But it would need to jump on the opportunity now. I do not see Nano's developers building the right amount of fiat on and off-ramps in the near-future to seize the opportunity. They already failed the past three years, and it's not getting any better now.

No matter how advanced these technologies get, the amount of short-sighted “techno-brawn” I see from some crypto enthusiasts is disheartening. It is all part of this “techno-optimism”, in which people are hoping that more technology will solve the issues caused by past technology. No matter how fast, no matter how few fees there are in using Nano, its followers are holding onto the mythology of technology rather than the reality of the people it's supposed to work for. When you see consumer-adjacent technologies, inquire whether the technology works for the people or is demanding that people change themselves to work for it.