Redesigning Money

Markets Apr 29, 2020

Have you received your stimulus check yet? If not, you’re not alone — tens of millions of Americans have not received theirs either. Whether you’re diligently waiting for the mailman or refreshing the Get My Payment tool on the IRS website, one thing is clear: payments are difficult, even for the most powerful institutions in the world.    

While that example ignores the complexities involved with large, bureaucratic organisms, it forces us to ask: why are payments this hard in 2020?

Yes, we have Venmo, Cash App, Revolut, Zelle, but those services have glaring issues. They set limits on the amount that you can transfer, require invasive personal information to sign up, have the ability to censor transactions arbitrarily, and are relegated to specific national jurisdictions. If Venmo, Mpesa, or similar platforms actually worked internationally, Bitso, a Mexico-based cryptocurrency exchange, would not control more than 2% of the entire remittance market, nor would the average fees for remittances be more than 7%.

The dream of disrupting payments with crypto

Since the Bitcoin whitepaper was published, technologists and entrepreneurs have dreamed of disrupting payments with crypto. The ingredients are there to create products that are free of the maladies that plague current solutions. However, that dream has mostly remained just that — a dream.

In general, most crypto payment solutions are not 10x better than existing alternatives. This can be attributed to three main factors: use of volatile assets to transfer value, poor user experience, and a lack of mainstream adoption.

Using BTC or ETH to pay a merchant or a friend can prove to be problematic. The price of your BTC may rise or fall 5%+ by the time the recipient is able to receive the transfer and cash out. Price movements of that nature are to be expected for a nascent store of value, but not when you’re engaging in day-to-day commerce.

Moreover, crypto is still an intimidating technology for most people to use. Creating a hexadecimal address derived from a public key to receive a payment is not only confusing for users, it is prone to user error. One letter, number, or symbol missing and your money is gone.

Payment networks are social networks and depend on social acceptance. Getting your friend, local merchant, or family member to download a crypto wallet to accept a volatile currency as payment is a difficult challenge.

For a crypto payments solution to succeed it must offer stable-value assets and a frictionless user experience that makes exchanging value as simple as sending a text message.

Celo: Redesigning Money

Celo, a new layer–1 protocol with an algorithmic native stablecoin, is one project that could make crypto payments a reality. Celo is an open, decentralized platform that aims to make it straightforward for anyone with a smartphone to maintain a current account, send money to friends, and pay merchants.

From a technology and product perspective, Celo has taken a full-stack approach to creating a payments application that addresses the three factors inhibiting crypto adoption.

First, Celo addresses price volatile assets with their native stablecoin pegged to the dollar, Celo Dollar (cUSD). cUSD maintains its USD peg by adjusting its supply to match demand. cUSD is collateralized via a basket of crypto-assets that acts as a reserve that absorbs volatility risk.

Celo is one of the few projects in crypto that has an explicit focus on their end user. The project applies a concept called “lightweight identity,” which in practice means that users can send value to each other with only a phone number, bypassing the traditional approach of long complicated cryptographic addresses altogether.

When sending payments like text messages to phone contacts, users can send payments to people before they’ve even created a Celo wallet; once the recipient creates their wallet, their funds will be there waiting for them. This creates an interesting social dynamic for adoption — it is far easier to get someone to download an app when they have money waiting for them on the other side.

Will Celo redesign money and payments? While it is far too early to attribute that description, it is notable that there are serious efforts within crypto to create products for mainstream adoption. As Celo heads into their mainnet launch in the coming weeks, it will be interesting to see if they are able to execute on creating a product that is truly 10x better than current payment options. Whether Celo succeeds in their ambitions or not, they have raised the bar for what users can expect from crypto projects, and that is a success in and of itself.

Learn more about Celo with our Celo Deep-Dive Series:

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