US Dollar turning digital

I Have To Download A New Thing?

I have explained how Stellar can transfer money from point A to point B using blockchain technology in my previous posts. Some might wonder, and as a no-coiner myself, I have as well, how is this different than PayPal or Venmo? There is this whole financial industry that exists already, so how is this any different or better?

These are all great questions. 

Venmo has its limits

I owe my wife money. A lot of money. If I ever decide to pay her back, I can use a payment app like Venmo. If I have a bank account, it is free to send money to anyone with a Venmo account. She might be okay with waiting for free for the money I sent her to show up in her checking account, or she can pay 1% to have it transferred in minutes. Other fees pop up if I want to move money, use a credit card, or cash a check. 

I owe my wife a lot of money. I can only send $299.99 at a time until Venmo decides I’m cool or whatever, and then I can start sending my wife $4,999.99 a day. If my wife decides to live out her dream in Italy and I want to send money to her there, I can’t use Venmo.

Remittance doesn’t have to be expensive

Remittance is sending money over borders. Over $500 billion is sent across borders every year, and the fees of those transactions are high. Stellar says that remittance fees are around 7-8% and can be as high as 15% for sending money to developing nations. When you are sending money that has to change currency, you have to pay the exchange rate. These fees affect people that are lower on the economic scale unfairly.

Stellar has solved some of these issues with its network. Sending money on the Stellar network costs about $0.00001 a transaction. That means 1 Lumen (XLM) can cover around 100,000 transactions, which of this writing is valued at about $0.62 per Lumen. 

When sending money over the Stellar network from one country to another, you can use the Stellar Decentralized Exchange (DEX) to get the best exchange rate at the moment with no intermediaries. This means that when you send value using the Stellar network, it is a one-stop transfer of money – person A can send the type of value they have, such as a digital dollar, and person B can receive the value they want, such as a digital euro.  The traditional way requires up to three institutions to facilitate the exchange and each takes a cut before it arrives at its destination.

Transitioning to a better way

This is all great, but as a no-coiner, I find anything that I can’t just access becomes too hard to do. It is the one great way old traditional systems persevere; they are used, so why try anything new? This is why it is exciting to jump into this world, for it is on the verge of becoming a way to change the status quo. 

Being poor is expensive.

As someone who had to navigate finances without a bank account, I find the idea of having the right to keep and move my money at a negligible cost freeing. If I want to turn my check into cash, I pay 3-6%. If I want to pay my rent with a money order, I pay a few dollars an order. I also have to operate loose cash that doesn’t offer me any security or any investment opportunities. I couldn’t just get a credit card, and if I ran into financial surprises, I had to use payday loans that charge exorbitant fees and interest. Being poor is expensive.

Today I have a bank account. I have checks and a debit card that I can use for different methods of paying people. When I went overseas, I had to trust that the exchange rates were fair. I don’t use direct deposit because I have been too lazy to bring in a check to work to set it up, so I have to wait 24 to 48 hours for my paycheck to show up in my account. I am lucky to have a savings account that I can tap into when my checking account gets low. 

Franklin Templeton Investments Logo

Things are shifting. Just this week, Coinbase went public. This is huge in the legitimizing of cryptocurrency as a currency. This was after the Stellar Development Foundation announced that Franklin Templeton – one of the world’s largest asset managers with $1.5 trillion in assets under management –  is going to run Stellar validating nodes in addition to tokenizing some of its funds using the Stellar network. 

In other the news

Other uses for blockchain technology have hogged the headlines recently. Non-Fungible Tokens (NFT) is the most notable, with people buying original digital art for millions of dollars. 

Some of the recent news has not been as good for cryptocurrency. Turkey joins Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam in banning the currency. The reasoning behind these bans being the belief that cryptocurrency is hard to track and can be used to support illegal trafficking, money laundering, and terrorism.

Other countries and regions are welcoming the technology and are looking into forming their own tokens. Governments all over the world are also trying to figure out how to tax it. Some look at it as a straight asset, while others, like Switzerland, see it as a foreign currency. 

Cautious Optimism

Individuals seem to have some hesitancy to use cryptocurrency. The reason I am a no-coiner is that I don’t understand it. It isn’t easy to understand. This, of course, is why I am doing this blog to help people understand it better. It isn’t easy to understand. It currently isn’t as easy as the traditional system. 

Another reason that I have been a no-coiner, and I allude to this above; it isn’t legal tender. It can make me nervous. The United States government could one day decide it isn’t permitted. For a long time, the dollar was backed by the gold standard, and hundreds of plots to rob Fort Knox were written before president Richard M Nixon decided to make the mighty dollar fiat – it is because we say it is. It goes with cryptocurrency as well; it is worth what people say it is worth. Blockchain is robust; it puts the worth out of the few and puts it in the hands of the many. 

The main reason that I looked at cryptocurrency with fear and trepidation is the market being so fluid. While it has gone steadily up recently, what says it won’t crash? The good news is that the more it is used, the more stable it becomes, and Stellar is only trying to make moving and storing money easier, so it isn’t exactly an investment like Bitcoin. The undeniable benefits of blockchain currency, such as financial empowerment and low remittance costs, suggest its inevitable widespread adoption and hopefully with that will come stabilization. 

This is an exciting time to leave the no-coin world behind and begin to become a some-coiner. I am looking to use some coins in the coming weeks and report back to you how it went. Maybe I’ll give my wife some money.

A Public Node blog by Dave