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Living in a multi-digital-currency world

Marcus Swanepoel
4 minute read

Over the past few months we’ve had a lot of questions about our views on various digital currencies, including initial coin offerings (ICOs), and also why we only support Bitcoin on our platform.

connected-multi-currencies

Since our founding, we’ve considered ourselves to be digital currency agnostic. After we initially built the world’s first fully-integrated Bitcoin system for a major bank in 2013, we experimented with various blockchains and digital currencies including Bitcoin, Ethereum, Ripple and more.

It has also been very clear to the team internally and our investors that we are very open-minded about how the industry evolves and what technology or currency becomes the dominant one. What is, however, core to our beliefs is that decentralised digital currency will form the basis of the future of finance, and our mission of bringing digital currencies to everyone, everywhere is fundamentally aligned with this.

We believe that we will more than likely end up living in a multi-digital currency world, based on a number of assumptions.

The right currency for the right use

Firstly, that certain digital currencies by their very design might cater for a specific niches or needs better than others can. For example, Ethereum might be a good way to interact with certain decentralised applications, other currencies may offer different types of speed, cost or privacy benefits, and others, like Bitcoin, might be used for large value transfers or simply remain a store of value.

We believe that it’s highly likely that one digital currency –most likely Bitcoin– will continue to play a dominant role, because of its properties as a store of value and the network effects it has shown so far.

Bitcoin might not replace all of the existing systems, but it adds a new layer of value – similar to how we still have regular postal mail and fixed-line telephones even though we have Facebook, Skype and Gmail. The impact has already proven to be significant.

Other currencies will probably play a different, more focused role and people may use Bitcoin to store or switch between these other currencies. Something like a global reserve digital currency, not unlike the US dollar in the current financial system.

Here’s an oversimplified view of what it could look like:

bitcoin-niches

The clash of coins

The second reason is competition. In business, politics and pretty much everything else it is typically beneficial to the end-consumer when there isn’t a monopoly, but rather healthy competition. Competition makes players and the market more efficient, affordable and eventually allocates more value to society at large.

We already saw this play out in the digital currency space where Bitcoin dominated for a very long time without the need to scale. As alternatives started gaining more traction due to improved performance, there was a newly found urge by Bitcoin players to improve things.

In our view, this is important and healthy for consumers, businesses, and the overall digital currency ecosystem.  

The road ahead

While all of this means that we’re not necessarily Bitcoin maximalists at heart, it also doesn’t mean that we’ll blindly support any digital currency that comes across our way. Having extensive experience and working closely with many of these currencies, we’ve frankly been quite disappointed with the majority of them. This spans from trivial design improvements, limited use case and market adoption concerns, to much more serious ones like lack of proper security or outright scams.

On top of that, we have large amounts of customers that rely on us to provide them with the easiest and most reliable way to learn more about digital currencies like Bitcoin, and allocating resources to marginal initiatives do not serve our customers best.

So, while we are open to adding new currencies to our platform, it has to make sense to do so.

How do we decide? We obviously try to be as objective as we can, which is easier said than done, but broadly speaking our considerations include:

  • The currency needs to be (properly) decentralised
  • It needs to be very secure
  • It needs to be designed or backed by a credible team of developers
  • There needs to solve a clear and unique use case
  • It should have significant market traction
  • It should not have prima facie concerns of being associated with any type of fraud or ‘pump and dump’ schemes
  • Enough of our users should want it, so that it is economically viable to implement for our broader customer base
  • The currency should fall in line with our broader vision of building a new financial system that is useful for society at large

For the sake of this article, we’re ignoring token sales or ICOs, which we consider to be a separate category of asset and that we’ll comment specifically on in another article.

It’s also important to note that while we might not provide direct access to every single digital currency, we do essentially provide a gateway to these by making it very easy to convert local currency to Bitcoin and then to use that Bitcoin to acquire other currencies on third-party platforms.

This is, however, done at the risk of the customer and we encourage people to read more about scams in the space and to generally be very careful what they spend their money on - there’s a reason why many of these ‘currencies’ come and go so quickly.

Over the next week you will see us making more announcements around our views and support of digital currencies other than Bitcoin, so stay tuned!

Avatar Marcus Swanepoel
Author

Marcus Swanepoel

Marcus is the cofounder and CEO of Luno. Previously, he worked for Standard Chartered in Singapore and before that 3i and Morgan Stanley in London. He holds an MBA from INSEAD, is a qualified Chartered Accountant and a CFA charterholder. He is a South African citizen and a Singapore Permanent Resident.

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