The frenetic release of new cryptos over the past few years has long been a real worry for those fighting to see a more widespread adoption of cryptocurrencies. The deluge of new cryptocurrencies—which all claim to be better than first generation cryptos—has not really helped the adoption cause.
It would seem the targeted users are never given enough time to understand and process, particularly given a background of earlier projects, which turned out to be scams or failed to live up to expectations.
Countries like Venezuela and Zimbabwe—which are often touted as the perfect cases for digital currencies—have seen more than a fair share of cryptocurrencies purporting to bring solutions to their respective countries’ currency troubles. In fact, more are coming!
Why competition
Granted, competition brings the best out of us and this has always been the way we get better products anyway. At the same time, it is the accepted norm that those working in any new niche must be allowed to make mistakes. After all, the Wright brothers would never have given us the airplane if they had to contend with a meddlesome air traffic control body. Thomas Edison would never have succeeded in giving us the incandescent light bulb if he was not allowed to try more than ‘5000’ different ways of creating this invention.
Today, General Electric stands tall because the world was patient with Edison and we travel faster between continents using commercial airlines because the Wright brothers were allowed to conduct deadly trials before their innovation was adopted. There are numerous examples of products that initially looked like they would fail but ultimately prevailed because they were given a chance.
Therefore, it stands to reason that financial innovations like cryptocurrencies, must be given the same chance if the ever elusive goal of bringing financial services to the world’s poor and unbanked is to be realized.
Lost initiative
Unfortunately, for now it seems this space has and continues to be dominated by failed projects and outright scams on one hand and increasingly hostile governments on the other.
Genuine projects are constantly being overshadowed by these well orchestrated ponzi schemes, which seem to take advantage of the so-called fear of missing out or FOMO.
Indeed the blockchain technology is often touted as the next big thing after the internet, and for punters who missed out on the dotcom boom, the technology offers redemption.
Already the success of bitcoin is used as a lure. Prospective investors are constantly reminded of how early adopters of bitcoin are now millionaires! Perhaps it may have been this FOMO that played a key role in the frenzied initial coin offerings and the crypto price boom seen in 2017.
Pushback against cryptos
However, the crypto market would later crash beginning that same year and by late 2018 many tokens suddenly looked like they had been overhyped. This outcome has inevitably given fodder to those long opposed to cryptos. As far as crypto opponents are concerned, all cryptocurrencies are a very risky investment at best and pyramid schemes at worst.
This grim assessment is also shared by some in the mainstream media and given their level of influence, it is safe to assume that their audiences will similarly share the same view.
It is from this point view that for now there has to be a change of approach when issuing or promoting a new crypto. Startups must consider tweaking or deviating from the foundational ethos that hitherto guides players in this space.
Indeed for now it seems this space faces extraordinary challenges, which require equally extraordinary approaches.
To begin with, privately issued cryptocurrencies face an unusual opposition from governments and there are a lot of theories as to why this is case. Telegram is the latest to technology firm to be on the receiving end of this hostility.
Whatever the real reasons for this opposition, the reality is that such pushback by governments has worked in stunting the growth of this space.
Secondly, as highlighted earlier, some in mainstream media not only share a grim outlook for cryptos but are largely ignorant of the real benefits of cryptocurrencies like Bitcoin or Ethereum. One then cannot expect the same media personnel to have a different stance or view to upcoming projects like Facebook’ Libra because not enough is being done to educate them or to raise awareness.
Besides the upcoming Libra token, there are probably thousands more in the works and as long as promoters of such projects are not seen to be doing things differently, the mainstream media will not change their stance. An unfriendly media makes the task of spreading the word much difficult.
Thirdly, it seems this nascent space has been overrun by sophisticated scammers. Scammers are able to package their ‘innovations’ as genuine crypto projects only for them to disappear after fleecing unsuspecting investors. When dubious projects seem more dominant it makes the job of distinguishing these from genuine ones more difficult. This is another extraordinary challenge facing the crypto space.
A new blueprint
This last point is really a key one because opponents of cryptos have used this as their ammunition while consumer protection bodies have similarly taken a hard-line against cryptos as a consequence.
To counter this, promoters of new projects need to take a new approach even if this might be construed as a violation of the utopian ideals espoused by pioneering cryptocurrencies such as bitcoin. For example, Facebook and its partners want the Libra token to adhere to KYC and AML and they have expressed a willingness to engage with skeptical politicians on some of the controversial aspects of the crypto. In a nutshell, Facebook’s Libra will not be as decentralized as Bitcoin something that may unnerve fervent privacy advocates.
However, by going the extra mile in trying to assuage its critics, Facebook is also indirectly messaging potential users that this project if far from a scam because it will abide by the usual regulations something most pioneering projects were/are unwilling to do. This is a point the Libra whitepaper repeatedly makes.
In addition, the Libra whitepaper makes regular reference to the token’s many potential use cases as opposed to highlighting the investment opportunities something common with upcoming tokens.
Judging by some of the initial reaction following the Libra whitepaper release, there is a good chance that this token might actually be well received if it launches.
Transparency vital
Facebook has used its massive network to prepare the minds of potential users for this token’s roll out. Unfortunately not all genuine projects will be backed by large and well resourced corporations like Facebook. Again, in this situation doing things differently will be vital if the right message is to be received by potential users.
For instance, there are far too many startups claiming to offer gold backed tokens, some seem genuine but others look like scams. Therefore, simply telling potential users that a token is backed by gold no longer suffices. A startup may have to go to extra lengths in attempts to assuage skeptical users who have somewhat become accustomed to similar tokens that have ultimately turned out to be scams.
The environment is already toxic so to speak and a responsible startup will have address or explain itself to potential users in a way that is assuring before launch.
For example, a UK startup Aurus recently launched its gold backed token, the AWG. However, in its attempt to set itself apart from others before it, and to gain confidence of the public, the startup went to the extent of engaging the Financial Conduct Authority (FCA), a UK based financial watchdog. Presently there is no cryptoasset related legislation in the UK but the FCA has published guidelines and parameters for startups that wish to operate in that country.
Engaging a watchdog whose recommendations will likely form part of the envisioned legal framework governing cryptoassets in the UK may well ingratiate this startup with potential buyers of this token.
Furthermore, before proceeding with the token release, Aurus also enlisted the services of UK law firm, Capital Law to provide it with a legal synopsis which determined the legal standing of the two tokens it launched. The FCA subsequently approved this legal synopsis.
In addition, Aurus says it will only engage with LBMA accredited gold mints and vaults while adhering to established KYC and AML norms. The general plan is that of a more transparent and verifiable gold backed token.
There is no doubt that taking these steps will set Aurus apart from other providers of gold backed tokens, who have had to constantly bat away allegations of falsely claiming that their tokens are backed by the precious commodity.
A similar approach can also be used by startups or even states which plan to back their respective tokens with commodities other than gold. The Venezuela government has reportedly had problems in getting its token the petro—which is backed by gold/oil— accepted by citizens of that country.
Apparently Venezuelans are not convinced by the state claims hence the failure of the token thus far. Caracas needs to be more transparent if it wants the token to have widespread acceptability.
Engaging with regulators
In the meantime, the business as usual approach no longer works especially now when regulators are taking firmer stance against crypto businesses.
For example, Telegram thought it had it covered all the bases when it launched its TRON offering but this was stopped midway after the United States Securities and Exchange Commission (SEC) issued an injunction against the tech firm. Telegram believes at had followed the rules but the SEC wants more it would seem.
Of course, while this case and that of Libra will continue to unravel, a precedent has been set, regulators and politicians are now pushing back harder against new crypto releases.
Startups working on new projects may well have to consider creative ways of dealing with the regulatory threat without diminishing the appeal of the proposed token.
Engaging with regulators will help both parties to find common ground and avoid the nasty public fights we now regularly see.
Final analysis
Crypto adoption advocates know that when players in the space become more transparent and when a truce with regulators is established, the job of educating will be more fulfilling.
At the moment it seems they spend more time defending than taking the initiative. Indeed the number of new crypto tokens getting released might be high, yet if all adhere to the original ideals while working to mollify regulators, then the job of advocacy will be more exciting.
The world truly needs this innovation than any time before.
