The cryptocurrency Bitcoin is now 10 years old.
Since the appearance of Bitcoin many other cryptocurrencies have emerged and the sector is an extremely lively one with a great deal of innovation and development going on.
Bitcoin, the original cryptocurrency, meanwhile continues to trundle on in much the same old way.
Some modifications have been made, but so far, things are little different for Bitcoin to how it was when it first appeared in 2008.
Other cryptocurrencies have appeared which are also targeted at the payment transaction sector, such as Litecoin, Dash, Monero, Zen and others, Yet Bitcoin, for all its faults, is still by far the biggest and best known of the cryptos.
It’s still the case that when the average person thinks of crypto – if they think of crypto at all, that the one that first comes to mind – perhaps the only one that comes to mind, is still Bitcoin.
Yet Bitcoin is painfully unfit for purpose. Over the decade of Bitcoin’s life so far, little has changed for Bitcoin.
Transaction speeds remain slow, network capacity is totally inadequate to support large-scale user growth. Merchant and consumer take-up of the currency is minimal. Transaction fees remain a sore point. And the Bitcoin blockchain, already bloated, and already big enough, continues to double in size every year.
Such a system just isn’t fit for purpose to become a widely used and accepted world-wide cryptocurrency.
But let’s consider what the ideal cryptocurrency should look like. A better Bitcoin if you like. A much better Bitcoin. A supercharged Bitcoin, fit for the present and for the future. If we wanted a new cryptocurrency for Christmas, what features, bells and whistles would stand on our wish-list?
I’ve been thinking about this and I’ve written down some ideas which have occurred to me so far. Bear in mind this is not a complete and all-inclusive list, and there are probably important things which I’ve overlooked.
So this is my proposal for the ideal cryptocurrency.
The Currency Would Be Solely A Transaction Currency
Blockchains can be utilized for much more than just currency purposes.
But I want to focus here on the single use-case of creating a viable cryptocurrency, and one which avoids the problems which beset existing cryptocurrencies such as Bitcoin, Litecoin and others.
The aim should be to replace fiat currency and be capable of serving as a widely used and accepted currency for everyday transactions, both large as well as small. Online as well as offline. Worldwide as far as possible.
To achieve this, the currency would be designed first, foremost and primarily as a means to facilitate payment transactions. Not to run distributed applications or even smart contracts – other than those smart applications or contracts that are necessary to support the currency itself. It would not run third-party or independent applications.
It Would Be A Truly Smart Digital Currency
The currency should be a “smart digital currency”. To that end, some element of smart contract processing would be necessary, but only to support the currency itself, not to serve as a platform for other coins, ICOs, or other non-related applications.
The system will enable you to transfer fiat or other cryptocurrency funds to and from the currency directly, with no need to go through Bitcoin or other cryptocurrency intermediary to obtain the currency. You will also be able to transfer funds directly to and from your legacy fiat bank account.
If a cryptocurrency is to compete with existing credit card and bank debit card technology then it needs to be able to offer very fast transaction processing speeds.
So the currency will offer instant transaction processing. That means a maximum of 2-5 seconds processing time for the transaction to be confirmed. Consistently, every time.
When people are standing at the supermarket checkout or buying a ticket as they get on a bus they need to be able to pay instantly. That means instantly. They cannot wait 10 or 2 and a half minutes.
So it must be super fast. 5 seconds at the very most.
High User Volume Capacity
The currency must be able to support very large user volumes and transaction throughput.
We are talking here about minimum levels of 50,000 – 100,000 and more transactions per second.
And these are minimum levels. Because if the currency becomes a truly world currency, in use by billions of people, as are for example Facebook and Google, then it needs to be capable of much more than that. Maybe as much as half a million transactions or more per second.
There are some currencies which already claim, theoretically at least, to be able to achieve this. EOS for example. So the specification is by no means “pie in the sky”. Google and Facebook can support millions of users simultaneously. A successful cryptocurrency must be able to do the same.
Low or No Transaction Fees
There will either be no transaction fees, or else very low fees, for example 0.1% to a maximum of say 1% per transaction. Low value transactions, let’s say under $10 might be free or almost free.
Or alternatively, each user may be entitled to a minimum number of free low value transactions each month for example 20, 30 or so.
Slow and Steady Value Appreciation
Ideally, in order to be able to be used confidently for everyday transaction purposes, the value of the currency needs to be stable and increasing in value only slowly. That means there should be no big or sudden fluctuations in value, neither upward nor downward.
At the moment Bitcoin and most other cryptocurrencies fall well short of this. They are the very opposite of stable, lurching unpredictably in value like a drunk from peak to trough. Such sharp movements in value may suit cryptocurrency asset traders, but they do not make for a cryptocurrency suitable as a store of value for transaction purposes.
A currency which is intended to serve as a means of payment needs to be either stable in value, or else slowly but steadily appreciating in value. A slow appreciation is preferable to just being a stablecoin, and its much preferable to one which falls in value.
In that sense, the currency will be more like a stablecoin. Or rather, a “stable but steadily appreciating coin”. To my knowledge, no coin has yet been invented which can meet this challenge.
The aim should be a slowly appreciating currency, for example at a rate of 2% -5% per year value increase, although higher price peaks than that could be permitted in the short-term.
How Might Slow But Steady Appreciation Be Achieved?
The value of the currency will be monitored and maintained automatically by the currency control algorithm. It will monitor the market price and trend and activate the necessary corrective action as required.
Possibly the staking system could be used to help steady the currency. It might offer a varying rate of staking interest, between 0% and say 20% or more, depending on what is necessary to maintain just the desired slow rate of value appreciation.
There could be additional monetary “quantitative easing” applied by minting extra coins over and beyond the usual rate of growth, as needed to prevent the coin from appreciating in value too fast.
Value appreciation is probably the easiest to control using these methods. But countering depreciation could be harder.
One way this could theoretically be achieved might be to destroy or declare void a certain percentage of coins that are in circulation at a given time.
A general reduction of coins could be decreed by the algorithm, effective from a certain given future date should the price not correct by that time, and for coin holdings beyond a certain higher holding value. In this way it would only affect the better-off holders. This would lead to a sell off by such holders in order to move into the value holding limit, and thereby reducing the price.
As a result of this measure, possibly few if any coins might actually need to be declared void since the sell-offs caused by the decree mechanism may serve to stabilize the coin’s value at the target level.
The level of transaction fees charged could also be used to help regulate the price. A higher transaction fee would discourage users and so lead to people selling the currency and thus depressing the price.
A lower fee or no transaction fee for a longer or shorter period by contrast could help make the system more attractive and so increasing demand for the currency and putting upward pressure on the price.
So there are at least two possible ways to help regulate and steer the value over time: what you might call “monetary policy” and “transaction policy”.
Obviously the currency would also be well-known, widely used, and widely accepted. This would not happen by itself. Technical superiority alone is not enough. So there would have to be some kind of ongoing promotion, at least in the early adoption stages.
There would need to be a treasury funding system included in the governance system which would retain a percentage of all newly created coins for funding purposes, such as promotion campaigns for the currency, information service, user and node support services, dealing with hacker issues, coding system modifications etc.
User Friendliness Is Essential
User friendliness must be foremost for the currency.
The wallet is easy to interact with for the user. Technical details are kept out of sight and it all makes sense and is easy to understand.
The digital wallet will be available in the form of both standalone software executable, as well as a mobile app, and also a web-browser which points to the local device. Examples already exist of these such as MEW and the browser wallets used for NXT and Ardor.
The amount of drive space used for the wallet will be minimal, as well as minimal bandwidth overhead to connect to the supporting node network.
It must be able to back itself up automatically without relying on the user to intervene.
The private key system must both protect the private key from theft or hacking and be user friendly.
The wallet or account addresses must use human readable addresses. None of these long Bitcoin or Ethereum style addresses which have to be used at present whenever you want to make a transaction.
The complexity would be hidden from the user by means of an address translation system. There may be some kind of standard employed, such as user name/organization/location combination, or using present email addresses, or an email address associated with the blockchain.
Or alternatively users might even be completely free to define their own addresses, with address routing taken care of by the address translation.
Unique user account numbers can also be defined and used for transaction payments instead of transaction addresses if the user so wishes. Something that isn’t possible with Bitcoin, Litecoin or Ethereum but is already standard for currencies such as NXT and Ardor.
Wallets will display and print out transaction and balance statements tailored to the needs of the individual user on demand. Users can also create multiple accounts for different purposes according to their needs.
The system is highly hacker-proof. The currency has a very low 51% attack risk. The system of blockchain nodes is also secure.
There is no blockchain bloat. The currency’s blockchain system uses methods such as sharding, partitioning and sidechains to limit the size of the blockchain.
Unlike Bitcoin or Dash, wallets do not need to download the blockchain or even a large part of it. Some form of lightweight sidechain indexing will be used, combined with sharding and partitioning of the blockchain to keep the blockchain manageable for nodes and users.
Wallets will be able to display and print out on demand transaction and balance statements tailored to the needs of the individual user.
The system uses staking ie PoS rather than Proof of Work mining which is wasteful of electricity and computer resources. Any user can stake coins either in their wallet or on a node, and will be rewarded with staking interest accordingly in line with the need to maintain stable slow and steady value appreciation.
Plenty of coins already now use Proof of Stake or are moving to that system, even while Bitcoin remains stuck in the PoW era.
Anonymous, private transactions are possible. This is already the case with coins such as Zen, ZCash and Monero.
AML/KYC (Anti-Money Laundering/Know Your Customer) banking regulation data can be included in account and transaction information. Something that hardly any cryptocurrencies accommodate at present, although the Cardano ADA currency plans to incorporate this feature.
Libertarian crypto freedom-fighters might object, but the fact is, any cryptocurrency which wants to go mainstream and attain widespread public take-up and usage is going to have to comply with government AML/KYC regulations. Sorry, but that’s just the way the world works.
Individual anonymous transactions may still be possible, provided the AML/KYC requirements are met for the user.
The currency provides ease of exchange into fiat currency and cryptocurrencies without the need to go through an exchange intermediary. Some coins are now being developed with this functionality, such as EOS and Cardano ADA.
As with Bittorrent, the more node participants in the system, the more the blockchain capacity and processing throughput should increase, not the other way round.
Each additional node which joins the network increases the network speed and transaction throughput capacity.
The blockchain and currency cannot be forked, so no-one can split the network and damage the value of the currency in that way. Instead, a robust system of voting governance involving holders of the coin, and participating network nodes is deployed to resolve all currency and network issues and to reach consensus on any actions or changes to be made.
This means no-one can come along and encourage a fork in order to serve their own entrepreneurial or other interests, and trash the currency as a side-effect as currently happens with some cryptocoins.
A great deal more can be said about the ideal cryptocurrency, the back-end blockchain system and node-network related aspects, the system structural architecture and so on. There is already plenty of discussion to be found about these aspects on the Web.
But it’s all too easy in such an environment and discussion to lose sight of the people whom all this tech innovation is supposed to benefit – the end users.
My focus here has been on the cryptocurrency eco-system as seen from the user perspective.
Is Such An Ideal Currency Possible?
Yes. We are already on our way there. Not with the likes of Bitcoin or Litecoin or the myriad of other me-too stuck-in-the-rut standard template cryptos.
But elements of these features can be already be found among the more innovative currencies which are now being developed. Two such examples who are thinking in these radical conceptual terms are Cardano ADA and EOS.
There are others, among them PIVX and DASH which also offer some of these features.
But on the whole, the current “State of the Cryptocurrency Nation” is disappointing. Much needs to be done, much still needs to be implemented.
Above all, attitudes toward user friendliness need to change. The sector is still heavily influenced by the outlook of those in the tech bubble. This is not surprising and is to be expected given the nature of the sector as a newly emerging technological field.
But cryptocurrency will only win widespread take-up and acceptance if it is prepared to adapt to the real practical needs of ordinary people and rise to the challenge of competing effectively with the legacy financial sector. Above all crypto has to get out of the tech bubble.
I’m certain that a proper fit for purpose cryptocurrency can be created to replace what we have at present. The only question is how and when.