A Problem With Cryptocurrencies – Zach Babb
A decade into the cryptocurrency revolution we were promised, adoption has been much slower than expected. Yet for all the analysis, I think the biggest problem blocking more widespread adoption is simple: You can’t earn Bitcoin.
When we think about currencies we tend to focus mostly on their use for buying and selling goods and services. Sometimes we focus on their fluctuations in relative value. Cryptocurrencies are no different in this focus with even more attention being paid to their fluctuations in value. What tends to go unsaid is how you get those currencies. In the case of USD most people get that currency by earning it through work. In the case of cryptocurrencies like Bitcoin, most people get those currencies by buying them (mining Bitcoin is never going to be a widespread activity.). Bitcoin needs to figure out how people can trade their labor for it.
There are a few endeavors trying to answer this problem by allowing firms to pay people in cryptocurrencies. In practice however this is the same as buying Bitcoin as people are foregoing USDs for Bitcoin as you have to give up part of your paycheck to get the Bitcoin. This is fundamental to the problem of adoption — since Bitcoin can only be received by exchanging an existing currency it will always be speculative in nature. The only reason to get Bitcoin is because you think its value will increase faster than the currency you’re exchanging it for. That’s a fine setup for a market, but hardly relevant to everyday people trying to pay their bills. They want a predictable, reliable income stream, not a chance to speculate at risk.
This creates a chicken or the egg problem. Bitcoin’s value is tied to its overall utility. In order for its utility to increase people will need to build Bitcoin related ventures. But the only reason to build a Bitcoin related venture is because there are a lot of users who will use it. But users will only come as utility increases and along with it Bitcoin’s value. That would be circular enough, but there’s the double whammy of the fact that as Bitcoin’s value increases less and less people are able to participate (because they can’t afford to). Without a way of getting Bitcoin into the hands of as many users as possible, Bitcoin’s price becomes a barrier to entry slowing adoption and thereby slowing development.
At Planet Nine we think we have a better way. When you think about a currency being earned, what’s going on is that the currency is earned over some time interval. Anyone who’s been paid hourly knows this. The only reason people get paid bi-weekly as opposed to every hour or minute is because of the transaction fees associated with paying out money. In the absence of those fees it would be possible for people to accrue currency in an ongoing basis. So if we’re making up a currency, why don’t we do that? Grant to everyone a finite amount of the currency, let them use it, and then have it recharge over time.
With that approach you have to cap everyone’s holdings at some number since the supply of the currency itself is finite so we’re starting everyone off with 1,000 units of our currency called Power. That number will grow as people pay into the system by buying more Power.
With this system everyone can earn Power while going about their business and they don’t have to forego any of their hard earned paycheck. Meanwhile we’re working hard to make it as easy as possible to accept Power on your website, app, or in your game. Spending Power through the Planet Nine app is dead simple, and we hope will lend itself to growing beyond the Bitcoin user base in time.