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Mobile phones and cryptocurrencies are both known as democratizing forces, and the collision of these two innovations is likely the key that will bring cryptocurrency to the mainstream market. Smartphones have the potential to provide access to information and resources via apps that would otherwise be unavailable to people living in remote or impoverished regions. This hope intersects with the promise of cryptocurrency to “bank the unbanked,” offering people without bank accounts a way to store and transfer value at a low cost.
Furthermore, mobile payment adoption is increasing in the developed world with more people preferring the convenience of apps like Venmo, AliPay, WePay, and others to more traditional credit cards. The problem with these apps is that they remain centrally controlled by third parties focused on maximizing transaction fee revenue. The adoption of smartphones, however, unlocks the possibility of a transition from centralized payment apps to decentralized cryptocurrency “DApps” in the near future.
The Future is Mobile
Today, nearly 67% of the world’s population are mobile subscribers. Incredibly, there are one billion more mobile connections in the world than people. Smartphone ownership in developing regions has grown explosively in recent years, “climbing from a median of 21% in 2013 to 37% in 2015,” according to the Pew Research Center. In 2010 more people in India had access to a cell phone than a toilet. One may question the prioritization of mobile computing over basic sanitation, but such statistics shed a bright light on the reality of mobile adoption around the world. By 2025, 71% of the population will be a mobile subscriber.
Consumer brands have recognized and begun to prepare for the inevitability of a mobile future with more people using shopping apps developed by retailers than ever before. Meanwhile, internet giants continue pouring capital into mobile app development. Executives at Facebook have indicated that they believe mobile apps to be one of the most important elements of their business moving forward. Granted, the social networking company has some catching up to do, with Apple and Google controlling the largest mobile operating systems.
Riding the Wave of Mobile Payment Adoption
The most commonly used apps tend to be focused on social networking, messaging and navigation, but mobile payments are also on the rise, with 25% of millennials now using Venmo. When people are comfortable splitting the bill or paying down their student loans with apps, it’s a simple transition to decentralized app payments. Mobile payment adoption is held up by two key factors: cost and security — both issues that crypto solves for. Indeed, the adoption of any new technology is typically driven by these elements.
Though mobile payment apps are certainly convenient, they are neither cost-effective nor more secure than traditional credit card payments. Just as in credit card payments, Venmo users must pay a 3% fee; if the account is connected to a debit or bank account, the merchant must eat the fee. Worse is the fact that Venmo payments are public by default, so unless a user is aware and savvy enough to change their settings to private, all transactions, including rent payments, doctor visits, and date night dinners, are displayed for all to see on a public ledger.
Google Wallet and Apple Pay invoke slightly different tyrannies. Google Wallet operates almost exactly like a credit card, meaning they also track all transactions in the same way, and they sell your transaction data to advertisers who use it to target you for advertising. Apple, in contrast, promises to never track user transactions or sell their data to advertisers. The tradeoff is that without this business opportunity, Apple must monetize its application by charging its partner banks a per-transaction fee. Though users may feel slightly better about Apple’s promise of privacy, it’s still incumbent on the user to trust Apple, the corporation, to follow through on its declaration. You might be wondering what entity conducts oversight to ensure Apple makes good on its promises? The answer is Apple. And I think we can all agree that corporations are not great at policing themselves.
When Apps Become DApps
These issues of data privacy and security, as well as affordability, are factors that are directly addressed by cryptocurrencies. Peer-to-peer by nature, cryptocurrencies do not rely on intermediaries such as banks or credit card companies to mediate transactions. This means two things.
- There are no intermediaries to charge transaction fees; instead, any fees come from paying for “gas” to ensure the transaction is verified and finalized by the decentralized network. In practice, such “gas” fees are substantially lower than traditional payment card fees.
- There is no centralized authority collecting your financial data and selling it to third-party vendors. Even though the blockchain itself is public, users have the ability to use a variety of approaches to help secure their data on the blockchain, and such security features are not mediated by centralized payment networks.
The two issues holding decentralized payment apps, or DApps, from taking off are usability and transaction speed. Fortunately, a number of projects are actively working to address the latency problem, including Cardano, Algorand, Ethereum’s Serenity, and C∆. Cryptocurrency payment DApps also need to be as simple and convenient to use as Venmo, Apple Pay, and Google Wallet, for adoption to really take off.
The key for DApp developers is to maintain the security, privacy, and affordability that makes cryptocurrencies revolutionary. If trends in mobile phone adoption are any indication of the future, people are craving new technology that breaks down barriers, opens doors, and creates opportunities, regardless of socioeconomic background or nationality.
Nash Foster, CEO and co-founder of Pyrofex. Pyrofex aims to unlock the next generation of blockchain technology through C∆, an open source, proof-of-stake blockchain and payment platform built using Casanova’s Optimistic Consensus System.
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