The Cryptocoin Boom Could Choke Off On-Demand Services

Jon Evans at TechCrunch raises a troubling issue with cryptocurrencies: They are so popular that the underlying blockchain technology has failed to deliver low-cost transactions at scale.  The coins that have generated vast fortunes, such as the $59 billion in wealth Ripple XRP co-founder Chris Larsen realized on the rapid run-up of the currency he created, are swamping the blockchain infrastructure. Evans writes:

As a result, entire categories of cryptocurrency experimentation and innovation are on hold until the bubble bursts, or until / unless Ethereum finds a way to scale such that transaction fees plummet. Oh, people can still write and deploy code. But nobody will use it. Curious would-be users will be repelled by the nontrivial expense of mere experimentation, never mind ongoing usage.

The problem is not the coins, but the demands on the blockchain that supports BitCoin, Ripple, Ethereum and other currencies. A distributed ledger, blockchain allows the public recording of transactions. The promise of blockchain and cryptocurrencies was low- or no-cost transaction fees. Evans notes that the average fee for an Ethereum transaction is now $2.50. Every transaction, whether it is worth $0.01 or $1 million. Great news for cryptocurrency traders, perhaps, but bad news for developers.

At $2.50 per transaction, Ethereum is priced too high to support micro-transactions and less cost-effective than a credit card for values of less than $85. On-demand transactions, such as paying $5 for a meal delivery or $20 for an hour of a homecleaner’s work, are not feasible at $2.50 per.

Blockchain’s primary value proposition, after its anonymity, is low-cost recordkeeping and transaction processing. The cryptocurrency bubble is a disaster for platform marketplaces and developers of distributed logistics and transaction systems. High costs in blockchain cut off a promising direction for developers and business architects for the foreseeable future.

The article is worth a read, especially if you are bullish on blockchain as a platform for software development.

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Author: Mitch Ratcliffe

Mitch Ratcliffe is a veteran entrepreneur, journalist and business model hacker. He operates this site, which is a collection of the blogs he's published over the years, as well as an archive of his professional publishing record. As always, this is a work in progress. Such is life.