So much of what we hear about cryptocurrency is related to investing and regulation. We don't hear much about crypto in the real world. But make no mistake, cryptocurrency does have real-world applications. People all over the world use it for a variety of day-to-day financial transactions. Cryptocurrencies like Bitcoin and Litecoin offer consumers an alternative way to pay for things outside of the traditional financial paradigm.
This post will look at three recent news stories demonstrating cryptocurrency in the real world. In the meantime, you might be considering getting into the crypto game yourself. If so, take some time to educate yourself about the various digital currencies and what they offer. Learn about things like digital wallets, crypto exchanges, and so forth. There is a lot to know about this emerging, alternative financial system.
1. Billions in cryptocurrency loaned
The first story comes out of London by way of the Celsius Network. According to Cointelegraph's Adrian Zmudzinski, the Celsius Network recently reached a milestone when the total amount of their cryptocurrency loans reached USD $4.25 billion. The Network announced the milestone in a press release dated November 12 (2019).
The Celsius Network is a network of service providers that work together to make cryptocurrency loans to consumers and business clients. The loans are funded by individual investors who 'deposit' by purchasing cryptocurrency from the network. By buying and holding crypto, said customers earn interest that can be repaid in the original crypto or in the network's own token, CEL Token.
The Network's website lists quite a number of cryptocurrencies that customers can buy and hold. Bitcoin is obviously available as are Ethereum, Bitcoin Cash, Litecoin, USD Coin, Ripple, Dash, and 15 others. Each crypto option displays two interest rates. The first is the interest rate paid in that particular token while the second is interest repaid in CEL Token. The latter is higher on all options.
How it works
As previously stated, the Celsius Network is funded by customers who buy and hold cryptocurrency in exchange for interest payments. The Network repays 80% of the interest earned on loans to its buyers. That is not a bad deal. At the time of this post, a Bitcoin purchase was returning 4.15% (BTC) and 5.4% (CEL). That's far more than you would get from a traditional savings account with a fiat deposit.
If you wish to borrow, you fill out a loan application as normal. Though the Network's website is not clear about what happens next, it is assumed that potential borrowers have to go through some sort of approval process. Once approved, the cryptocurrency is transferred into the borrower's digital wallet.
The borrower can then repay either in cryptocurrency or fiat. The interest rate on fiat is higher, thus discouraging fiat repayments. Borrowers make their monthly payments until the debt is paid off. It is pretty standard fare. Borrowing crypto is a lot like borrowing fiat except that you do not have to jump through as many hoops, it is cheaper, and there are no banks involved.
2. Bitcoin ATMs reach their own milestone
Next up is a story out of the U.S. involving Bitcoin ATMs. Data from Coin ATM Radar shows that there are now just over 6,000 Bitcoin ATMs worldwide. That is the highest number ever. It is also worth noting that roughly 65% of those ATMs are located in the U.S.
Through the middle of November (2019), 108 machines had already been installed for the month. The data shows that an average of 11 machines are installed each month worldwide, which is the fastest pace to date. What does this all mean? It means that the demand for Bitcoin ATMs is certainly there.
You might be interested to know that 85% of all the existing Bitcoin ATMs are in North America and Europe. Just 2% are found in Asia. That's curious, given the love of technology in countries like Japan, China, and South Korea. But it is what it is.
How it works
A Bitcoin ATM is very similar to a fiat ATM. It allows users to obtain Bitcoin using a debit or credit card. Some ATMs also allow selling Bitcoin as well. These are known as bidirectional ATMs. Regardless of whether a machine is unidirectional or bidirectional, it really just acts as a client tied to some sort of exchange where cryptocurrency transactions take place.
The machines are connected to the internet just like your typical desktop or laptop PC. They have a direct connection to the exchanges through which they handle transactions. If you want to purchase, you simply insert your debit or credit card and follow the on-screen instructions. Your purchase will be verified with a paper receipt containing the information about your coin.
A small number of Bitcoin ATMs are connected to banks as well as the crypto exchanges. This allows customers to buy through direct withdrawal from an existing bank account, and vice-versa. In such cases, machine owners have to follow know your customer (KYC) regulations where they exist.
Buying and selling Bitcoin through an ATM obviously incurs transaction fees. These vary by provider. In the case of a machine that is hooked to a bank, there might also be a bank fee for moving money in and out of one's account. This is the one thing about the Bitcoin ATM consumers really have to be careful about. It pays to be aware of transaction fees in both directions.
Some of the money earned from fees goes to pay the shop owners who offer the space for the ATMs. A shop owner can charge several hundred dollars per month in rent for a high traffic location bound to attract lots of customers.
3. Pension bonuses in cryptocurrency
The final story for this post comes from Venezuela. Regular readers of our posts are fully aware that Venezuela launched its own cryptocurrency more than a year-and-a-half ago (at the time of this writing). Known as Petro, the digital currency is ostensibly backed by Venezuela's oil assets. The country's central bank decided to issue tokens in hopes of reviving Venezuela's economy and getting around U.S. sanctions that have been crippling for several years now.
At any rate, the government recently announced that pensioner Christmas bonuses for 2019 would be paid in Petro. This is not the first time the government has done such a thing. Last December (2018), the government initially paid bonuses in fiat but then automatically converted them to Petro.
So what's the point here? There appear to be three reasons motivating the Maduro government to pay pensioners in Petro. First and foremost is the government's own insolvency. One of the reasons the Venezuelan bolivar is worthless is its lack of solid government backing. Simply put, the government has no money. The central bank can continue printing fiat, but every new bill printed makes existing bills worth less. It makes no economic sense to do so.
Second, Venezuela's leaders sincerely believe that Petro will revive the country's economy. They are encouraging international countries willing to purchase their oil to do so in Petro. They are working with creditors to be able to pay their bills the same way. Venezuela essentially has put all its economic eggs in the Petro basket. They see cryptocurrency as the only way to re-establish their economy in a world in which they have been all but banned from participating in traditional financial markets.
Third, Maduro and his administration really want Venezuelan consumers to abandon the bolivar and start transacting in Petro. Yet they need incentive to do so. Unfortunately, many consumers have already ditched the bolivar on their own. They transact either in U.S. dollars or Bitcoin.
By paying pension bonuses in Petro, the government is essentially not giving consumers the opportunity to choose U.S. dollars or Bitcoin. It is forcing Petro into their digital wallets whether they want it or not. As such, it wouldn't be surprising to see all pension benefits eventually paid in Petro. Consumers would have no choice but to spend it while merchants would have to accept it.
The first total fiat replacement
Whether one agrees with Venezuela's politics or not, what they are doing with cryptocurrency is worth taking note of. If the government is successful in eventually converting all pension payments to Petro, it would probably be only a matter of time before the national cryptocurrency became a total replacement of fiat.
If that were to happen within the next few months, Petro would officially be the first drop-in replacement for a national fiat. The rest of the world could learn from Venezuela's example. As to whether that will actually happen, only time will tell. Petro will not do much for Venezuela's economy if it is limited to Venezuela alone. The rest of the world has to get on board - so as to allow Venezuela to bypass sanctions - if the plan is to succeed.
As you can see from these three stories, cryptocurrency in the real world is a thing. It is not nearly as widespread as fiat, but more people are being exposed to cryptocurrency through crypto loan networks, Bitcoin ATMs, and government pension payments. Where it all leads is anyone's guess.