It took more than a decade. but good things take time don’t they?

Even after a decade of innovation the crypto technology has very little to offer for the common public. This is in stark contrast to modern technology cycles with really small gestation periods where time to market is usually a few years. AI for example started getting VC attention in 2016-2017, much after the creation of Bitcoin, and is already being used by the general public.

Crypto in stark contrast has still remained a gambling paradigm for a niche market. As they say ‘The only value all the crypto assets currently provide is Volatility’. In this regard, John Oliver’s latest segment on crypto, though not comprehensive, is not too far away from the mark.

There is very little incentive for product builders like me to build for the common public because there is no common public in crypto. There are only “Degens”.

But that is all going to change very soon.

What needed to happen?

Basically, 2 things. Lowering of gas prices and introduction of stablecoins which people would actually want to pay with. Because let’s be honest, no one wants to pay with their precious Eth or Bitcoin. The stablecoin part is easy, but lowering gas fees is a tricky matter which needed a lot of work. Some of these developments have happened over the last few years and a few more positive changes are about to come. They have come so slowly that someone deep into the crypto world who is getting frustrated daily with high gas prices could be forgiven for not realizing the number of upgrades that have happened in the last few years.

1. Birth of USDC - a regulated stablecoin

2. Rollup-centric roadmap - Finalizing a roadmap to scale Ethereum

3. Merge - yes I know we are past that euphoria but it was a milestone event

4. Creation of OP stack - Duopoly between the Optimism and Arbitrum led them to innovate in different directions. The amazing team behind Optimism decided to build a stack that would let anyone build an L2, letting more people innovate and build more stuff.

5. Account abstraction - No mass-scale user application can be built without having good UX. We are still not there yet but functions like paymaster are of great importance as we will see later.

6. Launch of Base- apparently the name and branding for Base existed since pre-2020 but there was no way Coinbase could build a native chain like Binance Smart Chain without having a native token. OP stack allows them to build this chain without having the regulatory headache of having a token.

7. Cancun upgrade - EIP 4844 to bring down the cost of transactions on roll-ups drastically.

With Cancun upgrade Ethereum will be able to achieve transaction costs much less than $0.05, a threshold set by Vitalik himself as a challenge for Ethereum to be ready for mass adoption. This will suddenly make Ethereum one of the cheapest payments rail in the world.

A few cents to make a transfer would make Ethereum the financial powerhouse it was meant to be

I will ignore Solana and Cosmos and other L1 who have a very high token and validator concentration. I consider them slower and costlier AWS. Achieving speed and low transaction costs at the expense of decentralization just makes you a bad centralized server.

If you want speed and don’t care about decentralization, you already have Visa

Enter Coinbase, a trusted, regulated, and well-loved entity in the US market. Diametrically opposite to its shady rival Binance, Coinbase has always been close to regulators (the love is one-sided though, at least with the current administration). It has favored customer protection, regulatory approvals, and disclosures to the public in a way that is still foreign to most crypto exchanges. The brand name and trust it has built in the last decade (sometimes at the cost of not pursuing some revenue streams) will be of immense value in onboarding the vast US economy to the crypto world. There could not have been a better entity to build a trustworthy L2 to onboard the US financial market than Coinbase.

A 4844 enabled Base from Coinbase will have the power to replace a lot of payments businesses overnight. Not only that it will also result in novel businesses that cannot exist right now due to the limitation of current payment rails.

As far as account abstraction is concerned, it is a very large topic but one key important factor in making crypto payments ubiquitous is Paymaster. In the Tradfi world, the entity which receives the payment usually pays for the transfer fee. Just like MDR in card transactions (more on that later). Currently, if I have to pay a merchant to buy a banana, I will need to pay the gas. This is just wrong. This would result in fewer people paying using crypto to pay because they don’t pay anything in cash or card. This is something that we need to learn from the Tradfi world. The entity receiving the money is more willing to subsidize the transaction. Account abstraction will enable merchants to set up gas tanks for users to make payments to them, or get external help from lenders, ecosystem builder, sponsors, etc.

Why so bullish on boring old payments?

Why does payment need to be the first mass-scale application of crypto? Why not dexes, why not lending protocols, why not non-financial applications like Lens protocol?

The core utility for blockchains has always been financial and what normal people do in their daily life with finance, they pay. That’s all they do. They don’t trade, speculate, short, long, or place limit orders. They just pay to get other stuff.

Mass scale money use case has been always been payments

With the more generalized approach of Ethereum, more capabilities came in, but at a high cost and gas fee. This meant that normal everyday payments just went out of the picture until the protocol could evolve to support daily boring payments. Till then, to justify the higher gas fees, people had to build novel applications of crypto money, which are far away from anything in real life. Gas fees is the invisible hand of the crypto market which determines what kind of applications get built and which become successful.

Gas fees is not just a parameter, it is the core constraint of anything you build on crypto. Lowering it to a few cents will lead to a Cambrian explosion of Crypto applications

Traditional payment rails suck! More than you think they do

I come from the Traditional fintech world. One of the reasons we moved to crypto was anything that we wanted to build in Tradfi fintech, we simply couldn’t due to hundereds of regulatory hurdles, tech stacks that are decades old, and the limitation of traditional finance.

Rent-seeking companies like Visa, Mastercard, and several other players who have the right ‘license’ and ‘network’ facilitate all payments. They charge a hefty 1-3% merchant discount rate on every transaction. If you don’t know what MDR or Merchant discount rate is, it is a misnomer term coined by card networks. It means that for every payment made, merchants have to pay 1-3% of their revenue with the banks, card networks, and other companies. It should ideally have been called ‘merchant fee’ but that would have made it less palatable. Merchants therefore just hike the price of everything by 1-3%. There are more fees involved like monthly rental, minimum MDR per transaction etc which only just eat into every retailers’ profits.

Tadfi payments world has gone deep into cash cow mode and innovation, in general, is not encouraged, if not deliberately killed. Companies are just used to keep minting money without having to innovate at all. Traditional payment rails cause higher prices for consumers, a lower velocity of money, and introduces friction in the economy for the profit of a few players.

Simple payments terminal is all you need to start bleeding the current payment system

A simple billing and invoicing terminal for merchants is all you need to get started. Merchants display a QR code and users pay USDC via coinbase app, coinbase wallet, metmask, or any other wallet of their choice. Payment is instantly settled and the merchant gets the money (I forgot to mention that settlement might take a week or month in the Tradfi rails).

Why would merchants switch to this method? For them, it is a huge win. Not only they won’t have to pay the heavy MDR, but they also get instant settlement. For merchants, it is a win-win. If gas prices are very low, merchants would have no problem paying them via a paymaster enabled by AA or Coinbase could just subsidise the USDC contract. They already enable free USDC transfers from their centralized exchange product so this is not a farfetched thought. If they are not thinking about it, they should start thinking about it.

For consumers, tons of apps like Venmo, Cashapp, Splitwise, and Square (now Block) can be built in a more composable and open fashion. You won’t need to think about how much money you have in every app or what app do you use. All these applications will be like email, no matter what you use, you will be able to pay to each other. This interoperability between payments will usher in a new era of financial products and services. Tons of new applications can be built which cannot be built right now like instant POS lending, merchants building loan books themselves, bill splitting in a seamless way, and many more.

It’s time to update the system!

The revolution to upend the current financial system is about to begin. If you have seen the new Coinbase’s new ad, everything that you just read will make a lot of sense.

At the time of writing, the biggest application on Ethereum is the PEPE coin, which is where crypto has been stuck since the ICO era of 2017-18. However, the time to rival the traditional finance world is not far off and I can barely contain my excitement.