How IOTA’s Qubic Might Be on the Verge of Revolutionizing Finance
The full article was originally published by Lukas Tassanyi on Medium. Read the full article here.
How IOTA’s Qubic Might Be on the Verge of Revolutionizing Finance
Lately it has become apparent that cryptocurrency is going to be a game changer for finance. Those who have done their research, will have realized that there is a Tangle-based protocol called IOTA unlike all others — and it is changing the game for cryptocurrency.
Just this Thursday (May/03/2018) the IOTA Foundation has given us insights into the mysterious Q that has driven the IOTA community crazy ever since it was mentioned. Until just now, nobody was certain what it was about, yet it was hyped up infinitely while the Foundation kept reassuring the community that the hype hasn’t even come close to what Q really is. Now we know that Q is indeed Qubic (qubic.iota.org). But so far nobody has fully grasped the consequences of this. One thing for sure, Qubic is changing the game for IOTA.
If you watch the trailer video, take a very close look at the visualization for “Oracles” and “Smart Contracts”. You will notice that the focus is clearly laid on the fiat currencies euro and U.S. dollar. There is an oracle feeding the EUR/USD conversion rate from bloomberg.com into the tangle. On the next screen you see two financial institutions being connected through a smart contract interacting with said currencies. First off, take a moment to make up your mind about what is going on here. It seems that they are trading fiat currencies via a smart contract. But, how the hell can they trade fiat currencies on the Tangle? And here is where my theory comes into play…
Just Imagine …
Let’s say there is an institution in the US with a capital of $1,000,000. Now their research suggests that the USD is going on a down trend for the next week, hence they want to change their funds to EUR. At the same time, over in Europe, there is a German insitution that wants to do the exact opposite and switch from EUR to USD for the same value.
Both instutions buy iota worth 5% = $50,000 of that value (this is their margin balance) and agree to sign a smart contract which locks up both iota funds, so they cannot be moved on the tangle. After three days USD has shown 1% growth compared to EUR and the German institution decides to end the contract (if none of the institution ends the contract, it will be settled automatically as soon as the losses of one party would have reached the 5% margin balance).
In order to do that, the smart contract issues another settlement transaction which transfers the losses of the US institution in iotas to the German one. The smart contract is well aware of how much both institutions owe eachother at any moment, because it receives the exact EUR/USD rate through an oracle.
What’s the Big Deal?
This is basically decentralized margin trading without trust and fees. So what makes this a big deal? It would mean that all kinds of assets could be margin traded on the tangle and traders who use IOTA as a trading platform, will have to hold their margin balances in iotas. This is real world adoption of the iota token. Traders would have to buy iotas, not because they speculate on the iota price, but because they NEED it as the underlying value carrier to speculate on entirely different assets.
And now let’s take all that a step further. If you can margin trade on the IOTA protocol, you can also trade on IOTA/USD and other IOTA/FIAT rates. And that is the groundwork for allowing you to hold a fiat backed cryptocurrency: your funds will be stored safely on the Tangle with all the advantages it offers (feeless, instant and scalable transactions) while you can hold your value tied to fiat money. You won’t have to worry at all about the price volatility because your funds will always be worth the exact same fiat value.
Volatility is probably the main reason stopping real world adoption of cryptocurrencies as of now, and Qubic seems to deliver a very smoothly working and trustless solution. That’s what the IOTA Foundation might have meant when they were talking about an iota2fiat gateway.
If your car has a wallet and you put in $100 today, you want it to be worth $100 tomorrow. You want to use iota, but you don’t want to speculate on the price. And the good thing is, you still have to buy $100 worth of iota, it’s just that all the volatility will be taken care of by iota margin trades (you are transferring the volatility risk to margin traders). And since you buy iota, your adoption will still have a positive effect on the IOTA price although the price doesn’t affect you. This is a win-win for all parties involved.
But Wait, There Is More …
This is all huge already and I really don’t want to blow your mind, but have you thought about what that means for banking? Let this go through your mind until you realize the full implications: since the volatility is no longer a concern, you will be able to move your bank account to the Tangle. You will hold a smart contract with your bank, allowing you to make trustless, instant bank transactions online and for zero fees. In order to allow that, your bank will have to hold their (10% or whatever) reserves as iota tokens so that the smart contract can access them at any point in time. And here is exactly why the bank should do that:
- Customer Satisfaction: Because of massively increased convenience and possibilities for the account holders.
- Competition: Why should anyone use your archaic banking system where you have to wait days for transactions to complete while the other bank down the street offers feeless bank transfers where you can send money around the globe in minutes or seconds without having to trust them that they don’t lock up your account?
- Network Effect: In a world where the globally growing qubic banking system turns into a standard, your bank will have to integrate the new technology itself in order to exchange funds with other banks.
- Efficiency: The bank will save a lot of resources because all those individual bank accounts and transactions will be handled by the smart contracts. All the banks will have to do is to look for are their reserves.
And even if you happen to not care about banks, think about this: With the growing banking adoption, billions of dollars of bank reserves will be injected into iota, increasing the market cap by a multiple of that (for every dollar put into the market, the market cap will increase by something like $25). And if you are not jumping around in excitement right now, you probably haven’t bought enough iotas yet.
All of this is speculation, we will have to wait until the IOTA Foundation releases more information about Qubic. However, so far my idea goes pretty well together with statements by the IOTA founders like CFB saying that Q will dominate over the financial world.