Op-ed: Initiative Q is pointless because it’s not cryptocurrency

Posted: 6 November 2018 6:59 pm
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Initiative Q is not the next bitcoin. It's somewhere between DigiCash and monopoly money.

Initiative Q has been experiencing viral growth thanks to its social media invite-only system. It aims to be a digital currency whose value grows over time, with most of the value going to early adopters who profit from the arrival of more latecomers. Despite its similarities to a pyramid scheme, it has frequently emphasised that it is not a pyramid scheme.

As shady as it sounds, it's by all appearances an earnest attempt to solve longstanding problems with cryptocurrencies and create a system that will drive wealth to a great many people. It's not a cash grab like an ICO either. Signing up for Initiative Q is completely free, minus a small toll of self-respect.

But you probably don't have to worry about missing out on it. As earnest as Q might be, it's difficult to see what value it can offer and why anyone would choose to use Initiative Q money instead of real money.

It's not a cryptocurrency, as it makes very clear. This might be its main shortcoming, because it means it has to compete with fiat (government) money, rather than cryptocurrencies.

Cryptocurrencies, by contrast, don't actually compete directly with fiat - they offer a different set of pros and cons which lends them to different use cases. Initiative Q doesn't have this luxury.



A don't get rich quick scheme

Firstly, the Initiative Q timeline only vaguely pencils in an actual payment network for sometime between 2019 and 2021. It doesn't know what the payment network will look like, how it will work or what purpose it will serve, but it does confidently assert that it will incorporate "the best innovations in payment technology".

Funnily, that link it put into "innovations in payment technology" leads here, to a paragraph from the Wikipedia page for Credit Card – specifically the section that talks about the first credit cards to be widely used back in 1958.

Its main page that explains the payment network plans then explicitly calls credit cards outdated. It doesn't provide any more details about what the Initiative Q network will actually look like though, except to say that it might be some kind of mobile payment system. Those already exist though, and they already work with real money instead of these Q things, making it tough to see what of payment innovations Initiative Q intends to bring to the table.

Even if you're utterly optimistic about Initiative Q, you'll still have to be waiting around for probably at least a year before it's anything more than marketing hype.

It's not cryptocurrency

The Q is intended to be the native currency of the Initiative Q system, and it takes pains to explain that it's not a cryptocurrency. And that's absolutely correct.

It's not the next bitcoin. Rather, it's more like the next DigiCash.

DigiCash was an early digital currency, created in 1989 and controlled by a centralised company which had complete control over the digital cash it created. It was innovative at the time, but ended up filing for bankruptcy, which the founder later attributed partly to being a little too early to the scene, and arriving before the Internet really took off. DigiCash wasn't the last centralised digital currency either. A few years later e-gold came along but eventually folded after it turned out to be too useful for criminals, and not sufficiently useful to anyone else.

The main difference between "coins" like DigiCash and cryptocurrencies like bitcoin is in how they solve the double spend problem.

This refers to the endemic problem of purely digital currencies – a way of uniquely identifying each token to ensure someone can't send the same token to multiple people, or copy and paste themselves a counterfeit fortune, or otherwise tamper with the digital monetary supply.

Centralised solutions

Solving this in centralised systems means creating a routine for managing these digital assets, controlling how they can be spent and moved, and tracking them in a central location. The Initiative Q entity would be responsible for that here, meaning it's only useful as long as Initiative Q can be implicitly trusted to not get hacked, accidentally implement buggy code, and to not have any dishonest employees or any points of failure that can be bribed, broken, coerced or otherwise influenced to affect the Q monetary system.

And it can't be trusted - no central entity can. In many cases, not even the world's most established banks or governments are implicitly 100% trustworthy.

Cryptocurrencies are different because they don't rely on trust. Instead, they're immutable global machines that will just keep functioning as programmed, where anyone can see exactly how they're programmed. With cryptocurrencies you don't have to trust anything except the machine itself, and you can see exactly how it works.

With Initiative Q you have to put a huge amount of trust in its people, both current and future. And on a long enough time frame, the odds of that trust being violated at some point start approaching 100%. This is especially problematic for a project like Q, where it wants to print its own digital money, and control the entire system end-to-end.

Government money distributes these kinds of responsibilities between many different stakeholders in a tightly regulated system, but Initiative Q puts all its eggs in one very fragile basket.

There's nothing preventing Initiative Q from running it like a private money printing press, and on a long enough time frame it's almost inevitable that some kind of vulnerability will appear and allow people to hack the system, stealing money or printing their own.

Commercial banks and other payment providers solve this problem by operating in a strictly regulated environment, using highly developed systems with multiple fail-safes, and standing under the umbrella of government guarantees and insurance systems.

For example, Australian deposit-taking institutions are covered by a government guarantee scheme. Essentially this means people can be covered by the government for losses of up to $250,000 in case of a bank robbery or similar failure. So even if things do go wrong, the consequences for individuals using these institutions should be minimal.

They also solve this by not printing their own money. Someone who hacks into a bank's system might be able to steal information or move money, but they won't be able to create money out of thin air.

If Initiative Q is only useful until, for example, one of its employees develops a gambling problem, it's probably not going to be the future of money.

And then there's good old unintentional human error.

"No matter how good a system is, if humans are involved there will be mistakes and misunderstandings," Initiative Q accurately says. "Allowing transactions to be reversed benefits both buyers and sellers in the long-term, as customers can engage in the market more confidently. Of course, reversing a transaction should be allowed only for certain reasons - something that can only be determined by human beings following procedures. This goes against the decentralized nature of cryptocurrencies."

Initiative Q will be the one who gets to decide whether or not a transaction can be reversed, and what the procedures for allowing a reversal are. And because of that potential for human error, they'll sometimes be deciding in favour of the scammers.

With cryptocurrency you can theoretically be 100% confident that everything will work as it should unless you make an error. With Initiative Q there are no guarantees of any kind, and you might lose money to your own errors as well as other people's.

In some situations this is a worthwhile trade-off, in which case fiat money and the well-established procedures and risk management frameworks around it are extremely useful. Sometimes it's not a good trade-off, in which case cryptocurrencies are a more suitable option.

Initiative Q wants to solve the problems of cryptocurrencies, but it seems to be trying to do that by creating an inferior form of fiat currency.

The one advantage it might claim over fiat is that it's purely digital, and can therefore be programmed and more efficiently transacted than most fiat currencies. But this innovation is coming to fiat today, while Q is likely still years away from actually launching.

Decentralised solutions

Bitcoin and cryptocurrencies solve these kinds of problems by going hands-off with decentralised systems that no one can implicitly control, at least in theory. A suitably decentralised cryptocurrency has no entity that can make the executive decision to print more money or move people's funds as desired. There are, ideally, no centralised points of failure.

But this kind of system comes with many of the cryptocurrency downsides mentioned by Initiative Q. Cryptocurrencies are riskier than government money. They are generally slower to move, relatively unused by merchants, and can't be reversed in the event of an error.

But they do fulfil functions that fiat currency doesn't. They can typically be moved internationally much quicker and more cheaply than government money, they're resistant to censorship and beyond the control of any central entity, and they can't be reversed.

These features aren't necessarily ideal for every single situation, but they definitely aren't useless and definitely are different to government fiat currency. This is one of the core problems with Q. There are reasons to use cryptocurrency instead of fiat currency, but there are no reasons to use Q instead of fiat currency and no worthwhile reasons for merchants to accept it.

Q's core innovation of printing its own digital money doesn't mitigate those risks in any way. On the contrary, it means they will be even more devastating when they happen.

No matter how good a system is, if humans are involved there will be mistakes and misunderstandings." - Initiative Q

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, ADA

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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