A Decentralised Version of Stripe With Fuse CEO Mark Smargon
Fuse CEO Mark Smargon joined Coinscrum to discuss his startup Fuse.io, which allows users to create their own wallet and mint their own custom currency for their company or communities. Smargon has been in the cryptocurrency space since 2013, saying that he never could have imagined that it would grow into what it is today. He was fascinated by the technology, and the market kept growing until it became an entire industry.
He explained how difficult it was to buy bitcoin back then, which is when he purchased his first BTC for $20. He said unless he bought it for himself, he would probably forget about it and this was the best way to keep his attention focused on and stay knowledgeable about what was happening. He was gripped by the payments use case for bitcoin, given that he has a background in e-commerce, a market in which he launched his first startup in Israel when he was just 14 years old. He recalled how back then, people treated the early internet the way that they treat bitcoin today by wondering if it was going to work or if it was just a fad.
His first crypto company was all about bitcoin, as the blockchain industry hadn’t developed yet. They put BTC as a payment method into shops and into e-commerce, saying that you could use bitcoin to buy beer back then. Bitcoin was able to bypass the pricey, fragmented and limited payment mechanisms even then.
A few years later, he observed that companies tried to implement payments in a way that uses the blockchain but not bitcoin itself, representing real whole value such as USD and GBP. Smargon explained,
“This is what my company is doing today, Fuse.io, implementing everything we learned with all the experiments before Etheruem and today on top of Ethereum. We feel that there is a lot still to go, but the technology kind of evolved to reach a point where today those ecosystems around stablecoins, ecosystems around payments, around new innovative financial instruments that people are building and this is why we like the space, just like a lot of experimentation going around. And now we feel like we’re coming to a point where it’s mature enough so we can actually start building stuff that mainstream audiences can use and not necessarily for speculative reasons.”
Smargon said a bigger trend than crypto and the open-source movement is that we’re moving into a cashless society. Physical cash is changing and our definition of how money needs to work and support the economy is changing. The models are constantly evolving, sort of like a very long-term trial and error. He explained that the cash system used today is only 500-600 years old, adding that technology is rapidly changing the properties that fiat was originally based on. He believes that one of the things that this rapid change is creating is a push toward new business models and trying to understand how to put this technology into the hands of the people.
“We think that Fuse is in a world where you have a lot of value in blockchains and people are using more than one blockchain to pay, you need a service that will bundle those infrastructure payment services and really make it usable by anyone. So anyone can come, and launch a payment service, launch a wallet. Suddenly you can see smaller retailers that are competing with larger retailers. You can see non-bank entities suddenly competing with banking services in places where people don’t have bank accounts, maybe because it’s expensive, maybe because there’s a high barrier,” said Smargon.
He went on to explain how people are stuck in the mentality that Visa is the best thing ever and nothing can improve upon their model, which is from the 1960s. But at the end of the day, the model is not useful for most of the planet, including South America, Africa and Asia, where many have not heard about Visa and probably won’t hear about it in the future. They know digital payments.
Fuse is trying to build on that. It’s a tool for any entrepreneur, company or individual — you don’t need to be a developer. You can launch your own payments service, for instance, if you’re a local marketplace that wants to create a banking service that gives incentives or a municipality that wants to give incentives. Smargon said that economic incentives work, and users want to use mobile to pay. So Fuse allows users to do it in a cheaper way than Visa.
“In one sentence, instead of paying Stripe, Square or PayPal 2.9%, you can build an equivalent on top of Fuse and it will only cost you one cent per transaction. So it’s really a decentralised version of Stripe,” he said.
In Liverpool, Fuse has a company on board that is trying to eliminate delivery services from the equation that charge 20-30%. For startups, a basic requirement is accepting payments. Any startup needs to charge their own fee on top of Stripe or Square, for instance. Smargon said,
“Most of the business models in the payments space are fee-based. But if there’s no fee, if it behaves like cash, then interesting stuff can happen. You can suddenly see the money circulating. You can see more use cases that build around it. We really want to offer an alternative to cash and Visa payments.”
Fuse doesn’t expect to replace Visa. They want to provide an ecosystem of companies providing different services, such as consumer protection, chargeback protection, lending and insurance, for example, all of you which you can build on top of decentralised infrastructure.
Smargon explained that bitcoin is more like digital gold than digital cash and it makes sense to use it as much as it makes sense to use gold to pay. Fuse thinks to create digital cash, it needs to work in a push model like sending an email. The underlying infrastructure that blockchain provides supports a better cash alternative and the ability to give cash bitcoin properties — transferable, not double spendable and creating a fungible digital asset, something that wasn’t imaginable 10 years ago.
As issues around privacy continue to enter the public psyche whilst both private enterprises, such as Facebook, and (now) nations states exploring ways to utilise blockchain tech to digitise their own currencies, a game of cat and mouse is about to begin that will pit innovators against the incumbents in a battle to control our identities and spending.
One aspect of money is fungibility which enforces cash-like ideas that not everybody knows what you’re paying for and not everyone is tracking your every movement. Naturally, if people are being tracked, they behave differently, he noted. And privacy is changing the behaviour of money in places like China, where you can really boost people out of poverty.
China has become a cashless society very quickly and it will take decades to figure out the negative side of this, Smargon explained. This is something to keep in mind if we want to create a business model for smaller players and empower them to launch those services. He said we can’t just give custody over private information to random people, adding that this is the model that is in place currently. People are giving up their privacy in exchange for free information, and it’s beneficial to both sides.
In the long term, Smargon believes that there will be new tech options that allow people to be self-sovereign and and empowers them to build those services without having to worry about GDPR or getting a money transmitter license just because of the fact that they don’t hold any information.
He said you really want to think about lowering the barriers to entry so more players can enter the system. Right now, it’s controlled by a handful of companies, including big banks and major tech companies. Big retailers can afford to create a digital experience, but smaller players would never be able to compete on digital experience.
And what you want is more than a handful of retailers to offer financial services in a country if you want financial inclusion. It’s more than just McDonald’s creating a wallet and everyone else uses. In that case, the rest will die and that’s not the goal.
The goal is that everybody can compete in the consumer pocket and that is how Smargon believes that a transformation to a cashless society will happen best.
The FuseSwap DEX is now available for testing in beta format. Smargon explained that sending money around is a very basic function of blockchains. Now the industry is realising in the last few years that it gives you more functionality and more than just moving bitcoin back and forth. You can also cheaply exchange one asset for another. Decentralised exchanges at the beginning seemed like a niche but now volume has exploded to almost $70 billion traded through DEXs in the last year.
Another thing that people realised is crypto/fiat is more than a niche and has also exploded in volume. Since mid-2019, most of the volume that has been transferred in the crypto space has actually been in stablecoins. And while there is a very nice ecosystem of dollar-based stablecoins, there are also a number of ecosystems starting to develop in different parts of the world, such as a euro-based stablecoin or South American stablecoin. So in every jurisdiction faced with their own problems, stablecoins are sometimes a solution.
Smargon explained that if you want to make stuff a bit clearer to consumers to reduce the learning curve for people onboarding to crypto, you really need to give them something they know. For instance, microtransactions such as buying coffee or sending allowance to your kids everyday are not things you do on Ethereum.
Fuse realised that the needs are very universal and because they are doing the vertical integration, they can offer easy payments and easy asset exchange. They can build the software side because they own the entire stack.
He went on to say that foreign exchange is essential. Like anything you can do with cash, such as exchange one currency for another, we need tools to be able to do this in the crypto space as well. That is where Fuse can offer real benefits. When buying from an exchange you’re not necessarily buying from any specific person but a contract. There is no real exchange behind the scenes. It’s an erratically different model and Fuse is not making any money on the trade or providing liquidity.
As the technology evolves, it can be used to build an exchange but Fuse will not be operating it. Instead it will give the community a way to operate it and provide liquidity and earn fees. This is one of the best examples of the benefits of using Ethereum.
The challenges that Fuse faces include creating a long-term business model that is sustainable and creating a model that works and is replicable so that they know if it can work in one place, it can easily be replicated across the world.
Instead of focusing on one specific community, Fuse is focused on the “long tail” and wants to be in a place where in two years from now, they have a 1,000 communities all doing 1,000 transactions a day. They calculate that 1 million transactions per day is achievable if they have small communities of about 1,000 people each. This is not the focus of big tech companies or financial providers. But if you can empower those communities to launch and incentivise them — because they can earn money — then you can earn those really high numbers. Every operator is like a small franchiser and can earn money.
So the challenge is for people to see Fuse as a Stripe alternative. There isn’t currently another alternative in the crypto space for what Fuse has to offer. Most crypto companies focus on people with cryptocurrencies.
Fuse is trying to validate the model that says crypto is a transparent layer that nobody knows about. They are not trying to shove Bitcoin down people’s throats. It’s not for speculators, it’s for people doing everyday transactions, such as remittances. That’s the real direction for crypto, Smargon says.
He compares it to Linux and says people used to say it’s worse than using Windows. Today, however, everybody is using Linux and they don’t even know it. Linux democratised a big part of the infrastructure. Now there’s a technology that can democratise access to digital money.
Find out more about Fuse at fuse.io