If you clicked on this article, you have either already signed up for Initiative Q, or have received an invite to join this crazy, all pervading idea which claims that it can grow to trillions of dollars and become bigger than most economies. All you need is to do their bidding and invite your friends to the network.
What is Initiative Q?
It is possibly one of the grandest and most ambitious #fintech projects out there at the moment. Initiative Q wants to build a full fledged, global payments system which incorporates everything an individual would need to participate in the financial system, and have their own currency called Q running on this platform.
I must admit, from reading their site, it isn’t very clear how this idea can ever achieve all that it claims to do. It has so many moving parts to it, that it takes a lot of belief in the impossible to give the project even the slightest chance of success. In fact, the team alludes to this on their website:“But even if you give it just a 0.1% chance of success, think of it as a free lottery ticket.”
Key Features and Claims
Most fintech companies focus on a niche — payments, investments, P2P loans etc. Initiative Q is trying to build the rails for a global payments system, along with a currency which will be native to this payments system. If this sounds a lot like cryptocurrency, it is! The difference being that Initiative Q intends to build out a platform which has almost every feature of existing fintech apps. So think of it as ten different fintech apps built into one platform.
Some of the things they want to build are:
- peer to peer payments
- Settling bills and other payables in store and at point of sale (POS)
- Algorithms which detect fraud and can reverse transactions
- A marketplace where buyers and sellers vet and rate each other
- Dispute resolution for transfers where either buyer or seller suspects fraud and an insurance pool from transaction fee for disputes
- Introduction of markets where people and companies can obtain loans from other peers on the network
- Allowing people access to deposits, loans and other financial activities without requiring a bank account
All of the above represent challenging business on their own. And to attempt to do them all one one platform is very ambitious.
On their website, the team claims that this payments system can become the de facto financial platform, and in the process, make Qs very valuable — so much so that the value of all Qs in the future could reach tens of trillions of dollars.
Quick Crypto Context
From reading their website, it is almost natural to think of cryptocurrency. Initiative Q does have similar overarching objectives to bitcoin and other altcoins. Namely, that of creating a global currency which makes payments faster, more convenient, more user friendly and less costly for users. However, Initiative Q is trying to capitalize on two disadvantages of cryptocurrency:
- The first is that cryptocurrencies are unstable. Or rather, their value relative to fiat changes often and in large amounts, thereby making them unusable as a means of payment in day to day living
- The second is that cryptocurrency does not have the blessing of financial regulators around the world. As such, cryptocurrencies have not achieved widespread adoption across the world
Taking this into account, Initiative Q is trying to create a system which they hope will get the blessings of regulators, and at the same time provide users with a stable form of money.
At this point in time, while these drawbacks of cryptocurrency are impediments to crypto growth, progress is being made on both fronts. Stable coins, despite their challenges, are seeing a lot of innovation. Regulators are also coming to terms with innovation in blockchain and creating better regulation as a result.
My Counter Arguments to the Claims of Initiative Q
People who sign up are allocated Qs, the native currency, as a reward for joining early. The reward doesn’t grow in perpetuity if you get more people to sign up, so in that sense, it is not a typical pyramid or MLM scheme. People who get their friends to sign up earn more than those who don’t, but this benefit does not continue indefinitely as in the case of typical pyramid schemes. Also, there is no money involved to claim this initial allocation of Qs, and so it doesn’t require any approval from financial authorities or regulators at this point. All you do is give them your email, invite some people and get Qs deposited in your account. It is expected that as the number of people on the network grows, the value of the reward will decrease. As such, early joiners have more to gain than the laggards.
At this point, about 2 million people have signed up. If the aims of the team are to be achieved, we need at least 3 billion on the network at some point in the future. So if you do sign up now, you are still very early.
Having said that, the platform aims to achieve a value of 1 Q = 1 USD in the long run. Which suggests that at this point, the value of 1 Q is less than a cent. And over time, as the network grows, the value of 1 Q will eventually approach 1 USD, and that is how early joiners will reap the benefits of being early adopters. However, at some point, people have to convert real $$ for Qs. How and when this will happen is unclear. If you have a notional amount of Qs in your account, who finances the transaction which enables the conversion of these Qs for USD?
The website doesn’t give any clear answers to the question above. In my mind, there are a couple of scenarios floating around to answer this question, but the fulfilment of either of these scenarios sounds like fraud!
Scenario 1 is that at some point in the future, the company announces that the conversion rate between Qs and dollars is some arbitrary value, and that everyone in the world should just accept this at face value.
Scenario 2 is that the company holds USD in equal proportion to the Qs held in accounts of holders, and therefore, at any point in time, people are free to ‘redeem’ their Qs for USD.
Scenario 1 is plain lunacy (and fraud) and so it will not happen.
Scenario 2 can happen, but this means that the company undertakes the responsibility to keep buying USD for every Q that is issued. And eventually to manage a portfolio of various fiat currencies and Qs such that the value of Qs equals that of USD. As the project progresses, this will become an increasingly difficult task. So the BIG question is:Who is going to finance the purchase of this potentially huge amount of USD indefinitely into the future?
My Reasons for Skepticism
My first reason for scepticism is with regards to the stability that can be achieved by pegging to USD. Not only does this need vast infrastructure and highly skilled people to ensure that it can be achieved, but it opens up a whole slew of risks which the Federal Reserve (or any other central bank) will not ignore. As soon as Qs start to gain significant market share, say more than a trillion dollars, the Q monetary committee will be buying and selling USD in amounts that will be so large that they can potentially move FX markets. Also, the experience of stable coins in the cryptocurrency space shows that stability is not that easily achieved.
Second, Initiative Q, via its monetary committee, will in effect work like a private central bank. It will buy and sell fiat currencies according to predetermined algorithms with the aim of keeping a certain value over time. Central bankers are accountable to governments, but who will the Q monetary committee be accountable to? Can you trust a private company to set up an ‘independent’ group of people to ensure that the value of your money stays stable?
Third is that I fear significant security risks to the project. In the case of banks, hacks can result in data breaches and losses that run into millions. Initiative Q hopes to be many times the size of all banks combined. It will be under the control of one company. The potential for security breaches is huge and the website does not even make mention of this fact.
Fourthly, there will be significant regulatory hurdles to overcome. The website makes it seem as though the utopian world toward which we are headed will have a predominant currency called Q, and that this will lead to financial nirvana for even those who don’t have bank accounts. The global spread of such a project will come under scrutiny by governments, who will eventually see this as a threat to their monopoly on the creation of currency. One only needs to look at the problems cryptocurrencies face to see that regulatory hurdles can hurt adoption and value in a major way.
Fifth, is that it is realtively easy for a government to sieze or freeze all Initiative Q assets, hurting not only holders in that country, but the entire network. This is because there is a central point of failure. The website states that if cryptocurrenices, being as flawed as they are, can grow to nearly USD 1 trillion, then something like Q can grow to a much larger size. My take is that more than one half of that trillion dollar valuation achieved by cryptocurrencies was driven by bitcoin and ethereum alone, two highly decentralized ‘currencies’. Governments are not capable of stopping, banning or freezing bitcoin ‘accounts’. Bitcoin can’t ever be stopped. This is not the case with Initiative Q.
Final Thoughts and Conclusion
Initiative Q seems to have so many ‘ifs’, that it is very hard to see something like this succeed. Definitely not as a private company in any case. They make repeated mention of the ‘chicken and egg’ problem of any platform needing both buyers and sellers, but it is unclear whether incentivization will work in the long run. If every successive Q user gets a lower reward, at some point in the near future, users will have zero incentive to adopt the platform, given the plethora of alternatives on offer.
Initiative Q does point out that the current financial architecture has too many inefficiencies, and that cryptocurrencies are currently not usable by most people. However, with the amount of work being done in the fintech space and in the crypto space, these problems are slowly but surely being solved. Furthermore, if building the ‘rails’ is the biggest problem being tackled by Initiative Q, then projects like bitcoin are doing a lot to build a truly global and inclusive financial system. It is lamentable that by the time the trickle down effects of financial innovation reach everyone, those who need it the most will have the least to gain. Unfortunately, Initiative Q does nothing to solve this problem either.
So, to summarize: I’m just happy to hold onto my bitcoin and not worry about Qs…
What do you think?