Money has an illness

The Illness

Money is strictly digital. Ever since the gold standard has been abandoned, it has been a mere matter of moving virtual numbers. First on paper, then on screens. And with the advent of the internet, between screens that were all interconnected by servers.

5B people have access to the internet. You can send a message with millisecond speed to anyone, no matter the country, the device or language they speak in.

However, with money you can’t.

This mismatch between digital communication and digital value transfer is the core dysfunction I examine. To send someone money, you need to know their account and you need to have money on a system that works with their account. And those systems don’t talk to each other. Depending on your luck, a transfer might take seconds or days and might cost cents or hundreds of dollars. If you can send a message in milliseconds to anyone you know for free, why can’t you send them money?

An etiology

The reasons for this sorry state of affairs are all chiefly related to custody. When the Medicis opened the first accounts and let people check in coins and retrieve them later or elsewhere, they had to rely on an internal ledger to settle funds across branches. As more banks emerged and there was a market demand for some interoperability, the banks created a web of ledgers for settling, batching, reconciling and so on between themselves and their customer accounts. Fundamentally, even with highly advanced instant payment networks, this has not changed.

Most of the complexity stems from the fact that a web of trust is needed. There is counterparty risk with custody and cross-institutional settlement. After all, one party could simply pocket the money or unexpectedly go out of business. The management of that risk is done through audits and legal agreements which are highly fragmented and jurisdiction-dependent. On top of that, the whole business model of a bank relies on leveraging the deposited funds for investment, a study risk that introduces further regulation. Both these issues, the counterparty risk in money transfers and the fact that there is leverage involved, as well as generally the fact foundationally the system has remained the same since its inception, has led to high regulatory complexity and barrier to entry.

All of this changes with self-custody on the blockchain. In a trustless system, there is neither need for regulating around counterparty risks nor for constructing complex webs of legal agreements. On a blockchain, there is also no need to construct complex multi-institutional systems for settling, batching and reconciling. For self-custodial accounts, there is no need to regulate leverage or custody requirements. With programmable blockchains, the barrier to entry is also significantly lowered, allowing for startups rather than large banks, to innovate.

Furthermore, blockchains make it trivial to open a self-custodial account with private-public key pairs. The same cannot be said about a custodial account where there needs to be a legal relationship between the bank customer and the custodian. When account creation is as simple as running a hashing function, there is potentially an onboarding speed advantage that any traditional system would never possess.

Clearly, all of these are paradigm-shifting advantages. But these theoretical benefits collided with practical constraints, which slowed any real adoption. There are several factors.

The cost of on- and offramps

Primarily, the cost and speed of on- and off-ramps. This can be broken down into:
Direct cost (the fees), these come from:
lack of institutional acceptance
for card onramping, high chargeback risk
Speed
Getting the recipient bank account closed due to being perceived as too risky

Here, the lack of regulatory clarity and the perception of blockchain as a hub for illicit activity drastically limited the number of traditional finance institutions willing to work with cryptocurrencies.

This has changed drastically in the last two years. Now the playbook is clear: licenses, liquidity, orchestration are all becoming commoditised.

Technological Advancements

These limitations cluster into three groups: safety, complexity and fragmentation.

Secondarily, and less importantly, the technological infrastructure imposed by self-custody limitations made the user experience unacceptably worse in comparison to the modern fintech solutions that dominate payments. These include:
Account management.
Onboarding costs are too high. Whilst generating a private-public keypair is as trivial as hashing, keeping the private key or seed phrase is a user experience nightmare.
The lack of spending limits prevents any meaningful deposits as there is a constant danger of getting hacked.
Recovery is crucial to casual normal users not to get burned. EOAs require seed phrases and a hack can leak all funds. Furthermore, there are no good recovery mechanisms. Both are necessary to have enough trust.
Gas. Understanding gas and managing it is highly complex, especially given chain fragmentation, where gas is needed on every chain one interacts with.
Chain fragmentation. Whilst blockchain adoption is increasing, the network effects necessary for payments are stifled by chain fragmentation: Tron, Ethereum, Polygon, BNB, Solana, Ethereum L2s, etc.
Stablecoin fragmentation. Tether, Circle, MakerDAO, Paxos, Mountain and many others all issue their own tokens. As a consequence, fragmentation is an issue not only across chains but also within the different stablecoins. This becomes a serious user experience issue where even a simple crypto-to-crypto payment might require coordination around chains, tokens, gas, accounts etc.
Scalability. To achieve fintech-level efficiency, transactions need to be fast and cheap.
Good receipts. Whilst cryptonative blockchain explorers provide payment receipts, these are useless for any real-life payments experience.

We’re there now

For years, crypto payments were blocked by regulation, UX, fragmentation and institutional risk perception. That is no longer true.

A simple example makes this obvious. Someone in New York wants to send $8 to a friend in Rio to buy a caipirinha. Until recently this required exchanges, multi-day bank transfers, coordination on chains, gas, and hoping no bank froze anything along the way.

With Peanut, the interaction collapses to the same basic pattern as sending a message:
The sender creates a passkey-enabled account in seconds.
They on-ramp in seconds.
They send a Peanut link, without thinking about addresses, chains or gas.
The recipient scans Pix QR code in a Rio cocktail bar, funds are moved through a compliant last-mile (or last-meter) local partner in Rio.
The Caipirinha is paid for in less time than it takes to prepare it.

This is the shift. The obstacles that defined the last decade, custody risk, unclear regulation, poor UX, fragmented liquidity, are being removed simultaneously. Once money can move at the speed and simplicity of information, there is no reason to stay on slower, more fragile infrastructure.

People migrate to the better rails. Not all at once, but inevitably. And Peanut is the way to do it.