Monday, October 18, 2021
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The Future Monetary System

Who will determine what you use as money in the future? In this video, Futurist Chris Crespo discusses how alternative forms of value are being captured and exchanged through distributed technology systems. The discussion goes beyond government issued currencies towards a potential future monetary system, where we may be able to choose which forms of “money” to transact in, based on currencies that more closely reflect the values we find important.

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The following is a transcript of the video above.

Banks emerged to satisfy two main needs: the need to store money safely, and the need to make the distribution of money more efficient. Back in the fifteen hundreds if you had some money left at the end of the month, you may have wanted to lend that money out in exchange for some interest. So you could have gone to the streets in the hope of finding someone in need of some money that would also be willing to pay the interest rate that you wanted to charge them. But this was inefficient and risky as you never knew if the person would be able, or even willing to pay you back.

So instead you could go to the bank, deposit your money and let the bank go through the trouble of finding people to lend the money to. For your trouble the bank would pay you a small interest on your deposit, would charge borrowers a higher interest than the one they paid you, and would pocket the difference. The system has remained pretty much unchanged. Central banks and governments have had to develop more sophisticated forms of regulation to keep tabs on all the innovation and new financial products bankers were coming up with to increase the number of depositors and borrowers, but the system remained mostly the same.

The system is not perfect, it lends itself to different types of fraud, including money laundering, identity theft and other types of illegal activities, but for the most part, the system did what it was designed to do, distribute money more efficiently, so banks and regulators were prepared to accept certain levels of fraud as the system for the most part worked fine.

That was of course until the financial crisis of 2008. At that point the global monetary system had become so complex that it became almost impossible for any central authority to keep tabs on all the innovation that was takin place which led to unhealthy levels of risk being taken by banks.

After the credit crunch a group of technologists began to reimagine the global financial system. They did this by going back to the first principles of scarcity, proof of work and communal record keeping that we have discussed in previous videos.

The idea was to use technology to create a system that would protect the privacy of its users while at the same time making all transactions, public and visible in real time to the entire community of users. By doing this, the system could pretty much protect itself against fraud, malicious intent and other types of activities.

Today we have reached the point in which technology can replace the function of governments, central banks and regulators when it comes to money. It does so by automating things like the issuance of currency, the record keeping of transactions, the enforcement of regulation, all while removing the need for a central overseeing authority which makes transactions cheaper and faster.

So what we are seeing goes far beyond an alternative monetary system.  We are seeing the result of a monumental battle of ideologies that reaches to the core of how we organise our governments our economies and our societies.

On the one hand we have  the traditional monetary system based on strong central institutions that society has appointed to look after our money. 

On the other hand, we have an open, transparent, immutable  system that makes the need for central agencies obsolete and instead uses technology to issue currency, connect borrowers and lenders, keep track of all transactions and enforce regulation.

The basis of these opposing views lie directly on the back of values such as freedom, transparency and equality of opportunity. Money is so embedded in the way we live our lives, that we have just come to accept the governments absolute monopoly over it assuming, that there is no better way of dealing with it. But technologists disagree.

New types of  currency , specifically things like Cryptocurrencies, Stablecoins are created without the permission or involvement of the government, or any other organism to oversee its functioning. 

These types of currency exist exclusively in peer to peer networks and are regulated by code that is copied, in realtime across thousands of computers connected to the same network, making it practically impossible to alter. 

If someone with malicious intent wanted to alter the system to their advantage, they would need to be able to alter thousands of identical records across a distributed network of computers. This technology is known as a Distributed Ledger Technology but is better known as Blockchain.

The distributed nature of Blockchain technology means that accountability for the proper functionality of the network is distributed amongst its users. 

And by removing the the bank as the middleman, these systems are becoming more accessible, more transparent and more democratic.

Blockchain based systems are designed to be extremely secure, If you don’t believe me, ask James Howells, a British man who accidentally threw away a hard drive containing the key code to his digital wallet, with 7,500 bitcoins, which today would be worth a staggering  262 million Euros. He has spent the last 8 years combing through his city’s landfill with X-ray machines and AI software, in the hope of recovering the Hard Drive that will unlock his fortune. His 262 million Euros are still safely in his account, so safe that without the key, no/one, not even him can access them.

So these systems are cheaper, fairer, more transparent and secure, what’s not to like? 

The technology as it stands today present a few sustainability challenges, specifically in the case of bitcoin and other cryptocurrencies, require significant energy to operate. There is also a matter of capacity, whereas the more distributed a system is, the less transactions it can perform per second. However technology is moving at breakneck speeds and I believe that these two concerns will eventually be resolved through innovation

The main concern, we should have , is that mistakes do happen and at some point, your great grand uncle is going to press the wrong button on his computer and send all his pension savings to an anonymous account in the Cayman Islands, and good luck recovering those funds.  In our current monetary system, the intermediary which is usually the Bank is accountable for the functioning of the system and liable when things go wrong. But who do you appeal to, when there is no one in charge? Can we really trust entirely on code?

Another thing we should be concerned about is the fact that while there may not be any central organism accountable, these system are still being developed by groups of coders. The attributes and the governance of each blockchain originates with the developers and do we really want to entrust our finances to groups of unaccountable and unelected technologists behind these new systems?

It has already happened with the worlds data and information flow. If you are on Facebook Instagram, Tiktok, LinkedIn, you have already given these netwroks power over your data, your content, and your attention. 

You may remember pressing an accept butting to declare that you were in agreement with a whole bunch of legal jargon that you couldn’t understand when you joined these networks. And for the most part it was fine, as long as you were only sharing cute cat videos and pictures of your breakfast. But we are already seeing companies like Google Facebook and Twitter controlling the flow of information and determining what can and cannot be shared.  Are we prepared to let Big Tech take control of the way in which we store, transfer and spend our money? That is probably a question, for another video.

Chris Crespo
Chris Crespo
Chris is the Co-founder of Fast Forward Banking, a Financial Media agency that seeks to bust the jargon out of banking. As a behavioural economist he enjoys exploring questions that challenge conventional thinking. He is fascinated with innovation and technology and its intersection with financial services, society, and culture. Chris is also a guest lecturer at Stanford University and Singularity University where he teaches regularly on the Future of Financial Services, the Future of Money and the Disruption of our current Banking and Monetary Systems.

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