timer 3 min.read While Bitcoin is inarguably one of the most consequential computer science innovations in a generation, ushering in the blockchain revolution, it may be no more than a bit player in this new world of digital money and digital capital.
It’s not because it has other competitors in homegrown cryptocurrencies.Rather, now that the technology genie is out of the bottle, the state and the private sector are taking notice and kicking into high gear.
While these are early days of this revolution, the contours and trajectory are clear and unstoppable.Capital as we know it is being reinvented.
Let me explain:
In the first era of the internet, software upended media industries like news, music, advertising and television, and ultimately extended to a few others like retail, customer service and education.The second era of the internet will make those changes look quaint.
Emerging technologies like artificial intelligence, which automates decision-making, and blockchain, which programs trust into our economic systems (and displaces middlemen), have already begun to disrupt capital as we know it.
Capital has always been narrowly defined as “money and other financial assets” – gold, stocks and cold hard cash.Traditional capital is stored in vaults and banks and requires us all to rely on trusted intermediaries to manage our assets.
Every time you buy a coffee, send money to your kids, or make a mortgage payment, you are interacting with a middleman which extracts value from the transaction.
Digital capital changes this.Digital capital can be moved, stored and used online in a frictionless, instant and secure way without relying on banks, credit card companies and other intermediaries.
More importantly, digital assets are smart and programmable.Let’s say you’re sending money to your kid studying in college.You can now program the money to only work at certain retailers like Walmart and Whole Foods, rather than the Ontario Cannabis Store or LCBO.
By rethinking capital, we can reimagine markets, money and finance.Entire swaths of the financial services industry currently worth trillions of dollars — banking, payments and even money itself — will be questioned, challenged and upended in the years to come.
Money is where this digital transformation is being felt first.Indeed, money as we know it will be radically transformed within the decade, and we’ve already been offered a glimpse into what that will look like.
The newest actor to emerge in the world of money comes in the form of private companies like Facebook, whose Libra cryptocurrency initiative would instantly make it the world’s largest financial institution.
While Libra promises to provide access to financial services in countries where Facebook accounts outnumber bank accounts, these companies are not beholden to the public good as are governments in a democracy.
No surprise, then, that the Libra announcement has been met with rigid opposition from distrustful policy makers.
Regardless of whether Libra launches (and I think it will), other technology giants like Alphabet or Amazon are sure to follow suit with their own corporate currencies.
Confronted with this reality, the next steps for policy makers have never been more consequential.
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In August 2019, central bankers around the world assembled for their annual Jackson Hole symposium.There, outgoing Bank of England Governor Mark Carney endorsed what could be the largest change in the global financial system since the 1944 Bretton Woods agreement.
At the symposium, Carney argued for replacing the U.S.dollar as the reserve currency with a new global currency, entirely digital, and backed by a basket of digital currencies from a number of central banks.
In Carney’s view, this currency would look much like Libra’s, with select central banks forming a consortium to govern the virtual currency.
The global reserve currency would therefore be determined by the Canadian dollar, the Pound Sterling, the Euro, the Greenback and likely more — a monumental shift.
While central banks have yet to endorse the idea, it does seem that they are taking digital currencies more seriously.Earlier this month, the central banks of Canada, the eurozone, Japan, Sweden and Switzerland formed a group to research and share insights into digital currencies.
In Bitcoin and Libra, we’ve seen two different visions for the future of money laid bare.What our leaders do next, and how quickly they act, will determine whether these Roaring 2020s end not in a crash, but in a new era of prosperity.
Alex Tapscott is a best-selling author, speaker, and editor of the recently released “Financial Services Revolution ,” a compendium of research studying blockchain’s impact on money, markets, and banking, available in Canada and the United States now..
