Whither the future of money?

As cryptocurrencies gain both ground and notoriety, questions are increasingly asked about the future of money. I confronted this in my 2017 novel Bitcoin Hurricane, imagining a near future where digital and fiat currencies trade side by side in the money markets, and banks still have a role to play in our lives. Austin’s SXSW festival this year featured for the first time a Blockchain and Cryptocurrency track. Speakers and attendees from keynotes to high quality fringe events were vocal on the topic, and their views on the future of crypto and the cash in our pockets were hotly debated. Here is a flavour of the views from all points on the spectrum.

Twin Pillars of Trust and Stability

The first people to have their say, in a high profile featured session, were Cameron and Tyler Winklevoss. (They are very tall.) The Winklevoss twins sit firmly in the camp of custodianship. As seasoned crypto investors they have watched the development of the space and high profile disasters, including the record theft in 2014 from Mt Gox and the 2019 Quadriga collapse. In most cases, the weak link has been human: the trust placed in the guardians of crypto assets has been misplaced. Their question to the audience: Who guards the guardians? Who watches the Watchmen?

In the absence of caped heroes, regulatory oversight is currently our only hope, according to the Gemini exchange founders. They assert that the healthiest markets are the best regulated, and that regardless of the currency involved, the future of money requires trust. They established their exchange in the aftermath of the Mt Gox collapse and acquired their banking licence before launching. Interestingly, they talked about the early legal wrangles between Microsoft and Netscape which held those 90s giants back from dominance on the internet, allowing Google to overtake. The Winklevoss twins are in the exchange business for the long haul, ready to take the opportunity that being a trusted custodian should convey.

Avoiding centralised decentralisation

There are robust challenges to the over-use of exchanges, stemming from the simple fact that cryptocurrency is intended to be decentralised. By relying on exchanges to store their coins, users are treating them as de facto banks and are blind to the risk this could pose. We have been taught all our lives that the bank is the safest place for our money, but it is no coincidence that Satoshi’s whitepaper appeared very soon after the 2008 banking crash, offering a viable alternative to misplaced trust.

Why are people prepared to entrust their coins to a third party in this way? It is the curse of familiarity. We have become accustomed to the role of retail banks in our everyday lives. In the new and often edgy world of crypto, an exchange feels comfortable, reliable, almost bowler-hatted (in a steampunk kind of way). Exchanges are making an effort in turn to be friendly to use and easy to access. This is great for introducing new users to the space, but there is a danger to staying in the comfort zone.  Can we place reliance on a central authority to do the right thing with our purportedly decentralised coins?

Moving on to your own personal wallet – the technical equivalent of the sock under the mattress – is definitely a culture shift and, quite frankly, slightly disturbing the first time round. Who hasn’t tested a transfer of funds with a fraction of a coin first, just in case, and checked and re-checked every character in the wallet address? The challenge for mass crypto adoption is that this is an unforgiving space where coins lost down the back of the virtual sofa cannot be retrieved. How can this risk be mitigated in a decentralised market?

Encouraging safe adoption

I took part in a spirited panel at the JustHODLIt event during SXSW where we debated the Future of Money, addressing every point on the continuum between third party custody and personal responsibility. Decentralisation is the watchword for serious actors in the crypto space, who have a generally scathing view of exchanges and their risks and propose different courses. The answers lie in streamlining the user experience, and encouraging people to engage responsibly with cryptocurrency by making it worth their while to do so. VaultWallet, represented on the panel by Corey Segall, helps app developers to bring users on board with a simple mobile wallet interface. Adryenn Ashley’s Loly incentivises adoption by offering users a reason to jump down the crypto rabbithole, seeking safe and secure dating experiences.

The work of these commercial ventures is mirrored by the mission of Joseph Lubin’s Consensys. At a private round table meeting, he emphasised the overarching need to grow the Ethereum ecosystem and make adoption easier through smooth user experience. The increasingly attractive MetaMask wallet is a good example of a user interface which makes interaction with Ethereum-based games and apps simple and straightforward, without compromising the decentralised principles.

Mainstream cryptocurrency use at volume is essential for stability and growth. Regulated custodians will have a part to play in building user numbers, but they represent only one path to adoption.

Cryptocurrency in the mainstream

Making crypto use simple and safe benefits everyone. Those who are currently unbanked are likely to be the most significant beneficiaries of adoption. In our comfortable, regulated, wealthy society, we often forget that access to bank services is a privilege. This is not just a phenomenon in less developed areas of the world: in the United States, 5% of households are unbanked, according to the Federal Reserve’s 2017 Report on the Economic Well-Being of U.S. Households. In the United Kingdom, the reported figure is 1.6 million adults, of whom many are refugees.

There are also businesses who struggle to access banking services. The emerging US cannabis industry which is gradually overturning prohibition, state by state, still relies on cash, and increasingly is turning to cryptocurrency to reduce theft and increase accountability through the clear audit trail of a public blockchain. While gaming is likely to be a key driver to personal adoption of cryptocurrency according to most observers including both Lubin and the Winklevoss twins, the cannabis sector could lead business takeup.

There is one final issue to resolve. It is all very well transacting in cryptocurrency, but what happens when you want to pay your rent, or buy food from the local store? This usually requires a shift back to fiat currency, with the twin risks of price volatility and exchange integrity, but there is light at the end of the tunnel. In the past few weeks the State of California’s Assembly Bill 953 opened the door to accepting crypto in payment of cannabis taxes, and trailblazing legislators led by Caitlin Long in the State of Wyoming have passed a bill to recognise cryptocurrencies as money. These are significant moves that will reduce friction at the edge of the burgeoning crypto ecosystem.

Money of the Future?

On balance, where are we going? Cryptocurrency is going to become increasingly important in our daily lives, and forward-thinking legislation makes a peaceful co-existence possible with state-controlled fiat currencies. De-risking the use of crypto and making it an attractive and seamless experience will aid adoption and stability. Everyone in the industry has a role to play in making this happen.

 

Kate Baucherel