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The Future of Money

The Future of Money

Alex Tapscott Future of Money

A lot has changed since the last century, and the world of cryptocurrencies is on a collision course with community currencies, corporate payment systems, and central banks. So, to digital currency expert Alex Tapscott, what does that mean for the future of Bitcoin?

Alex Tapscott is an entrepreneur, author and seasoned capital markets professional focused on the impact of Bitcoin, blockchain and other digital assets on business and financial markets. Mr. Tapscott is the co-author of the critically acclaimed non-fiction best-seller, Blockchain Revolution, which has been translated into more than 15 languages and has sold more than 500,000 copies worldwide. Mr. Tapscott has delivered over 200 lectures and executive briefings at firms like Goldman Sachs (Talks at GS), Google, Allianz, IBM, Microsoft and Accenture. Mr. Tapscott has also written for The New York Times, Harvard Business Review, The Globe and Mail, National Post. In 2017, Mr. Tapscott co-founded the Blockchain Research Institute (BRI), a global think-tank investigating blockchain strategies.

Michael Hainsworth spent 18 years at Canada’s Business News Network as a Senior Anchor. He is the Executive Producer and Editor in Chief of Futurithmic, a documentary series and publication about the impact technology today will have on society in the future. He is also the co-host of one of Canada’s most popular podcasts, Geeks & Beats, with radio legend Alan Cross.

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Episode Transcript: The Future of Money

Announcer:
This is the Alt Thinking podcast by Ninepoint Partners.

Alex Tapscott:

Bitcoin in many respects is more backed than, I would say, traditional fiat currencies are, those that are just backed by the faith in the government. Bitcoin is a scarce asset. It has a limited supply, it takes time and energy to produce, and it is not controlled by any given government, so nobody can sort of inflate it into oblivion. And those are all attributes which actually make it kind of similar to gold. But in many respects, it’s superior to gold.

Announcer:

The ALT Thinking Podcast from Ninepoint Partners begins now. Here is Michael Hainsworth.

Michael Hainsworth:

It wasn’t that long ago that stocks were quoted in fractions, because physical fractions of coins changed hands. A lot has changed since the last century, and the world of cryptocurrencies is on a collision course with community currencies, corporate payment systems, and central banks. So to digital currency expert Alex Tapscott, what does that mean for the future of Bitcoin? If past is prologue, we should rewind the clock to find out. Alex and I began our conversation by talking about the fact money goes through an innovation cycle every 100 years.

Alex Tapscott:

Something like that. Sometimes it’s longer, sometimes it’s shorter. But generally speaking, it’s at least as long as a human lifetime, which is why we tend to think of money as sort of this permanent thing in our lives, because it doesn’t change that often. So for most people who are around today, they don’t really remember a time when money was convertible into gold. That’s sort of something you associate with the olden days. And it’s true that in the case of the US dollar, they severed their connection with gold in 1971. So, that’s 51 years ago.

Alex Tapscott:

So for a lot of people, they think of money as this sort of impermanent thing. But actually it is this human creation. It’s a made up thing that we need in order to have the economy and society work, and it actually is prone to changes. And right now we’re going through one of those shifts again.

Michael Hainsworth:

People don’t realize it wasn’t that long ago that stock quotes were still quoted in fractions of an eighth for a very specific reason.

Alex Tapscott:

I didn’t actually know about that until I saw the movie Wall Street, and Bud Fox is looking up at the ticker tape, which has its origin in an actual literal piece of paper that would come across a telegraph wire. And I thought that was quite funny. Yeah, stocks used to be quoted in eighths, and they used to settle T plus five or six, meaning it used to take days for stock trades to settle, and the stocks used to be in an open outcry system where you had people, mostly men, out on a floor yelling at each other. There’s still some markets that function like that, but all of these processes have become more digitized as time has gone on.

Michael Hainsworth:

Yeah, the pieces of eight one was particularly fascinating to me. The idea that there was a time when you would take a barrel and you would put a piece of gold, you’d put a gold coin down on it, and you could literally cut it into as many as eight pieces to siphon that off. And that was the origin of why we traded stocks in fractions of eight.

Alex Tapscott:

Is that true? Because you posed that question and I actually didn’t really know the answer.

Michael Hainsworth:

Yes. Yes.

Alex Tapscott:

Well, that’s the origin too, of the Spanish eight piece. So you hear about the eight piece.

Michael Hainsworth:

That was it. And we’re talking now going back hundreds of years.

Alex Tapscott:

Yeah. Yeah. Wow. Isn’t that interesting? Yeah, so money has gone through various revolutions over time. Some anthropologists believe we started with a barter system, though that’s disputed. But early money was things that used to allow us to keep a unit of account and to store value, and to manage and coordinate trade over distances in between parties. And it’s been everything from cowrie shells, to gold bars, to bank notes, to bank balances. Most money is sort of on digital ledgers inside of banks.

Alex Tapscott:

And now it’s gone into this new iteration where it’s becoming a fully digital thing where money itself is going to be a digital bearer instrument. So essentially a unique, scarce digital asset that you can move between parties, peer-to-peer. The most obvious example of this digital money is Bitcoin. Bitcoin would be familiar to many people. I certainly expect those listening to this podcast would be self-selecting because they are interested in this category.

Alex Tapscott:

Bitcoin was designed to be exactly that, money for the internet, a way to move value peer-to-peer without the need for an intermediary like a bank. And what was really fascinating about Bitcoin was that it worked, and it set off this spark that has really caught on like wildfire and spread to various parts of the economy.

Alex Tapscott:

The technology that makes Bitcoin work, it’s called the blockchain. And it’s basically a way to keep a record of who owns what, who owes what to whom at any sort of given point in time. That’s something that banks and governments used to do. And now we can use technology to do it. So it works for Bitcoin and it can work for lots of other assets as well.

Michael Hainsworth:

But what’s common to all global reserve currencies is that there’s always been a big state power backing that paper. The fact Bitcoin doesn’t have this, is this a key hurdle that needs to be cleared here? How do we do that?

Alex Tapscott:

I’m not sure that it is, though I don’t think that Bitcoin is necessarily going to become the global reserve currency. I think the idea of a single currency functioning in that manner doesn’t really gel with the reality in the world that we live in.

Alex Tapscott:

And it’s true that for centuries, at least, various regimes have imposed their own version of the monetary system. In the Spanish piece of eight, which we just talked about, was minted from new world silver, which was such high grade, so fine that it was lighter to travel. So it was an innovation in that respect. It was also divisible into eight pieces, as we mentioned, the piece of eight, and that made it more fungible, I.e. it could be spent in increments large and small. And those were innovations that the money itself enabled, but also that the regime that imposed that money.

Alex Tapscott:

And then, the Spanish eventually lost their superpower status. The British for a period of time where the global hedge mine, and they had their own sort of monetary regime based on the Pound Sterling.

Alex Tapscott:

And now we live in this period where money is almost all fiat money. In other words, it is money that is created by governments. It is their monopoly, their prerogative to do this, and it’s not pegged to anything in particular. It used to be pegged to gold. And now it’s backed by the faith and confidence that people who hold it have in the government that creates it effectively.

Alex Tapscott:

With Bitcoin, Bitcoin in many respects is more backed then I would say traditional fiat currencies are, those that are just backed by the faith in the government. Bitcoin is a scarce asset. It has a limited supply, it takes time and energy to produce, and it is not controlled by any given government. So nobody can sort of inflate it into oblivion. And those are all attributes, which actually make it kind of similar to gold. But in many respects, it’s superior to gold. It’s easier to move. It’s easier to store, cheaper to store, and it’s divisible into tiny increments, whereas gold is not.

Alex Tapscott:

So these are innovations, which I think make Bitcoin one of the leading contenders for the future for digital money. But I have to stress that it’s not the only one that’s out there. What I mentioned earlier is that because Bitcoin worked so well, it has captured imaginations, and some imaginations are those inside of big companies and even governments themselves.

Michael Hainsworth:

You have suggested that the future won’t see a single dominant reserve currency, but that there would be three categories of currency regimes; community-driven currencies like Bitcoin, corporate payment systems, like the one Facebook recently backed down on building, and central bank digital currencies. Let’s talk about all three of these. I imagine a central bank backed digital currency would gain a lot of adopters, back to your point about faith and confidence. But the Bank of Canada is not exactly known for moving fast and breaking things.

Alex Tapscott:

No, governments generally aren’t, and maybe that’s a feature, not a bug. It depends on your perspective. I wouldn’t expect the Bank of Canada to be the pioneer in creating a new monetary regime. It’s not really their role.

Michael Hainsworth:

Would they even be a fast follower though?

Alex Tapscott:

I think so. Yeah. I do. I do believe that they would. Yeah, you mentioned those three categories and I think that’s right. So there are community-based currencies, is what I would say more broadly, are just private sector money essentially. And then government-backed digital currencies.

Alex Tapscott:

We’ll start with the central bank digital currencies because I don’t want to duck that. Right now in China, the government is aggressively rolling out its own strategy for a form of digital money. Basically they’re doing what in the crypto world is called an airdrop. They effectively, if you have a wallet, they’ll just drop free dollars into your account because they’re seeing how people spend it and if the system works. And so far so good in terms of making payments simpler and more efficient and reducing overall friction.

Alex Tapscott:

However, with the Chinese, their objective is not solely to create a more efficient and more inclusive financial system, though that is one of the outcomes of the digital currency. It’s also to have more perfect information about how people are spending their money. This is a government that prioritizes information about what people are doing. And the more you control of the way in which people spend money, the more control you have over other aspects of their life.

Alex Tapscott:

In the US, I’d like to think, and I do think that it’s very different. The US wouldn’t create a digital currency, so it can keep tabs on people any more. There’s already the banking system for that. There’s generally speaking, pretty pervasive information required to use the banking system.

Alex Tapscott:

No, I think the purpose of a central bank digital currency in the US would be to reduce friction, to improve inclusion. There are about 37 million people that don’t have a bank account in the US so having a digital bank account with the Federal Reserve, where they can just plunk dollars in your account would be helpful. And also to move more quickly, especially in times of crisis, to loosen monetary rules. And even potentially to do what they call helicopter money. It takes weeks sometimes to get stimulus checks into people’s bank accounts because of the Byzantine, balkanized banking system, the three Bs. Whereas if everyone had access to this kind of wallet, which they could get access to on their phone or computer, or if not, through the mail or whatever it is, it would be instantaneous.

Alex Tapscott:

So, there are reasons why central bank digital currencies could succeed. There are lots of reasons why they might not. One of the benefits of Bitcoin, one of the things that gives people confidence in its value is that it’s decentralized. They know that the supply can not be changed at a moment’s notice because there is no central authority. Whereas with fiat currencies, there is. So, I think it does improve upon the way things work today, but it’s not like a great leap forward in the way that I think Bitcoin is, because Bitcoin is unique in so many respects.

Alex Tapscott:

The other category, which you mentioned, corporate currencies or private sector currencies is a very interesting category, and one where we don’t need to speculate about if it will be successful, because it’s already successful.

Michael Hainsworth:

I don’t know. Are we going to talk about Libra, because Facebook back down on that pretty quickly?

Alex Tapscott:

Well, Libra, now called Diem, I’m not sure if Facebook was ever the right company to do something like that. Facebook is not particularly well-liked in a lot of circles, including in government and regulatory circles. And those are the people that approve these things.

Michael Hainsworth:

And does that bring out the key component back to your point about faith and confidence? Facebook had a credibility problem, and that was why people were pushing back on Libra. Is that the central tenant required for a successful corporate payment system?

Alex Tapscott:

Well, it’s such an interesting point because Facebook didn’t have a crypto problem, it had a Facebook problem, when it did this. Yeah, I’m not sure that Facebook was ever the right firm to do something like this.

Alex Tapscott:

The more interesting stuff, Michael, is in the world of what’s called stablecoins. So a stablecoin, and that’s what Libra and later called Diem is supposed to be. It’s basically a digital currency that is pegged to the dollar, or pegged to the Euro or pegged to the Canadian dollar, though those are very small. It’s usually the US dollar. The value of private sector stablecoins has grown from $500 million to 30 or 40 billion in the past two years. So that is tremendous growth. I mean, rarely if ever in any market, do you see that kind of compounding growth?

Alex Tapscott:

And these are started by smaller companies, which may become much bigger companies and may even compete with banks and other payments systems because of the value of how stablecoins work. So, very simply, if you’ve got a wallet and I’ve got a wallet and I owe you a thousand dollars or a hundred dollars or ten dollars, whatever it is, I can send you that money peer-to-peer in a matter of seconds or minutes, and have it never really touch the banking system, and have it be zero fee.

Alex Tapscott:

Now that’s very significant. In Canada, we have this thing Interac, where I can send you a thousand dollars between our banks, and that works pretty well. And that’s true. And in the US they have Venmo and these other payment systems, and they work okay. But anytime you’re talking about going between banking systems or cross border around the world, that’s when all of these huge barriers begin to get put up.

Alex Tapscott:

So if you want to send money home to your family in the Philippines, and you work in Toronto, for example, the average fee is around 9%, and it usually takes a week for that money to arrive. So these kinds of stablecoin-based systems, many of which are started by private businesses, are ways to circumvent that. And that’s why companies like MasterCard and Visa and PayPal are interested not only in Bitcoin, but also in these stablecoin systems, because you can imagine if they continue to grow, it starts to potentially disrupt the businesses of legacy payment firms.

Michael Hainsworth:

In our last podcast conversation, you mentioned Bitcoin is at the bottom of the first inning. So let’s pick up that conversation and extend the metaphor. What does Bitcoin look like during the seventh inning stretch?

Alex Tapscott:

Well, it’s hard to say when that is going to be. What I have said recently, I’ve written articles where I basically mused on what the world would look like in 2030 at the end of the roaring 2020s, if that indeed is how they turn out.

Michael Hainsworth:

If it ever happens.

Alex Tapscott:

If it ever happens. I sure hope so. And it is a world where there is no single global reserve currency, the US dollar does not play as significant or prominent a role as it does today, but also where the Chinese have not been as successful as some people may think in trying to dislodge the US dollar. It’s a bit messier. It’s a world where government-backed digital currencies compete with private sector stablecoin initiatives, which compete with projects like Bitcoin for the flow of funds and for the savings of billions of individuals.

Alex Tapscott:

I think that the world in 2030 is one where Bitcoin is held by billions of people, and where stablecoins have become the dominant payment rail for moving value cross border. I think that today, Bitcoin at $800 billion of value is significant in size to be sure, but it’s still smaller than many big corporations like Apple and Amazon and Microsoft and others. And it’s a tiny fraction of any real financial market. It’s a 10th the size of gold, for example. So we are still in the very early innings.

Alex Tapscott:

In the seventh inning, I would say that Bitcoin is as big as the gold market, and it’s moved beyond gold to become that payment system that I just described.

Michael Hainsworth:

You say these three forces of community currencies, corporate payment systems, and central bank digital currencies are on a collision course. What do you mean by that?

Alex Tapscott:

Well, I think they all represent something different, don’t they? Central banks want to preserve their monopoly on the creation of money. Private companies have a motivation to generate profit for shareholders. And community-backed currencies like Bitcoin are the opposite of both of that in the sense that they are decentralized. People can become wealthy owning these currencies as they become more useful and more valuable, the market cap generally increases, but they’re not motivated by the same things.

Alex Tapscott:

So it is a story of three different, I think ideologies and motivations, and three very potent and powerful forces who are headed towards each other. And I don’t think it’s for a warm embrace. I think it’s for a collision. And the outcome of that is far from certain, but it’s sure to create some fireworks.

Michael Hainsworth:

Well, I can imagine fireworks, because it’s starting to feel a little bit like the evolution of cable TV. We all had a cable line going into our houses with a thousand channels. That got disintermediated by the hyperscalers like Netflix and the other streamers. And now everybody wants to be streaming. Now I’ve got a thousand streaming options just like I had a thousand cable TV channels. We’re all trying to bring that back into one house. By 2030, am I going to have to have multiple digital wallets for multiple cryptocurrencies?

Alex Tapscott:

It’s an interesting analogy. I think you would own different assets in the way that people already own various different assets. I own US dollars. I own Canadian dollars. I also own stocks. I also own funds. I also own investments in private companies. Not everyone has as much variety as I do maybe. There are various assets are useful for different things.

Alex Tapscott:

I think Bitcoin is proven to be a very good store of value on a historical back test. Fiat currencies are designed to not be a store of value. They’re designed to decay in value because the government wants you to spend them. And it’s important that money churn through the system in order to pay for goods and services and so forth. There’s a purpose and a place for that. But it’s definitely not a store of value. So it’s possible that those things co-exist.

Alex Tapscott:

And then I think of stablecoins, honestly, as more like payment rails than as assets themselves. More like sort of a global integrated Interac for Canadian listers, or global integrated Venmo. It’s a tool you use to accomplish a certain objective, which may be to pay for an invoice for a Chinese supplier overseas, or to send money to your family overseas, or to give your kid an allowance and he’s studying abroad or whatever it might be. But there’s thousands of use cases obviously for money. I don’t need to explain that.

Alex Tapscott:

So I think you may have these various options, but it would be no different really than having a bank account, using Apple Pay, and maybe having Venmo at the same time. And I think people are plenty used to that as well.

Alex Tapscott:

On the streaming service question, just as an aside, I think someone eventually is going to take all these streaming services and then bundle them into a package and then sell them as a service. Oh, wait, that’s just what it used to be 15 years ago.

Michael Hainsworth:

Exactly. So by 2030, do you think Bitcoin will have the same volatility that we’ve seen recently? Like you point out that Bitcoin over time is a store of value in so far as you look at the last decade and there’s growth. Whereas over the last 12 months, there’s been a tremendous amount of volatility and that’s led to questions about it as a viable investment vehicle. By 2030, does Bitcoin have the same volatility as it does today?

Alex Tapscott:

I think it goes down because there’s a lot of evidence that it has been in decline since it launched. I think as the-

Michael Hainsworth:

The volatility.

Alex Tapscott:

The volatility. As the assets mature, as more long-term holders put Bitcoin into cold storage as an investment, I think that you’re going to see the volatility decline.

Alex Tapscott:

I don’t think volatility is a reason to not invest in something, just to be clear. Plenty of things are volatile and have made people plenty of money, in history. Gold was extremely volatile in the 1970s and early 1980s after the US came off the gold standard, because people were in this price discovery mode. What is gold worth? It’s hard to say. It used to be pegged to the dollar, and now it’s not. And the measure, if you looked at the historical volatility measure of gold during that period, it would have been very, very high. But at the same time, it was also a period where the returns in gold were tremendous.

Alex Tapscott:

So I really think that volatility is not something that should preclude an asset from being part of a portfolio or being even considered a store of value over the long-term.

Alex Tapscott:

But you make a very good point, which is can Bitcoin act as a payment system if people are still concerned about volatility or if the volatility persists.

Alex Tapscott:

So this is an interesting point for a couple of reasons. Number one, I think so long as the US dollar is the base currency that’s being used to compare Bitcoin, then it’s always probably going to be more volatile than people would like as a way to make payments around the world, and for various things. If the base currency is Bitcoin, then that ceases to matter because lots of currencies move up and down relative to the US dollar. We think of the US dollar as very stable, but of course, every day it’s changing in its value relative to various other assets.

Alex Tapscott:

So is Bitcoin going to be the base currency that we all use in the world? I really don’t know the answer to that. I would say probably looking at it today, more likely than not to occur, just because I think, as I pointed out, there’ll be various currencies. So what can you say is the base currency? But I do think that as it gets more mature and becomes less volatile, people will be increasingly comfortable using it for those kinds of use cases. Whether or not we’re using it to buy a cup of coffee or whatever, that I’m not sure.

Michael Hainsworth:

Alex, great speaking with you. Thank you so much for your time and insight.

Alex Tapscott:

Yes. My pleasure.

Michael Hainsworth:

Alex Tapscott is the managing director of the Digital Asset Group at Ninepoint Partners. I’m Michael Hainsworth.

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