While change is guaranteed, the scale and scope of that change are not. For the financial industry, blockchain — the technology that undergirds Bitcoin (BTC), Ether (ETH), nonfungible tokens (NFTs) and other digital assets — has brought us to the crossroads.
What will the future of money look like?
We have been operating on the frontline of crypto for the past 10 years, protecting large and small investors alike while allowing them to invest in this exciting new frontier of finance. The experience we’ve gained here helps us to see what’s coming down the road.
In this historical period, a myriad of outcomes is possible but one thing is for certain: The efficacy and innovation of the technology will influence well beyond traditional financial sectors.
The mature digital assets industry is coming
Blockchain offers a faster, more efficient and more secure structure for financial transactions when compared with the contracts, transactions and records that currently define our economic, legal and political systems. Harvard Business Review put it succinctly with this simile: “[The old financial structures] are like rush-hour gridlock trapping a Formula 1 race car. In a digital world, the way we regulate and maintain administrative control has to change.”
From generation to generation, technologies have updated how we complete financial transactions. The modern credit card has been around since the late 1950s, the first proper sale over the internet was completed in 1994, PayPal was founded in 1998 and went public and was sold to eBay in 2002, and Satoshi Nakamoto started the blockchain revolution in 2008. Today, financial heavyweights are no longer standing on the sideline. And 55 out of the 100 biggest banks in the world have some form of exposure to this novel technology.
The first international regulations were handed down in Japan in 2016 after hacks against crypto exchanges, including an 850,000 BTC theft against Mt. Gox. Because the success of any financial market is based on predictability, security and general market efficiency, regulators continue to contemplate the direction and viability of their involvement with cryptocurrencies.
Regulators and businesses want to ensure that investors enjoy certain protections in any marketplace — digital or otherwise — to spark participation. Think Federal Deposit Insurance Corporation (FDIC) for United States banks or eBay’s Money Back Guarantee. Without regulation, market participants can be exposed to long- and short-term risks.
Regulators also ensure that markets play with an equal set of rules. As Commodity Futures Trading Commission Commissioner (CFTC) Dan Berkovitz said back in June:
“It is untenable to allow an unregulated, unlicensed derivatives market to compete, side-by-side, with a fully regulated and licensed derivatives market.”
And, importantly, it’s not just regulators and governments that will decide the future — it is about us, investors, leaders and the general consumer — deciding how we want to use digital assets in the future.
Evolving language for useful digital assets
As the market matures, the cryptocurrency industry will undergo an evolution of language as well. Regulation and broad adoption will change the way the media and public perceive and talk about digital assets.
Crypto will retain its unique character as it matures — don’t expect the HODL, FUD, and “to the moon” talk to disappear — but it’s critical that a broader cohort of blockchain investors feel comfortable within the space.
It may seem like a small thing, but attention to fusing the languages of crypto and institutional finance has enabled us over the past 10 years to work with a range of institutions from neobanks, fintechs and brokers to banks, hedge funds and family offices.
The evolution of language happens in tandem with more large investors seeing blockchain’s long term value proven out over time as they begin to diversify major holdings to include crypto, thus increasing the association between these new assets and the legacy assets that have held historic value — like gold, bonds or central bank-backed fiat.
In business, you’re judged by the company you keep, so we won’t get that “hearty embrace” without adopting the language of financial services and regulators more broadly.
Nonetheless, it’s not unreasonable to imagine valuing crypto as a commodity rather than a digital currency — U.S. Federal Reserve Chair Jerome Powell told Congress in 2019 that Bitcoin was a “speculative store of value” like gold. But Bitcoin isn’t the whole story, just the most talked about. The industry must stop focusing on one particular use case for the technology and start talking more about money, investments, financial management and smart payments.
The industry is bigger than any one token
We’ve discovered over the past 10 years that customers are increasingly drawn to assets that have utility and can solve complex problems.
Different digital currencies have different use cases. For example:
- Tether (USDT) would work well to pay salaries because it’s tied — tethered — to U.S. dollars, thus avoiding the volatility of Bitcoin.
- Brave’s Basic Attention Token (BAT) is charting a course for the future of online content by issuing payments, in BAT, to the users of its browser for viewing ads. Those users can then tip anyone on the internet using the BAT in their digital wallet.
- And the Audius governance token (AUDIO) makes a compelling case for crypto playing a bigger part in the future of the music industry, providing security, exclusive feature access and community-owned governance to artists and fans.
Blockchain is about solving problems, not taking over the world, replacing fiat or banks, a common misconception among the general public. While BTC may be the most recognizable digital asset because it has name recognition and arrived first, it’s just one asset class among many.
So what does the future look like?
Congress opened up the doors to regulators earlier this year when the Senate passed an infrastructure bill that contained an amendment bringing new scrutiny to the crypto industry.
Investors, digital asset exchanges, smart technologists, government officials, regulators and everyone in between will benefit from a more mature marketplace that protects its consumers and values transparency, predictability and honest communication. Likewise, the majority benefit from clarity about which digital assets hold actual value and which exist as manipulative tools to make the wealthy wealthier.
We’ve been there since the beginning and we’ve seen the ebb and flow of trends. But we’ve also seen that what survives at the end of the day is always brilliant ideas that solve the emergent problems of our time.
Yes, change is here. The mature digital assets industry has begun to emerge over the last several years, bringing with it a synergy of language that has become more sophisticated and invited a broader audience to our table. The assets and insight that this new audience brings, in turn, will provide rich confidence across industries. That confidence will lead to the adoption of blockchain technology to unravel issues that no one ever dreamed could be addressed with blockchain.