It feels like we live in turbulent times, doesn’t it? And it’s true. Just mentally time travel back twenty or thirty years. What a different world it was back then. I mean there weren’t any smartphones yet - for example. So this device single-handedly took over all our lives in just a bit more than 15 years. The world is truly spinning fast.
And chances are that it’ll spin even faster in the coming decades. People usually sense that. They know that big changes are coming. Even if they don’t know the exact nature of these big changes, they can feel them. And if they feel them they usually divide themselves into two opposing groups. The one group wants to embrace the changes. It wants to use them to build a better future. The other group, however, is highly sceptical. They don’t want any change. They just want to live the life they have always lived. They are scared of what might come with the “new system”.
Let’s call these two types of people the a) “forward-looker” and b) the “backward-looker”. You can usually very easily distinguish these two types of people by looking at statements like “back in the days, everything was better” or “artificial intelligence is going to change the world”.
In several of my other posts I wrote that the world is not black or white (not binary). Of course, this also applies to this situation. No-one is “only” a forward-looker or only a backward-looker. We are always both simultaneously. In some areas of our lives, we’d rather live in the past. In some, we’d rather live in the future.
But let’s look at the topic at hand again. What big changes are coming? And why is it that every few hundred years society takes a big leap forward (if the forward-lookers are in the majority) or a big leap backwards (backward-lookers are in the majority)?
What Drives Major Societal Changes?
Because society is nothing more than the sum of all individuals, the short answer is: Everything. However, this answer doesn’t explain much and cannot be used to understand the world around us better. So, let’s try to break it down to some of the major drivers of the really big changes. Usually, it’s not one driver alone but a combination of different ones. I can explain this best with a specific example. Let’s look at the biggest societal change our society has ever seen. Let’s look at the “industrial revolution”.
When reading history books they usually point you to the invention of the steam engine with regards to the big “driver” behind this revolution. However, this is not entirely true. Of course, we would not have seen an industrial revolution without this wonderful new way to convert energy into products. But it wasn’t by any means the single main driver. There were two others that were equally important.
If we want to have a prosperous economy, we do not only need products (or services) but we also need money to pay for them. Also, individuals in such a society need to be able to communicate and exchange plans, information or instructions. In short, we can reduce the drivers of a major societal change to the three following big drivers:
- technological innovation (e.g. steam engine)
- information innovation (e.g. printing press)
- monetary innovation (e.g. paper and book money)
Only when several of these really big drivers come together do we see major changes in our society. And by the beginning of the industrial revolution time was ripe. We had machines that allowed us to automate in a way never seen before. Then, we also had the information technology that allowed us to communicate to and coordinate the big masses (e.g. newspapers, books, flyers). Finally, we also had the monetary tools which allowed us to pay for such products and services (e.g. paper money and book money).
Just think about it for a second. Do you really think the industrial revolution could have kicked off if we still had used gold coins back then? Or if the only source of information would have been the village square because newspapers could not have been reproduced without the printing press technology? Personally, I don’t think so.
So, for the really big societal changes to kick off we need three ingredients:
- A new way to produce stuff (i.e. technological innovation)
- A new way to exchange information (i.e. information innovation)
- A new way to pay for stuff (i.e. monetary innovation)
And it looks like we have all the three ingredients together again. In the past few decades we have seen numerous technological innovations. It all started with including machines in the production process (assembly lines). Then, it went on to letting machines coordinate stuff in the production process (automatic planning). Later we outsourced the task at hand completely to the machine and humans only defined the ground rules (automation).
Then, some thirty years ago came the big information revolution. Suddenly, we had a new technology that allowed us to exchange information at a time and cost never seen before. Just think about the magnitude of this innovation for a second. In the early 1990s an individual with “no importance” to the information technologies at the time (newspapers, television) had literally no way to spread information globally.
Now, every single one of us has that power with technologies like social media, blogs, websites or chat groups. It’s only logical that this information revolution, combined with the ongoing technological revolution could bring forth amazing innovations. Suddenly, we could connect millions that drive each other from A to B (Uber). Suddenly, every product we ever desired was only a click away (Amazon). Or, we simply shifted to consume digital stuff at all (Netflix, Spotify).
But still, one ingredient was missing from the big three. We still were paying for all this new and fancy stuff (or services) by using a monetary infrastructure that is heavily dependent on a few companies, is extremely fragile and nearly collapses every few years. So, it’s only natural that we were also looking for some innovation on that front. And it looks like it’s coming. And it’s coming big.
The Last Twitches of the Old Gatekeepers
In order for something being “ripe for change” there needs to be something wrong with the old thing. Unless something is wrong with the old system, most of the people will not change. Even if the new one is better. First, they need to tear the old system down before they start embracing the new one. It’s just how humans work. They don’t like change too much.
So, let’s look at some of the flaws of the old system. Ever since governments gave up the gold standard they printed money like a coke addicted maniac that needs to finance their desires. Usually, that additional money that flows into our economy sooner or later leads to inflation. This means that the products that we need increase in price and we end up with being able to buy the same amount of products even if we have more money. They just got more expensive.
While this happened at different times in the past few decades in different countries most of us (luckily) didn’t see the “evil face” of inflation like people in Venezuela (currently, you get over 400bn Bolivar for only one (!!!) USD). But this is only the case because we were focussing on the wrong inflation for years.
The inflation that the government and the newspapers tell you about is the so-called consumer price inflation (CPI). Put simply you could call it the “carrot inflation”. It tells you how much more expensive your carrot gets on a yearly basis. If one carrot costs you USD 1.00 today (it’s a very beautiful carrot and therefore expensive) and we have a 10% annual inflation it will cost you USD 1.10 in one year.
But this isn’t where all the money went that was “printed” in the past few decades. You always have to ask yourself who is getting that additional money that was printed? If it’s poor people, they might buy more carrots. But if it’s rich people, not necessarily. Rich people can only eat this many carrots. And if they’re full, they have to buy other shit. And this is usually not stuff that’s directly relevant for our survival. So it’s also not measured with an index like the consumer price inflation.
More likely, the money goes into buying stocks, real estate, paintings, classical cars or whatever else the materialistic heart desires. And if you look at the price increases of these things, the story is a whole lot different. This so-called asset price inflation (API) has really skyrocketed over the past few decades.
Unfortunately, the government usually doesn’t give you any meaningful analysis to directly observe this trend. They claim it’s not possible because the assets that inflated most are not per se trackable in price. They are illiquid, not fungible in nature and prices are rarely observable on the open market. That’s certainly true and one side of the story (after all, incompetence is one of their signature moves). There is also another side of the story, however.
If the “common” people would realize how worthless their money in their bank account actually is compared to only 50 years ago, they’d certainly put it all in either real assets (real estate, stocks, old classic cars, …) or new currency systems like crypto currencies. And this is what governments and central banks are afraid of. Because if they don’t control money anymore, they cannot “solve” the next crisis by just printing more of it. They would have to solve the underlying problem. They couldn’t just ease the symptom. And naturally, this scares them.
But let’s stay with asset price inflation for three more paragraphs. Some currencies in this world are considered “safe haven” currencies. One of these safe haven currencies is the Swiss Franc (CHF) for example. Do you know how many CHF you had to pay for one USD in the 1970s? It’s been over 4 CHF per USD! Now, you don’t even pay 1 anymore. So, compared to the CHF, the USD has lost over 75 % of its value over the last 50 years. By the way, it’s the same story when looking at other currencies (e.g. one British Pound (GBP) was roughly worth 10 CHF in the 1970 - now it’s about 1.30…).
But even within safe haven currencies like the CHF people have experienced HUGE asset price inflation. If you’re Swiss, for example, just ask your parent/grandparent what amount they paid for their house/apartment and what their salary was at that time. Chances are that this ratio is way lower than what it is today. This basically means that we have to work longer until we can buy the same thing. This is asset price inflation.
So, let’s just assume that also the “safe haven” CHF has depreciated 75 % in value. This would mean that the USD holder would have lost nearly 95 % of their value if they kept their savings in USD. Thankfully, no one saves money in the US. Otherwise, they would have long realized that they are getting scammed. Jokes aside, this is a BIG problem that we have with the current system right in its core. And it’s getting worse.
This completely worthless junk of book money then finds its way into our economy. But clearly we cannot handle it directly. This would be too dangerous. So, we give it to our banks who are responsible for keeping it safe (custody), allowing us to move it from A to B (payments) or maybe also letting us invest some of it to profit from this asset price inflation (e.g. in stocks).
But instead, they are creating a global casino where the shortsighted decisions of the banker with their quarterly bonus payments only guides it from one doomsday scenario to another. It seems like bankers have perfected the “ability” to attract “investments” that look like this: You earn a little bit of money every year only to lose it all if the next crisis hits. Ah yeah, and then the government needs to step in because they have already paid out all the money earned the years before as bonus payments to their “top” employees.
To summarize it, the current monetary system creates more inequality. It divides us instead of uniting us. And if something divides us over a long enough time and with a big enough severity, the two divided groups inevitably clash together at some point of time. It’s only natural. And this is where we are now.
The Monetary Revolution
Clearly, the current monetary system is not optimal. But what’s the alternative? For a long time, we didn’t have an answer. There was none. So, we stayed with the old system. Better keeping what we already know (even if not perfect) than having nothing at all... But since a few years, we suddenly do have alternatives.
It all started in 2009 with the “birth” of Bitcoin. Suddenly, we had a viable alternative to centralized currencies from governments that got more worthless by the year. It solved a lot of the problems that our current systems had. One couldn’t just create more. So, people that owned this new currency would be protected from inflation. Also, it’s been designed in a way where no gatekeepers can control or stop transactions (there are some limitations to that though).
This is an important feature of a truly new system due to one obvious reason. As soon as the “old elite” realizes that there is something new around the corner which they cannot control, they will do everything in their power to keep it from advancing. It simply threatens their power base.
A few years ago, it was big corporations who got the wink. Facebook, for example, publicly announced their work on their own digital currency libra (now: diem) in 2019. Of course, the US has then done everything it can to nip these efforts in the bud. They don’t want to be dependent on Facebook when the next crisis hits (and subsequently need to increase the monetary base). They want to own the “money printing machines”. So, Facebook (at least publicly) left the project.
This year, another chapter of the book “From Analog to Digital Money” has been written. China suddenly started fighting hard against crypto currencies in May this year. In a single day, they single-handedly pushed down crypto currency prices 50 % on average. Not only did they completely forbid mining activities (most miners were in China at the time) but also “incentivized” big Chinese crypto holders to sell off. Also, they announced their own digital currency - the e-CNY. And they put the big Chinese finance companies in handcuffs - just look at Ant Financial (Alipay → Jack Ma arrest) or Tencent (WeChat Pay).
I am not sure if it’s just me, but I think the Chinese might want to establish the “world currency” of the digital future. From an economic perspective, they have already overtaken the US. From a geopolitic and foreign affairs perspective not yet. The western countries would still rather align themselves with the US than with China. In this space, China is working on/with countries in Africa (e.g. Ethiopia) or Asia (e.g. Pakistan). It always follows the same script. First you help them build something by giving them the loans for it. Then, they cannot pay that loan back. Then, you come and take the “collateral” (e.g. critical infrastructure like a port). But that’s a topic for another time.
Monetary wise, they have already started racing the race of “digital currencies”. Soon, China will “incentivize” their own citizens only to use the new e-CNY for payments within China. “It’s just easier for them.” Also, China can then define “rules” how this e-CNY can be spent. Maybe they can only spend it for a certain time. After this, the currency automatically expires. Maybe, they can also just spend it for certain stuff. Maybe they have to spend some amount on products from their own country before they can start buying “foreign stuff”. All rules imaginable can be embedded into such a system.
So, for a country that puts the collective over the individual, this is one of the most amazing inventions ever made. Recently, for example, China ruled that minors are only allowed to play three hours of video games per week (or cannot listen to K-Pop anymore). Even if I agree with the fact that children should rather do other stuff than playing video games or listening to K-Pop all day long, I still feel very uncomfortable with such a rule. I simply think it should not be within the competence of the government to tell me this. Because from there it’s only a small step to an Orwellian future.
Like always in history, all the potential outcomes usually reduce themselves to two opposing fractions of people. Even if we don’t like it, most of us still think binary. So, we need a situation where we can choose between two options. Either you are A, or you are B. With regards to a future monetary system, it looks like these two options are: a) state sponsored central digital currencies (don’t worry, the other big governments will soon release theirs as well) or b) decentralized private digital currencies.
In the western countries, it looks like option b) is going to win in the long term. Governments are just too slow to come up with a serious competition for the existing digital currencies. Also, we don’t trust our governments anymore at all (just look at the reactions to the corona crisis). Therefore, more and more people are switching to decentralized digital currencies (whichever one) and if this group of people has reached a “critical mass” there’s nothing the government can do against it without risking riots.
In China, however, I am pretty sure that the e-CNY will replace existing decentralized digital currencies (unless there’s big resistance from the masses which is - however - unlikely with a social score and mass monitoring of the people). As soon as enough Chinese use the new e-CNY, it’s a small step for China to “incentivize” other countries to accept it as well. After all, they are producing all the products the world needs. So, they get to decide how the rest of the world shall pay for it.
The only valid chance we have against such a monopolistic and China controlled digital currency is a decentralized, multi-layered alternative that can - by definition - not be attacked at a single point of failure. Yeah, you can cut off one head, but like with Medusa in Greek mythology, you can be sure that two new ones will grow. Cryptocurrencies are - whether you like them or not - antifragile in their risk profile. They get stronger the more volatility they experience.
The reason is quite simple. They are completely transparent and everyone can see what mistakes have been made in the past. Then, you “simply” have to come up with a solution to the found problems and you end up with something stronger. In today’s financial system, we have closed systems everywhere. No one bank knows what the other bank does. So, every crisis makes the system weaker (fragility), not stronger (antifragility).
Just let me finish this chapter with one example that shows this exemplarily. As I have already mentioned, in May China single handedly crashed crypto markets 50 % in one (!!!) day. Just think about one second what would have happened, if the stock markets would have crashed 50% in one day. You could be sure as hell that not a single bank would have survived that event. Governments would have had to step in, bail out some rich bankers, print a ton more money and then cross their fingers that the cranky money machinery works again for some years.
What about crypto banks (e.g. wallet providers, exchanges, custodians) or crypto exchanges (decentralized or centralized)? Not a single one went bankrupt after this historic crypto drop. Of course, some bled. Of course, a lot of people lost money (because they sold at the bottom or invested with leverage). But the system itself worked. And how it worked…
It’s just built way more reliable than what we call the financial industry now. It’s not yet perfect. But we’ll get there.
Brave new World
For everyone having read the great book by Aldous Huxley, I can comfort you. I am not talking about a “dystopian” future, but an “utopian” one here. There will be no “artificial wombs” or “childhood indoctrination programs” in this vision. But still, it will be different from what we know today. It has to be.
The safest way to predict the future is to look at the journey behind us. It tells us where we’ve been, it tells us where we’ve already gone and it may also tell us where we’re heading towards. Not always exactly. But usually not too far from the truth.
In the past few years we have moved more and more aspects of our lives into the “digital world”. While we communicated with our friends in person 20 years ago, we now do it through a rectangular handy device (smartphone). While we spent our free time out in nature eating dirt some years ago, now it’s binge watching movies, playing (online-)games or spying on what other people do in their lives because ours bores us (social media).
Also, we are increasingly spending money for our “digital lives”. We are willing to pay for a Netflix subscription that gives us digital movies. We are willing to pay for digital games that help us distract ourselves from reality. And some of us are even willing to pay for digital souvenirs that can be used in their digital worlds (for example Fortnite players buying skins). So, isn’t it only logical that we will spend more of our income / wealth on digital stuff in 20 years than we do now?
In my opinion, it is. And what could be appropriate currencies to pay for such digital content? It can and will not be an analog currency that some old dinosaurs (i.e. banks) will try to convert into the digital age. More likely, it will be something new (be it a central bank digital currency or a multi-layered decentralized web of different digital currencies). The reason is quite simple.
Only if you apply a greenfield approach and plan such a digital currency from scratch, can you profit from all its advantages. For example, one could decide to build a decentralized platform where you can exchange one of these digital currencies into another (decentralized exchanges). Maybe someone designs a platform where you can lend your currency to someone else (decentralized lending). Maybe someone designs a platform where you can buy digital stuff with it (for example NFTs).
All these second layer applications will be what give value to the first layer. And of course, it will take some time until we can witness that switch. After all, the reasonable internet applications didn’t arrive in the 90s. They arrived in the early years of this new millenia.
Now, we are with digital assets where the internet has been in the early 2000’s. We are just about to start. There’s always the question of the “killer use case” when it comes to a new technology. For the printing press it was newspapers. For the internet it was the porn industry. And for Blockchain it looks like it could be the creative industry.
By connecting their individual piece of art with the power of Blockchain, artists have the ability to - for the first time ever - directly sell their art to everybody around the world immediately and at no cost. So, it’s only natural that this space has hit the Blockchain industry like a bomb. Is it really so different if a medieval painter uses paint and brushes or if a modern design artist uses paint and photoshop? In the end, it’s someone spending a certain amount of time of their life in order to create a certain something that represents how they see the world.
In the art industry, it’s never about the art. It’s always about the story that’s connected with that piece of art. As soon as you realize that, you’re no longer amazed that someone can pay millions for a banana taped on a wall. Yeah, it is completely pointless and everyone could do it. But someone HAS done it and you could be part of that story by just buying it. Be it to show other people that you’re so rich that you can spend millions on literally crap or be it for whatever other reason. You buy into the story, not the art piece.
As soon as you realize that, you also realize that it’s not important whether or not the art piece is a wonderful painting of some Italian woman (Mona Lisa from Leonardo da Vinci) or an expression of the troubled inside of a schizophrenic painter (Starry Night from Vincent van Gogh). All famous artists have an interesting story to share. And by buying a piece of art from them, you buy into the story. The art piece itself is just a nice thing on the side. Something that proves to others that you have bought into the story. This is also why an absolute perfect replica of the real thing is still (mostly) worthless. It shows you the same visual information. But it doesn’t connect you with the story behind the art.
Alright, we’re nearly there. Once you accept the fact that people just want a certain something that connects them with a certain story from a certain someone and need some kind of “proof” for that connection we can start truly thinking about the future. What if that connection could be created digitally. What if, for example, a famous Hollywood star could create something, then digitally sell this to their fans and create a direct link to them (like a digital autograph)?
Or, what if an amazing photographer could let you be part of the story and makes the photographs into NFTs and lets you buy them? Or, what if your favourite sports team lets you buy digital fan articles or collectibles? Or what if you were to create a decentralized Netflix, Spotify or Shutterstock alternative where every content producer could simply upload their work and people could buy in? Not only wouldn’t we need twenty streaming subscriptions like now but also would the artists get 90 % of the share and not the big gatekeepers like today.
The possibilities are endless. And if they are, usually someone hits the home run. I don’t know who it will be yet. But it will be someone. In some decades, we’ll look back with our bags filled with digital currencies, our homes full of digital art while listening to digital music that we truly own before watching a digital movie and wonder how we could have not seen it coming. All the signs were there. We just had to look.
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