There is a collection of technologies, ideas and theories about a potential new architecture of money: an internet of money, says Stephen Peters. Cryptocurrencies, tokens and blockchains offer hope for a new monetary system.

The underlying structural problems that caused the last major crisis of 2008 are still present in the financial system. Most countries lacked the political will to implement real fixes, and have instead implemented some version of a monetary stimulus policy (aka helicopter money).

We now have a global debt bubble many times worse than 2008. The IMF estimates that there’s now $233tn of global debt at the end of Q3 2016, or 325% of global GDP. That is quite some number, and you would be right to wonder how it will all be retired. It won’t. There are some colossal debt defaults in our collective futures.

On the periphery, there’s a collection of technologies, ideas and theories about a potential new architecture of money: an internet of money. Yes, I’m talking about cryptocurrencies, tokens, blockchains and the rest. These technologies offer hope for a new monetary system.

Many people are decrying these technologies as crazy, unproven and impractical. I will agree with unproven and impractical, but the claim of crazy should be dismissed. I say, let a thousand cryptocoins bloom. Let me explain.

The last major innovation in money was in the 1600s, as European banks began to issue paper deposit notes for depositors to carry around instead of the coins themselves. This principle of gold- or precious-metal-backed currencies lasted about 400 years until 1973, when the US abandoned the Bretton Woods Agreement.

I’m sure in the 1600s there were plenty of people who thought that moving away from gold coins was crazy and would refuse to accept depository notes. In fact, there are still people who want the old gold standard reintroduced.

My point is that people shouldn’t be so quick to attack cryptocurrencies, tokens and blockchain technologies. The current architecture of money is broken, except to those who stand to benefit. It just makes sense to me that we should carefully consider any potential improvements.

Signs of progress

Yes, those improvements must be trialled and tested in all the scenarios we need, such as high-volume payments (e.g., the card scheme networks or domestic interbank credit transfers), or as a stable store of value, and in the future (such as the internet of things and autonomous agents).

Yes, there are plenty of problems with the current state. Bitcoin doesn’t scale as a payment alternative today, but the Lightning Network looks promising. Comparisons with the card networks are a false equivalence. Bitcoin’s 7 TPS is authorisation and settlement, whereas Visa’s 20K TPS is for authorisation only, while settlement is performed days later. But to be clear, bitcoin today isn’t anywhere near a mass market payment alternative. Usability is horrible. Bitcoin governance is best described euphemistically as a “work in progress”. But the internet wasn’t born overnight either, and more importantly signs of progress are there.

Yes, most blockchains don’t scale today, but improvements in consensus algorithms such as proof-of-stake are coming. More work is required, but the promise of decentralisation and ability to safely transact with untrusted counterparties will create new business models.

Similarly, I suspect there is something vitally important about tokens and ‘cryptonomics’. Like blockchain, they will usher in a wave of novel business models, because they will hasten the dematerialisation of assets into more securitised forms. I think the impact of them on the global economy will be quite substantial.

Yes, the ICO space is full of scams, but ridding ourselves of them will help mature the overall space. Manias happen often and are an aspect of human psychology. I think that ICOs are mostly a technological response to venture funding and bank lending that dried up after 2008. My point is that the market will function correctly and these scams will be rinsed out.

So don’t be too tempted to ridicule the new architecture of money. It’s not complete yet – much more work is required to get to maturity – and in the meantime, there will be winners and losers. Yet, the current money system has developed some terminal diseases, so we should be looking for the replacement. We should all remember one thing: those crazy enough to think they can change the world usually do.

READ NEXT: ICOs, tokens and the future of money

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Image by MicroOne,

About the author

Stephen Peters

Stephen Peters is director at Aluna Pte in Singapore, helping enterprises undertake payments innovation and transformation journeys. He is also VP business development at the ai Corporation. He believes the intersection of banking with AI, blockchain, cloud, data and mobile, coupled with worldwide regulatory initiatives to introduce faster payment schemes, will define the future of banking and financial services.

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