Download - The future of money
THEFUTUREOFMONEYHAMPUSBRODÉN – ENTREPRENEURINSTEALTHMODE
BMIBALTICMANAGEMENTINSTITUTE13JANUARY2017
INNOVATIONA- COMMODITYMONEY
+mediumofexchange+storeofvalue+unitofaccount=money
Abyssinia
WestIndies
PacificIslandsNewFoundland
Rome
Virginia Scotland
Africa
MiddleEast
COMMODITYMONEY
(recognizable,fungible,divisible,transportable,transferable,hardtocounterfeit,stablesupply,durable,securable)
CHARACTERISTICS
INNOVATIONB– FIATMONEY
IslandofYapinMicronesia
EXAMPLE- STONEMONEYOFYAP
EarlymoneytransferontheislandofYap
Eventuallyislandersdecided
nottomovestonesaround…
…andinsteadkeept verbaltrackof who ownedwhat share ofeach stone…
…even astonethatsanktothebottomofthesearemainedcurrencyincirculation
INNOVATIONC- CREDIT
Asset
Liability
EXAMPLE- TALLYSTICKSOFMEDIEVALEUROPE
Creditwascarvedintoasplittallyandthedebtorandthecreditoreachgotonehalf.ThetechniquebecamecommoninmedievalEurope,whichwasconstantlyshortofmoney(coins).ThesplittallywasacceptedaslegalproofinmedievalcourtsandtheNapoleonicCode(1804)stillmakesreferencetothetallystickinArticle1333.
INNOVATIOND– TURNINGCREDITINTOMONEY
Assets Liabilities
1)Diversification
1stloss
2ndloss
3rdloss
4thloss
3)Structuring
2)Collateralization 4)Maturitytransformation
Longterm
Shortterm
Voila!Feelsjustlikemoney.
BANK
NEWLOANSMAKEMORE MONEY
Assets Liabilities
Housebuyer´sbank
Newmortgage
loan
Newdeposit
Houseseller´sbank
Assets Liabilities
Reserves DepositsReserves Deposits
NEWLOANSMAKEMORE MONEY
Assets Liabilities
Housebuyer´sbank
Mortgageloan
Houseseller´sbank
Assets Liabilities
Transferredreserves
Newdeposit
Reserves
Deposits Reserves Deposits
0
500 000
1 000 000
1 500 000
2 000 000
2 500 000
3 000 0001998
1998
1999
2000
2001
2002
2003
2003
2004
2005
2006
2007
2008
2008
2009
2010
2011
2012
2013
2013
2014
2015
2016
SEKm
"CREDITMONEY”ISTHEMOSTCOMMONMONEY
Ondemanddepositsfromnon-bankpublic
Coinsandnotesincirculation
SWEDISHMONEYSUPPLY
“Actualmoney”isdecreasingatthesametimeas”creditmoney”
isincreasingMoneysupply
“ACTUALMONEY”ISBECOMINGRARE
InSweden98%ofwhatweperceivetobemoneyactuallyiscredit
(loanstothebanksthatis)
IsolatedledgerA
IsolatedledgerB
Mon
ey
Mon
ey
Time=instantCost=0%
Time=days
Cost=Upto8%
PAYER RECEIVER
“CREDITMONEY”HASITS CHALLENGES
Bank
Assets Liabilities
Loans Deposits
Illiquid
TRANSACTIONCOSTSINSTABILITY
+ =RISKUnstable
ENTERDIGITALMONEY- BITCOIN
• Decentralizeddigitalcurrency
• Notbackedbyanygovernmentororganization
• Instantaneouspeer-to-peertransactions
• Noneedfortrustedthirdparty
• Nocounterpartyrisk
• Cryptographicsecurity
• Lowcostbankingforeverybodyeverywhere
• Inflationproof
• Basedsolelyontheconsensusthatithasvalue
Distributedledger– samecopyineverynode
• Thereceivernowcanspendthatamount• Transactioncost=virtuallyzero• Time=~10minutes
PAYER
RECEIVER
Receiver’spublickey/adress
HOWBITCOINWORKS
Longversion:1. Newtransactionsarebroadcasttoallnodes.2. Eachnodecollectsnewtransactionsintoablock.3. Eachnodeworksonfindingadifficultproof-of-workforitsblock.4. Whenanodefindsaproof-of-work,itbroadcaststheblocktoallnodes.5. Nodesaccepttheblockonlyifalltransactionsinitarevalidandnotalreadyspent.6. Nodesexpresstheiracceptanceoftheblockbyworkingoncreatingthenextblockinthe7. chain,usingthehashoftheacceptedblockastheprevioushash8. https://bitcoin.org/bitcoin.pdf
GLOBALANDINSTANTREACH
• ProtestersinKievheldsignsforthetelevisioncamerasaskingformoneyin2014
• Thousandsaroundtheworldpointedtheircellphonecamerasattheon-screenvideoandmadedonationswithliterallythreeclicks
• Thetransactionswerecommunicatedin20secondsandconfirmedwithintenminutesatacostofafractionofacentperdollar
• Transactionswereanonymous:thegovernmentcouldnotmonitorthem,andtherecipientsdidnotknowwhomtothank.
- BostonConsultingGroup– ThinkingOutsidetheBlocksDecember1,2016
UKRAINIANEXAMPLE
CONSENSUSFORMINGTHEREISVALUEINBITCOIN
#OFWALLETSINUSEMARKETCAPITALIZATION
Source:Bitcoinity.org Source:Blockchain.info
0
2 000 000 000
4 000 000 000
6 000 000 000
8 000 000 000
10 000 000 000
12 000 000 000
14 000 000 000
2012-01-02 2013-01-02 2014-01-02 2015-01-02 2016-01-02
USD
0
2 000 000
4 000 000
6 000 000
8 000 000
10 000 000
12 000 000
03/0…
06/0…
08/0…
09/1…
10/0…
13/0…
15/0…
16/1…
17/0…
20/0…
22/0…
23/1…
24/0…
26/0…
28/0…
29/1…
30/0…
03/0…
04/0…
05/1…
06/0…
10/0…
11/0…
12/1…
13/0…
17/0…
18/0…
19/1…
20/0…
23/0…
24/0…
Num
bero
fBitcoinwalletsinuse
GROWINGFROMASMALLBASE
#TRANSACTIONSPERMONTHBITCOINACCEPTANCE
0
1 000 000
2 000 000
3 000 000
4 000 000
5 000 000
6 000 000
7 000 000
8 000 000
9 000 000
2011 2012 2013 2014 2015
Source:Coinmap.org Source:Bitcoinity.orgForlivetransactiondata:https://blockchain.info
STARTINGTOBEPOSSIBLETOGETBYONBITCOINS
BuenosAires London Tokyo
Source:Coinmap.org
CORPORATESTHATACCEPTBITCOINTODAY
Microsoft,Dell,Tesla,Subway,Time,VirginGalactic,Expedia,Bloomberg,Square,Sears,Intuit,WordPress,PayPal,HomeDepot,Shopify,WholeFoods
INCREASINGLYDIFFICULTTOTELLTHEDIFFERENCE
CREDITMONEYACTUALMONEY
CANYOUTELLTHEDIFFERENCE?
Assets Liabilities
WHATISTHEBIGDEAL?
• Globalpaymentscouldbecomeinstant,availabletoanyonewithasmartphoneandverycheapregardlessiftransactionsarecrossborder
• ThenewglobalpaymentnetworkwouldnotinvolveincumbentinfrastructurefrominstitutionssuchasVISA,Mastercard,AmericanExpress,orbanks
• Formerdepositorscanholdlargequantitiesofelectronicmoneywithouthavingtoexposethemselvestocounterpartyriskorworryaboutphysicalstorage
• TheBitcoinnetworkhasnotbeendownsinceitsinceptionin2009
• Afullscaleadoptionofdigitalmoneycouldbeverydisruptiveforbanksastheystillmakelargepartoftheirlivingonfacilitatingtransactions*
• The2nd,andperhapsmostdisruptivechange,wouldbeadisappearingdemandfortransactionaccountsfromhouseholdsandcorporations
*Paymentfeesmakeup40%ofglobalbanks’totalrevenueaccordingtoMcKinseyreport“GlobalPayments2015:AHealthyIndustryConfrontsDisruption”
BANKSARE VERY DEPENDENT ONDEPOSITS
Capital
>1Yearfunding
DepositsfromhouseholdsandSMEs
Otherdeposits
Derivatives
Source:Liquidatum andRiksbanken
10
20
30
40
50
60
Almost40%ofEuropeanbanks’assetsarefundedbydeposits
Fund
ingofEurop
eanbanks’assets,%
IFDEPOSITSMORPHINTODIGITALCASH
• Bankswouldhavetoofferhigherratestoconvincethepublictolendthemmoney• Higherfundingcostswouldlikelydepressprofitabilityofthebankingsector• Lowerbanksectorprofitabilitycouldaffectcreditratingswhichwouldputupwardpressureonwholesale
fundingcostsaswell• Higherbankfundingcostsmeansincreasedcostofcreditforbanks’borrowers• Higherborrowingcostscouldimpactassetpriceslikeresidentialandcommercialrealestate,equities,
bonds,commodities,infrastructureetc.• Banksabilityto“createmoney”wouldbemateriallyimpactedandassuchcentralbanks’abilityto
conductmonetarypolicythroughthebankingsystemwillbetoo• Ironically,bankscouldhelpmaketheproblemworseasdigitalcashcouldbecomeamoreattractiveasset
tokeepasliquidityreserveinsteadoftoday’scentralbankdeposits,governmentbondsandotherbanks’coveredbonds.Today’sissuersofinstrumentsthatareheldasliquidassetsi.e.governmentsandmortgageinstitutions,couldseefundingcostsgoupforthisreasontoo.*
• Intheend,wewouldprobablyendupwithasaferbankingsystem,withlessmaturitytransformationandhigherqualityliquidityreserves– thetransitioncouldbesomewhatuncomfortablethough- forbanks’shareholders,holdersofimpactedassetsandhighlyindebtedborrowersthataredependentontheperseveranceoflowcostofcredit
*15%oftotalassets,ofbanksunderBaselCommitteesupervision,aresocalled”highqualityliquidassets”accordingtospeechbyBaselCommitteeChairmanStefanIngves 2December2016
THESETHOUGHTSAREACTUALLYNOTTHATNOVEL
“IthinkthattheInternetisgoingtobeoneofthemajorforcesforreducingtheroleofgovernment.”
“Theonethingthat’smissing,butthatwillsoonbedeveloped,isareliablee-cash,amethodwherebyontheInternetyoucantransferfundsfromAtoB,withoutAknowingBorBknowingA.”
- MiltonFriedman1999,NobelLaureate1976
https://www.youtube.com/watch?v=6MnQJFEVY7s
M.Friedman1999 F.A.Hayek1990
THANK YOU
HTTPS://SE.LINKEDIN.COM/IN/HAMPUSBRODEN
MYCONTACTADRESS MYVALUEADRESS
1PSGnH85LKpeRTHmR27TYTAXXSCMFaHvdm
DISCLAIMERThismaterialfocusesonthepotentialofdigitalmoney.Itdoesnotfocusonrisks.Assuchherefollowsafewnotesfornuanceanddisclosure• Althoughtheauthorownssomecryptocurrency,thismaterialdoesnotconstituteadvisetoanyoneto
investinbitcoinsorothercryptocurrencies• Bitcoinisayoungtechnologyandittakesrelativelydeepknowledgeforindividualstohandledigital
currencyinasecureway.Thereisnowaytoretrievelostbitcoinswhenaprivatekeyislostorstolen.• Thepriceofcryptocurrency,inparticularcryptocurrencythatisnotBitcoin,hasbeenveryvolatile.• Mostinstitutionslikeexchanges,custodiansetc inthecryptocurrencyspacearelessmatureandfarless
regulatedthanbluechipinstitutions.Assuchtherehavebeenexamplesofbothpoorgovernanceandfraudcausingcustomersfinancialharm.
• WhenitcomestoBitcoininparticularlyadisproportionatelylargeshareoftradingandconfirmationoftransactionstakeplaceinChinawhichmakestheglobalnetworksomewhatvulnerabletoChinesegovernment’sstanceoncryptocurrencies.
• Taxandlegaltreatmentofdigitalcurrenciesdiffersignificantlybetweenjurisdictions.Also,insomepartsoftheworld,typicallyinjurisdictionswithunstablestatebackedmonetaryregimes,thereareexamplesofwhengovernmentshavetakenoutrighthostilepositionsondigitalcurrency.
APPENDIX
WHATISABLOCKCHAIN – BITCOINEXAMPLE1)Chainofsignedtransactions
Source:InspiredbyBitcoinandcryptocurrencytechnologies,2016
SignedbyPrivateKeycreator
CreateCoin (uniqueCoinID)
SignedbyPrivateKeycreator
PaytoPublicKeyAlice:H()
SignedbyPrivateKeyAlice
PaytoPublicKeyBob:H()
SignedbyPrivateKeyBob
PaytoPublicKeyCharlie:H()
2)Arrangedintoblocks
prev:H()
transID:71
transactions
prev:H()
transID:72
transactions
prev:H()
transID:73
transactions
3)Confirmedbydistributedconsensusnetwork
100%
centralised
DIFFERENTWAYSOFSETTINGUPBLOCKCHAINS
Differentledgertechnologiesvaryintheirdegreesofcentralisation
100%
decentralised
Today’stypicalsystemsPermissioned,privatesharedsystems
Permissioned,publicsharedsystems
Permissionless,public,sharedsystems
Distributedledgertechnologycoversasbroadsetofusages Centralised ledgers
Source:UKGovernmentChiefScientificAdviser
BLOCKCHAIN ASUNIVERSALLEDGER
Bitcoin&othercrypto-currencies
“Blockchain”
Createdigitalmoneybycreating newassets
Createdigitalmoneybydigitizingexisting assets
Noinstitutions
Financialmarketparticipants
Bitcoininnovation
ALTERNATIVEUSESOFBLOCKCHAINTECHNOLOGY
Source:ErikOlofsson ofchain.com