the future of money

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  • THEFUTUREOFMONEYHAMPUSBRODN 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

    Housebuyersbank

    Newmortgage

    loan

    Newdeposit

    Housesellersbank

    Assets Liabilities

    Reserves DepositsReserves Deposits

  • NEWLOANSMAKEMORE MONEY

    Assets Liabilities

    Housebuyersbank

    Mortgageloan

    Housesellersbank

    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 00019

    98

    1998

    1999

    2000

    2001

    2002

    2003

    2003

    2004

    2005

    2006

    2007

    2008

    2008

    2009

    2010

    2011

    2012

    2013

    2013

    2014

    2015

    2016

    SEKm

    "CREDITMONEYISTHEMOSTCOMMONMONEY

    Ondemanddepositsfromnon-bankpublic

    Coinsandnotesincirculation

    SWEDISHMONEYSUPPLY

    Actualmoneyisdecreasingatthesametimeascreditmoney

    isincreasingMoneysupply

  • ACTUALMONEYISBECOMINGRARE

    InSweden98%ofwhatweperceivetobemoneyactuallyiscredit

    (loanstothebanksthatis)

  • IsolatedledgerA

    IsolatedledgerB

    Email

    Mon

    ey

    Mon

    ey

    Time=instantCost=0%

    Time=days

    Cost=Upto8%

    PAYER RECEIVER

    CREDITMONEYHASITS 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

    Receiverspublickey/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

    fBitc

    oinwalletsin

    use

  • 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 Afullscaleadoptionofdigitalmoneycouldbeverydisruptiveforbanksastheystill

    makelargepartoftheirlivingonfacilitatingtransactions*

    The2nd,andperhapsmostdisruptivechange,wouldbeadisappearingdemandfortransactionaccountsfromhouseholdsandcorporations

    *Paymentfeesmakeup40%ofglobalbankstotalrevenueaccordingtoMcKinseyreportGlobalPayments2015:AHealthyIndustryConfrontsDisruption

  • BANKSARE VERY DEPENDENT ONDEPOSITS

    Capital

    >1Yearfunding

    DepositsfromhouseholdsandSMEs

    Otherdeposits

    Derivatives

    Source:Liquidatum andRiksbanken

    10

    20

    30

    40

    50

    60

    Almost40%ofEuropeanbanksassetsarefundedbydeposits

    Fund

    ingofEurop

    eanba

    nksassets,%

  • IFDEPOSITSMORPHINTODIGITALCASH

    Bankswouldhavetoofferhigherratestoconvincethepublictolendthemmoney Higherfundingcostswouldlikelydepressprofitabilityofthebankingsector Lowerbanksectorprofitabilitycouldaffectcreditratingswhichwouldputupwardpressureonwholesale

    fundingcostsaswell Higherbankfundingcostsmeansincreasedcostofcreditforbanksborrowers Higherborrowingcostscouldimpactassetpriceslikeresidentialandcommercialrealestate,equities,

    bonds,commodities,infrastructureetc. Banksabilitytocreatemoneywouldbemateriallyimpactedandassuchcentralbanksabilityto

    conductmonetarypolicythroughthebankingsystemwillbetoo Ironically,bankscouldhelpmaketheproblemworseasdigitalcashcouldbecomeamoreattractiveasset

    tokeepasliquidityreserveinsteadoftodayscentralbankdeposits,governmentbondsandotherbankscoveredbonds.Todaysissuersofinstrumentsthatareheldasliquidassetsi.e.governmentsandmortgageinstitutions,couldseefundingcostsgoupforthisreasontoo.*

    Intheend,wewouldprobablyendupwithasaferbankingsystem,withlessmaturitytransformationandhigherqualityliquidityreserves thetransitioncouldbesomewhatuncomfortablethough- forbanksshareholders,holdersofimpactedassetsandhighlyindebtedborrowersthataredependentontheperseveranceoflowcostofcredit

    *15%oftotalassets,ofbanksunderBaselCommitteesupervision,aresocalledhighqualityliquidassetsaccordingtospeechbyBaselCommitteeChairmanStefanIngves 2December2016

  • THESETHOUGHTSAREACTUALLYNOTTHATNOVEL

    IthinkthattheInternetisgoingtobeoneofthemajorforcesforreducingtheroleofgovernment.

    Theonethingthatsmissing,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.Thereisnowaytoretrievelostbitcoi