Innovation Monitor: Digital Currencies & Looking Past the Hype

Innovation Monitor: Digital Currencies & Looking Past the Hype

View this email in your browser

Welcome to this week’s Innovation Monitor.

As we’re in the midst of the second wave of cryptocurrency-mania, this week’s edition will focus on the future of currency. The price of bitcoin and altcoins are reaching all-time highs as investors congregate on subreddits to collectively boost the price of lighthearted joke coins. And after a one-word tweet by Elon Musk, that cryptocurrency surged 44%.

This week, we recognize the hype and consider global, governmental investments in crypto through CBDCs, or central bank digital currency.

How can we assess the value, worth, and power of these coins? And is that worth inflated or is crypto undervalued? As we attribute so much monetary value to pieces of code, we might find the foundation of a new future ruled by digital currency and the tech it’s built on.

Stay safe & thank you for reading.

All best,
Erica Matsumoto A Brief History Before we delve into the future of currently, let’s take a moment to look back at its history. When Marco Polo visited China during the reign of Kublai Khan in the thirteenth century, he wasn’t just surprised by gunpowder, coal, and glasses: he was shocked by the invention of paper money, derived from mulberry trees, and how seriously it was taken.

In the early eighteenth century, when the new national French bank took public deposits in the form of government debt, crediting the full amount in paper money, its paper assets surpassed the actual gold it had. The practice — prototypical fractional-reserve banking — is standard today, but was radical at the time. The bank said the paper notes were worth something, and that made some people very rich (“millionaire” was first coined around this time). The ABCs of CBDCs Over 80% of central banks around the world are experimenting with their own cryptocurrencies, including China, Hong Kong, Thailand, the EU, UK, US, and Australia. The Bahamas was actually the first country to launch a general purpose central bank digital currency, or CBDC.

CBDCs can simplify cross-border payments, micropayments… and well, create less friction around any payments whatsoever. The World Economic Forum released a policymaker toolkit around the creation of CBDCs last year, and last October seven central banks published a report suggesting that CBDCs should complement cash and should be free or very cheap to use.

Like the original Satoshi acolytes of the early 2010s, the public sector now sees the need to join the digital asset race before it’s too late. As the use of cash declines and people increasingly resort to digital payments, it will be Big Tech and other private groups that will hold sway on what we use for purchases. That’s an enormous threat… especially from Facebook. As Libra Shrugged author David Gerard wrote:

Libra frightened the central banks — a popular private currency run by people who didn’t seem to know what they were doing could prove disastrous. Central banks started looking into CBDC with more urgency. There might be a gap in the market, for low-cost international settlement — and Facebook said Libra could fill that need. But Libra would run at a large enough scale to risk financial stability.

The LSE Business Review has a good Q&A piece on CBDCs that includes a list of problems they can assist in, like “the risk of spreading Covid-19 and other infectious diseases on banknotes,” “the role of physical cash in supporting the black economy,” “lack of financial inclusion,” and “limitations on the ability to deal with lack of demand in the economy by techniques such as ‘air dropping’ money to a whole nation or imposing negative interest rates.” The Future of Payments There are services like Purse that let you shop on Amazon with bitcoin; Overstock has accepted bitcoin for over six years; travel sites like Expedia accept bitcoin; and back in 2014, the Winklevoss twins paid $500k in bitcoin to reserve two seats to space with Virgin Galactic.

But it doesn’t seem like accepting volatile digital assets will be the norm for traditional merchants. The future of payments looks a lot more like a bridge, connecting traditional payments with crypto to facilitate purchases with as little friction and technical-know-how as possible.

As of early January this year, blockchains have the same status as global financial networks like SWIFT and ACH. the Office of the Comptroller of the Currency published a letter saying that banks could participate on blockchains and use stablecoins, or “cryptocurrencies that attempt to peg their market value to some external reference.”

Besides banks, payment networks are also getting involved in the crypto space, acting as a bridge for merchants. Wirex, for example, will be launching a Mastercard-branded card that will allow purchases made with crypto and fiat money. In a recent blog, Visa wrote that “around the world, more than 25 digital currency wallets have linked their services to Visa, giving users an easy way to spend from their digital currency balance using a Visa debit or prepaid credential — anywhere Visa is accepted.” Conclusion This New York Times feature, “What Can You Actually Buy With Bitcoin?”, asks the question key to this week’s edition. The volatile nature of digital currencies has made for financial gamesmanship, but when will the everyday person use a digital currency in day-to-day life. On one extreme, will our daily financial transactions soon be settled on central-bank issued stablecoins? On the other side, will we soon be able to pay for a cup of coffee with digital currency? The space certainly remains overtaken by hype, but there’s plenty of room for transformation within the financial services industry and digital currencies will likely play a major role. This Week in Business History February 4th, 1941: “The slipperiest substance of earth,” Teflon, is patented

Roy Plunkett worked for DuPont in Edison, New Jersey. Plunkett and his assistant Jack Rebok accidentally discovered Teflon while researching alternative chlorofluorocarbon refrigerants. The two chemists were experimenting with about 100 pounds of a refrigeration gas (TFE), and when finished for the day they froze the TFE in pressurized cylinders. The next day, the cylinders were empty as the TFE had polymerized into a white powdery substance.

Plunket studied the powdery substance further and found its properties to be waxy, slippery, chemically stable, and had a high melting point. Teflon was originally used by the military and even in the production of nuclear weapons. It’s gone on to become the non-stick material we’ve all come to know.

This email was sent to <<Email Address>>
why did I get this? unsubscribe from this list update subscription preferences
NYC Media Lab · 370 Jay Street, 3rd floor · Brooklyn, New York 11201 · USA