The Money (R)evolution

The hype around Bitcoin is only the proverbial tip of the iceberg, masking massive shifts in socio-economic behavior, collaboration, and participation. Emerging technologies, like blockchain, will transform the way we relate and trust each other, and how value, or money, can be become inclusive again.

There is increasing hype focused on the comatose rise of digital assets, particularly in Bitcoin; the doubters, lovers, and haters alike have plenty of wisdom to share. A common approach to the topic is if price advances are real, paired with sobering episodes of FOMO (fear of missing out,) all centered around a new, often self-declared, flair of sophistication.

It is of little value to add to the pundits by choosing a side. Far more interesting is the unpacking of the socio-economic drivers having set the stage for numerous, and to a degree speculative market developments, not only in digital assets. Let’s just think of the Redditors and their recent “ambush” of a surprised, established Wall Street.

At the risk of simplification, it is a fair statement that many of us have not fully regained trust in the financial system post-2008/2009’s Great Financial Crisis, especially with a loyal “band” of global central banks continuing to intervene and “fixing” the financial system, leading to unintended consequences, and the breakdown of free price formation. 

This is the angle in need of magnification: At the onset of the COVID-19 crisis, the Federal Reserve played an active part in stabilizing select assets. Whereas a noble approach in “helping out,” the pressing question became what really constitutes a fair price, and(!), what happens if one just happens to be on the other side of this “so-to-speak” trade?

Without a doubt, blockchain technology, on which many digital assets are being created, is real and has the potential to materially disrupt and transform global industries, including the way our work is being connected, and how we trust each other in the most public forum of engagement with mutual accountability on basis of transparent, open ledgers.  

Building on this fact, it is even more interesting to experience the inherent emergence of powerful, social networks as part of this technological evolution, leading to the adoption of new forms of value creation and its acceptance, even as forms of payment. Cynical critics may even allow the argument that a true fiat money revolution may be underway. 

To sweeten this discussion further, at stake is a long-established system of “value understanding” (for the right or wrong reasons), including the geographic locations of competences, money centers like New York, London, etc. We may be truly looking at an emergence of decentralized finance, or the “democratization” of finance overall. 

There are several risks related to current developments: 1) (New) money will not optimally reach the real economy as intended and needed (speculation wins); 2) established market participants will want to secure their status-quo and 3) governments may opt for strangling regulation to control the creation of “alternate” vs. sovereign stores of value.

Opportunities, however, are outweighing the risks in the long run. We are at the cusp of a new paradigm in global financial relations and inherent protocols of trust, paired with an essential protest against current standards. Money and value could become inclusive again, especially on the back of powerful, self-governed social networks.

The views expressed are those of the author and do not necessarily represent the views of any other person or entity. Not financial advice. This blog appeared originally under Columbia University’s SPS Blog.

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