Money and Identification Become Digitized: A Consumer Tech Prediction for the 2020s
You should be forgiven for forgetting that after Apple CEO Steve Jobs unveiled a reinvented phone in January 2007, the iPhone was slow to take off. While today a basic necessity for the daily life of most residents in the developed world, initially the iPhone struggled to find its killer app. As a result, the iPhone counted less than 40 million annual unit sales by its third year. It took a few years for entrepreneurs within the iPhone ecosystem to find ‘a killer app.’ Yet by the turn of the next decade, the iPhones’s ecosystem of apps began to take off; entrepreneurs released apps which have become key components of our every day lives. Uber empowers riders to seamlessly hail a cab from anywhere, Whats App has made it possible to communicate across international boundaries, and Instagram has begun to rival Facebook as the go-to social networking platform.
Though the Bitcoin white-paper was released ten years ago, crypto has proven even slower than the iPhone to take off. The price gyrations of bitcoin make it unsuitable for use as a currency. Whats more, Bitcoin’s tremendous performance relative to the USD dollar over the last decade has disincentived bitcoiners from spending their money. Remember the man who spent 10,000 bitcoin on a Pizza? Members of the Bitcoin community learned from that mistake and now are into hodling. Secondly, the crypto community is less interested in working with government — the government regulates usage of scare items like money, identification, and financial assets — than in wresting power away from the government. In reality, blockchain apps will be used in every day life only once entrepreneurs form partnerships with government and the private sector should become cooperative with the public sector. This summer the United States congress questioned the executives of Facebook on its proposed digital currency, Libra. Members of congress pointed out that big tech companies already misuse user data and certainly should not also be granted the privilege of issuing new money. “So we are discussing a currency controlled by an undemocratically selected coalition of largely massive corporations” opined representative Alexandria Ocasio Cortez. Several corporations which had joined the Libra corporation such as Square, MasterCard, PayPal, and Stripe promptly left the Libra Association following Libra’s regulatory uncertainties. Governmental outcry appeared to put an end to any prospect digital currency may have had for gaining mainstream acceptance.
The conversation over Libra conversely initiated a broader debate around the usage of digital currency by the general public and pushed governments to pull the trigger on the starting pistol of a race to Central bank Digital Currencies (CBDCs). Libra was met with alarm by the Chinese government with Wang Xin, director of the People’s Bank of China, raising the concern that “if the digital currency [became] closely associated with the U.S Dollar, it could create a scenario under which sovereign currencies would coexist with U.S dollar-centric currencies [and that there] would be in essence one boss, that is the U.S dollar and the United States.” The People’s Bank of China is now planning to launch its own digital currency and China will likely be the first major government to issue a CBDC.
The original proponents of cryptocurrencies loathe the fact that digital currencies are being co-opted by a single actor. The backers of cryptocurrencies tout their ability to decentralize value exchange. Technology is not in fact ideological. Each node of a cryptocurrency’s blockchain can be managed by a single entity and sovereign governments are no exception. In fact, a central bank digital currency may not use a blockchain at all but instead introduce a distributed ledger. While the decentralization of bitcoin made it a compelling store of value, it posed scalability problems which — along with its volatility- may hinder its adoption as a widely used cryptocurrency.
I predict that over the next decade most governments will issue a CBDC. In fact, paper money may be a thing of the past. Central Bank Digital Currencies will feature varying degrees of anonymity according to the political culture of their respective states. In China, where government surveillance is already prevalent, each individual transaction will be able to be queried allowing the Communist Party to augment its control over the economy. Conversely, in the United States — where privacy is valued, and people are mistrustful of government overreach — a CBDC will have to come with privacy guarantees.
Money will not be the only item to be digitized. Passports, drivers licenses, and birth certificates will each be made secure in the digital realm. There will be a point when you will never have to visit the DMV to replace that lost license ever again. The digitization of our wallets may appear trivial. And for those of us in the ‘developed world’ it may very well not matter if our fiat currency is digital or not. But for the 2 billion unbanked people its another story. Two thirds of this group owns a cell phone. The absence of proper forms of identification prohibits the world’s poor from opening an account, as identification is often a prerequisite for utilizing banking services. The digitization of identification and money may very well give the world’s bottom 50% the opportunity to finally participate in our 21st century economy.
