of the Internet's next wave: the Internet of Value.
As remarkable as were the earlier waves, the Internet of Value will be an even deeper transformation of our economic selves than the earlier waves combined. This wave will do to currency, financial instruments, and economic activity what the Internet of Information did to knowledge: reduce costs, increase speed, transcend barriers, improve accessibility, enhance certainty, and decrease bottlenecks to instantaneous transactions across the globe.
In this wave, things of value—such as contracts for energy, agricultural, and mineral commodities; stock certificates, land records, and property titles; cultural assets like music and art; and personal assets like birth records and drivers licenses—will be stored, managed, transacted, and moved about in a secure, private way from person to person, without third-party intermediaries. This next wave of the Internet will shift the medium of trust from large centrally managed institutions to person-to-person digital handshakes powered and secured by cryptography, tokenization, and shared ledgers carried across a network of personal computers and smartphones. Think of the ability to send money or confer ownership over property by mere text message without having to go through an intermediary—a powerful bank or a credit card company—to authenticate who you are and the person you are sending it to. The opportunities will be no less transformative than what Uber did to mobility, Airbnb did to lodging, and Amazon did to commerce. We are only in the middle innings of what will be a decades-long digital revolution.
Ask yourself: When was the last time you mailed a stamped letter rather than sent an email? When was the last time you pasted photos into an album instead of stored them on your mobile phone? When was the last time you played a CD, cassette tape, or vinyl LP rather than listened to Pandora or Spotify? If the Internet could transform letter writing, photography, and music in one generation, it is naïve to think the Internet will not do the same to financial services and money. In a few years' time, writing a paper check will be as archaic as sending film to Kodak to be developed. So will sending money by wire transfer—or even via mobile apps like Venmo or Square Cash—since all these ostensibly “digital” methods still rely on costly intermediaries, such as banks and credit-card companies. Just over the horizon is a world in which we will soon send things of value directly to the recipient, mobile device to mobile device, without any third-party needing to assist—or take a cut.
Nowhere will the Internet have a more dramatic impact than in the realm of money. Sir Jon Cunliffe, the widely respected deputy governor of the Bank of England, once commented to me that, every several generations, society re-asks the question: “What is money?” He thinks this latest Internet wave is prompting society to ask that question once again.
He's right. Society has been questioning the nature of money for over a decade now. Bitcoin3—rising from the ashes of the last financial crisis in 2008—was the first digital asset. Since its advent, the private sector has launched thousands of budding, non-sovereign cryptocurrencies of lesser or greater promise.
Clearly, the private sector is way ahead of governments and central banks in exploring digital money. But lately, governments are starting to react. Most of the world's central banks are now taking a serious look at a sovereign form of cryptocurrency, called central bank digital currency.
The world as we know it today is one of competing currency zones in which monetary systems, banking, and foreign accounts are generally oriented to one reserve currency or another. Think of the US dollar zone and the “Eurozone.” As I will explain in this book, those old currency zones may well be replaced tomorrow by widely networked and integrated national digital currency zones. There likely will be a Chinese digital currency zone and perhaps a Digital Euro zone. In these zones, central bank digital currencies will be networked through distributed ledgers with all important financial functions and transactions—including retail credit and business lending, domestic and global payments, securities and commodities trading, and central bank monetary policy—under the control and watchful eye and sway of powerful central banks. The increase in speed, efficiency, and velocity of money could turbocharge economic growth. Such centralized economic and financial control for major world economies would be unprecedented. It would be the utmost expression of the Internet of Value: fully-integrated, networked, digital economies.
The Digital Future of Money
My third observation is that the standards, protocols, and rules for the digital future of money are being established today. If we act now, we can make sure that democratic values—freedom of speech, individual economic privacy, free enterprise, and free capital markets—are encoded in the digital future of money. In so doing, we can harness this wave of innovation to maximize financial inclusion, capital and operational efficiency, and economic growth for generations to come.
If we do not act wisely and quickly, however, this new Internet wave will lay bare the shortcomings of America's aging, analog financial systems. Worse, it will mean that the values of our nondemocratic economic competitors—state surveillance, social credit systems, law subservient to the state, and centrally planned economic activity—will be embedded into the future of money, diminishing the vibrancy and health of the global economy, individual liberty, and human advancement.
This book is about the digital transformation of money and how it will change the lives of everyone in the global economy. But it is also a more personal story. It's about how I, a Margaret Thatcher–admiring, free market Republican, helped build one of the world's leading derivatives trading platforms only to find myself in the epicenter of the 2008 financial crisis. That experience led me to support the financial market reforms in the Dodd–Frank Act—a law that I now view as the last major “patch” of the long-standing analog, account-based financial system.
Those experiences led to my appointment to the CFTC by President Barack Obama. They also led to my subsequent elevation to CFTC chairman by President Donald Trump—after confirmation by a unanimous Senate.
Like Jimmy Stewart in Mr. Smith Goes to Washington,4 I went to Washington as a political naïf with reformist goals. My immediate objective was to complete and improve reforms to the swaps market. Yet, halfway through, I found myself staring at the first ripples of the next wave of the Internet—a wave that will soon shake the existing financial system to its core.
The immediate challenge was a product called Bitcoin futures, which I will discuss in more detail later. I faced significant pressure to hamper its debut. But I resisted that pressure—not without a few moments of self-doubt. Instead, I led the agency to encourage financial innovation, prepare for the Internet of Value, and oversee the development of crypto derivatives. Braving political risk, we reduced regulatory uncertainty for financial market innovators. The decision laid the groundwork for the emergence of an enormous new ecosystem of retail and institutional cryptocurrency greater than anything I could have anticipated. For that, the online cryptocurrency community dubbed me “CryptoDad.” This book is my story.
***
Undoubtedly, the continuing evolution of the Internet of Value will come in fits and starts. There will be bubbles, crashes, mistakes, and successes. There will be fiascos and criminal behavior as with any profound change. There will be enormous business disruption and even more business innovation that still cannot even be imagined.
Yet, the technology will not be stopped. Suppression in any one jurisdiction will just move the evolution to another. The direction of travel for this innovation is increasingly clear and, frankly, amazing. Bitcoin is just the tip of the iceberg. The question for American policy makers is whether they have the courage to let this new wave of innovation take place here in an intelligently regulated fashion that contributes to our economic benefit or irresolution to force it to happen elsewhere.
The
