Happy New Year! Last week’s holiday edition of Money Reimagined offered a look back at the year that was and explored five ways in which our idea of money was challenged during those insanely busy, news-packed 12 months. This week, we look to the year ahead and consider ways in which money could potentially be further reimagined in 2022.
Who will issue our money in the digital future?
Will governments, armed with central bank digital currencies, continue to monopolize monetary systems? Will private company currencies rule, either with stablecoins that track the value of pre-existing government units (e.g., tether), or with their own free-floating tokens? Or will decentralized currencies such as bitcoin end up as dominant? Or will they all compete against each other in a multi-currency future?
You’re reading Money Reimagined, a weekly look at the technological, economic and social events and trends that are redefining our relationship with money and transforming the global financial system. Subscribe to get the full newsletter here.
Of course, these questions will not be anywhere near resolved next year. But the debate is likely to intensify, driven by various factors. China is rolling out its Digital Currency Electronic Payments (DCEP) project during the Winter Olympics in February. The U.S. is developing regulations (see the next theme) targeted at private issuers of stablecoins. And adoption of decentralized cryptocurrencies for payments continues to grow around the world, helped by the advance of scaling systems such as Bitcoin’s Lightning Network.
The policy discussion will intensify
As we mentioned in last week’s newsletter, 2021 was a big year for crypto regulatory developments. Highlights include the U.S. Senate debate over crypto tax provisions in the infrastructure bill and the approval of a futures-based bitcoin exchange-traded fund (ETF.) It seems likely the regulatory push will get even more intense in 2022.
What’s up for grabs? Well, there’s a decent chance the U.S. Securities and Exchange Commission will find ways to clarify its position on whether tokens are unregistered securities, with developers of tokens for decentralized finance (DeFi) possibly finding themselves in the crosshairs. There will likely be an intensified push from newly emboldened crypto supporters in Congress for a more comprehensive overhaul of securities and other legislation pertaining to crypto, though we’re unlikely to see anything as sweeping as the landmark 1996 Telecommunications Act, which some cite as a model for a clarity-setting legislative initiative around a new, transformative technology.
Meanwhile, the SEC will be under pressure to approve a bitcoin ETF that’s based on spot prices, the next logical step after this year’s approval of a highly limited, futures-based model. We may also get clarity on how closely stablecoin issuers are to be bound by U.S. banking laws. And there will be further consolidation of international rules around anti-money laundering by bodies such as the Financial Action Task Force. Let’s hope the powers-that-be can open their minds to the constraints their draconian solutions impose on innovations that could boost financial inclusion.
Will Ethereum successfully transition to 2.0? With gas fees for non-fungible token (NFT) transfers and other transactions making the Ethereum ecosystem prohibitively expensive for most, pressure to complete the much-awaited Ethereum 2.0 project will grow. Already a parallel proof-of-stake blockchain known as Beacon is functioning, but there are many big moves to be made before the full 2.0 project can be deemed a success. For one, merging that Beacon chain with the mainnet is going to entail a disruptive shift in token economics for miners and validators. And there are separate, similarly challenging upgrades within Eth 2.0 still to come, including sharding, a means of reducing the amount of data that Ethereum nodes need to process to maintain the blockchain. These are major undertakings and the future of the dominant smart contracts platform depends on them.
Read more: 5 Ways Money Was Reimagined in 2021
Crypto’s environmental challenges/opportunities
Two things seem certain, whether people like it or not: climate change is only going to get worse and the crypto ecosystem is going to continue to grow. So we need to end the current state of affairs in which crypto critics make ill-conceived calls for it to be banned and (equally naive) crypto supporters ignore the massive problem of fossil fuel-based mining.
The conversation needs to shift toward mining-integrated energy systems that create incentives not only for miners to use renewable energy but for the sector to essentially finance the development of a more effective, smoothly managed “green” electricity grid. I’m hopeful that 2022 will see that kind of more sophisticated discussion emerge, as local managers of energy solutions join forces with innovators in the mining space.
Whither Web 3? The year ended with a furious argument between bitcoin maximalists, led by Square CEO and former Twitter CEO Jack Dorsey, and Web 3 enthusiasts seeking to give people greater control over their data and content than we’ve seen during the two-decades-old Web 2 period. I, for one, think Web 3 is a real thing and that those working on it deserve the chance to build and test out their projects, even if the entire concept is unavoidably ill-defined.
That’s because Web 2 is such a mess. Humanity needs a way out. The internet, as Balaji Srinivasan and Parag Khanna laid out in a compelling recent piece for Foreign Policy, is already disrupting and decentralizing power structures in the 21st century. We need to adjust our systems for managing digital property and for establishing users’ rights in this new era. That discussion will inevitably intensify in 2022 and it will inevitably bring the many disparate and competing ideas around Web 3 into sharper focus.