New Horizons in Cryptocurrency

What’s on the horizon for cryptocurrency and blockchain technologies? It’s a question on a lot of people’s minds, and there’s a potential for more than a good profit margin for financial professionals who come to the right answers: a potential paradigm shift in payments, investing, and the way we use the internet itself could be on the line.

For its April talk, the Chicago Payments Forum consulted an expert on this subject – Lamont Black, a Ph.D. Associate Professor of Finance in the Driehaus College of Business at DePaul University in Chicago. Black has become something of a regular fixture for a wide range of financial institutions in recent years, with a particular focus and expertise in all things crypto.

Black suggests that a real understanding of what’s next for crypto is built around an understanding of what cryptocurrency is – a more complicated question than it may seem at first blush. He suggests three major subject areas: cryptocurrency as money, as an asset, and as a platform for application development.

“The thing about crypto as it relates to money is that the original idea of Bitcoin was as digital currency, peer-to-peer electronic cash,” Black said. “I’d like to point out we’ve transitioned from physical cash to electronic payments, but it’s still heavily intermediated. What would it look like to have purely digital cash that is peer-to-peer?”

Some institutions have made leaps in this area – payments giants Visa and Mastercard are rolling out a program to support converting crypto into fiat currencies – but Bitcoin’s extreme volatility in particular still makes it a dicey prospect for wider adoption, and one that almost always relies on that intermediary step of conversion to a more common fiat currency like the U.S. Dollar.

But other concerns about crypto, or that Bitcoin has no intrinsic value? Increasingly less of a concern for financial professionals, suggests Black:

“I would argue no money has intrinsic value, so bitcoin being digital has no real bearing on value,” Black said. “The U.S. Dollar and the Fed… I think people are starting to have a few doubts about the dollar as it relates to inflation. You start showing pictures of the CPI index and inflation over the last 40 years, and you start to show, whoa, we are now 7.9% inflation. That’s going back all the way to the 1980s since we’ve seen numbers like that. Where is this headed? Could we wind up in stagflation?

“This is a great opportunity to raise questions about the central bank model. Central banks manage fiat currency, but there are times with monetary stimulus that some of that can start to get out of hand.”

An area of arguably more interest for financial institutions, in particular, is looking at cryptocurrencies as an asset class – and looking beyond bitcoin into Ethereum applications and NFTs.

“Understanding the technology in an Ethereum-based NFT, the asset itself is unique,” Black said.

“It’s not just about cool pictures or fads, but a digital record of ownership. This whole wave we’re seeing of the creator economy using NFTs, using these digital platforms, to provide proof of ownership, is super interesting, and can be way more than just cryptocurrency.”

The potential for solving the problem of digital scarcity, and creating real ownership, would be a major feather in the cap for the creator economy, though major problems of fraud in the space will have to be addressed before that potential can truly be realized.

But perhaps the most potentially transformational aspects of cryptocurrency aren’t about crypto at all, but about the underlying blockchain technologies powered by currencies like Ethereum, with their programmable capabilities and the platforms they could empower.

“Even things like Metaverse and Web3, I think these are partly buzzwords, but also potentially watershed moments we’re seeing in our generation,” Black said. “As the economy digitizes, what does it look like to build these digitally native economies, like Second Life? This is not Facebook rebranding as Meta, this is Metaverse built on blockchain. Those are different things.”

And as Web3 continues to develop, Black argues that it could have effects far beyond the financial, and perhaps help us as a society reclaim that thing that seems almost entirely forgotten in an age of digital surveillance.

“We talk about how the internet is a system of data collection, data monetization, and the tech giants starting through personalized advertising are collecting information about you,” Black said. “I think the narrative around privacy used to be, ‘if you want privacy you must be a criminal.’ Privacy, in the national dialogue, is starting to emerge as something that we value. A lot of the internet is making money off of observing your behavior. If we can start to use that cryptographic technology to create a different system for browsing, for using decentralized applications using private keys, I think this could be a real paradigm shift where it’s no longer just transferring value through the internet, but how we use the internet.”

It’s a broad topic, but it’s not hard to see why it’s exciting so many professionals. As we continue to accelerate into a digital world – or maybe even a Metaversal world – the potential applications will only continue to balloon out. In many ways, today’s pioneers are still just scratching the surface.