If money, and the future of money, is important to you, and I hope it is, you need to read this article. There is a misconception occurring surrounding the concepts of digital currency. Understanding what digital currency actually is, how it can be used and potentially misused, and, most important, how it is drastically different from the likes of Bitcoin and cryptocurrency, is paramount in shaping the future of global and local financial systems.
The first cryptocurrency, Bitcoin, as well as the first use of blockchain, the technology that enables cryptocurrency to exist, occurred in January 2009. I published an article at that time making a few predictions using my Hard Trend Methodology that have proven to be highly accurate, and I’m going to make a few more in this article.
What were my predictions in 2009? That cryptocurrency and the underlying blockchain technology represented a Hard Trend (Future Fact) that will grow exponentially and that there would be many more new cryptocurrencies other than Bitcoin as well as many more blockchains created. I also predicted that blockchain represented a major disruptive business opportunity and that Bitcoin’s domination as a cryptocurrency was a Soft Trend, but likely not a Future Fact since there will be more variations on the crypto theme. Bitcoin and other cryptocurrencies, as well as blockchain technology, set into motion the potential disruption of banks, credit card companies, and other financial entities that play middleman between you and your liquidity.
This article is about the next Hard Trend, digital currency, and it’s already well on its way as a global disruption and opportunity. From China and its digital yuan set to be released in 2022, to the Bahamian Sand Dollar’s debut during the 2020 coronavirus pandemic, you need to know the difference now. After all, when it comes to money, the American dollar continues to be seen as the gold standard of currency value around the world, and this long-standing trend has always been a Soft Trend – a future “maybe” that has always been open to influence.
Banking Apps, Cryptocurrency, and Digital Currency
While many individuals of different socioeconomic statuses may view the use of their digital banking app or even their credit card as a “cashless, digital way to pay,” that is not digital currency. The digital nature of your savings or checking account is tied to physical cash and a ledger system owned by your specific financial institution.
Cryptocurrency (crypto) is not run by banks or the Federal Reserve; it is run by private companies and organizations and is highly decentralized. Crypto itself is a concept, built on software that essentially eliminates the need for a middleman like a bank or credit card company. Most of us learned about Bitcoin and cryptocurrency when the value of Bitcoin rose quickly in spectacularly volatile fashion back in late 2017. If you bought thousands of dollars in Bitcoin around then and hung onto them over the past few years, you’re likely very happy with the concept.
However, cryptocurrency and Bitcoin are also not digital currency, and it’s rather easy to understand why.
Cryptocurrency is a digital coin created by a private entity not backed by the FDIC or any other government agency, is tremendously volatile, and – in the case of Bitcoin – has a finite amount that will ever exist. For example, there will eventually be no more Bitcoin, as it contains programming in its software limiting the existence of it.
Digital currency is similar in that it too has the high potential to eliminate the need for a middleman, but it is different in the sense that, much like printed cash, if the U.S. decides to create the digital dollar, and they are considering this now, it would be issued by central banks as an alternative to paper bills and approved by the Federal Reserve, backed by the FDIC, and represent a real replacement for physical cash.
My take on Bitcoin, which I do own, is that it’s not like cash for purchasing things. Its best use is more like investing in gold as a way to hedge against inflation, as witnessed when Tesla and SpaceX founder Elon Musk recently purchased a large amount of Bitcoin.
Digital Yuan and More
As I indicated earlier, China is already testing out its digital currency, the digital yuan, in areas like Shenzhen, Shanghai, and Beijing and are expecting a countrywide launch in 2022. Because many Chinese do not have a relationship with a bank for savings or checking accounts or credit cards, one of their goals is to use their digital yaun as a way to give the economically disadvantaged individuals access to better financial tools, allowing them a means to grow financially within their system rather than use the current system that keeps those individuals at a disadvantage.
Allowing for direct dispersion of earned money, China is not the only country adapting digital currency. As previously mentioned, the Bahamian Sand Dollar emerged during the coronavirus pandemic of 2020, again allowing individuals to receive their income quickly and securely, and both Visa and Mastercard are already working with that specific currency.
In addition to China and the Bahamas, Brazil is releasing its digital currency in 2022, along with Russia, Sweden, Europe, and several others. Yet in comparison to the United States, China is certainly leading the way, and that potential threat is one in a number of reasons we in the U.S. are reviewing the digital dollar concept and getting an Anticipatory plan in place.
Currently, the Federal Reserve in Boston is in fact working on a digital currency, which some have called the FedCoin, but I think we will use the “digital dollar” to maintain the same branding, so to speak. And of note, the Senate is urging banks in the United States to move forward with an action plan; however, nothing is set in stone yet.
The Benefits of Digital Currency
There is a downside to everything, but let’s start by exploring the upside of a digital dollar. Aside from the concept of avoiding the need to carry dollars in your wallet or purse that comes with the risk of losing a twenty-dollar bill just as casually as losing your contact lens, there is an abundance of benefits that comes with working toward releasing a digital dollar of sorts in the United States. As an aside, even those like myself who pay for things using my smartphone, I still carry a wallet with cash; old habits die hard, not to mention battery life.
Let’s start with security and logistics. Not long ago, I was flying on a commercial airline, seated next to a gentleman that appeared to be an official of sorts. We spoke a bit, and he mentioned he was indeed traveling with a large shipment, several pallets, of newly printed one-hundred-dollar bills. He said he was armed and trained to fly every single day with newly printed currency across half the country from the printer to the central bank. He also mentioned that he was certainly not the only one doing this every day, and that there were many like him in action on a daily basis.
Imagine not only the security risk of flying around with physical currency, but also the flying costs, and the labor costs involved in having individuals fly with this cash, not to mention that he was in first class. It was easy to think that it be far more cost-effective for the U.S. government to digitize cash more and ship cash less?
Here is another interesting item. Consider the speed at which you get paid by your employer, and on an even larger scale, the speed at which your employer is paid for services rendered or products created. On average, most if not all working Americans get paid weekly, biweekly, and monthly depending on the type of employment. What if you could get paid for your day’s work right away? What if your company could be paid right away for products or services delivered or completed? While there are certainly other elements that need figuring out about that, digital currency could certainly expedite the situation.
Finance Is a Both/And World
When new concepts are introduced to individuals who previously knew nothing about the technology involved or the concept in general, radical sides are taken. The second someone reads an article like this about a digital dollar, they grip their stack of twenties and swear to themselves to use cash and cash alone.
Likewise, those who embraced Bitcoin might willingly avoid physical cash as an extreme stand for digital currency. But what I teach in my Anticipatory Leader System is a way to see the future accurately by using what I call the Both/And Principle. Will digital currency completely eliminate physical cash? Of course not! Will Bitcoin, Ethereum, and other initial iterations of cryptocurrency fall by the wayside if and when the U.S. government introduces the digital dollar? Not at all! They will all coexist, especially at the inception, and then they will evolve at an exponential rate.
Digital currency can be very disruptive to banks and other middlemen. That’s why credit card companies like Visa and Mastercard, clients of mine, are being anticipatory and working with central banks to make sure the new currencies when implemented will work on their networks.
One idea I have shared is a way to buy time for legacy organizations to get their digital act together by limiting a digital dollar rollout to those in our culture that stand to benefit the most from digital currency. There are millions who don’t have a bank or a banking relationship because they don’t earn enough, but they do have financial needs and buy things, and many have jobs. Some are migrant workers, some are waiters, waitresses, and bartenders who have a very low hourly wage and thrive on tips, or perhaps some are individuals who work mostly in cash. Imagine a world where they can get paid the same day they complete their work instantly to their virtual wallet, where there is no waiting period for those earners.
I could see the government issuing a type of smart card equipped with a biometric ID such as a fingerprint reader or a small camera – today the smallest can be 3D printed and is the size of a fly’s eye – capable of validating their identity and safeguarding their money. For legacy organizations such as banks, it could create a pathway to having a bank account or a credit card. Digital currency in that fashion allows those individuals to have a greater participation in our economy, which in turn helps our economy grow.
This is beneficial for lower wage earners, but perhaps those who earn a middle to higher wage do not qualify for the digital dollar just yet. That way, the federal government can roll out a smaller structure of digital currency first, helping those who can benefit from it, and eventually expand it beyond one demographic.
Banks and Institutions Must Adapt
So what happens to banks and credit institutions when digital currency is eventually offered to everyone in a country? First it depends on the country and how reactionary or anticipatory they are. There are many things that could go wrong and many privacy issues that need to be pre-solved before the problem happens. That’s one of the key tenants of being anticipatory.
Functionally, we already largely operate in a digital fashion as it is with Apple Pay, Zelle, and other apps created and endorsed by financial institutions. Being a fast reactor, no matter how agile you are, will not be good enough! The key is to become Anticipatory and learn how to use my Hard Trend Methodology to identify disruption before it occurs, giving you the choice to be a positive disruptor before you become the disrupted. In addition, becoming Anticipatory teaches you to identify and pre-solve the problems digital currency may cause before they occur, dramatically lowering the risk and allowing all of us to stay up to speed with the rest of the world as a growing list of other countries introduce their digital currencies as well.
Digital currency represents a growing Hard Trend that is here to stay. The Soft Trend is: Will the United States act on this Hard Trend?
BIO:
Daniel Burrus is considered one of the World’s Leading Futurists on Global Trends and Innovation. The New York Times has referred to him as one of the top three business gurus in the highest demand as a speaker. He is a strategic advisor to executives from Fortune 500 companies helping them to develop game-changing strategies based on his proven methodologies for capitalizing on technology innovations and their future impact. He is the author of six books, including The New York Times and The Wall Street Journal best seller Flash Foresight as well as the highly acclaimed Techno-trends.
