The Smart Money is Tokens

@dgwbirch Please copy and distribute (last updated 10 April 2018) 1
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How can we fix the identity problem?
From money we (think) we understand, to money that understands us
David G.W. Birch (15Mb Ltd.)
FS Club (London, April 2018)
dave@15Mb.ltd
www.15Mb.ltd
v2
The Smart Money is Tokens

David G.W. Birch
author, advisor and commentator
Global top 15 favourite sources of business
information (Wired Magazine);
London FinTech Top 10 most influential
commentators (City A.M.);
Top 20 Fintech Influencer (JAX London);
Top five Leader in IDentity (Rise);
Top 10 Twitter account followed by innovators,
alongside Bill Gates and Richard Branson (PR Daily);
Top 10 most influential voices in banking (Financial
Brand);
Top 50 blockchain insider (Richtopia);
Europe’s most influential commentator on emerging
payments (Total Payments).

Agenda
Should we have digital
currency?
OK, well, then…
• Wait, tokens? What do tokens
have to do with it?
• Who might issue digital currency?
• How will digital currency be
different?

What are Tokens?
A quick overview

Tokens?
Between the governance and the applications, we can think of the ledger in four layers

Totally Tonto Tokens?
Nearly $9 billion raised to date

Token Regulation
Securities tokens
ICOs
SEC “walks like a duck” etc
Utility tokens
Access to services
Money tokens
Claim on future products or services
Liquid alternative to “traditional”
equity and debt
7

Digital Bearer Instruments
Concept of “digital bearer
instrument” (DBI) goes
back to the 1980s
Tokens are means to
implement DBIs
Different DBIs are made
from different
combinations of token
types
8

Don’t Listen to Me…

What could we do with digital
bearer instruments?
Well, how about money…

The “5Cs” of Future Money
Who could issue money in the future? Why would they want to do it?
Commercial Banks, digital currency Private seigniorage
Central Banks, digital fiat currency Control and economic growth
Cryptography, cryptocurrency Dosh ex machina
Companies, private currency To fund products and services
Communities, decentralized currency Local money, bearing in mind that local
doesn’t mean geographic any more

Commercial Bank
Creation separate issue from use of
shared ledger technologies to
manage payments (cf “stablecoin”
approaches).
Commercial bank accounts as “skin”
on central bank or separate as now?
The People’s Bank of China “double
tier” approach.
Central bank control of creation.
Commercial bank distribution.
We tried this before with Mondex!

Central Bank
There are obvious +ve GDP benefits
to a digital currency.
Reduced friction
Increased innovation – cash has no API
Central banks could maintain
accounts for people and
organisations.
Retail chequing accounts would be a
skin on central bank balances.
A central bank digital currency would
have an impact on commercial
banks.
13
Source: Bank of England (July 2017).

Commercial Banks: Business Model Impact
UK 4% notes and coins
Seigniorage approximately £500m
(used to purchase gilts, interest
remitted to Treasury)
UK 96% bank deposits
Privilege of credit creation
Private seigniorage of £23 billion of
interest income on these deposits
Eurozone bank deposits €17 trillion
Private seigniorage approximately €300
billion (€1,000 per inhabitant)
14

Cryptography
Digital currency outside of central
banks, commercial banks or other
institutions
What are the requirements?
Anonymity?
Censorship resistance?
Fungibility?
Private keys as “digital gold”
15

Companies
M-PESA currency board, Air miles… tokens?
16

Companies: Private Money
17
“pre-agreed algorithms would determine
which financial assets were sold by the
purchaser of the good or service
depending on the value of the
transaction…”
“the same system could match
demands and supplies of financial
assets, determine prices and make
settlements…”
the key to any such a system would be
“the ability of computers to
communicate in real time to permit
instantaneous verification of the
creditworthiness of counterparties”
I look forward to a time when
the successors to Bill Gates will
have put the successors to Alan
Greenspan out of business.
Edward de Bono (March 1994)

Communities
Reduce internal transaction costs, increase external transactions costs
18

Communities: Cities and the Wealth of Nations
Your identity, your credit rating and your parking place

Communities: Crazy?

A Digital Currency Model
A high-level model linking shared ledgers, digital money and digital identity

Digital Currency: A Token Model
A Layered Model for Discussion

From Dumb Money to Smart Money
Dumb Money Smart Money
Money as a value Money as a distributed application
Standalone money Money with an API
Money that substitutes for memory Money that has a memory
Money that you can make decisions
about
Money that can make decisions about
you
Money that is a static creation of the
nation state
Money that is the dynamic property of
communities

in the future, everyone will be famous for fifteen megabytes
engage 15Mb Ltd.
post 1 Armadale Road, Woking, Surrey GU21 3LB, UK
call +44 1483 834631
contact dave@15Mb.ltd
visit www.15Mb.ltd
follow @dgwbirch
comment blog.dgwbirch.com
connect https://www.linkedin.com/in/dgwbirch/
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The Smart Money is Tokens

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