Upgrade to Pro — share decks privately, control downloads, hide ads and more …

A World Without Trust: The Future of Finance

Meltem
November 19, 2019

A World Without Trust: The Future of Finance

Our world is built on trust – we trust brands, products, and institutions. Over the last decade, this trust has been eroded as consumers have access to more information in real time, on the internet. Nowhere has trust been more essential than in the financial system - where we rely on a complex web of intermediaries that abstract out layers of risk and hide it behind a pretty facade. Until bitcoin was introduced, consumers had never had a functional way to operate independently from this web of intermediaries. Today, bitcoin is more complex and more difficult to use than , but for the first time - users have a viable alternative. This is a potent and powerful realization, and a force that will change the nature of trust in our world. This talk was delivered at Slush 2019 in Helsinki. More at https://www.slush.org/cryptocurrencies-are-the-future-but-not-before-they-gain-trust/

Meltem

November 19, 2019
Tweet

More Decks by Meltem

Other Decks in Technology

Transcript

  1. A World Without Trust
    The Future of Finance is Trustless
    November 2019
    Meltem Demirors | CoinShares
    @Melt_Dem / @CoinSharesCo

    View full-size slide

  2. - 2 -
    Trust in institutions has been steadily declining
    Source: Pew Research Center, Gallup
    THE CHURCH
    THE STATE THE MEDIA
    0%
    50%
    100%
    1960 1970 1980 1990 2000 2010
    Percent of people who trust
    the US government
    2009 2018
    Number of American citizens
    (millions)
    178
    167
    39
    68
    Christians
    Religiously
    Unaffiliated
    0%
    30%
    60%
    1997 2002 2007 2012 2017
    Americans' Trust in Mass
    Media
    WHO DO WE TRUST?

    View full-size slide

  3. - 3 -
    COMBINED
    MARKET CAP
    $2.3T
    COMBINED
    MARKET CAP
    $6.4T
    2.8x
    The most powerful companies are intermediaries –
    they control our access to our digital lives and our financial lives
    Source: Fortune Global 500 (Q3 each year)
    POWER IN OUR WORLD IS CHANGING
    WORLD’S LARGEST COMPANIES
    IN 2019
    WORLD’S LARGEST COMPANIES
    IN 2009

    View full-size slide

  4. - 4 -
    OUR DIGITAL WORLD REQUIRES TRUST
    Trust in tech companies is being challenges – the trend towards
    “surveillance capitalism” has led to increased mistrust of tech platforms

    View full-size slide

  5. - 5 -
    Source: Linus Torvalds
    Hello everybody out there using minix —
    I’m doing a (free) operating system (just a hobby, won’t be big and
    professional like gnu) for 386(486) AT clones. This has been brewing
    since April, and is starting to get ready. I’d like any feedback on
    things people like/dislike in minix, as my OS resembles it somewhat (same
    physical layout of the file-system (due to practical reasons) among other
    things).
    I’ve currently ported bash(1.08) and gcc(1.40), and things seem to work.
    This implies that I’ll get something practical within a few months, and
    I’d like to know what features most people would want. Any suggestions
    are welcome, but I won’t promise I’ll implement them :-)
    Linus (torv…@kruuna.Helsinki.fi)
    P.S. Yes — it’s free of any minix code, and it has a multi-threaded fs.
    It is NOT protable (uses 386 task switching etc), and it probably never
    will support anything other than AT-harddisks, as that’s all I have :-(.
    After all, Linux was started here in Finland!
    THE PROMISE OF OPEN SOURCE

    View full-size slide

  6. - 6 -
    Source: Linus Torvalds
    Open source has fueled enterprise SaaS business models, but in the rush to monetize,
    OSS has become more centralized and captive to big tech
    BUT OPEN SOURCE IS NOW ABOUT PROFIT
    ERA MOVEMENT
    PHILOSOPHICAL
    ORIENTATION
    RELATIONSHIP TO PROPRIETARY
    SOFTWARE (PS)
    ECONOMIC IMPACT
    1983-1998 Free Software (FS) Liberalism ”PS is evil” Billions
    1998-2013
    “Open Source”
    Software (OSS)
    Utilitarianism “PS is not necessarily evil” Hundreds of billions
    2013-2028+
    Commercial OSS
    (COSS)
    Commercialization ”PS is complementary” Trillions
    2017 - ?
    Utility Tokens aka
    (TOSS)
    Crypto
    Chad-ism
    “YOLO!” Who knows?

    View full-size slide

  7. - 7 -
    Source: CoinShares Research
    THE INTERNET
    Innovation in Information Transfer
    Network:
    ISPs, OS’s, Devices
    Platforms
    Application Universe:
    Streaming video and music, eCommerce, messaging, data sharing,
    cloud computing
    Protocols:
    TCP/IP, HTTP, DNS, FTP
    OPEN PROTOCOLS. CAPTIVE NETWORKS.
    • Massive proprietary developer platforms
    • iOS and Android charge 30% payment fees and
    exert heavy influence over app distribution
    • Platforms restrict access, limiting access of third-
    party developers
    • Companies prioritize proprietary applications
    • Startups competing from a disadvantaged position
    Networks are a powerful part of the internet’s promise.
    Today, most networks are owned and controlled by private companies.

    View full-size slide

  8. - 8 -
    PERCENT OF S&P 500 BY MARKET CAP
    GROWTH OF THE U.S. DIGITAL ECONOMY
    5.0%
    6.5%
    8.0%
    $0
    $750
    $1,500
    1997
    1999
    2001
    2003
    2005
    2007
    2009
    2011
    2013
    2015
    2017
    % share of GDP
    USD value added (billions)
    Value Added Share of total GDP
    Source: National Bureau of Economic Analysis, Yahoo! Finance
    While the digital economy is growing…
    …its growth is disproportionally captured by
    a select few companies
    Rest of S&P 500
    15%
    WELCOME TO YOUR DIGITAL OVERLORDS

    View full-size slide

  9. - 9 -
    Source: Google Images
    INNOVATION CREATED NEW INTERMEDIARIES
    The costs of our addiction to our digital overlords is not only transaction fees,
    but hidden costs of privacy loss and censorship via de-platforming

    View full-size slide

  10. - 10 -
    Source: CoinShares Research
    ALICE BOB
    BANK
    TRUST TRUST
    $10 $10
    People + systems verify
    THE ROLE OF INTERMEDIARIES
    Intermediaries play an important role in economic growth
    by reducing transaction costs and risk

    View full-size slide

  11. - 11 -
    OUR FINANCIAL INTERMEDIARIES DON’T INSPIRE TRUST

    View full-size slide

  12. - 12 -
    Source: CoinShares Research
    ALICE BOB
    BLOCKCHAIN
    .002 BTC (~$16)
    VERIFIED ON LEDGER
    BUT WE CAN DISPLACE THEM
    Blockchain transactions enable peer to peer transactions –some people
    may choose to use intermediaries, but they are not needed

    View full-size slide

  13. Give a man a gun, and he’ll rob a bank.
    Give a man a bank, and he’ll rob the world.
    - Mr. Robot

    View full-size slide

  14. - 14 -
    In the last ten years, the global banking industry has cashed in over $8.5 trillion in after-tax profit
    $388
    $530
    $635
    $703
    $859
    $963
    $1,070 $1,065
    $1,144
    $1,356
    $0
    $1,000
    2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
    Profit after tax
    (USD, billions)
    Source: McKinsey
    IT’S NEVER BEEN MORE LUCRATIVE TO BE A BANK
    BANKS ARE MAKING MORE MONEY THAN EVER

    View full-size slide

  15. - 15 -
    Over two decades, 37 banks consolidated into four.
    The “Big Four” banks in the US hold 45% of all customer bank deposits totaling $4.6 trillion
    Source: Visual Capitalist
    AND BANKS ARE BECOMING CONSOLIDATED
    TRAVELERS GROUP
    CITICORP
    EUROPEAN AMERICAN BANK
    BANAMEX
    WASHINGTON MUTUAL FIRST COMMERCE FIRST CHICAGO
    GREAT WESTERN FINANCIAL JP MORGAN BANC ONE
    H.F. AHMANSON CHASE MANHATTAN BEAR STERNS
    DIME BANCORP CHEMICAL BANKING
    US TRUST FLEET FINANCIAL GROUP SECURITY PACIFIC BANCORP
    MBNA BANCBOSTON HOLDINGS NATIONSBANK
    CONTINENTAL BANK SUMMIT BANCORP COUNTRYWIDE FINANCIAL
    BANKAMERICA UJB FINANCIAL MERRILL LYNCH
    WELLS FARGO CENTRAL FIDELITY NATIONAL THE MONEY STORE
    FIRST INTERSTATE BANCORP CORESTATES FINANCIAL SOUTHTRUST
    NORWEST HOLDING COMPANY FIRST UNION WACHOVIA
    1995 2009

    View full-size slide

  16. - 16 -
    PLASTIC WILL BE REPLACED BY SILICON
    Banks don’t have the global reach or infrastructure to lead the payments charge – hardware
    manufacturers are the biggest distribution channel via native install
    $1,592
    $2,211
    $3,104
    $4,297
    $6,110
    $8,961
    $11,142
    $13,980
    2015 2016 2017 2018 2019 2020 2021 2022
    Transaction value of
    next-gen1 payment tech
    (USD, billions)
    Digital Payments will be Delivered via Device
    Source: Statista Note1: Next-gen payment tech includes EMV chip, QR code, and
    NFC/contactless payment systems. Data after 2018 are projections.
    THE NEXT WAVE OF BANKING WON’T BE LED BY BANKS

    View full-size slide

  17. - 17 -
    INTERNET USERS THAT PREFER
    MOBILE PAYMENTS (2017)
    WORLD’S LARGEST MOBILE
    PAYMENT PLATFORMS
    The importance and profitability of payments is becoming apparent to tech companies.
    By 2023, digital payments will total $3.5 trillion and occur largely outside developed markets
    64%
    63%
    46%
    46%
    44%
    41%
    41%
    39%
    39%
    38%
    36%
    36%
    35%
    33%
    33%
    33%
    China
    Mongolia
    Brazil
    Kenya
    Chile
    Colombia
    Russia
    Ukraine
    Worldwide
    Cambodia
    Myanmar
    Saudi Arabia
    Sweden
    Mexico
    Israel
    India
    COMPANY ACTIVE USERS
    Facebook / Libra* 2.7 billion+
    WeChat 1 billion+
    Alipay 1 billion+
    Samsung Pay 1 billion+
    Apple Pay 383 million
    PayPal 250 million
    Amazon Pay 50 million
    Google Pay 24 million
    Note: *This assumes Facebook launches Libra across all platforms.
    Source: Allied Market Research, WorldPay Global Payments Report, 2018
    SOCIAL NETWORKS ARE THE NEW PAYMENT NETWORKS

    View full-size slide

  18. - 18 -
    The money in banking in the future will be in data
    Source: Google Images, Allen Farrington (@allenf32)
    DIGITAL TRANSFORMATION ENABLES NEW OPPORTUNITIES
    TECH WILL EAT BANKING

    View full-size slide

  19. - 19 -
    The next phase of fintech will be in open finance, which builds off public blockchains,
    but fits within the existing regulatory landscape
    FINTECH TECHFIN OPEN BANKING
    PERMISSIONED
    BLOCKCHAINS
    OPEN FINANCE
    2009 - 2011 - 2016 - 2017 - 2018 -
    • New products and
    platforms
    • Targeting small slice
    of the value chain
    • Distributing products
    and services via app
    • Leveraging consumer
    data in new ways
    • Enabling 3rd party
    access via API
    • Create new offerings
    or improve UI/UX
    • Consortia-led efforts
    • Rebuild existing FS
    “plumbing” with
    “DLT”
    • Open source money
    on public networks
    • Censorship resistant
    financial services
    Source: Andrew Wong, Macro Narratives in Blockchain, published Feb 2019
    MOVING TO OPEN FINANCE

    View full-size slide

  20. - 20 -
    Source: CoinShares Research
    BITCOIN
    Innovation in Value Transfer
    Network:
    Miners and Full Nodes
    Application Universe:
    Censorship resistance, time-stamped data, disintermediated
    payments, distributed compute, data storage, and more
    Protocol
    Bitcoin
    OPEN PROTOCOLS. OPEN NETWORKS.
    With bitcoin, companies can deliver financial services at a fraction of the cost.
    Bitcoin will do for financial services what the internet did for software development
    • Bitcoin is an open, permissionless financial
    network
    • Blockchain is a global settlement system for all
    transactions
    • Not stuck within one platform or application –
    bitcoin can move freely on the network
    • Users can interact with the network directly or use a
    trusted intermediary to minimize risk - it’s a choice!
    Platforms

    View full-size slide

  21. - 21 -
    The internet did not kill companies. It enabled new types of
    companies to grow and made existing ones more agile and efficient.
    Bitcoin and open financial systems will not kill financial institutions.
    It will enable new types of companies to grow and make existing
    ones more resilient.
    OPEN PROTOCOLS. OPEN NETWORKS.

    View full-size slide

  22. - 22 -
    PERCENT TRUST IN EACH SUBSECTOR (2017 TO 2019)
    Source: 2019 Edelman Trust Barometer Financial Services Report
    57%
    36%
    44%
    46%
    52%
    54%
    58%
    62% 62%
    0%
    35%
    70%
    Financial
    services
    Cryptocurrency Robo-advisory Peer-to-peer
    transactions
    Mobile wallet Financial asset
    management
    Insurance Credit cards Banks
    Financial services innovations designed to
    broaden access are not yet trusted
    Trust
    Neutral
    Distrust
    +2 N/A N/A N/A -7 +3 +5 +1 +2
    IT TAKES TIME TO BUILD TRUST
    + / - % change 2017 to 2019

    View full-size slide