The Decentralists

Episode 9: Crypto or not to Crypto? Fundamental questions for Economic-Sociologist Dr. Nigel Dodd

October 26, 2021 Mike Cholod, Henry Karpus & Geoff Glave
The Decentralists
Episode 9: Crypto or not to Crypto? Fundamental questions for Economic-Sociologist Dr. Nigel Dodd
Show Notes Transcript

Dr. Nigel Dodd is Professor in the Sociology Department at the London School of Economics. He obtained his PhD from the University of Cambridge in 1991 on the topic of Money in Social Theory, and lectured at the University of Liverpool before joining the LSE in 1995. Nigel’s main interests are the sociology of money, economic sociology, and classical and contemporary social thought. He’s the author of The Sociology of Money and Social Theory and Modernity. His most recent book, The Social Life of Money, was published by Princeton University Press in September of 2014. 

Professor Dodd currently teaches courses at the LSE at the Masters level in Classical, Modern and Contemporary Social Thought, and co-founded the MSc in Economy, Risk and Society.

How can Sociology help us better understand traditional money, and its digital counterpart, Cryptocurrency? Join us on this episode of The Decentralists as we explore what money means to society - and what cryptocurrencies mean to money.

Henry: Hey everyone. It's Henry Mike and Geoff of The Decentralists and we are absolutely thrilled and honoured to have a very special guest on this episode, Dr. Nigel Dodd all the way from London, England. Now he's a bit of an expert on the sociology and the concept of money and thereby a bit of an expert on how that applies to cryptocurrency. So we're going to ask him a whole bunch of fundamental questions and I'm sure he's going to confuse us, but anyway, let me tell you more about it.

Mike: Doesn't take much to do that.

Henry: That's right. Nigel Dodd is professor in the sociology department at the London school of economics. He obtained his PhD from the university of Cambridge in 1991 on the topic of money in social theory and lectured at the university of Liverpool before joining the LSE in 1995. Nigel's main interests are the sociology of money, economic, sociology, and classical and contemporary social thought. He's the author of the sociology of money and social theory and modernity. His most recent book, The Social Life of Money was published by Princeton University Press in September of 2014. Professor Dodd currently teaches courses at the LSE at the master's level in classical, modern and contemporary social thought. Co-Founded the master of science in economy risk and society. He is also responsible for coordinating sociology papers on the University of London, external studies program, Dr. Nigel Dodd. Welcome to The Decentralists.

Dr. Nigel Dodd: Thank you and sorry for that introduction.

Henry: Oh, no. Honestly, your bio and introduction is actually so impressively long.

Dr. Nigel Dodd: It's a bit TMI, I think.

Mike: I don't know about that. Everybody's bio is better than mine.

Henry: Well, you know, let's just get right into it. How does a sociologist get interested in cryptocurrency?

Dr. Nigel Dodd: Well, as you said in your intro and by the way, thank you very much for inviting me. I never knew about this podcast until recently, and I really enjoy it. I love the title, The Decentralists. I'm trying to work out whether I am a decentralist, but maybe we can get around to that at some point. But I've always been interested in money as a sociologist since my PhD, which was between 87 and 91. So, this was, if you go back, it was the time of the big bad, financial deregulation and so forth, but it's a very different world then to the one that we're in now. But I think it's fairly obvious to anyone that thinks about it. Why would a sociologist be interested in money? Money requires trust. It implies a relationship between the individual who holds money and the group who accepts it. A very famous sociologist called George Zimmel described money as a claim upon society, for example. As we all know the institutions that control money, the banks, the state’s central banks are incredibly powerful. So all of this of course makes money quite compelling for sociologists. If anything, it was a bit of a mystery to me why sociologists had left money alone for so long. There was a very early interest in money back at the end of the 19th century from sociologists. But during most of the 20th century, there was a kind of pact between economics and sociology to stay out of each other's way. So sociologists left money well alone, and they tended to leave the markets one alone. It wasn't really until the 1980s that sociologists started looking partly because of the sheer power of economics as a profession and its sway over public discourse. Sociology started looking at markets and looking at money and other key economic institutions like the firm and say, well, hang on, we've got more interesting things to say about these things than economists. So that's why I was interested in money in general. Then when Bitcoin came along 2008, 2009, it looked really interesting. Because one way of thinking about Bitcoin is that it tries to take the social out of money. Some people call it a trust-less currency and I'm sure as you know, Satoshi's original paper talks about why it's important to take the production and governance of money away from banks and states who may be incompetent or may abuse their power. Remember he was writing just after the 2008 crisis. So of course it struck a chord. Then against that, I've spent a lot of time thinking and talking about how crypto or the world of crypto is actually quite social after all it involves faith and trust. Faith in the code, trust in each other to some degree, there are social structures within the crypto world. There is a hierarchy, there is a small group of elite developers at the heart of the key crypto like Bitcoin and Ethereum, for example. There are subcultures, there are shared behaviours. So I'm not saying there's just to debunk, you know, anybody or anything. It's just to me interesting and it's interesting to see how technology interacts with social life and gives crypto its particular character.

Mike: Right. Okay. So this is something that I want to, you know, Nigel, I want to jump in on here because, so if I think about it, what you just said, you know, you as a sociologist. Part of what you're trying to do is understand how, because I took a few sociology classes, right and I have to admit they were not on money. You know, they were standard Margaret Meade studying, you know, the Tchambuli culture in Papua New Guinea or whatever it was. In order to basically, you know, kind of focus on a group of individuals and how they interact together and how that defines their kind of view on the world. So, you know, when you talk about sociology and economics, right, you talk about, especially now with the traditional fiat currencies that are in effect, you know, the Yankee dollar or the Eero actually writes on the piece of paper, right? This is the property of, or signed by the central bank, governor of the ECB. Or, you know, the federal reserve, which is essentially defining a relationship between this government entity that basically controls the ability for you to transfer value Right. You have to operate within that realm in order to use that money and to kind of advance your life. So I see that as kind of one of these lightning rods for cryptocurrency folks, right. They're saying, Hey, like to your point, take it out of the control of the central banks and all this other kind of stuff, but then how do you reconcile the fact that if you look at most of these cryptocurrencies, like Bitcoin or Ethereum or ZCash and all these other alternatives. They're all in essence centralized as well. In that you have a governing body that's made up of, instead of it being, you know, economists and federal bank reserve people and kind of specialists in this stuff. It's coders, right. That are basically by virtue of the fact that they run the most minds or they're the lead coders on the whole thing. Like people like Buterin with Ethereum. You know, do not, they exercise the same type of control over the currency? But yet they just don't have kind of, the box of gold behind it. Like, how it different? Like, how do you define the difference between a cryptocurrency and a fiat currency, I guess?

Dr. Nigel Dodd: Okay. Well, if the first thing to say is there's no box of gold buying anything anymore. So it's worth remembering that. Actually the strange thing about crypto is that there are members of this community, if I can call it that who think that actually Bitcoin is much closer to gold than fiat currency. That's of course, because the number of coins that will be produced is set, is limited. That was the whole selling point of Bitcoin in the first place. So it didn't face the kind of problems of inflation that conventional currencies face. Because there isn't a central bank deciding. So people think deciding how much currency to produce, but, of course that's not how conventional money works anyway, by the way. It's private banks that produce most of the money in circulation, not central banks, but nevertheless, the point was that somehow this was like an automatic form of money. It was automatic in the sense that coins were produced at a certain rate every 10 minutes or whatever and their supply was limited and restricted. Just like the supply of gold is, but in fact it was probably even better than the supply of gold because the code dictates that only so many coins will be produced. That was the appeal of crypto. So I guess the first point to make there is that I think the difference would be that there isn't a central minting authority in crypto, as it was first conceived. There is with stable coins. Of course that's another issue. But with crypto, as it was first conceived, it's all down to the code, the protocol and decisions that are being made by coders and so forth. Decisions about the way that the technology will develop, not being made about the actual governance of money on a kind of everyday basis, if you like. I think that was the attraction. But I agree with you wholeheartedly that there's a lot of centralization in the crypto world. But there doesn't have to be, I think that's important to say that as well. I think one of the things that I'm beginning to be interested in are the differences between the different versions of the blockchain. You have Bitcoin, which we know operates in a particular way and it has a particular profile. If you like a particular notoriety but for many people now, Bitcoin is a sort of distraction. It's a little bit of an outlier that the real action in the crypto world is Ethereum and the world of decentralized finance and smart contracts. Then there are, of course, the new kids on the block, like Algorand. Which claims to be the greenest blockchain and people that are involved in algorithms as far as I can tell, are trying to work on projects that are environmentally responsible and socially responsible. They have a completely different agenda. I suspect, although I haven't studied it closely. I suspect that the way that those organizations operate, the way that voting happens, the way that the blockchain set up would reflect some of that. So I think when we get to this kind of discussion, I think we just have to distinguish between the different versions of crypto and the different versions of the blockchain. We can't make general statements, but having said that, I agree with you that any claim that Bitcoin, Ethereum and so forth are kind of flat, horizontal, non-hierarchical, social, political spaces is completely false.

Geoff: Nigel. One question that I have about cryptocurrencies that has puzzled me over the years. Is if you take a fiat currency, it is primarily used for, you know, the exchange of goods and services. Secondarily there is some currency speculation. So, some people make some money speculating in currencies, but it's primary purpose is, the exchange of goods and services. Whereas with cryptocurrencies, particularly Bitcoin, it's the other way around where it's speculation seems to be the primary driver and the exchange of goods and services is sort of far down the list and those goods and services that are exchanged are often a bit shady. So this is perhaps a philosophical question, but when you talk about a currency, does it matter if the purpose of that currency has been turned on its head? Or are these two features of the currency irrelevant if one is more significant than the other?

Dr. Nigel Dodd: I think it matters Jeff. I've always kind of denied that Bitcoin is a fully fledged form of money for this reason. I mean, of course we know that the way that economics defines money, it's a unit of account, it's a store of value, it's a medium of exchange. So you could say, okay, Bitcoin prioritizes the store of value function. It's not a very good unit of account because the price fluctuates so much. How could you possibly price anything in Bitcoin? If you were running a shop, you'd be changing prices every day, probably more often than that. It's not a very good medium of exchange for the same reason. It's also very slow. So, you know, no one's going to go out and buy that pizza with Bitcoin, unless they're completely crazy. So in the end, it's a financial asset and it appeals to people on that basis. All the headlines about Bitcoin are about its performance as an asset. You know, if you look at the price fluctuations over the years, it's quite astonishing. So I think that's one of the reasons why Bitcoin is a source of outlier, because I think that that's just the gig that it's on now. It's just, you know, people are investing in it, they're buying it. You've now got PayPal offering to, I noticed on Saturday I was writing my PayPal account and there, you know, I could buy a Bitcoin really easily. I suspect lots of people will get sucked in. I think they had others, Lite coin was there, I think Doge coin. I can't remember. There were five, I think cryptocurrencies on the page I was looking at. But that's just an investment, it's speculation. I mean, you know, there are people that claim that Bitcoin is just a giant pyramid scheme. I think we'll know it's a pyramid scheme if I get involved. So I think that's the case, but it doesn't have to be the case again. I mean, the stable coins look different.

Henry: What is stable coin?

Dr. Nigel Dodd: Well, I mean, as far as I can see stablecoin is still a digital currency. It's still has a backing from a blockchain, but it's not mined, it's minted. There's an authority deciding how much to produce and using various ways of pegging it against the conventional currency. So, it might get one for one against the dollar. I think tether was. Wasn't it tether that they got into trouble? Because they couldn't produce, you know, they were one-to-one against the dollar and they didn't have that many dollars. But in that sense, stable coin is a bit like a local currency, local currencies operate by this. You know, basically the local currency deposits one pound Sterling, for example, into a bank account, which matches every pound. That's say the Brixton pound or the Bristol pound that's in circulation. It's got one for one backing. Stable coin is a little bit like that. It's pegged that it's backed. How they control the value varies, because there are some that use technology, some that use just, just kind of fiat. There are other ways too, but that's basically what it is. As far as I know. Most of the action's, stable coin is huge, I mean, it's grown massively in the last year. So now the stable coin markets where something like $120 billion, maybe more and it's getting bigger and bigger and bigger now. So fast stable coins seems to be a kind of safe Haven for crypto investors when they're moving their money around. So they throw their stuff into stable coin. So it stays, you know, it doesn't suddenly lose value or whatever. Then when they're ready to buy something else off, they go. So it also keeps them obviously away from the conventional financial systems. So they don't, you know, park that stuff in dollars. They keep out of the conventional banking system for reasons which may or may not be dubious. Right. But the big game changer surely is going to be Diem which is the Facebook backed stable coin. Now, if that launches and it's successful, what's going to happen. I mean, I think central banks are terrified. Governments are terrified of the prospects because, you know, it's got a ready-made network. It's got how many million Facebook users around the world in lots of different countries, Diem can operate without banks. It can simply go from transactor to transactor. It doesn't need central banks. It's out of control of central banks. That market alone threatens the monetary system. As we know, it's a genuine game changer. If Diem takes off, the world's monetary landscape will never be the same again. So, I think this is why the fed and that the monetary authorities, including the G7 or the G19 a couple of years ago, why they're looking closely at stable coin market. There are reports that it's, you know, this is the new sort of shadow banking system, because so much money will be loaded into the stable coin market. Because of the one-to-one pegging and all this sort of stuff, if people try to get out of it, then there could be a real mess. So I think that's the justification for states, governments, central banks, looking at this and wondering whether they need to regard stable coin as a systemic risk in the way that the shadow banking system was back in 2007, 2008. I think the most likely outcome of this is that central banks produce their own digital currencies actually. That's what's going to happen. But people say, oh, this will be the end of Bitcoin. I don't think it will. I'll tell you what it will be the end of. It will be end of private banks in the position they're in, right. Because a central bank digital currency, Where are you going to deposit your money if you're offered an account at the central bank of Canada, right? Or the fed or the bank of England, you're going to put your money there. So private banks are scorched by this. Well, I don't think it necessarily would kill off Bitcoin because it's sort of irrelevant to get caught. If Bitcoin is just busy looking at the price and enjoying their financial asset that will carry on. I don't think it's necessarily the end of Ethereum either. If decentralized finance still has a role to play, but I think the biggest danger of a currency like Diem is to the private banks actually. But that's just me speculating.

Henry: What you're saying then is that this is the biggest threat to the most fundamental piece in our economic capitalistic system and that is a private bank?

Dr. Nigel Dodd: Yeah, I think so and to be honest, I don't know whether to laugh or cry. Because I'm no fan of the banks, but I'm also not a fan of Facebook. So I don't really know which way to go on this.

Henry: We're looking to you for answers, darn it.

Dr. Nigel Dodd: I think it's massive. But you know, if you understand the way the private banks work. Diem to one side, I think one of the most common themes in all of the books and articles and analysis I read of the 2008 crisis. The most common theme was that we needed to reform the banking system. An awful lot of people don't understand how this works. There's still a majority of MPs, for example, members of parliament in the UK, believe that money is created by the central bank, by the bank of England. The bank of England creates 3% of the money that's in circulation in the UK. It's about 10% in the states. I think it's a smaller figure in Canada. In some countries it's even less. The vast majority of money in circulation in these countries comes from private banks and the form of loans. This distorts the economy massively, right? Because the banks are just pursuing what they think are safe bets, right? So they're not gonna lend necessarily to a business that employees a hundred people, but maybe look a bit risky. They're going to throw loans in real estate. So this is why we've got these huge distortions and credit allocation in the economy is pretty much dictated to by private banks who are pursuing profits. This creates asset bubbles. It has huge negative implications. It also biases the economy to growth, to GDP growth because they've always got to chase money. Those people who have loans are always having to pay interest. So the whole thing is it is a constant inflating, not a bubble, but it's got this pressure. If we're gonna create sustainable economies, which we need to urgently, then the private banking system and the involvement in private banks and the creation of money just is not sustainable. So if Diem is the destroyer of this system then I think its a good thing. The banks have to change. You've got a string of very, very prominent commentating economists who all argue the same figure. There are old systems, there are old proposals for narrow banking. It's sometimes called full reserve banking. There was the Chicago plan earlier in the 20th century. All of these schemes have been going for a very long time and have been discussed by economist for a very long time as ways of reforming banking. So, that banks become really just what most people think they are, which is they're just recycling deposits as loans. They're just mediating. That's what people think banks do. Some people accept that banks don't do that. They think that, okay, banks operate according to some sort of multiplier. But actually in countries like the UK, the US, Canada there is no restriction on how much banks can lend, but certainly no regulatory restriction. They don't have to hold any proportion of the debts that they've given out with the central bank. So the central banks have very little control over this system. It's kind of a scandal, but most people don't understand how it works. They imagine that the numbers in their bank account are kind of representatives of cash, they're not.

Mike: Right. So what you're saying, Nigel, just to dig in on this. Okay. So what you're saying is in effect the natural assumption, and I have to admit before I read it in one of the summaries. I was reading the intro to one of your books. I was one of those people. I literally assumed that, you know, if the Royal bank of Canada, right, which is one of the regular banks, not the central bank. If the Royal bank of Canada lends me, you know, half a million dollars to buy a house. A mortgage, the fact that they do that does not mean that they've transferred a bundle of $500,000 Canadian dollars in from the central bank, and then giving it to the person who I buy the house from. That is what you talk about when you say private banks create money, because the virtue of them just all of a sudden going from zero on a ledger to, oh, Michael Cholod owes me 500 grand. Means that they've created $500,000 out of thin air.

Dr. Nigel Dodd: Yeah, they have. When you pay that money back, its destroyed.

Mike: Right. Yeah. Like the zeros all disappear.

Dr. Nigel Dodd: The zeros disappear, but of course you've added, you've paid interest.

Mike: That's right and that's what the bank lives off.

Dr. Nigel Dodd: That also means that at the heart of our money creation system, there is the pressure to grow the economy. I'm sure if there are people that might listen to this who think I'm crazy. We have to dispense with this obsession with GDP growth, but we do. That's the situation we're in. That the environment can't sustain the kind of economy we've got.

Mike: Right. So now let's take this transition into the crypto kind of stable coin world. When I think of Fiat currencies and the way they work. You know, this drive to GDP growth, all this other kind of stuff is that you in effect have these central bank governors and this focus on what they're going to do, right. To do quantitative easing, whatever, that's them making zeros on a balance sheet that gets transferred to other people's zeros. Right. They're buying bonds that are already out there with, you know, future money with today money. It's all just zeros and ones. Cause the challenge that I've always had with cryptocurrency, okay. One of the challenges that I have, and this is an I lump all of them together is that if it just simply from the facet that, you know, maybe counter-intuitively. But if you look at this pile of money that constitutes say the European union GDP or whatever. 97% of it is just zeros on a balance sheet and 3% of it is paper and coins. Now, at least the thing with that is, is that when you have a Euro, the theory is when you're standing there and you have a Euro in your hand is there's a certain level of stability. There's a certain level of implied guarantee that if I go to some European based institution, whether it's a corner store or a bank, and I give them that piece of paper, they will, you know, take it and potentially pay me interest or at least exchange me some goods for that or whatever. Okay and that's because you've got that federal reserve stamp on it. Now all of these kinds of where you've got these cryptocurrencies that are kind of tokens based on rewards that are done by, you know, private companies, sometimes it's three guys in a garage, right. Building a chain that does something and you know, they go out and they kind of, let's say, and I'm not saying there's maybe a subtle difference, but they use like a lot of promotional techniques. I've been involved in this peripherally, in this crypto blockchain world for years now. Not as long as you, but for years now. You know, when I see people talking to me, I get these newsletters from different kind of cryptocurrency things. A lot of it is very, very promotional language. Yeah. Like pyramid scheme type stuff. Right. But I don't assume that, you know, Jerome Powell, the chairman of the US Federal Reserve is running a Ponzi scheme with the US dollar. Right. But I'm not, I can't say that I think the same about a lot of these other currencies. Because all I ever see is just hammered promotional networks stuff, buy, buy, buy, it's crossing. It's like a stock promotion right. Rather than something that has some kind of a guarantee in reality and my society. Right and ultimately if you look at everybody talked about the government of El Salvador making Bitcoin a fiat.

Dr. Nigel Dodd: Legal tender, yeah.

Mike: Legal tender, right and everybody was saying, that's the crack in the armour and that's what's going to happen. That's going to make cryptocurrencies legit right. Because a government has now said, if somebody gives you Bitcoin, you have to give them the box of Kleenex or whatever. But then I'm reading reports about people who said, yeah, you know, yesterday I sold a hundred dollars’ worth of stuff in my store, took a hundred dollars’ worth of Bitcoin and today it's worth 50 bucks right. So, I mean, how do you reconcile or operate or reconcile this move in people's heads that I think I should be looking at crypto when it really doesn't have any stronger base underneath it than just a bunch of people who have self-interest at mind. You could argue that the federal reserve bankers do as well. But I mean, it's a self-interest that does not even have something like a return coupon. Right. It doesn't even guarantee you a return.

Dr. Nigel Dodd: No, I think that's the big dilemma here. I mean I don't think it will happen. That we've only got crypto to do all transactions in. So, I think in a sense, the part of the premise of your questions kind of doesn't quite work. I think the most likely thing is that actually what we'll see the end game in all of this, if you like, is a massive recentralization of currency, right. We have central banks issuing their own digital currencies and that's a big check mate on this conversation. Because you just end up with is all of the kind of guarantees you've talked about. But even more than with private banks, you've got central banks backed by the state with all of that. That means producing our currency personally, I think that could have massive benefits for society. I mean depending on how that then gets organized in relation to the credit system and how it gets organized in relation to the banking system. So, I kind of park that one, but I think that could be a good thing. You could, for example, run, you know, a UBI universal basic income using that kind of system. QE, quantitative easing probably would've worked better had all that money that was sloshing around and actually ended up just being used by banks to shore up their balance sheets. Didn't make its way into the real economy at all. You know, why couldn't governments have just paid money straight into the bank accounts of individuals and said, right, go spend it that would've got the economy moving far better, post 2008 than anything QE did. But those are separate issues. As for crypto, that's the big dilemma, isn't it? You've either got a kind of wild west world, which is, you've got all these shady characters trying to sell you crypto as if it's, you know some kind of time share right. But you've also got systems that seem more responsible. I think the naïve way of answering this would be to say, well, look, it's all about the tech and the technology, the blockchain, and so forth will protect you. But of course, it won't if the price crashes, it crashes, it doesn't matter. You know the technology just tracks transactions, it doesn't protect you in terms of price. So, is stable coin the answer? Because it gives some of the freedom that crypto gives and it certainly appeals to people that don't want to, or unable to get access to the banking system. So that's an advantage on the other hand, it has the backing of some kind of authority such as a corporation like Facebook. Or perhaps the answer is to bring it into, to regulatory control, which is of course what the fed is thinking about. Making sure that the stable coin market does have some kind of backing from the government. But of course, if it does, then a lot of its appeal will disappear. So, I think these are genuine dilemmas that have to be tackled. I wouldn't like to predict which way it's gonna go. Other than that, I think it's, you know, pretty clear that governments are gonna get moving on this.

Geoff: But Nigel as a product guy, I always revert back to questions of use cases. If I try to think about the use case of a central bank cryptocurrency and why somebody might use it. I mean, imagine I'm selling a bicycle and I post an ad online for a bicycle and you come and look at the bicycle and you decide you're gonna purchase it from me today. Unless you've got the cash in your wallet and lots of young people don't anymore today, you would sort of open your banking app. You would say, what's your phone number? And you'd say, send 50 pounds and you'd press go. The other person, you know, I would get a text message. You've received 50 pounds and you'd tap it in. The money would magically move from one bank to another, and to my bank and someone might get charged 25 cents. Probably both of us got charged 25 cents or a pound or whatever, and away you go and to the layperson that was, you know, magical electronic banking. Now I would imagine with a central bank crypto, I would have a wallet somewhere, probably on my device. It would have my crypto pounds in it, and I would transfer those crypto pounds, or rather the person buying my bicycle would transfer the crypto pounds from their wallet to mine. I suppose the main attraction in all of that would be the pure anonymity of it all. It would be similar to the pure anonymity of, you know, the person just passing me two 20-pound notes or whatever. First of all, I guess two-part question one is what I just described correct? By all means, tell me if it's not. And second of all is that assumption of anonymity sufficient to get people to move to this new methodology? Like what would incent a rich person, a shopkeeper, anybody to support these central bank crypto currencies, as opposed to just saying, Hey, tap your phone on this reader here, and it'll transfer the money into my account.

Dr. Nigel Dodd: I think if we go all the way to saying that we've got a hundred percent full reserve banking system, then you won't have a lot of choice, right. Actually, you're not gonna be in a position to say, well, actually I prefer to give you 20 pounds. Yeah. I mean, for start, there may not be cash around, you know, we are close to the end of cash. The leading country in the end of cash race is Canada, by the way. So, I don't know, we are not too far away from that.

Henry: Oh, I haven't had cash in my wallet for a year and I haven't needed it.

Dr. Nigel Dodd: Right. Yeah. I think most people still say, they've always got a bit of cash just in case they've got a 10.

Geoff: Yeah. Like you go someplace where they don't have a reader or something just in case.

Dr. Nigel Dodd: There are little ghettos around, like there's a part of Berlin where they pride themselves on still being part of the cash economy. Although you could be cynical and say, yeah, I better know why. So, that's the first point is that there might not be cash around. The second point is that, you know, the conventional bank account won't exist in the way that it exists now. It won't function in the way that it functions. So, the most likely way that money will get out into the economy is either central banks issuing their digital currency to the private banks who then operate with full reserve banking or you'll have your own account at the central bank. So will I, and we'll just exchange directly. So, I think this is what the central banks are trying to figure out is how to run this thing. I haven't looked at too many use cases yet. I'm still getting my head around, you know, stable coin and Diem and all this sort of stuff. But, you know, I think you're not gonna have this range of choices. I think your example gives the impression that you might have that, that would be my assumption.

Geoff: I think it is you won't have this transformation to the central bank, crypto currency overnight. You'll sort of have early adopters who will start using this over using their Royal bank app or Canadian Imperial Bank of commerce app. They'll use their central bank app. But what puzzles me is what will incent people to start doing that? What will cause people say, I'm gonna start using this now. It might be that they're not being charged a pound or a dollar anymore. It might be that they're very keen on the privacy side of it provided that can be proven, or maybe they wanna just say, screw you private banks. Or who knows. But to me, that's very interesting because we spend a lot of time internally for many of these things talking about, well, how do we get critical mass, right? If we wanna create a new digital identity platform, it isn't any good unless everybody else uses it and accepts it. So how do you get critical mass where suddenly everybody is doing it. This is what makes me scratch my head when it, and as you said, the central banks are trying to figure it out as well. But it makes me scratch my head about this and perhaps makes the private banks not worry about it too much. Because they would say, well, we've won the race. We have our apps. People don't have to carry cash anymore. Hey, we earn a little bit of money every time they use the app. Whereas every time they hand cash across, the only time we might earn some money is when they withdraw that from the ATM.

Dr. Nigel Dodd: Yeah. Although I'd say the private banks have been kind of hammered by the tech industry though. I mean like the likes of PayPal and so on are kind of taking a lot of their slice of the action away. In places like China, you've got Alipay and so on. So, there's been three big forms of tech, no logical disruption in money and finance in the last 10 years or so. One is the explosion of digital payments and the use of the mobile phone, the use of apps which either go underneath the banking system or go around it or undercut it or challenge it. Banks are losing that of the action, right. They're being undercut. So, the conventional slice that a bank takes from your transaction is between one and 4%. The tech companies are undercutting that and have been, so there's that going on. The second big disruption is I think decentralized finance. That's the one that's happening now, and that's taking all sorts of different forms. I think the third is gonna be a gov coin, the central bank, digital currencies. So, I think all of that is gonna hurt, you know, every single bit of that story hurts the private bank. So, you know, I might sound like someone that's got a vendetta against private banks. I don't really, but I don't see how they're going to survive on the high street, at least as major players in the world of money. I don't think they've won the race at all. That's my own sense of it. I might be wrong and maybe they're not too worried about central bank digital currencies, but I think they should be because central banks will worry about stable coins.

Mike: Right. So, okay. So, then I want to take this back into the, kind of the sociological, I guess, kind of realm. I wanna pause at something here. So, you talked about Facebook's new attempt, at a stable coin. It's not all that different than Libra, right? But in effect what Facebook is doing and, or anybody who has a stablecoin, right. That's tied to something real. So, let's say I'm Facebook and I go out there and I say, well, you know, I'm a public company. The shares are publicly valued right now. The company's worth $2 trillion, I mean, or whatever, it is, a trillion dollars. We are gonna create this currency that's backed by Facebook. Okay. So, you sit back and you go, oh, well, you know, you're gonna have some people are gonna say, well, geez, I know Facebook has 2 trillion worth of value in the market. So that seems stable to me. Right. So, I'm gonna go and start using this Facebook currency. Okay. Well, so now what you end up with, to me is a vested interest. As a consumer who chooses to either use, accept, or exchange value with Facebook's currency. I now have like, almost an underlying desire to see Facebook succeed. Yes. To see Facebook, go from 2 billion to 4 billion, and to, I walk around and it's now you see where this pyramid scheme thing comes in. Because now I walk around and I start telling everybody don't use Bitcoin, don't use Ethereum, don't use a C, B, D, C. Use the Facebook currency. It's already bad enough, right that so many of people's, you know, kind of daily life experiences, from how they connect to their friends and family, to what they see, what they believe is true. Now all of a sudden their money is tied to this. I basically look at, you know this second kick of the can Zuckerberg and he's trying to, oh yeah. You know, we'll put this basket of stuff somewhere and we'll have somebody else look after it and blah, blah, blah. I mean, it's nothing to me but an attempt to basically grab more of that psyche of the average internet user and bind it to Facebook. So, if I'm a government, hell if I'm just an average garden variety, let's say, I'm not gonna say average garden variety. I'm gonna say a very sophisticated economic sociologist. Do I sit back and I say, what do I think is better for society? Now, I know this changes depending on the society, but would I rather have the citizens of Canada putting their belief, their faith, their kind of expectations behind the government of Canada? And the bank of Canada, and potentially, you know, these big banks that I know have 50 story office buildings in every city? Would I rather have them putting their faith behind that institution, which is governed by a constitution and has politicians that influence things? Or would I rather have it placed in Facebook, which is a public company that is still run like a private company, because Zuckerberg controls 58.8% of the votes.

Henry: That's right and the government that you're talking about also is responsible for the healthcare, for that person who still loves Facebook.

Dr. Nigel Dodd: Yeah. I'm with you, I think in what you are saying and where you are sailing in that, I would much rather it was the government of Canada that was holding the reins here. What I don't accept, I guess if I'm putting my cards on the table is that, that has to come wholesale with a private banking system that's distorting the economy and the way that it's doing. The way that the monetary system currently operates, which I've already said, I don't think is sustainable. So, I guess in that sense, for me, I would prefer to see, not simply, and I'm not a, I wouldn't want a monetary monoculture with just one currency issued by central banks, you know, circulating it around and that's, that's all. I think there's loads of room for diversity in the monetary system. I think there is a room for alternative currencies, for time dollars, for local currencies, as well as for if people want Facebook currencies and other social media currencies. I can imagine already people have lots of choices when they use money. But I think, you know, you talk about use cases. I think this is a great example of it that actually most people don't wanna spend a lot of time thinking about their money. They don't wanna spend a lot of time thinking about the mechanics of the monetary system. There was a guy, a libertarian the LSC actually years ago called Hayek. You probably have heard, but maybe not. Very famous libertarian economist wrote in 1975 or 76, a book called the Denationalization of Money. His proposal was that we dispensed with central banking and governments getting involved in the issue of money. We should simply have the private banks issuing their own currencies. So, you could, in the context of the UK, you could have a Lloyds, Barclays and so on, all these different pounds circulating in a way. The big issue there was, well, how are people gonna choose which pound to use if their value is maybe fluctuating. He said, well, basically you'd look up in the newspapers every day. You'd look up at how these things were going and you'd make your decisions. That way the market would discipline the banks to not inflate their currencies. It's kind of a crazy idea because most people wouldn't do that. We don't wanna spend time looking at the price of money. So, I think, your point about a use case earlier is a good one here. How many currencies is too many currencies? How far are we prepared to go with this? I know a colleague of mine fantasized, once he said, look, I'll have an app on my phone and on that app, I'll have, you know, 10 or 15 currencies. I can just move a slider. So, I don't even need to pay for everything in Bitcoin. If I'm doing a transaction, I can simply move a slider and make a decision. I'm not gonna be doing that when I'm buying stuff. That's not what I wanna be doing. Most people don't wanna be thinking very deeply about the money that they're using. They don't wanna have to make those big decisions, like, you know, do I trust this institution or that institution? But, the likes of Facebook are a bit smarter than that. These things will creep into our lives in ways that we don't quite understand already. As I said on the weekend, I was kind of a bit surprised, actually when I got into PayPal. I dunno how long this has been going on. I don't often go into my PayPal page, my dashboard. But I could see that I could very, very easily buy crypto. That was a bit of a wakeup call because I suddenly thought, okay, it's really gone mainstream now. I mean, imagine you're someone who's a bit of a gambler. A lot of people are, and it's really easy to buy 10 pounds worth of Bitcoin. You can see that PayPal has even got the percent that's being made on this and how much it's growing. So, you know, you put your 10 pounds in, your 20 pounds in, you look up, you know, transaction fees and so forth. But again, that's not using it as an everyday currency, that's using it as a kind of financial asset. So, I think the way this pans out, I don't think we're gonna end up with a kind of real plurality of currencies in our everyday economic lives. I'm not sure that's how it's gonna happen, but I think there will be a kind of end game here, and it's gonna be that we're gonna end up probably with a dominant player. But I don't think the system's gonna stay as it is now. I just, I don't think it can. Right.

Mike: Okay. So, I think this has been a fascinating discussion. I think we could probably talk about this for another couple of hours, but.

Dr. Nigel Dodd: Yeah, and I may well be wrong in everything I'm saying. That's part of the fun.

Mike: Exactly, it’s part of the fun, cause who knows what's gonna happen tomorrow. Hey. I mean, like, you know, it's kind of funny. I mean, I've been predicting the demise of Bitcoin since Bitcoin came out. It's 60,000 bucks now. So, you know, I mean, I think at the end of the day, right. You know, it's very hard to kind of put your magic hat on and see where the future is. But one of the things that I wanted to just kind of lay out there is my vision. My non-sociological vision for the future of crypto, right. Is I think the point that you've made in this, you've made some really great points in this discussion? But I think the main point that I think everybody needs to understand is what really needs to happen is some kind of reform or something over the way the banking system operates. This idea that I just make zeros out of nothing. In order to not get caught off side, I need to make money on those zeros so that I can have more zero plus one. So, I think that this idea of decentralized finance as an enabler of crypto, for example, where the banking system, the government has not, I don't know. I don't know if these things are legit yet or not, but this idea that I could go and think this is where all the bets are happening in decentralized finance is that if I put a bunch of money. If I go out and I set up, whether it's a coin or something, a wallet that has value in it, and I allow people to put money in it and I collect a billion dollars. Like, so this kind of fully reserved stable coin kind of thing. I allow regular private human beings to basically loan money to people for mortgages or to buy that bicycle that Jeff's selling or whatever the case may be. I now enable this whole new kind of approach where there's people who make their own independent decisions about what their risk tolerance is and all this stuff. They just lend money to private people. I think that to me is something where I see this happening. I guess my issue is that I just I think that the DeFi world needs to go even further towards the edge. Where I see the future of crypto is almost in this ability for each individual person to create their own. If that makes sense to say, this is my value to society, right. This is what I've done. I work here, I have this, I have that, and I create Mike dollars. Well, yeah. Because I mean, you know what, it's like something where, you know, where's the real value in society, right. Ultimately, and if you live in a capitalist society, the real edge of the value is the person who pulls that dollar of their wallet and puts it down on the table to buy something. That's been built by somebody else and it goes back up the food chain. So, you know in this new world where my value is no longer just how many hours a day I spent at an office, it's where I surfed online and what messages I typed and what social networks I use and how many connections I have. Because that determines my value as data and you know what I mean? That data monetized by everybody. So, you still have this to me, this unequal creation and allocation of wealth in the tech world over the data versus the actual physical hours you put in. Anyway, that was my little rant to end this thing.

Dr. Nigel Dodd: I think that's a great vision. I mean, I think the old, I mean, defi, if you see it as a kind of mutualism, a technological mutualism. Basically, people cutting out the middle man to each other, it's a very old idea. You find it in PRD. Right. Years and years and years ago. As for the other Mike coin or the DOD coin. I mean, again, it partly depends on what you want it for. If you are business, there are business to business currencies. That transacting time and an hour of my time is worth an hour of your time. That's right. Some of them work really well. You know, there are all debates about, well, what do you do when you get dentists and gardeners in the same scheme? Well, actually, if you do it properly an hour is an hour. There are various ways of valuing our time and valuing what we do. Yeah, time spent on social media is one of them. I think your point is terrifyingly likely to be true. But I think there are lots of different ways of, I mean, in the end, money's a social technology, it's a metric, it's a way of bringing people together. It has huge dangers. It also gives us massive opportunities. There's no one single way of organizing money. That's gonna work for everyone. So, I kind of still like the idea of a world in which that we have all these different alternatives, but I think there's a limit to how much plurality we are gonna get before. The whole thing becomes really quite unworkable. That will be my take.

Henry: Right. Gentlemen, I have to thank you and unfortunately, we have to bring this to a close because of our time constraints. But I have to tell you, we had a whole bunch of other questions and we just didn't get a chance to get to them. I have a feeling that we just may be chatting with Nigel in the future again. Yeah.

Dr. Nigel Dodd: I hope so. It's good fun. It is nice to be able to clarify my thoughts or de-clarify them as your questions came.

Henry: I think we all learned a heck of a lot today. Nigel, thank you for joining us here on The Decentralists. Mike and Jeff great questions. I just, you know, one day we had to get to the rest of them as well. Nigel fascinating. One of the things I really enjoyed was the fact that you were able to convey your ideas in a very easy to understand way. For someone like me, I appreciate it.

Dr. Nigel Dodd: Speaks to how simple minded I am fundamentally. I think.

Henry: That's awesome. Thank you very much, gentlemen.