The future of money is about peer-to-peer currencies

By Lorenzo Fioramonti

When I began to teach in 2012, I decided to start my course with an analysis of how money affects social order. I kicked off by criticising the conventional idea that money is just a store of value, a medium of exchange and a unit of measurement. My point was that there can be many different types of money, each impacting our collective behaviour and the quality of our democracies differently.

What my students found particularly fascinating was the then-nascent world of cryptocurrencies, which I described at length as a crucial feature in the future of money. Some colleagues criticised my approach, accusing me of indirectly encouraging students to invest in what they saw as a shady, crime-ridden world of financial misgivings. In reality, I was simply exposing young minds to a fast-evolving, complex phenomenon that in my view would have a major impact on power distribution in the global economy. Behind most cryptocurrencies is a simple technology known as “blockchain” – a system residing in multiple computers that allows for peer-to-peer financial ledger recording of all transactions occurring in a network.

This results in a transparent open-access registry of monetary flows which makes the intermediation of banking authorities unnecessary. Thus, it challenges the conventional belief that money can only work through central planning.

Mainstreaming cryptocurrencies

As I explain in my book, Wellbeing Economy: Success in a World Without Growth, our money systems are undergoing an unprecedented transition from centralised authority (as represented by the ‘fiat’ money minted by states) to peer-to-peer networks managed in decentralised fashion. This is not a peripheral phenomenon: it is fast replacing most financial processes. Take Bitcoin as an example. Invented by a mysterious coder in 2009, it has quickly become the most valuable currency in the world, presently worth almost three times as much as an ounce of gold. A student buying the equivalent of 100 dollars in BitCoin in 2012, when I started my lectures, would now possess roughly 32 000 dollars. Those who invested 1 dollar in BitCoin at its inception would now own over 300 000 dollars. No other form of investment in the history of mankind has ever generated so much value in such a short period.

Since the time of my lectures, cryptocurrencies have taken the world by storm (and some of my students have become rich). Bitcoin has a market capitalisation above 50 billion US dollars. Other currencies, too, like Ethereum, Ripple, Litecoin and Dash have reached significant value and growing market caps, almost matching Bitcoin’s. Of the ten most valuable currencies in the world, eight are cryptos. Despite high volatility in the short-term (which is to be expected for such disruptive innovations), the long-term trend is impressive. So much so that states are warming up to this burgeoning phenomenon, especially in times of low growth, when conventional money is less likely come by.

In April 2017, Japan accepted Bitcoin has a payment method, opening the way for this currency to enter its mainstream retail markets. In the US, cryptocurrencies are becoming increasingly accepted as both a method of payment and store of value. Starting July 2017, the Australian government “will make it easier for new innovative digital currency businesses to operate”, exempting traders and investors from goods and services tax.

In August, the Bitcoin network split into two, through what tech specialists call a ‘hard fork’. This meant that a new currency was generated by users, the so-called Bitcoin cash. It is quite astounding not only that Bitcoin did not lose value during the fork, but that it has skyrocketed to over 3 000 dollars since. Moreover, this transition was made possible by the coordination of hundreds of thousands of users (both developers and ‘miners’), an extremely complex task that even veteran central bankers often fail to achieve. In my view, this is an important testament to the ability of new currencies to grow and acquire further strength.

Read the full article in the 2017 edition of Top 500, available in November. Pre-order your copy for R145.00 now, by emailing