There has been no shortage of economies in the payments and commerce business to discuss over the past decade.
We’ve had the internet economy which morphed into the digital economy that results from the billions of online interactions that happen every day between devices, consumers and businesses. We have the connected economy, coined by PYMNTS, in which the innovations in technology, connected devices, software, payments and cellular technology make it possible for people and businesses to connect with each other and do business via any device, and in any digital or physical location safely, securely and in real time. Unfortunately we have had the pandemic-driven economy, which will hopefully continue its evolution to the post-pandemic economy.
But are we ready for a new economy? Jeremy Allaire, CEO of crypto exchange Circle, told Karen Webster in a recent conversation that we’re headed to a tipping point with what he calls the crypto economy. He sees it in its early stages and well on its way toward ubiquity.
“You could see how powerful the internet was, and that it was likely to become much larger,” said Allaire. “You just needed some breakthroughs in technology and societal acceptance before the real economy and internet economy were sort of ‘mashed.’”
As he put it: There’s a new economic system that is being built from the ground up on top of public blockchain infrastructures. And just like with any other economy, there are various forms of portable units of trade, of commerce, of exchange for goods and services, in this case ranging from bitcoin to various stable coins, to smart contracts.
“There are key pieces of infrastructure that have to fall into place that kind of light this up around the world,” he said, for cryptos to reach their “broadband moment.”
We’re getting closer to using cryptos more widely to transact, he said, pointing to recent announcements such as the one by Visa to adopt USDC as a settlement technology across its core network. PayPal, in another example, has said it will accept bitcoin for merchant payments. As neobanks and leading digital wallets — the Venmo users of the world — latch onto cryptos, this economy will scale rapidly, he said, with or without intermediaries.
Voting With Dollars And Attitudes
Governments, particularly central banks, are grappling with what it all might mean (some of those “high priests” of economics, he said, are even lashing out against cryptocurrencies with downright fear and hostility).
“For the last hundred years or so, we’ve lived in a world where there’s been a significant amount of government ‘management operation’ over some of these key pieces of the economic system,” said Allaire.
As Allaire noted, it was inconceivable that an individual in one part of the world would be able to use a device and broadcast, live, to anyone else in the world.
“Governments around the world in 1996 would have said, ‘over my dead body. We control the airwaves. We control and give licenses This is my country, these are my rules,’” he said, “but ultimately people voted with their dollar and they voted with their attitudes … The government institution is a vessel for society. And so it will adapt to what society deems to be a better form of organization.”
Along with the technological infrastructure, he added, the regulatory infrastructure is improving too. “Policy structures are taking shape all around the world that acknowledge this as a legitimate, fundamental infrastructure — and how people should deal with the highest risk issues.”
Now, as then, individuals and businesses are voting with their dollars and their attitudes, and the crypto economy is taking shape with speed, said Allaire, existing at present as a $1.5 trillion phenomenon (as measured in market cap). Circle’s own USDC stablecoin, he said, has through the past 12 months done half a trillion dollars of payment volume on blockchain.
“That’s about half of PayPal’s total annual payment volume,” he remarked.
To get to that ubiquity that we’ve seen with the internet, the crypto economy is going to need the same improvements in infrastructure that brought into being the mobile device that connected to broadband and enabled the business model innovations that surprised us all.
“We’re looking at infrastructure changes that are unfolding right in front of us — right now — for the crypto economy,” he said.
Welcome, then, to Blockchain 3.0, which is taking shape right now, and which Allaire said is “widening the pipes” much in the way that broadband did for the internet.
“All of a sudden you can build apps that hundreds of millions of people can interact with. You can move value in milliseconds for a fraction of a penny. And so the breakthroughs that are possible, that people imagined becoming possible, are now arriving,” he said.
The tech and regulatory tailwinds are driving the innovations, such as stablecoins and non-fungible tokens, that point to methods of monetization that were one mere flights of fancy.
“You’re seeing the birth of interest rate markets where people can borrow and lend through a machine on the internet,” he told Webster. “And that’s really dramatic … it opens up access to financial services, potentially, to far more people than have had access before.”
As to that access itself: Though the conventional wisdom holds that the crypto ecosystem needs no middlemen, Allaire maintained that “intermediaries are going to be really important because most people don’t want to run their own data centers. Most people don’t want to worry about archiving and backups and the cryptographic keys that go on with [digital] money.”
Today, the firms that act as intermediaries, and act as the custodians that provide a bridge between the existing banking system and the crypto world, are regulated financial institutions that must abide by consumer protection and anti-fraud mandates. Along the way, he said, global prosperity can be improved through programmable internet commerce, through smart contracts, and the fruits of intellectual property development yet to come.
By the end of the decade, he predicted, “We’ll live in a world where a large portion of the internet economy is transacting in a new global digital currency, where financial services are delivered by autonomous software machines running on the internet,” he told Webster. “We’ll see a larger percentage of the commercial relationships that exist between businesses executed in code, enforced by machines running on this infrastructure.”