You can divide the history of money into five epochs, with each creating a new paradigm for the exchange of value. We are about to enter the next one—and it might just mean that the idea of money will come full circle.
Bartering, the direct trading of goods, is the oldest form of value exchange. Gold and silver coins were first minted around 600 BCE, eventually followed by paper money, first used in the 11th Century CE in China. In the last 60 years, paper and gold were turned into plastic and electronic transactions that have revolutionized how we shop, pay and trade.
The newest form of money, of course, is cryptocurrency and other digital assets. And it’s not without controversy.
You might scoff at the idea that crypto is a sea-change for banks. But while it’s possible that we’re in a crypto bubble that will soon pop, what crypto and durable digital assets represent in terms of value exchange is no fad. The real impact is hiding in plain sight: they have brought money full circle. Direct exchange of digital assets in the metaverse is a new form of trade now sitting on top of all the older ones.
The difference is you can now barter for assets that are not stored in barns but on blockchains.
Money in the metaverse
As I’ve written in my previous blog post, the metaverse is the next frontier for banking.
Right now, you can spend money in the metaverse in different digital worlds. Most of these are “closed”—money can go in, but it can’t come out.
The most famous example is the digital Gucci handbag that recently sold in the online game Roblox. It went for $4,115, which is more than its real-world counterpart. However, that digital handbag is stuck within the world of Roblox forever. Its owner cannot take it anywhere else in the metaverse—just like you can’t own anything you create on Facebook today
Other parts of the metaverse are “open”. Digital assets can move in and out of places like Decentraland and Sandbox. Ownership of assets in these open worlds of the metaverse is not managed by a central authority. Instead it’s recorded on a public blockchain.
This is a distinction that might seem minor, but its implications are beyond major. The arrival of the blockchain reminds me of another tech development that seemed arcane right up until it revolutionized the economy.
TCP/IP stands for transmission control protocol/internet protocol. It’s a set of communication protocols that make the modern internet possible. It took shape in the early 80s and laid the ground for the modern digital world.
Public blockchain is the TCP/IP of the metaverse. Even if Bitcoin turns out to be an unmitigated dumpster fire, a new digital world will rise from its ashes because of blockchain.
Blockchain in the metaverse creates intriguing possibilities for banks. Imagine going to a digital ATM in the metaverse that is linked to your real-world bank account. You enter your real banking PIN, pull real money out from your real banking account and put it in your digital wallet.
But you can put more in a digital wallet—you could put other currencies, like euros or pounds; it can hold your cryptocurrencies, and you could even put a digital asset, like that Gucci bag, in there and use it to buy, barter, and trade in the metaverse.
Turning pain points into opportunities
The idea of a virtual ATM is exciting, and aspects of it already exist in various parts of the metaverse today. So do some serious problems with moving money.
One of them is that everyone must track their own digital assets. This is the metaverse equivalent of storing all of your money in cash under the bed. You can imagine the downsides.
For example, in early 2021 a British man accidentally threw out a hard drive with 7,500 bitcoins on it. As of this writing, that’s over $275 million worth of cryptocurrency. He offered local authorities around $70 million to let him root around for the hard drive in the local landfill, but was unable to do so.
As the metaverse grows, so does the incentive to solve problems like this—and banks are uniquely positioned to do so.
Specifically, I see four distinct opportunities for banks:
- Become trusted custodians of digital assets. Asking people to take care of their most valuable digital assets on their own is asking for trouble. People implicitly trust banks with their money right now. There’s no reason why they shouldn’t trust banks with their money and digital assets.
- Offer virtual wallets any customer can understand and use. If you store your crypto, your digital assets and your real-world money in the same place, it will be convenient to create a digital wallet there as well.
- Create the standards for safe, smooth, “pay any way” transactions. Right now, paying for something in the metaverse with a mix of fiat and cryptocurrencies is clunky and inconvenient. Often it requires perfect trust between parties. Banks can help develop the regulations, rules and services that are needed to for safe, fast, friction-free movement of digital assets. Ask yourself—how can we create the “Visa” of the metaverse?
- Build bridges between the metaverse and the real world. It’s very easy today to spend fiat currency in parts of the metaverse. It’s harder to bring money in the metaverse back into the physical world. Some early entrants are working on crypto-to-fiat exchanges and similar services, but there’s no reason that banks could not compete here too.
Paying for anything with anything in the metaverse is closer than you think. We’re not there yet, but we’re not far off either.
When that happens, the way we trade and do business will bear a striking resemblance to trade before the invention of metal coins. Money will have come full circle.
And the banks that help us get there will stake out valuable territory in this exciting and expanding new market.
This post is based on a presentation I recently gave at a Payments Canada conference, which you can watch below.
If you have any questions about what money in the metaverse means for your bank, you can reach me here. To learn more, read our Ultimate Guide to banking in the metaverse:
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