Crypto Opens the Floodgates to Globalization of the 3rd Kind
Juan Villaverde is an econometrician and mathematician devoted to the analysis of cryptocurrencies since 2012. He leads the Weiss Ratings team of analysts and computer programmers who created Weiss cryptocurrency ratings.
Globalization of the first kind came with the end of World War II and the emergence of a single dominant currency, the U.S. dollar.
International trade grew by leaps and bounds. In 1950, trade export volume worldwide was just USD 62 billion. Today, it’s over USD 14 trillion. If you include all goods and services, it’s close to USD 42 trillion. Global investing and capital flows are even larger.
Globalization of the second kind burst onto the scene with the World Wide Web, setting off an explosive chain of events that has continued to this day.
Within less than a decade, the Web became so fast, cheap and ubiquitous, it unleashed a torrent of information flows to and from over 4 billion citizens on the planet.
Today, they cannot only use the Web to access over a billion websites, they can also use it to publish their own personal newspapers, set up their own TV channels, and broadcast their own news to anywhere.
But there’s one critical element of human society that was almost entirely left out of the first two waves of globalization: Money.
Even as nearly everything else was transformed in our new era of instant worldwide communications, most money transactions are no less localized and no less centrally controlled than they were before the invention of the internet.
That’s what brings us to globalization of the third kind: The transformation of physical money into a truly global digital asset that’s directly accessible to nearly every citizen in any country.
Never forget: In its essence, money is strictly information — a record or measure of an asset or liability. As such, there’s no reason why the flow of money cannot become just as fast, cheap and ubiquitous as the flow of all other kinds of information — as easy as sending an email or talking with someone halfway across the world.
Here’s how cryptocurrencies will usher in globalization of the third kind …
Until now, mass global markets have been almost exclusively the domain of large multinational corporations and wealthy individuals, whether well-meaning or not.
Only they had the expertise and networks to easily move their money across legal jurisdictions, invest in the most profitable ventures on the planet, exploit cheap foreign labor, or, unfortunately, organize human trafficking.
Only they knew how to avoid regulatory scrutiny, find tax havens, and jump on the legitimate — or illegitimate — profit opportunities that globalization is known for.
Globalization delivered huge benefits, but mostly for the world’s elites and sometimes to the world’s worst actors. Millions of average citizens fell behind or were kicked out entirely.
In the U.S., single-factory towns lost their factories, and entire populations lost their jobs.
Overseas, many middle-class citizens lost their savings to currency devaluations and then were trapped in their devalued money by currency controls.
The poor and disadvantaged suffered fates that were far worse.
Again, in those countries, it was only large corporations and wealthy individuals who could find their way to the exit doors, while the average citizen was left holding the bag.
Globalization of the First Kind Was for the Few. Globalization of the Third Kind is for the Many.
The key is public open cryptocurrency, money without borders.
Anyone can buy, sell, trade, receive or send it anywhere, anytime. And it’s getting set to create an entirely new tidal wave of globalization — this time for the many.
Picture this not-so-distant future scenario …
The time is a few years from now; the place, everywhere.
No matter how little money you have or what village of the world you live in, you have a myriad of choices:
You can open an account in your neighborhood bank and participate in your financial system. Or you can participate in the global financial system just as easily as a high-net-worth investor with a bank account in Geneva, an exclusive family trust in the Cayman Islands or a USD 100 million mansion in Palm Beach.
You can park your digital assets with a trusted custodian. Or you can trust no one and take physical possession instantly at any time.
You can send funds to family and friends via the likes of a Western Union and MoneyGram. Or you can cut out the middleman and send money directly to whomever you want.
You can buy, sell or trade your assets via banks and brokerage firms, all of which use the Society for Worldwide Interbank Financial Transactions (SWIFT). Or you can bypass SWIFT entirely and trade directly with any individual or entity in the world.
This new form of globalization is set to tear down the financial barriers that have divided the world for decades and that have excluded billions of people from global financial markets.
Right now, the World Bank estimates that some 1.7 billion people around the world have no access to even a simple bank account. Plus, billions more could get stuck in unsafe banks or unstable currencies.
What happens when these billions are enabled to own stock, trade currencies and move capital across the world in milliseconds — all just with a USD 20 Android phone?
While it’s too soon to map out the full consequences, four global transformations are now clearly in the making:
Global transformation #1
Many Asset Custodians Go the Way of Printed Newspapers
Right now, the business model of tens of thousands of commercial banks, savings and loans, credit unions, insurance companies and other financial custodians is already based mostly on digital money.
Your checking or savings account is digital money. So is your annuity or cash-value life insurance policy.
That’s right. Except for the money you carry around in your wallet or plunk into a cookie jar, your paycheck and life savings are already little more than a bundle of zeros and ones stored on the computer of the custodian institution.
What makes cryptocurrencies so different?
First, they’re digital from birth. Unlike dollar bills, quarters or dimes, they never have or need a physical existence. That aspect alone is disruptive to the traditional banking system.
Second, they’re not subject to control by any single government. That’s even more disruptive.
Third, they don’t require custodians or intermediaries, their most disruptive feature of all.
End result: Cryptocurrencies directly compete with, and can even replace, traditional digital money.
What happens to establishment financial institutions in that scenario? Most are forced to reinvent their business models. Many disappear entirely.
Global transformation #2
Free Access to International Remittances
A pervasive aspect of globalization today is that workers migrate to other countries for better pay. Then they send money back home to their families. As of the last count, there were an estimated 150.3 million, with nearly half in North America or Western Europe and 14% in Asia.
This global drama isn’t just about Mexican-born farm workers in the U.S. or a refugee from Zimbabwe in the U.K. It’s also about Philippine domestic workers in Hong Kong, Brazilian restaurant workers in Bali, and American expats in Paris. Whether they’re legal or illegal, most have to rely on companies like Western Union, which charge exorbitant fees for international remittances.
But cryptocurrencies are borderless by nature. In a world where crypto assets become mainstream, foreign workers don’t need a third party to transfer money to anyone, regardless of their physical location. There’s no cost difference between making a local payment in cash and sending money to the other side of the world. The term “international remittance” itself becomes obsolete.
Global transformation #3
Foreign Jobs without Leaving Home
Right now, an estimated 70% of professionals around the world work at home at least once a week, according to IWG, a Swiss-based provider of serviced offices.
Gallup reports that, in the U.S., 43% of employed Americans spend at least some time working remotely.
Remote work is attractive to younger populations who like to travel or relocate. It’s good for married couples with children who need to spend more time with family. It keeps older people productively in the workforce a lot longer.
But working at home for a foreign company is far less common. The cost of transmitting pay internationally is a big drag on growth especially for lower-paying jobs. It’s especially onerous if you’re trying to set up a global home business which involves a lot of micro payments. And if you live in a country with a financially repressive regime, it can be virtually impossible.
Public open cryptocurrencies change all that. Just like the World Wide Web did years earlier, they break down the physical barriers of geography, language, culture and politics. They open the floodgates to an explosion of international recruiting and work-at-home opportunities. They enable a far more interconnected world and labor market.
A larger, more diverse, web of work relationships is established between financial centers and remote, previously inaccessible regions.
Global transformation #4
Unlocking Capital, Innovation and Value
f you’re not among the lucky few who live near a major financial hub, it’s a lot tougher to access capital and start new ventures. Worse, if you’re among the billions living south of the Equator or east of the former Iron Curtain, you’re most likely shut out entirely.
But with public open cryptocurrencies, it’s a trivial task to raise capital for a new project — provided, of course, the global community of peers sees value in it.
Cryptocurrencies bypass investment bankers and traditional fundraising intermediaries. They facilitate the internationalization of capital flows in ways not previously possible or imaginable. Microlending and microfundraising transactions are suddenly enabled and can surge in volume.
Why These Transformations Could Change The World So Thoroughly and Swiftly
Imagine each of these global transformations interacting synergistically.
Much like traditional phone companies that jumped into mobile and instant messaging, traditional banks reinvent themselves and encourage global transactions for everyone. Alternatively, many of their functions are replaced by peer-to-peer transactions.
This helps transform global migration, now mostly a disruptive force, into a natural mechanism that balances the supply and demand for labor internationally.
It also makes it a lot easier for people to work from home, greatly reducing the need for migration in the first place.
All of the above frees up the flow of capital to anywhere in the world in any quantity.
When all is said and done, these organic transformations do more to reduce global inequalities than all of the world’s organized charities combined.
Let’s just hope national governments and supranational governmental organizations can overcome their fears and clear the way with do-no-harm regulations.