Video Transcript: The Future of Money

I want to tell you about the future of money. Let's start with a story about this  culture that lived in Micronesia in the early 1900s, called the Yap. Now, I want to  tell you about the Yap because their form of money is really interesting. They  use these limestone discs called Rai stones. Now, the Yap don't actually move  these Rai stones around or exchange them the way we do with our coins,  because Rai stones can get to be pretty massive. The largest is about four tons  and 12 feet across. So the Yap just keep track of who owns part of what stone.  There's a story about these sailors that were transporting a stone across the  ocean when they ran into some trouble and the stone actually fell in. The sailors  got back to the main island and they told everyone what had happened. And  everyone decided that, actually, yes, the sailors had the stone and -- why not? -- it still counted. Even though it was at the bottom of the ocean, it was still part of  the Yap economy. You might think that this was just a small culture a hundred  years ago. But things like this happen in the Western world as well, and the Yap  actually still use a form of these stones. In 1932, the Bank of France asked the  United States to convert their holdings from dollars into gold. But it was too  inconvenient to think about actually shipping all of that gold over to Europe. So  instead, someone went to where that gold was being stored and they just  labeled it as belonging to France now. And everyone agreed that France owned  the gold. It's just like those Rai stones. The point I want to make with these two  examples is that there's nothing inherently valuable about a dollar or a stone or  a coin. The only reason these things have any value is because we've all  decided they should. And because we've decided that, they do. Money is about  the exchanges and the transactions that we have with each other. Money isn't  anything objective. It's about a collective story that we tell each other about  value. A collective fiction. And that's a really powerful concept. In the past two  decades, we've begun to use digital money. So I get paid via direct deposit, I  pay my rent via bank transfer, I pay my taxes online. And every month, a small  amount of money is deducted from my paycheck and invested in mutual funds in my retirement account. All of these interactions are literally just changing 1's and 0's on computers. There's not even anything physical, like a stone or a coin.  Digital money makes it so that I can pay someone around the world in seconds.  Now when this works, it's because there are large institutions underwriting every 1 or 0 that changes on a computer. And when it doesn't, it's often the fault of  those large institutions. Or at least, it's up to them to fix the problem. And a lot of times, they don't. There's a lot of friction in the system. How long did it take the  US credit card companies to implement chip and pin? Half my credit cards still  don't work in Europe. That's friction. Transferring money across borders and  across currencies is really expensive: friction. An entrepreneur in India can set  up an online business in minutes, but it's hard for her to get loans and to get  paid: friction. Our access to digital money and our ability to freely transact is  being held captive by these gatekeepers. And there's a lot of impediments in the

system slowing things down. That's because digital money isn't really mine, it's  entries in databases that belong to my bank, my credit card company or my  investment firm. And these companies have the right to say "no." If I'm a PayPal  merchant and PayPal wrongly flags me for fraud, that's it. My account gets  frozen, and I can't get paid. These institutions are standing in the way of  innovation. How many of you use Facebook photos, Google Photos, Instagram? My photos are everywhere. They are on my phone, they're on my laptop, they're on my old phone, they're in Dropbox. They're on all these different websites and  services. And most of these services don't work together. They don't inter operate. And as a result, my photo library is a mess. The same thing happens  when institutions control the money supply. A lot of these services don't inter operate, and as a result, this blocks what we can do with payment. And it makes transaction costs go up. So far, we've been through two phases of money. In an  analog world, we had to deal with these physical objects, and money moved at a certain speed -- the speed of humans. In a digital world, money can reach much  farther and is much faster, but we're at the mercy of these gatekeeper  institutions. Money only moves at the speed of banks. We're about to enter a  new phase of money. The future of money is programmable. When we combine  software and currency, money becomes more than just a static unit of value, and we don't have to rely on institutions for security. In a programmable world, we  remove humans and institutions from the loop. And when this happens, we won't even feel like we're transacting anymore. Money will be directed by software,  and it will just safely and securely flow. Cryptocurrencies are the first step of this  evolution. Cryptocurrencies are digital money that isn't run by any government  or bank. It's money designed to work in a world without intermediaries. Bitcoin is the most ubiquitous cryptocurrency, but there are hundreds of them. There's  Ethereum, Litecoin, Stellar, Dogecoin, and those are just a few of the more  popular ones. And these things are real money. The sushi restaurant down my  street takes Bitcoin. I have an app on my phone that I can use to buy sashimi.  But it's not just for small transactions. In March, there was a transaction that  moved around 100,000 bitcoins. That's the equivalent of 40 million US dollars.  Cryptocurrencies are based on a special field of mathematics called  cryptography. Cryptography is the study of how to secure communication, and  it's about two really important things: masking information so it can be hidden in  plain sight, and verifying a piece of information's source. Cryptography  underpins so many of the systems around us. And it's so powerful that at times  the US government has actually classified it as a weapon. During World War II,  breaking cryptosystems like Enigma was critical to decoding enemy  transmissions and turning the tide of the war. Today, anyone with a modern web  browser is running a pretty sophisticated cryptosystem. It's what we use to  secure our interactions on the Internet. It's what makes it safe for us to type our  passwords in and to send financial information to websites. So what the banks 

used to give us -- trustworthy digital money transfer -- we can now get with a  clever application of cryptography. And this means that we don't have to rely on  the banks anymore to secure our transactions. We can do it ourselves. Bitcoin is based on the very same idea that the Yap used, this collective global knowledge of transfers. In Bitcoin, I spend by transferring Bitcoin, and I get paid when  someone transfers Bitcoin to me. Imagine that we had this magic paper. So the  way that this paper works is I can give you a sheet of it and if you write  something on it, it will magically appear on my piece as well. Let's say we just  give everyone this paper and everyone writes down the transfers that they're  doing in the Bitcoin system. All of these transfers get copied around to everyone  else's pieces of paper. And I can look at mine and I'll have a list of all of the  transfers that are happening in the entire Bitcoin economy. This is actually  what's happening with the Bitcoin blockchain, which is a list of all of the  transactions in Bitcoin. Except, it's not done through paper. It's done through  computer code, running on thousands of networked computers around the  world. All of these computers are collectively confirming who owns what Bitcoin.  So the Bitcoin blockchain is core to how Bitcoin works. But where do bitcoins  actually come from? Well, the code is designed to create new Bitcoin according  to a schedule. And the way that it works is that to get those Bitcoin, I have to  solve a puzzle -- a random cryptographic puzzle. Imagine that we had 15 dice,  and we were throwing these dice over and over again. Whenever the dice come  up all sixes, we say that we win. This is very close to what these computers are  all actually doing. They're trying over and over again to land on the right number. And when they do, we say that they've solved the puzzle. The computer that  solves the puzzle publishes its solution to the rest of the network and collects its  reward: new bitcoins. And in the act of solving this puzzle, these computers are  actually helping to secure the Bitcoin blockchain and add to the list of  transactions. There are actually people all over the world running this software,  and we call them Bitcoin miners. Anyone can become a Bitcoin miner. You can  go download the software right now and run it in your computer and try to collect some bitcoins. I can't say that I would recommend it, because right now, the  puzzle is so hard and the network is so powerful, that if I tried to mine Bitcoin on  my laptop, I probably wouldn't see any for about two million years. The miners,  professional miners, use this special hardware that's designed to solve the  puzzle really fast. Now, the Bitcoin network and all of this special hardware,  there are estimates that the amount of energy it uses is equivalent to that of a  small country. So, the first set of cryptocurrencies are a little bit slow and a little  bit cumbersome. But the next generation is going to be so much better and so  much faster. Cryptocurrencies are the first step to a world with a global  programmable money. And in a world with programmable money, I can pay  anyone else securely without having to sign up or ask permission, or do a  conversion or worry about my money getting stuck. And I can send money 

around the world. This is a really amazing thing. It's the idea of permission-less  innovation. The Internet caused an explosion of innovation, because it was built  upon an open architecture. And just like the Internet changed the way we  communicate, programmable money is going to change the way we pay,  allocate and decide on value. So what kind of world does programmable money  create? Imagine a world where I can rent out my healthcare data to a  pharmaceutical company. They can run large-scale data analysis and provide  me with a cryptographic proof that shows they're only using my data in a way  that we agreed. And they can pay me for what they find out. Instead of signing  up for streaming services and getting a cable bill, what if my television analyzed  my watching habits and recommended well-priced content that fit within my  budget that I would enjoy? Imagine an Internet without ads, because instead of  paying with our attention when we view content, we just pay. Interestingly, things like micro-payments are actually going to change the way security works in our  world, because once we're better able to allocate value, people will use their  money and their energies for more constructive things. If it cost a fraction of a  cent to send an email, would we still have spam? We're not at this world yet, but it's coming. Right now, it's like we're in a world that is seeing the first automobile. The first cryptocurrency, like the first car, is slow and hard to understand and  hard to use. Digital money, like the horse and carriage, works pretty well, and  the whole world economy is built on it. If you were the first person on your block  to get a car with an internal combustion engine, your neighbors would probably  think you were crazy: "Why would you want this large, clunky machine that  breaks down all the time, that lights on fire, and is still slower than a horse?" But  we all know how that story turns out. We're entering a new era of programmable money. And it's very exciting, but it's also a little bit scary. Cryptocurrencies can  be used for illegal transactions, just like cash is used for crime in the world  today. When all of our transactions are online, what does that mean for  surveillance -- who can see what we do? Who's advantaged in this new world  and who isn't? Will I have to start to pay for things that I didn't have to pay for  before? Will we all become slaves to algorithms and utility functions? All new  technology comes with trade-offs. The Internet brought us a lot of ways to waste time. But it also greatly increased productivity. Mobile phones are annoying  because they make me feel like I have to stay connected to work all the time.  But they also help me stay connected to friends and family. The new sharing  economy is going to eliminate some jobs. But it's also going to create new,  flexible forms of employment. With programmable money, we decouple the need for large, trusted institutions from the architecture of the network. And this  pushes innovation in money out to the edges, where it belongs. Programmable  money democratizes money. And because of this, things are going to change  and unfold in ways that we can't even predict. Thank you.