Investment in Defi, Web3, and Blockchain Technology Is a Prerequisite for Increasing and Improving Global Wealth!
Considering the current global political, social, demographic, and legal challenges we need a step change in the promise and reality of achieving a better life. Notwithstanding the complexity, it is decidedly possible to focus on improving global wealth through increased productivity. Increased productivity from probably smaller workforces in the future requires automation, robotics, Web3, Blockchain, distributed systems (DeFi), and governance without control to increase productivity and wealth!
Background
Quoting from a recent, May 2023, McKinsey Global Institute report, Asset price inflation over the past two decades has created about $160 trillion in “paper wealth.” Economic growth was sluggish, inequality rose, and every $1.00 in investment generated $1.90 in debt.
Current tremors in the financial system may signal a shift in how the world borrows, lends, and accrues value, with a wide range of plausible long-term scenarios.
Again, quoting the same McKinsey report: By late 2022, instability in the global economy and the balance sheet had become apparent. In 2022 alone, households lost $8 trillion of wealth. Considering the global GDP in 2022 was estimated at $95 Trillion, the loss of wealth represents almost 12% thereof. Compared to global GDP 2 decades ago this represents 23% of the global GDP in 2002.
Although individual productivity probably increased as a result of technology, what happened and why? One reason is that wage growth did not keep pace and other reasons are the 2008 Financial crisis and the Covid 19 global Pandemic. The key question is what the impact of the next two decades will be. Whilst the answer will only be known in the future, the essential approach for improved global wealth and balance sheet health is an investment in strengthening productivity through technology adoption. If productivity accelerates the next two decades will improve wealth! This article argues that Central Banks and Monetary Authorities need to adopt an inclusive and supporting approach to Intangible Assets and embrace the innovation of Web3 (including but not limited to AI) to support the high probability of technology-led productivity improvements.
Before the internet, information was managed and controlled through various means such as books, newspapers, magazines, television, radio, and other forms of media. Libraries were also a major source of information where people could access books, journals, and other publications. In addition, information was disseminated through word of mouth, personal networks, and professional associations. The control of information was a source of power for many individuals and organizations. Governments used censorship to control the flow of information to their citizens. Media companies controlled the news and entertainment industries, which allowed them to shape public opinion. Corporations used proprietary information to gain a competitive advantage over their rivals. However, the control of information was not absolute. People could still access information through alternative sources such as underground publications or by traveling to other countries with more liberal policies on free speech. In addition, the rise of investigative journalism helped to expose corruption and wrongdoing in both government and business. With the advent of the internet, the control of information has shifted dramatically.
The internet has made it easier for people to access information from a wide range of sources. Social media platforms have given individuals a voice that can reach millions of people around the world. However, this has also led to concerns about the spread of misinformation and fake news.
Web3, also known as the decentralized web, has the potential to solve the dilemma of false news and misinformation by providing a more transparent and trustworthy platform for information sharing. One of the main ways that Web3 can combat false news and misinformation is through its use of blockchain technology. Blockchain allows for a decentralized and immutable ledger of information, meaning that once information is added to the blockchain, it cannot be altered or deleted. This makes it much more difficult for false information to be spread, as any changes or edits would be immediately visible and traceable.
In addition to blockchain, Web3 also has the potential to incorporate other technologies such as artificial intelligence and machine learning to help identify and flag false information. These technologies can analyze patterns in data and identify inconsistencies or inaccuracies that may indicate false information. Another way that Web3 can combat false news and misinformation is through its focus on community-driven content creation and curation. Rather than relying on centralized platforms or algorithms to determine what content is shown to users, Web3 platforms can allow users to curate their own content and rely on community-driven moderation to ensure accuracy and reliability. Overall, Web3 has the potential to provide a more transparent and trustworthy platform for information sharing, making it much more difficult for false news and misinformation to spread.
The Obfuscation and Camouflage of Central Banks and Monetary Authorities
There is a traditional belief that communicating the real facts about the consequences of monetary and economic policy will lead to panic and distortions in financial markets because of the fear that investors may react negatively to the information, causing a sell-off or other market disruptions. This belief is rooted in the idea that investors are irrational and prone to overreacting to news, leading to market volatility.
However, research has shown that transparency and clear communication about monetary and economic policy can increase market stability and reduce uncertainty.
When investors have access to accurate information, they are better able to make informed decisions about their investments, which can lead to more efficient markets. Furthermore, withholding information or obscuring the true state of the economy can erode trust in government institutions and central banks, which can have negative long-term effects on the economy.
In recent years, there has been a push towards greater transparency in monetary policy, with central banks such as the Federal Reserve and the European Central Bank providing more detailed information about their decision-making processes and economic outlooks. This has been seen as a positive development by many economists and investors, who believe that it can help to build trust and stability in financial markets.
Monetary policies such as Quantitive Easing and Quantitive Tightening have a large influence on the economic prospects of households. Similarly, there is a specific correlation between the prospects and profits of the financial industry and that of industry, business, and households.
The Fractional Banking System
The fractional banking system is a banking system in which banks keep only a fraction of their deposits in reserve and lend out the remainder, creating new money and liquidity in the process. This system has both challenges and advantages. One of the main challenges of the fractional banking system is the potential for bank runs. If depositors lose confidence in a bank and all try to withdraw their money at once, the bank may not have enough reserves to meet all of the withdrawal requests, leading to a bank run. This can cause a domino effect, as other banks may also experience runs if depositors lose confidence in the banking system as a whole. Another challenge of the fractional banking system is that it can contribute to economic instability. When banks create new money through lending, they increase the money supply, which can lead to inflation. Additionally, if banks make risky loans that are not repaid, this can lead to financial crises and economic downturns. Despite these challenges, there are also advantages to the fractional banking system. One advantage is that it allows banks to lend more money than they would be able to if they had to keep all deposits in reserve. This can stimulate economic growth by providing individuals and businesses with access to credit.
Another advantage of the fractional banking system is that it allows for more efficient use of capital. By lending out deposits, banks can put that money to work in the economy, rather than letting it sit idle in reserves. Finally, the fractional banking system provides a mechanism for central banks to influence monetary policy. By adjusting interest rates and reserve requirements, central banks can control the amount of money that banks create through lending, which can help stabilize the economy.
If we bear in mind that, the burden of the cost of any economic scenario remains that of the taxpayers and consumers specifically almost always the middle-income earners.
According to the Organisation for Economic Co-operation and Development (OECD), middle-income earners contribute a significant portion of global tax revenues. The OECD reports that middle-income earners contribute around 30% to 70% of total tax revenues in most countries. This is because middle-income earners typically make up the largest segment of the population and therefore pay a significant amount of income tax.
In conclusion, while Quantitive Easing and Quantitive Tightening can have short-term benefits for the economy, they also come with long-term costs that are ultimately paid by the general public. These costs include inflation, reduced purchasing power for consumers, lower returns for savers and investors, potential asset bubbles, and slower economic growth.
The impact of the internet on society took several decades to fully materialize. The first message was sent over what would become the Internet in 1969, but it wasn't until the 1990s that the World Wide Web was created, making it possible for anyone with an Internet connection to access information from anywhere in the world. Since then, the internet has continued to evolve rapidly, with new technologies and platforms emerging every year. Overall, the impact of the internet on society has been overwhelmingly positive. It has brought people closer together, democratized access to information, and transformed the way businesses operate. However, there are also concerns about privacy, security, and the spread of misinformation online that must be addressed moving forward.
The concept of the sovereign individual refers to the idea that individuals will have greater control over their lives, privacy, and their interactions with society, as technology and globalization continue to advance. This concept was first introduced in the book "The Sovereign Individual: Mastering the Transition to the Information Age" by James Dale Davidson and Lord William Rees-Mogg, published in 1997.
According to the authors, the rise of technology and globalization will lead to a shift in power from governments and institutions to individuals. They argue that individuals will be able to use technology to protect their privacy, secure their assets, and engage in commerce on a global scale without being subject to traditional forms of regulation and control. Additionally, advances in encryption technology have made it easier for individuals to protect their privacy online. Overall, while the concept of the sovereign individual presents both opportunities and challenges, it is clear that technology and globalization are already beginning to reshape our relationship with society and government.
Central Banks, Governments, and Banking, in general, will be well served in advancing governance and compliance without the seemingly overwhelming emphasis on control. Fact that the World has accepted the Internet and Social Media as well as the increasing importance of Intangible Assets, banking thinking requires a reset.
Despite the promise of vastly enhancing the potential for restoring individual rights and privacy Web3 and Blockchain utility is only starting to emerge. Internet technology has typically taken a decade or so to find traction and deliver its promise.
When reviewing the Gartner Hype Cycle, (Gartner is probably the leading information technology research and consulting organization), the following Web3 and Blockchain aspects are going to be productive in the next two years; Blockchain Wallets, dApps, NFTs, DeFi, StableCoins, and Smart Contracts. Following that, between two and five years they expect the following utilities and applications to receive mainstream adoption; Blockchain Platforms, Enhanced Blockchains as a Service, CeDeFi / CeDEX, Metaverse, and Authenticated Provenance.
Potential Benefits of DeFi, Web3, and Blockchain Technology
DeFi offers several benefits over traditional finance, including accessibility, transparency, and security. As the technology continues to evolve and mature, it has the potential to revolutionize the financial industry and provide greater financial freedom to people around the world. Other benefits of DeFi include lower fees, faster transaction times, and greater control over one's finances.
One of the critically important aspects is that DeFi technology can integrate dApps (Decentralized Applications) and protocols. There are caveats such as Data Quality considerations and particularly where multi National aspects such as space and time are concerned. Managing distributed clock time could have a massive impact on such challenges as ‘front running” and the like. Whilst many Web3 and blockchain solutions may appear similar, there are important and significant differences in supported features, security approaches, task suitability, governance, performance, and complexities that require detailed and in-depth assessment or comparison.
Privacy: Another benefit of Web3 is its focus on privacy. With Web3, users have more control over their data and can choose to keep it private or share it with others on their own terms. This is in contrast to the current web, where user data is often collected and sold without their knowledge or consent. Security: Web3 is also more secure than the current web. Because it is built on blockchain technology, which uses advanced cryptography to secure transactions and data, it is much harder for hackers to compromise the network. Other benefits of Web3 include faster transaction times, lower fees, and greater transparency. As more people adopt Web3 technologies, we can expect to see even more benefits emerge in the years ahead.
Conclusion
Whilst there is enough theoretical and empirical evidence that banks’ liquidity creation fosters economic growth, with an important non-linearity; banks’ liquidity creation helps increase tangible but not intangible investment in an economy. It is probably important to stress the importance of financial structures adjusting as economies transition from an economic structure where investment is mainly tangible to one where the intangible share is a growing imperative.
Money is a concept that has been around for thousands of years. It is a medium of exchange used to trade goods and services, it is a unit of account as it provides a standard measure of value for goods, services, and wealth, money is also a store of value as it can be saved and used to buy goods and services in the future, but importantly it is also a system of control, which regulates the economy and influences behavior. Transparency, truth, and correct factual information will improve confidence, enhance security facilitate trade, and reduce risk. As these are all fundamental aspects of Web3 technology, DeFi, AI, and Blockchains we should accelerate our investment in these technologies to improve household wealth in the coming decades. This is probably the real and compelling measure of prosperity!
About the Author
Authored by Pieter Bouwer, Chief Operating Officer at Zenotta
