The Breakdown - Davos Takeaways, CBDCs & the Rise of Bitcoin Art featuring Brekkie von Bitcoin

Episode Date: January 24, 2020

That’s a wrap! The World Economic Forum is over, and the key ideas coming out of Davos for our industry are: 1) a continued ‘blockchain, not crypto’ narrative; 2) a believe in the inevitability of cashless futures (without much concern about the negative implications); and 3) the rise of CBDCs.  On the CBDC front, the WEF put out a toolkit for governments that are considering their own currency; Japan announced a project to explore a digital currency as a counterweight to the influence a digital yuan might bring China; and a BIS study says 1 in 10 governments anticipate having a digital currency within 3 years.  Finally, we close asking prolific bitcoiner and artist Brekkie von Bitcoin about the state of bitcoin art and why even the hardcore financially-minded folks in the space should care.

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Friday, January 24th, and Davos has come to a close. Yes, we started the week talking about whether crypto should even care about the conversations at the World Economic Forum. We're going to end the week starting off with three of the key Davos themes and what we learned about the global establishment's thoughts about cryptocurrencies and digital currencies and blockchains this year.

Second, we're going to dive into one particular issue, which just as we thought was right at the center of the Davos conversation, which is central bank digital currencies. This is going to be one of the most important themes for the year, as this week makes clear. And then finally, we're going to end on a different type of note, something fun. and interesting for a Friday, I asked my friend Brecky von Bitcoin to talk a little bit about Bitcoin art and culture, and even why it should matter to folks who don't particularly care about the culture side of Bitcoin or even the philosophical side, but just the finance side. So it should be an interesting episode, and let's start with these three conclusions or themes

from Davos. All right, let's start with the banner headline from Davos this year. As the Coin Desk Confidential newsletter put it, crypto and Bitcoin are still dirty words, but blockchain, its neutered cousin, has been fully assimilated. This was definitely a year where there was conversation about blockchain frequented throughout, but it was subsumed in the context of other issues. There were conversations about how blockchain might be able to help in the context of climate change, which was far in a way the most important and most talked about issue at the event. There were conversations, as we'll discuss more, about Libra and about central bank digital currencies.

But when it comes to Bitcoin specifically, it continues to be something of a pariah. And I don't think this should be unexpected. Bitcoin is a singularly uncontrollable force relative to all of the systems that the folks who frequent Davos are in charge of. And so it's not a surprise that it isn't exactly top of. mind and top of focus for them, whereas something controllable like central bank digital currencies might be. So theme one, perhaps not unexpected, was crypto and Bitcoin still dirty words, even if blockchain is okay. Number two, cash is dead. There was a huge amount of conversation about the future of money and society. And one point of consensus seemed to be that cash is not

a part of it, right? Physical money is not a part of it. Earlier today, Lee Quinn posted one of her wrap-up pieces from Davos, and this was the central thesis that across the board, as she talked to government officials, it was clear agreement and consensus that cash just didn't have a place in the future. One interesting quote came from Yuval Noah Harari, who folks in this crypto community know as the author of Sapiens. But basically, he said that he's skeptical. of Bitcoin saying money is going in the direction of more and more trust. Bitcoin is based on mistrust. It's basically a return to gold. I think that many of us in this space would argue that trust is the direction we're headed in in this day and age when trust in institutions is at an all-time

low, but that's neither here nor there. However, he did also tend to agree that the erosion of financial privacy could happen, quote, very quickly and could be, quote, dangerous, which is strictly in agreement with all of us over here. However, that seemed to be not the common viewpoint. Lee writes, ask almost any economist, banker, or politician at the WEF about financial privacy, and they'll scoff. With shockingly few exceptions, most will say that more financial data collection and passive surveillance will benefit society. When pressed, they might emphasize the importance of encryption and regulating access to the data. This is exactly the scary scenario in terms of seeing the world in completely different ways that I think folks in this crypto community are worried about.

The idea that somehow just having unfettered access to financial information about anyone is better for society is incredibly suspect. And I think that the good news is that it's not all governments that agree with this. Just yesterday, Bloomberg reported that New York City is making a move to ban cashless stores. So they want to make it a requirement that stores continue to take cash. This is following other cities who have done this, San Francisco and Philadelphia. The reasoning has to do with low-income folks for whom paying in cash is incredibly important, right? The argument is some way is that the cashless stores discriminate against big portions of society. This is maybe a different context for why some of us in the crypto community

are worried about cashlessness, but it amounts to at least two more. meaningful sides of the political debate as it relates to cash and financial privacy. It creates a mechanism by which to talk about financial privacy. However, I think that the only conclusion looking at Lee's reporting and others reporting from Davos is that we have a strong battle when it comes to financial privacy ahead of us because cashlessness and just the unfettered benefits of cashless society seem to be de rigour and commonly regarded as obvious to the existing economic order, which could be an issue. It also gets into our third and final takeaway that the digital currency race is real. This, I think, is what we all expected to see from Davos, a ton of conversation

about central bank digital currencies in the wake of Libra, in the wake of China, announcing its digital currency, and that has certainly borne out. All right, so the World Economic Forum was just chockerblock full of conversation about CBDCs. You could tell that even from afar. A couple different pieces worth highlighting. First was that the WEF itself has developed a toolkit for CBDCs. It's a 28-page toolkit that has information on a variety of different CBDCs, including what they call retail, wholesale, cross-border, and hybrid. It's designed basically for central banks who are either just starting the research and who want to, quote, make progress quickly. It is basically a step-by-step evaluation process, including the benefits and challenges. So this is obviously a demonstration of the WEF itself placing its stake in CBDCs and saying that this is an important part of the future. It also reflects the fact that number of governments made announcements this week that suggested that they were digging in. So Rashid Marage, who's the governor of the central bank

of Bahrain, said, we will pilot the new toolkit developed by the World Economic Forum. We hope that it will be an opportunity to learn, grow, and to adapt to the changes in the fourth industrial revolution. The governor of the Bank of Thailand echoed that, saying that the toolkit could, quote, provide actionable framework for CBDC deployment. Now, Thailand is extra interesting because they had also issued a project report about their own CBDC project, which was alongside the Hong Kong Monetary Authority also issuing a report about their CBDC project. So a lot more activity. And then kind of topping this all off, you had a WSJ story this morning talking about a new report from the Bank of International Settlements, which suggests that one in 10 central banks surveyed in

2019 said that it was likely to offer digital currencies within the next three years. covering something like 20% of the world's population. And when you raise that timeline to six years, the number of central banks that said they're likely to issue a digital money almost doubled. So clearly this is a top of mind sort of issue. You have 20% of central banks around the world representing a meaningful part of the world's population, saying that within the next five or six years, they're likely to have a digital money. So this is now just, it's happening, right? There's no longer a question about whether or not there will be central bank digital currencies. It's about what form and how they take a hold and what tradeoffs they come with and how they're designed and all these sort of things.

Another piece from Reuters this morning about Japan, I think it's to the core of maybe why this is such a big issue. So the article is titled Japan Ruling Party Lawmakers to Float Idea of Issuing a Digital Currency. And the whole context of the article is the fear of what China's economic influence looks like if they have a digital currency and there's nothing competing. So there's a quote from Nakayama, who's a member of the group of lawmakers who's making this proposal, who said, China is moving towards issuing digital yuan, so we'd like to propose measures to counter such attempts. And going down, the Reuters article basically makes the same point that we've been talking about on the breakdown for months now, which is Facebook's push to launch its Libra cryptocurrency has prodded central banks to quicken the pace at which they look at issuing digital currencies. Of the major central banks, China's has emerged as

the frontrunner in the drive to create its own digitized money, though details of its project are still scarce. Some Japanese lawmakers have voiced concern over Beijing's move as an attempt to expand the yuan's use as a settlement currency in emerging economies. And that is, of course, the geopolitical question here is influence around the world, influence in emerging economies, influence in even developed economies that are transacting and interacting in an international way. So this is the stakes of the game. The CBD race is real. The U.S. continues to ham fist its way through it, seemingly not interested. And it could be one of those turning points where we look at years later and say that was a major mistake that the U.S. made to not dig into that, to not try to.

to compete against China in a meaningful way when it came to global economic influence through a digital currency. Now, the question of course is what this all has to do with our industry. And I think it's actually more complicated than it seems. The easy pat answer is that CBDCs are good for the crypto industry because they bring awareness to blockchains and they create an onramp where people are perhaps using digital wallets and so from there they can learn about Bitcoin, and I understand those things. However, I think that in some ways the reason to care about them is also that they are anathema in some ways to what a lot of the projects in this space are trying to build and trying to provide for. There is nothing alike, perhaps other than the underlying

technology, between something like Bitcoin, which is meant to be a undebasible, non-sovereign, permissionless type of money from a tightly controlled, surveilled convenience fiat, basically, that is what these digital currencies will constitute, especially when they're coming from a place like China. We need to care about CBDCs not because of just a blithe excitement that maybe will get some of their runoff for users to come find our digital assets and our digital cryptocurrencies, but because they represent perhaps the most significant threat that we have ever seen to what we're doing, You think that today's existing monetary system and Visa and MasterCard are threats when it comes to surveillance, wait till we get an entire world that's transacting on a Chinese digital yuan with complete total transparency and surveillance for that government. That is the panopticon that we're worried about.

So I think that we do need to be paying attention to CBDCs. And I think that the folks who say that there could be positive impacts of people coming into contact with digital currencies are correct. However, the bigger states of the game, I think, is much more adversarial, perhaps, than we are letting on. Now, one more note before we leave CBDCs and move on to perhaps more fun Friday topics is Christopher G&C was one of the most active speakers hustling around Davos. The former CFTC chairman just announced recently that he was building something called the Digital Dollar Foundation to basically design and push and advocate for the U.S. to actually

have a digital dollar, to not be left for. behind in this race. Giancarlo sat down with CoinDesk, and I just wanted to play a little bit of the clip from that, because I think it gives you a context about how someone who has been in government in the U.S. and who is now currently trying to influence government in a specific direction, is thinking about digital currencies. Digital dollar would be an alternative, a third form alongside cash, but it would be a direct transaction and it would be honored by the federal government. We propose this. We believe that the dollar's usage in the global economy is underserved by serving as a continual analog instrument

in a digital world. And we, with Accenture, and we're going to bring together a thought panel of some leading experts in constitutional law, in central banking, in technology, in blockchain and other technologies, in anti-money laundering and other fields, to think through how do we create a digital dollar that serves well into this coming digital century. Let's envision a world where you have, and this is hypothetical, where you have a Chinese central bank currency, you have a commercial transparency like a Libra, and you have a U.S. dollar currency. Central bank U.S. dollar? A Bitcoin over here. Oh, and let's say Bitcoin over here, right? In those three worlds, one of them, one government is

going to want to know every transaction, especially transactions to political opponents, to freedom movements. In another world, one of those operators is going to want to know every commercial transaction to know whether you're shopping with Target or whether you're shopping with Nordstrom. And one of those providers is going to be constitutionally restricted from collecting either of that information. And that one is going to be the U.S. government. Because the Fourth and Fifth Amendment's Constitution prevent the U.S. government from taking information without a subpoena and without due process and without just compensation. Now, the jurisprudence around that will need to be developed, but we think in a digital dollar, people could see a digital dollar

as your information being more secure, not less, than a central bank currency offered by other governments or by commercial vendors. So this is a fascinating take, and I think reinforces exactly what we're just saying about this adversarial concern, although perhaps from a different perspective than we might have. Effectively, Giancarlo is saying that, look, if your options for a digital dollar are one, China, who wants to know everything about how you transact because they might be able to use it against you politically. Your second option is Libra, who wants to know everything about your commercial transaction so they can offer complete and total control over your buying habits. Or your third option is the U.S., which is constitutionally restricted from collecting information

about you and using that information, who are you going to pick? Now, of course, the skeptics, the cynics are going to say that that constitutional mandate doesn't necessarily stop intelligence agencies, and it still creates a broader boogaloo for data collection that could come back to haunt us. However, I think the important point is that he is thinking about it in, frankly, a similar adversarial light than maybe some of us are, and this is why he's crypto dad and we love him. But let's move on from this topic. It's not like we're going to be done with it anytime soon. to something just to wrap up our Friday, which is about a totally different part of this industry, art. As much as Bitcoin is a financial movement or a technology movement, it is also a

cultural movement. It has underpinnings of philosophy and just a perspective on how one should engage with the world, what the nature of society should be, how people should interact with one another, how people should be able to design their own future and have control over their own future. These are all philosophical elements, as much as they are economic or technological. Because of that, I think it doesn't surprise me that Bitcoin has started to create its own art segments, right? And crypto more broadly, but I think Bitcoin in particular have inspired a new wave of artists to have the influence both of Bitcoin itself, but also the ideas underpinning Bitcoin, find its way into their art. This is a topic that obviously it may not be the front of mind for

people who are just strictly focused on the financial aspect of it or some other part of it, but I think is a really important part of the Bitcoin story. And so I asked Breckyvon Bitcoin, as he's affectionately known, who does a ton of Bitcoin art, is constantly on Instagram and on Twitter sharing his art, and also advocating for other artists. He has a whole newsletter about Bitcoin and crypto art. I asked him two questions. First is what the state is, of Bitcoin art is, and second is why someone in the finance side who doesn't particularly care about this should actually pay attention to what's going on in Bitcoin art. Hey Nathaniel, thank you for having me on. So your first question, what is the state of

Bitcoin art? So, you know, I think it's first important to address the concept of Bitcoin art. You know, what the heck is Bitcoin art? Is it just art that features the Bitcoin logo or a Honeybadger or the word Hoddle? Yes, that kind of thing is Bitcoin But to me, at least, Bitcoin art is so much more than that. It's meant to spark conversations, to make people question the world they live in, to make them want to learn about Bitcoin, and ideally to give them hope for the future. It's both a record of the times and it's a call to action. For some, it's frustration with how things are, but it's also hope for how things could be.

With regard to the state of things, Bitcoin art is definitely still in a nascent stage, which is nice for artists because there really aren't that many of us. We all kind of know each other, and for the most part, we collaborate and help each other because we're all mission-driven. You know, not only do we want to succeed as artists, but we want Bitcoin to succeed. In terms of the market for Bitcoin art, it's definitely also small, but definitely also growing. You know, more importantly, I think over the last year, we've seen some really fantastic growth in terms of how art is viewed by the community, and even some folks outside the community. You know, this year, for example, Bitcoin art had a great presence at Art

Basel, and later this year at Bitcoin 2020, you know, the conference organizers, they're really doing a great job going to great lengths to feature artists in the community. And when it comes down to it, what they're actually featuring isn't just artistic talent, but it's overall passion for Bitcoin. This kind of brings me to your next question, which is, why should art and culture matter, even to the finance folks, only focused on the money side of Bitcoin? You know, for those folks, for the finance folks, number go up may be the most important thing. Number go up is important for regular folks and artists too, but art and culture aren't always reactionary. You know, I really think that they can be drivers of this change as well. If I ask myself, has Bitcoin already succeeded

in being a decentralized censorship-resistant sound money and store of value? You know, I think the answer is yes. But can it be even more successful at doing that? That answer is a resounding yes. Art's a broad category in my view, and it includes all sorts of content, whether it's a painting, a sculpture, or even a podcast. But regardless of the format, art makes a great. Art makes a broad category. people think and feel. And the more we can get people to think and feel things about Bitcoin, the more successful Bitcoin can and will be. So to all the finance folks listening, if you want number to go up, buy some Bitcoin art. Put it on the walls of your offices and homes and if possible in public places. Because when people look at Bitcoin art and see the passion artists have

for their work and for Bitcoin, there's a good chance they'll start to get curious themselves. And next thing you know, we have one more Bitcoiner today than we had yesterday. So there you have it. One more Bitcoiner today than we had yesterday. I think it's awesome thoughts. Thank you so much to Brecki for joining us here. I'll link to Brecky's newsletter, Brecky's art in the show notes as well as in the post. But for now, guys, I hope that you have an excellent weekend. Keep chilling. Keep stacking stats. And I'll talk to you soon.