How Carbon Coins, Decentralized Finance and Fintechs revolutionize our economic system
If you’ve tried to book a plane ticket, hotel room, or rental car in the past few months, you know that prices have gone up—in some cases by as much as 30 percent. But this year’s surge in consumer prices in Western countries now appears to be transitory—a reaction to shortages in microchips and clogged supply chains in the face of a sudden, post-vaccine increase in demand. The cost of lumber has come down, as has the average price of a used car. Changes in our economic system, on the other hand, may be much longer lasting. Here’s a look at some of the biggest transformations that lie ahead.
Carbon Coins could help mitigate climate change
First and foremost, carbon: No booming economy in the 21st century is going to last if we continue to dump carbon in the atmosphere at our present suicidal pace. Enter Carbon Coin, a concept from a paper by civil engineer Delton Chen popularized by legendary science fiction author Kim Stanley Robinson in his 2020 bestseller The Ministry for the Future. In the novel, Carbon Coins are issued through a central bank to anyone who can sequester carbon. Oil companies, farmers—anyone who commits to leaving carbon-producing assets in the ground, or capturing carbon in the air, receives them. Like Bitcoin, Carbon Coins can then be bought and sold on currency exchanges, with the added caveat that central banks across the world agree to buy them on a schedule, steadily increasing their price.
Mitigating or containing the climate crisis requires levels of global coordination and commitment that humanity has heretofore not seen. Perhaps economic motivation—cash for carbon—is what we need to make it happen.
DeFi is poised to remake the financial system as we know it
Decentralized finance—DeFi—is growing fast: In the past year, the value of assets used as collateral in DeFi applications rose from U.S. $2 billion to $50 billion. Private investors have backed 72 DeFi companies in 2021 alone.
Loosely defined as cryptocurrency projects that use automated software programs based on blockchain to do the work of traditional banks and exchanges, DeFi encompasses not only Bitcoin but insurance, savings accounts, and derivatives trading—leaving the middlemen out of the equation. One of the main arguments in favor of this system is that these markets are more transparent than the conventional financial system because you can see every transaction on the blockchains—though this transparency is not always so clear. DeFi is also much more risky than traditional investing: Anything from problems in the coding to wild fluctuations in the value of cryptocurrencies can spell the end of your investment.
Regulators, meanwhile, are scrambling to catch up. Unlike banks, where regulators monitor the activity flowing through them, the peer-to-peer nature of DeFi leaves no bank or exchange to regulate. Which may make the programs themselves illegal, according to the CFTC. The threat (and promise) of regulation in the wake of ballooning growth has been all but constant in tech for years—but so far, at least in the United States, lawmakers have yet to accomplish much.Fintech on the riseFor a safer investment bet, try Africa: The fintech industry is one of the most-funded categories among tech startups on the continent and is growing rapidly. Which is no surprise: Access to traditional financial services in much of Africa is lacking. A report by the Wheeler Institute for Business and Development last month delineates the nature of fintech’s rapid growth phase in Africa, and finds, not surprisingly, that half of all successfully scaling companies are based in Kenya, Nigeria, and South Africa. The importance of this technology in Africa cannot be understated: Where informal workers lack the means to demonstrate that they are creditworthy, and where families without a bank account cannot manage their cash flow and savings, mobile-based fintech solutions fill a crucial void.
Meanwhile, Vietnam’s e-wallet startup MoMo (Mobile Money), launched in 2013, is struggling to maintain its lead in the mobile payments market. “The market may eventually consolidate into two or three players,” Takahiro Suzuki, managing partner at Genesia Ventures and a longtime investor in Indonesia and Vietnam, recently told the Financial Times. “But the investors behind them have very deep pockets. As long as the money keeps flowing in, many companies can coexist. It is a painful battle.”