A True Crypto Revolution: How Digital Assets Will Transcend Speculation and Go Mainstream Pete Mattoon | Senior Advisor & Chair, Consello Digital
and Founder & Executive Chairman, SCS Financial Dr. Oscar Salazar | Partner and President, Consello Tech
and Co-Founder, Uber Itay Tuchman | CEO, Consello Digital

In this context, it is not lost on many that the Digital Asset industry is experiencing a crisis of confidence. The path to restore trust in this “trustless” technology will take time and effort. But the Digital Asset ecosystem, underpinned by blockchain technology, retains an important bright side. Its key innovations involve long-term societal change, and its potential to improve the infrastructure that underpins large parts of the existing digital systems remains meaningful. And out of crisis arise new opportunities. There remains significant possible upside from enterprises enabling this technology to reach mass adoption by mainstream users.

One of the silver linings of these negative episodes is that they have reminded us that speculative use cases are not the most important story in the future of Digital Assets. A lot of what has been scaled so far in the space has been trading-focused, but real-world use cases around innovative technologies with feature sets that are not centrally about predicting token prices will scale significantly in the years ahead. The opportunity offered by real innovation is where long-term investing and speculating intersect, and those use cases are emerging.

Despite looking at blockchain trends from a variety of backgrounds, we’ve come to similar conclusions about the future of this technology. For starters, we firmly believe we’ll net out with a hybrid system of both blockchain and non-blockchain digital infrastructure. In other words, we’re far from crypto maximalists. Blockchain will be additive to digitally forward industries, upgrading infrastructure with more efficient rails, ledgers and systems. We will still have a financial system with many of the features, components and operations that we have today, though it will surely be disrupted in ways that will make it faster, cheaper and more efficient. It is not lost on many that our current financial plumbing could use a long-overdue upgrade. The era of cross-border payments taking days, of billions of dollars of capital being trapped in settlement systems or of financial systems being unable to interact with each other automatically via code is ending.

This disruptive change begets the need to engage with policymakers on the right level. Blockchain was certainly founded on a libertarian ethos of removing regulation and centralized control, but for adoption to succeed and to scale, we need to think in terms of technology empowering important use cases for real-world companies and users, including guardrails where appropriate.

So, what will the financial ecosystem and the usage of Digital Assets look like in 2030? What are the key battlegrounds? And what must happen for blockchain, the technology that powers this industry, to deliver on its much-touted – but still yet to be realized – benefits?

Technical Possibilities – and Probabilities

To understand the feature set of blockchain-based finance, let’s look back at the greatest disruptive innovation of our generation: the internet. When we think of the internet, we focus on being able to send information anywhere in the world, instantly. Businesses built eCommerce, digital advertising, social networks, streaming media and many important and transformative businesses on top of that core feature. Similarly, the feature set that is natively unique to blockchain will shape the transformative and scaled use cases that emerge from Digital Asset technology. From our perspective, there are five distinct features to consider:

Atomic settlement – transactions completed together in a single block, reducing settlement risk

Composability – technical building blocks that can interact autonomously with each other

Distributed trust – transactions that don’t require a centralized person to validate, while still ensuring trust in an interaction or transaction

Provenance – precise and visible records of interactions throughout the history of an asset

Self-direction – users control their wallets and can store their own assets, and initiate transactions without requiring a third party.

These innovations, either individually or in aggregate, will bring concrete impacts from enabling blockchain-based systems.

For example, atomic settlement will be the feature that drives enormous capital savings from settling financial transactions, where tens or hundreds of billions of dollars are trapped today. This capital, which currently lubricates simple interactions like settlements in the financial system, can then be reallocated to productive use, like capital investment for businesses that want to grow.

Blockchain settlement can then be built upon further, via composable infrastructure, which can allow for a system of autonomous finance that can automate many currently manual or cumbersome interactions. This can dramatically reduce the cost of running a business via features like automated payroll and supplier payables.

Our current inefficient system is riddled with expenses that can be redeployed in far more efficient and growth-oriented ways. Or consider the possibilities of blockchain provenance for an industry like automotive manufacturing with millions of supply chain interactions every day in enabling faster, cheaper validation, particularly for high-value items, and an ability to automate just-in-time inventory in even more efficient and resilient ways.

These features will sit at the core of the most compelling use cases, ones that we fervently believe have broad applicability and enormous disruptive potential. Despite what still seem to be limited real-world applications of Digital Assets, three large-scale, established use cases have already emerged:

1. On-chain aesthetics, collectibles, or intangible representation (NFTs, generative art, etc.)
2. On-chain financial assets (stable-coins, tokenized securities, etc.)
3. Simple “DeFi” and other native protocols (decentralized, peer-to-peer financial services, automated market markers, marketplaces, lending protocols, etc.)

We’ll see more benefits for on-chain assets with horizontal and vertical expansion (i.e., more assets tokenized across more currencies and in more countries). Through tokenization, which is a critical evolution for financial assets, we’ll see:

• Cost reduction for exchange of value and movement of funds, especially across borders
• Digital certainty of ownership without the involvement of centralized providers
• Financial inclusion, broadening digital financial services to the underbanked
• Predictable customer outcomes from secure on-chain code (e.g., escrow, collateral, rewards)
• Reduced settlement risks, lower costs and higher capital savings for major institutions

These benefits won’t be realized overnight; in fact, this will take many years and much effort. But make no mistake, blockchains can power an ecosystem that should be cheaper, more inclusive and more predictable. We can also add safer to this list, but we recognize there’s a lot more work and development required to make the Digital Asset ecosystem safe on many fronts.

By way of example, blockchain and wallet security remains a huge issue. Consider how North Korean hackers were suspected of stealing $1.78 billion in crypto last year.¹ We can’t enable a system of decentralized trust and on-chain ownership to scale to the billions of global consumers if they can’t ensure they will be secure in the ownership and storage of their assets. However, emerging technology will resolve these security challenges.

In a similar vein, credit card fraud prevention continues to leverage technology to combat the significant rise in payment fraud and attempts to reduce the percentage of value lost to malicious activity. We remember as early internet users how one had to be bold to send credit card information over the internet. But as SSL and other security features were developed, users felt it became safer, easier and more secure.

Developments such as two-factor authentication and using advanced algorithms to detect fraudulent activity are part of the more recent toolkit to reduce fraud in the credit card system. Similar efforts are underway within Digital Assets, and investments in companies centered on risk management and fraud mitigation will likely be a focus for crypto investors in the years ahead.

We Won’t Need to Know How the Sausage Gets Made

To continue with the internet analogy, when we go online, many of us have no idea what the underlying technology protocols that move our data on the internet are, nor do we care or need to understand them. We don’t say, “open an https,” or “I am going to SMTP you,” we just open a webpage or send an email. The simple and friendly user interfaces like web browsers and email clients are what made the internet widely accessible and drove adoption to greater than five billion users. Good user interfaces make possible utility and value from core infrastructure, which exists largely under the hood (e.g., email clients such as Microsoft Outlook, web browsers like Google Chrome and payment apps like Apple Pay).

What’s critically missing in Digital Assets are these same user interfaces that abstract blockchain protocols away into the background and make user features reliable, native and comfortable. That’s because crypto is still very hard to use – using a secure wallet, interacting with dApps (Decentralized Applications) and managing tokens are all still niche activities despite the significant growth of crypto adoption in recent years. While great work has been done to increase user accessibility, there’s still room for meaningful improvement in the user experience. The big leap forward in adoption will be when compelling UI/UX technologies are built, and the user interface and user experience are as seamless and natural as those on the internet today.

There are other less technical barriers that also must be overcome. For starters, we need to shift how we communicate about Digital Assets from a philosophical and political message to a feature- and benefit-forward one. Most people don’t need to read the famous ‘Bitcoin whitepaper’ published by whoever it is who called themselves “Satoshi Nakamoto” in 2008.²

To wit, how many users of the World Wide Web have read Tim Berners-Lee’s seminal paper from 1989 on managing a distributed hypertext system?³ The businesses that succeed will be the ones that can communicate (and deliver) a best-in-class user experience that is easy to understand and reliable, not those that explain the technical features of crypto, blockchain or Bitcoin.

Culturally, too, Digital Asset providers have some reputational damage to overcome, especially after 2022. These reputational issues might be a barrier to entry for many mid to late adopters, but there is room for optimism. Remember, users don’t need to understand the core technology nor be convinced of cryptocurrencies’ potential to cure all of society’s ills. Businesses that focus on protocols and apps that just provide great user experiences, using Digital Assets as part of the infrastructure, will win. Users will be able, for example, to send money from point A to B at a fraction of the cost and delays of the current system. New business models that allow for users to participate not just as “readers” (Web 1.0) or “writers” (Web 2.0) but as co-owners (Web 3.0) will be compelling and valuable to huge numbers of internet-savvy global users. Underpinning this transition, blockchain will be an invisible layer that powers this transition and makes digital products and services even more appealing.

Fewer Casinos, More Innovation

Early-stage experiments are okay, but those failing to uphold safety and soundness with meaningful amounts of people’s money at stake aren’t acceptable. Certainly, we need to address issues of questionable practices and unscrupulous operators, as we have witnessed throughout multiple cycles within blockchain innovation. Of course, this is true of every industry, and Digital Assets are no exception nor unique in this respect. But if builders are playing with financial prototypes and real-world money, then technology should be designed to resolve all the bugs before scaling to the broader public.  These protocols and products should be transparent and easy to understand and use, and importantly, be compliant with both the spirit and the letter of relevant regulation.

We also need to get away from this notion that involvement with bad actors is somehow acceptable for innovation. Digital Asset professionals should call it what it is: If someone is manipulating a token, it’s fraud. If a protocol is poorly designed and could be manipulated, it’s operationally risky and should not be launched. We need to build more human trust (ironically, in a trustless system of core infrastructure) for mass adoption to occur and for us to achieve the vision of blockchain enabling better products and services. We trust our email because we believe the protocols work and because we have a trusted gateway that enables us to easily read, reply and organize messages. While the layer on which our emails are sent, SMTP, is open and decentralized, the applications we use are built, maintained, sold and supported by teams of people and companies, big companies and new startups alike. All those people who build the interfaces that customers use to access these core networks require high degrees of trust.

Betting on which early-stage startups and technologies will establish trust and scale is naturally hard. With any new technology, it is tough and uncertain to figure out what piece of technology or company will be valuable and can last. There is an important element of capital formation that provides returns for betting correctly on the companies and assets that will scale and grow.

This is a good feature of a more democratized, tokenized architecture, providing wider access to early-stage capital for innovation. But tokens, as a technology, offer another feature that has both benefits and risks. Unlike traditional venture capital, where liquidity does not exist to exit investments until many years into the future, tokens can be much more liquid at a very early stage in a company’s lifecycle. This has the potential to change the incentives towards creating “hype cycles” and profitable exits for early backers before a protocol has demonstrated true product/market fit. Care should be taken to understand and manage the risks of these potential misalignments while still providing the benefits of more democratic investment opportunities.

That said, if you are entrusted with the valuable resources of others – whether it be retail money, assets or tokens – you have to act accordingly and adhere to the highest standards; nothing about crypto or technology should change that expectation. Our securities regulations need to consider this new technology, and its different features, but the reasons these laws and regulations were established are in large part still valid today.

The public failures of well-known crypto exchanges are examples of what can happen when institutions with poor risk management policies and controls service financial assets in an unregulated environment. That’s why we need a solid framework for institutional regulation, recognizing both the importance of innovation as well as basic standards of consumer and market protection. Under an effective regulatory umbrella, companies can prove themselves safe for users and build a reputation and trust that is needed in any industry, and that process takes time to cement. The good thing about the underlying cryptography within blockchain is, while nothing is 100% secure, the inherent technology can play a much-enhanced role in securing assets and transactions; providing transparency and protecting users from loss from an institutional security and risk management perspective.

What’s also clear is that much needs to be solved in the interaction with the established financial rails and system. Blockchain networks are designed for scale and will drive movement of off-chain assets onto blockchains via tokenization. Unfortunately, tokenization is much harder to do and much less effective when you consider the antiquated legal or regulatory requirements that do not fit modern technology standards.

We aren’t building a financial system from scratch that fully replaces what we already have. In fact, many people still use cash and checks despite many digital native users feeling they are somewhat antiquated or even stuck in a pre-digital stone age. Rather, it is key to leverage technology and to build tools to replace the most inefficient, costly and ineffective pieces of our financial system while still allowing previous technology to continue to perform. When we do this, we inevitably invent new features that we might not have even conceived of yet and new business models that can grow incredibly large and important. For example, most of us did not think of social media when the internet was scaling up in the mid-90s. Nor did anyone see cloud computing evolving as a world-changing service from a company who started as book retailer. Use cases will evolve from the technology’s features over time, which is a benefit that often emerges from a well-spring of innovation from within existing industries.

Regulation Makes Crypto Adoptable

It is somewhat fortunate that crypto was not well integrated into the broader financial system when we had much of the 2022 implosion within large Digital Asset companies. We (re)learned about the importance of risk and control within financial applications before they became systemic and had deep interdependencies with the traditional financial system. Significant improvements in risk, governance and regulatory oversight are needed before we interweave the entirety of our financial system with crypto – that much seems clear to many.

A healthy lesson in innovation is to run fast and break things – this has led to many Silicon Valley success stories. But when dealing with real people’s money, you can’t do that. While many in the crypto space are totally opposed to regulation, to be frank, those who believe in total decentralization or self-sovereignty are unrealistic. For most people, the idea that you must remember a random set of characters, your seed phrase, to secure your funds seems a bridge too far. Most users want transactions to be “reversible” should they make a mistake. These are just two simple examples of areas where technology needs to intersect with user expectations. For these and other user expectations to be met, we also need the guardrails of sensible regulation. Self-policing is usually not enough, nor is imposing “caveat emptor” on users.

Whenever there is a leap in technology, policymakers must reevaluate rules. Phrases like “technology-agnostic regulation” or “we already have adequate rules” fail to account for this basic fact of history. Our rules and standards should always evolve alongside our technological capabilities while retaining their intent of protecting customers and enabling fairness. By re-examining the intent, benefits and original spirit of our rules, regulators should be able to respond to the opportunities and challenges of blockchain technologies while keeping laser focus on key areas like:

• Anti-money laundering
• Asset protection and segregation
• Consumer protection
• Fair disclosure
• Market conduct and standards
• Privacy
• Securities promotion and offerings

Much of the wild west approach we have had in crypto in recent years may have been great for a wide aperture of innovation but poor for real-world adoption. A lack of clear regulatory frameworks allows disruptors to innovate but prevents them from scaling to billions of users. If you’re an established brand and you want to invest in a solution, you must be sure that it’s going to be safe, reliable and stable for customers. The stakes are high for companies with long histories, significant operations and the trust of millions of consumers. How can we expect them to innovate until such rules are made clearer by our policymakers? They also must know that the rules won’t constantly change for them after they have spent time and money building new products and services. Regulation should serve these objectives, rather than inhibit them.

We have historical examples of how sensible regulation can provide these benefits. Think of railroad regulation through the Interstate Commerce Act, which empowered the federal government to regulate railroad monopolies across state lines for the protection of individuals. Or regulations that improved our building standards, which continued to change as technologies evolved that made buildings safer, larger and stronger. We built skyscrapers that touched the sky under the banner of these good standards, not despite them.

We won’t be able to cut out regulation completely, and we shouldn’t. We need thoughtful and forward-thinking policymakers who provide frameworks to leverage blockchain technology and Digital Assets to make meaningful improvements in our system. Governments have a role to play, and we should be engaging in meaningful ways to find common ground and values.

Battles for the Future of Crypto

While there is a long way to go to achieving all the benefits crypto has to offer, we’re not starting from square one. Monetary representations already exist on blockchain – users use them every day to move funds seamlessly and globally. And we can debate the value of the aesthetics, collectibles and generative art we see, but those are also real, valued and exist on the blockchain.

Domestic and cross-border payments are a near-perfect design space for blockchain to create enormous value, even within the next five years. The current global payment and settlement system is a mess and overdue for disruption. What we need are ways to interact with our assets via a cheaper, faster, more reliable payment system and without the need to overpay for centralized trust that is no longer required or optimal. Right now, the financial system is highly centralized, and incumbents largely monopolize the transfer of value around the world. The costs, borne by both businesses and consumers, of the current system are staggering, with some estimates putting the global costs of making payments at over $2 trillion per year.⁴ If we consider how much of that comes from developed economies, it’s thousands of dollars per year per person in advanced economies. In developing economies, payment costs are meaningfully large percentages of average incomes given the high costs of remittances.  If we can unlock cheap, seamless and open peer-to-peer payments, we’re transforming the economy and massively benefiting consumers and end users. There are lots of complexities and considerations in moving money around, but blockchain technology can certainly solve many of these, including risk, while integrating into the existing financial system. The potential benefits are unbelievably large and important for empowering economic growth.

In emerging markets in the last 20 years, many went from having no phone at all straight to digital smartphones. Many call this “leapfrogging” innovation. We’re seeing a similar shift in banking with people in many countries going from being unbanked straight to mobile as well as blockchain-based services, like those provided by Nubank.⁵ These decentralized services are faster, easier and cheaper than traditional banks. Users don’t have to go to a bank or carry a wallet. They are reliable, safe and scaling rapidly in emerging markets.

Certain applications of digital finance like these will give people superpowers. We are highly connected global citizens, and families need to transact – businesses will figure out how to do that better via new technology. Consider the positive impact of remittances from workers in developed countries sending money back to their home countries, disintermediating the high fees from remittance companies which can be north of 10%.

In many places, banking services are the domain of only a select set of people, a privileged group, and we often forget that in the debate about financial technology. Those of us lucky enough to live in societies with broad and inclusive access to finance should not take this for granted, or forget that, like education, financial inclusion is a road out of poverty and into the workforce and global society. Many citizens in emerging markets are employed and earn money but remain unbanked. Others have no capacity to earn because they are excluded completely from the financial system because they have no ID or happen to be the wrong gender. If we build technology in the right way, we can leverage stable, blockchain-based systems that drive financial inclusion for enormous numbers for people. We can create a financial future that, if done properly, will allow them to earn, save and spend in safe and stable ways.

This is the future that Consello Digital is being designed to invest in, build and support.

2030: A Faster, Cheaper, More Efficient Financial System

For mass adoption of crypto and blockchain to occur, three things must happen:

1. New, compelling user experiences leveraging blockchain infrastructure must be built.
2. Blockchain technology must be cheaper, safer and more efficient than existing rails while driving business growth and returns for both new and established companies.
3. The regulatory framework must give institutions and people necessary protection and confidence, and space for innovators to operate.

We are not there yet across any of these areas, and that’s normal at this stage of technological progress. But we do need to move forward and focus more concretely on real-world applications, improve security and engage meaningfully with regulators now to realize these benefits in the years ahead.

With these shifts in place by 2030 our belief is that the financial system will be a hybrid of blockchain and more traditional electronic rails. Features like settlement, on-chain fiat, and DeFi borrowing and lending for basic collateral will likely be more commonplace. A regulated and trusted on-off ramp system will make operating between traditional bank accounts and crypto much more seamless, and the stitches between blockchain and existing systems will fade far into the background of other more valuable services.

As for specific use cases, we can expect significant disruption within the payment industry. Complex interchange fees will become a thing of the past as merchants will bypass the traditional system to take and receive payments. That means significant cost savings for end users (both consumers and businesses) and disrupted business models for financial incumbents.

Major financial incumbents have been making cautious strides toward this new reality but given how much they have at stake in this technology revolution, they are keeping track of the pulse of this ecosystem rather than disrupting themselves. Central banks will play a crucial role in this new reality as they continue to ensure the safety of the financial system and eventually support digital money in one or more formats. They will need to think carefully about questions of Central Bank Digital Currencies (CBDCs), on-chain stablecoins, regulation and how to ensure an appropriate monetary system and financial stability in the wake of this new technology. There is much to work on, and the final form of what evolves from this technology is still largely uncertain.

Will crypto be universally adopted? That is the $1 trillion question. Consello Digital’s belief is that blockchain technology will eventually underpin much (not all) of both new financial and non-financial developments in the next decade. On-chain, regulated assets will drive an autonomous finance revolution with many features being automated and costs being significantly reduced. A lot of users won’t even notice the technology behind most of the automation and innovation that leads to these meaningful benefits.

The potential of blockchain technology to revolutionize the digital infrastructure of many industries is undeniable. The growing pains and challenges that have existed since the early foundations of Bitcoin and Digital Assets are also well-known. We started Consello Digital precisely to address the gap that exists between the existing crypto industry and large-scale corporations in deploying Digital Asset capabilities. Despite the decentralization maximalist hype, we firmly believe that both new companies as well as established ones have an important role to play in leveraging Digital Assets and blockchain technology. Those groups need to come together to deliver user experiences and applications that generate mass appeal and adoption.

Finding trusted partners who understand ecosystems, have broad industry applicability, and who have the technical capabilities to build compelling products and services is no small task. This technology needs to be deployed and governed in both well-established and new ways, but uncompromisingly in a safe and sound manner. Few digital natives know intimately what high standards are required, but we firmly believe this will improve markedly in the years ahead and will help scale blockchain technology into mass adoption. By doing so, we will participate in helping economies take a productive leap forward and bringing a faster, cheaper and more efficient financial system to bear across the world. We know that the power of technology is to transform industries, and Consello will play a key role in doing just that.

Paving the Way for Crypto Growth

Blockchain is a technology, and Digital Assets are the layer that sits upon it – but neither is a cure-all. Blockchain will not replace in full the existing financial system any time soon. It is, however, a rail of finance that can make services better, faster, cheaper and more equitable, if implemented correctly. It will weave into existing technology just like we’ve seen with other innovations. Business models will be disrupted and user experiences enhanced. And after all, the best technologies are those that customers use and value, and it’s the nature of our system of innovation that almost always, the best technologies win.

The history of this technology started with cypherpunks and libertarians. They deserve credit for spurring a wave of thinking about the possibilities of decentralized money and a new financial system. Where it started is not necessarily where it will go or where it will scale. Much of mainstream art and music was founded by the counterculture too. But mass adoption comes from including everyone in the revolution, not just those who want to see existing power structures toppled. For the whole world to benefit, Digital Assets need to abide by principles the existing system is anchored upon, including consumer protections.

If we do things right, the future of blockchain will be a bright one. Our increasingly digital financial interactions will get cheaper and better. Roughly half the world’s population, currently underserved, will have access to savings, sound money and low-cost digital transactions. Being able to transact freely and easily can bring huge short-term gains while laying the foundation for long-term value creation for billions of people.

Maybe not by 2030, but not long after, nearly everyone in the world will interact with blockchain or crypto in some way, even if they don’t realize it. What we call it, or how we think about it, remains unclear, but the foundation and philosophy will be there. And importantly, consumers and businesses will benefit from it tremendously as they have from other key innovations enabled since the dawn of the internet. Calling it a digital revolution, or more appropriately a technological evolution, doesn’t really matter; we should simply call it progress.