The Renaissance: The New World Order & The Rise of The Internet-of-Value

Current state and future state. The current world economic state is rife with archaic legacy systems and distrust between parties. The exponential rise of the Internet has triggered a paradigm shift in the way we collect, communicate, and share data. While the exchange of value and trust, the two key components of economies, has yet to catch-up to the velocity of communication and data sharing in the current world order.

Lately, world powers play out their war games by way of economic sanctions. After Russia’s banks encountered economic sanctions from the US and other G7 countries via the SWIFT system, Russia has since explored leveraging cryptocurrencies as means for side-stepping these restrictions with alternative payment rails. More recently, Russia announced it is talking to several friendly countries about launching clearing platforms for cross-border settlements in stablecoins.

As the US dollar dominance fades, due to restless nations from the east seeking to shift the power paradigm, and the ticking time bomb of the impending changing of the guard of the world reserve currency cycle looms, the new world order awaits its renaissance. The opportunity of leveraging emerging technologies like distributed ledger technology (DLT) for the formation of new, competitive, and more efficient payment systems for the BRICS nations appears to be timely. Though, like its rivals, the US is not sitting on its laurels and is exploring the costs and benefits of utilizing DLT via a central bank digital currency (CBDC) via the digital dollar project.

Distrust and corruption run rampant in this current world order. The power of DLT allows for trustless networks to be built with immutable records, which can track corruption in real-time and allow for bad actors to be rooted out. In this new paradigm, infrastructures are already being built with layers of trust embedded so that you do not need to place your sole trust in strangers, institutions, or third parties in order for a network or marketplace to function. In the new world order, donations made to a specific cause by way of digital assets like cryptocurrencies or stablecoins, which can be tracked and traced, can ensure that trust is indeed maintained, and that money sent to support those affected by hurricane Ian, is actually put toward shelter, food, medical, and other means of support instead of being pocketed by corrupt c-suite executives.

The future state of economies may look like network states like the idealist, Balaji Srinivasan believes. These network states start with a virtual university, a bootstrapped digital economy, which can be forked to create new opt-in polities. Such cloud cities would allow their members to collectively negotiate with existing jurisdictions (traditional governmental states like the US, Russia, and China) and crowdfund territory in the real world, with the Internet as the main governance mechanism, even those physical communities could be increasingly decentralized. Blockchain, a popular type of DLT, would act as the mechanism for these network states to launch their own currency and enact digital infrastructure to support new power paradigms.

(Credit: https://www.youtube.com/watch?v=P5UAtAOV66c)

Beyond the potential formation of network states, the current rise of the fourth industrial revolution (4IR) is sparking the new world order. The first industrial revolution used water and steam power to mechanize production. The second used electric power to create mass production. The third used electronics and information technology to automate production. Now a fourth industrial revolution is building on the third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. The World Bank calls blockchain a pillar of the 4IR comparing it to technologies such as the steam engine and the Internet that triggered previous industrial revolutions, and stated it has the power to disrupt existing economic and business models and may prove particularly valuable in emerging market economies.

DLT, web3, & the Internet-of-Value. Blockchain is just one type of DLT. There are many other types of DLT including directed acyclic graph (DAG), hashgraph, holochain, and tempo. Distributed ledgers leverage independent computers, referred to as nodes, to record, share, and synchronize transactions in their respective electronic ledgers, instead of keeping data centralized as in a traditional ledger. Blockchain organizes data into blocks, which are chained together in an append only mode.

(Credit: https://alastria-es.medium.com/comparison-of-dlt-platforms-be84950d339d)

DLT is the primary building block of the Internet-of-Value and enables recording of interactions and transfers of value peer-to-peer or entity-to-entity, without a need for a centrally coordinating party. Value refers to any record of ownership of asset, like money, securities, land titles, and ownership of specific information like identity, health information, and other personal data. DLT is already starting to fundamentally change the financial sector, making it more efficient, resilient, and reliable.

This technology addresses persistent challenges in the financial sector and change roles of financial sector stakeholders. DLT has the potential to transform various other sectors as well, like manufacturing, government financial management systems, and clean energy. This is where the new iteration of the Internet comes in, enter web3. This new version of the Internet allows for DLT to be the backbone of the new web.

(Credit: Visa)

The vision for this new, blockchain-based web includes cryptocurrencies, NFTs, DAOs, decentralized finance, and more. It offers a read/write/own version of the web, in which users have a financial stake in and more control over the web communities they belong to. Web3 promises to transform the experience of being online as dramatically as PCs and smartphones did.

Systemic trickle-down and integrative adoption. Beyond major players like Meta, Microsoft, Shopify, Spotify, and Twitter shifting from web2 to web3, the public sector led by central banks around the world are looking to launch central bank digital currencies (CBDCs) that run on DLT. A CBDC is virtual money backed and issued by a central bank. As cryptocurrencies and stablecoins have become more popular, the world’s central banks have realized that they need to provide an alternative or let the future of money pass them by.

As of today, 105 countries, representing over 95 percent of global GDP, are exploring a CBDC. In May 2020, only 35 countries were considering a CBDC. A new high of 50 countries are in an advanced phase of exploration, which includes development, pilot, or launch. 10 countries have fully launched a digital currency, with China’s pilot set to expand in 2023. Jamaica is the latest country to launch a CBDC, the JAM-DEX. Nigeria, Africa’s largest economy, launched its CBDC in October 2021. Many countries are exploring alternative international payment systems. The trend is likely to accelerate following financial sanctions on Russia. There are 9 cross-border wholesale (bank-to-bank) CBDC tests and 3 cross-border retail projects. 19 of the G20 countries are exploring a CBDC, with 16 already in development or pilot stage. This includes South Korea, Japan, India, and Russia. Each has made significant progress over past six months. Of the G7 countries, the US and the UK are slightly behind, still in research and piloting stages with the digital dollar project in the US and the Bank of England still in research mode. The financial system may face a significant interoperability problem in the near future. The proliferation of different CBDC models is creating new urgency for international standard setting.

(Credit: https://www.atlanticcouncil.org/cbdctracker/)

With the widespread global adoption of CBDCs by central banks, this will cause a trickle-down effect to the commercial banks utilizing DLT to be interoperable with a government-backed digital currency.?Major players in the financial sector like JPMorgan Chase, Citi, Barclays, BNY Mellon, Wells Fargo, Goldman Sachs, Morgan Stanley, Fidelity, Charles Schwab, BNP Paribas, Banco Santander, HSBC, Black Rock, and many others have already adopted the technology in one shape or form. The trickle-down will occur infrastructurally for the banking system which ultimately will transition from central bank to commercial banks to institutional markets and retail markets.

Beyond DLT being adopted from the top-down in the banking system, eventually systemically allowing for adoption of the masses with CBDCs and perhaps the addition of commercial bank stablecoins in a CBDC wholesale model, there are major efforts to bridge the gap between web2 and web3 with leveraging enterprise grade scalable blockchains. Vendia combines the best of the cloud, blockchain, private ledgers, and APIs so new applications and integrations get to market faster, and without the burden of ongoing infrastructure maintenance. Dr. Tim Wagner started the Serverless movement when he created the AWS Lambda business and technology in 2012, and now he is on a mission make usage of scalable enterprise-grade blockchains the norm. The future is not about databases versus blockchains, it is about databases and blockchains as a single, unified data abstraction. Vendia combines the best of databases and blockchains, offering enterprises the decentralization and trust features of DLT and the high throughput and availability of current state databases. BMW is one of many clients already utilizing this hybrid method of combining cloud and DLT.

A new identity. There are many new opportunities that DLT can offer the world. One of these new opportunities is digital identity. Identification and credentials are easier for everyone to work with when they are digital like in the case of vaccination cards, academic qualifications, occupational licenses, employee ID and more. But this highly personal information must remain private and secure. Governments, businesses, and educational institutions are turning to DLT as a proven way to enable a secure and trusted infrastructure and improve services. With DLT, information about identity is auditable, traceable, and verifiable in just seconds. Individuals can curate their own profiles and control data sharing. Issuers easily connect with others and provide nearly instant verification of credentials. All participants are empowered by a platform anchored in trust. DLT platforms craft infrastructure and security without exposing any of the data used to generate credentials. Only permissioned network participants have access, and all actions and business processes are tamperproof and permanently captured as DLT-based transactions.?

(Credit: https://www.citi.com/ventures/perspectives/opinion/digital-identity.html)

Governance infrastructure. The adoption of DLT will change the way we govern, namely how voting is operated. From shareholder voting to voting for the driver of the day in Formula 1 to voting for the next President of the United States, DLT offers a tamper-proof, auditable, cost-efficient solution to voting. By casting votes as transactions, DLT keeps track of the tallies of the votes. This way, everyone can agree on the final count because they can count the votes themselves, and because of the blockchain audit trail, they can verify that no votes were changed or removed, and no illegitimate votes were added.

Despite the great importance of shareholder engagement to date, the exercise of shareholder voting, and other rights is substantially flawed. There are several different intermediated securities models used around the world that all drive a wedge between the issuer and the beneficial owner of the shares and the accompanying rights. In many jurisdictions including the US and the UK, the beneficial owner is not the legal owner of the securities, but rather an intermediary is considered the formal legal share owner. Other intermediated systems recognize the direct ownership of the investor but impose a legal fiction on the number of intermediated tiers in the securities chain, ignoring practical holding chains, such as the Spanish system. This and the use of omnibus accounts at many levels in the cross-border, intermediated chains have resulted in costly problems at the expense of shareholders, which are not solved by current regulatory initiatives.

DLT can address the main problems with the current intermediated proxy voting and engagement systems and facilitate the two largest needs in the intermediated chains today, namely the identification of shareholders by issuers and the end-to-end confirmation that the votes are exercised by the beneficial owners and are correctly included in the voting outcomes. Moreover, DLT has the potential to solve pressing issues in the shareholder stewardship debate, for instance by increasing engagement between shareholders and companies on voting items that potentially receive large dissent rates and making more transparent the role of proxy advisors in institutional shareholder voting decisions. However, because of the involvement of many intermediaries that may see in the introduction of DLT a disruption of their existing business models, it is expected that reform may take a while in many markets, particularly without any serious harmonization efforts. Consequently, involvement of regulators is key to achieving the full potential of shareholder voting and engagement using DLT.

Business infrastructure. This emerging technology not only can fundamentally evolve shareholder governance, but it harnesses the power to reshape businesses as we know them today – enter the decentralized autonomous organization (DAO). A DAO is an emerging form of legal structure that has no central governing body and whose members share a common goal to act in the best interest of the entity. Popularized through cryptocurrency enthusiasts and blockchain technology, DAOs are used to make decisions in a bottoms-up management approach.

(Credit: https://legalnodes.com/article/choose-a-crypto-friendly-country-for-dao)

A DAO is an entity structure in which token-holders participate in the management and decision-making of an entity. There is no central authority of a DAO; instead, power is distributed across token-holders who collectively cast votes. All votes and activity through the DAO are posted on a distributed ledger, making all actions of users publicly viewable.

The number of participants in DAOs grew in 2021 from 13,000 to 1.7 million people around the world and DAOs are increasingly a hot button issue. With questions concerning accountability, how the emerging web3 space should be governed, and how DAOs can be used as a vehicle for entrepreneurship in the digital space, it is worth considering their growing importance.

Automation and immutability. The mechanism behind the value add of automation via DLT for governance and business infrastructure, along with real-time settlement of transactions is known as a smart contract. Smart contracts are simply programs stored on DLT that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when conditions are met. These actions could include releasing funds to the appropriate parties, registering a vehicle, sending notifications, or issuing a ticket. The ledger is then updated when the transaction is completed. That means the transaction cannot be changed, as distribute ledgers like blockchain are immutable in their record-keeping, and only parties who have been granted permission can see the results.

(Credit: https://101blockchains.com/smart-contracts/)

Smart contracts paired with the power of an immutability lay the groundwork for decentralized applications (dApps) to be built on the ledger. A dApp is an application that can operate autonomously, typically through the use of smart contracts, that run on a decentralized computing, blockchain or other distributed ledger system. Like traditional applications, dApps provide some function or utility to its users.?Real estate and trade finance are just a few sectors leveraging the power of dApps to automate currently complicated and arduous transactions processes. For example Figure a fintech bank, which runs on the Provenance Blockchain, has launched a dApp that tokenizes home equity line of credit loans (HELOCs). Due to Figure’s utilization of smart contracts it can leverage its dApp to streamline the HELOC process from the current state of an average of 9 weeks to 7 days, end-to-end through the entire loan lifecycle. Regarding trade finance, many successful pilots have been run in utilizing smart contracts to automate the letter of credit (LoC), bill of lading, and the entire trade finance process end-to-end. Similarly, to how Figure has trimmed down its origination to closing lifecycle with HELOCs, smart contracts and dApps in the trade finance sector, like with Corda’s LoC CorDapp, significantly reduce the time and costs of traditional trade finance transactions.

Immutability of the ledger allows for the collection of enriched data and enhances data integrity over that of current databases, which in turn sets the building blocks for more effective machine learning and artificial intelligence applications to be built. DLT’s digital record offers insight into the framework behind AI and the provenance of the data it is using, addressing the challenge of?explainable AI. This helps?improve trust?in data integrity and, by extension, in the recommendations that AI provides. Using blockchain to store and distribute AI models provides an audit trail, and pairing blockchain and AI can enhance data security.?

AI can rapidly and comprehensively read, understand and correlate data at incredible speed, bringing a?new level of intelligence?to DLT-based business networks. By providing access to large volumes of data from within and outside of the organization, DLT helps AI scale to provide more actionable insights, manage data usage and model sharing, and create a trustworthy and transparent data economy.

AI, automation, and DLT can bring new value to business processes that span multiple parties, thus removing friction, adding speed, and increasing efficiency. For example, AI models embedded in smart contracts executed on a blockchain can recommend expired products to recall, execute transactions, such as re-orders, payments, or stock purchases based on set thresholds and events, resolve disputes, and select the most sustainable shipping method.?

Shipping, supply chain management, and enterprise resource planning (ERP) are other areas in which DLT can increase efficiency, cut costs, increase transparency via immutable tracking and traceability, among other value adds. Beyond the utilization of smart contracts that automate processes and immutable records which allow for real-time auditability, the ability to merge the physical and digital via DLT and quick response (QR) codes or near-field communication (NFC) chips is another emerging real world use case. Phygital on distribute ledgers combine physical asset ownership with a digital twin verifiably unique and tamper-proof ownership certificate by way of non-fungible tokens (NFTs). An NFT is a unique digital identifier that cannot be copied, substituted, or subdivided, that is recorded in a blockchain, and that is used to certify authenticity and ownership. Nike is one of many fashion retailers getting into the phygital space by leveraging NFTs to represent the digital ownership of shoes and clothing in combination with screen-printed tags with QR codes or embedded NFC chips into the shoes and clothing which allow for tracking and tracing the physical good, while every real-life transaction of the good is logged as metadata on the distributed ledger via the NFT, or more specifically a dynamic NFT (dNFT).

(Credit: https://cointelegraph.com/news/lets-get-phygital-the-nfts-backed-by-real-world-collectibles)

Everything will be tokenized. Static NFTs are currently the most common type of NFT, used for the most part by NFT art projects and?play-to-earn?game projects and as digital collectibles. Beyond these use cases, they also offer a unique value proposition for digitizing items in the real world, such as real estate deeds, patents, and other unique identifiers.?However, this model is limited by the permanence of static NFTs, because the metadata attached to them is fixed once they’re minted on a blockchain. Use cases such as tokenizing real-world assets, building progression-based video games, or creating blockchain-based fantasy sports leagues often require data to be updated. dNFTs offer a best-of-both-worlds approach, with NFTs retaining their unique identifiers while able to update aspects of their metadata.?Put simply, a dynamic NFT is an NFT that can change based on external conditions. Change in a dynamic NFT often refers to changes in the NFT’s metadata triggered by a smart contract. This is done by encoding automatic changes within the NFT?smart contract, which provides instructions to the underlying NFT regarding when and how its metadata should change.

(Credit: https://blog.chain.link/what-is-a-dynamic-nft/)

Fungible tokens are the NFT counterpart, as unlike NFTs, fungible tokens are divisible and are not unique, making them ideal for digital payments use cases. Fungible tokens are interchangeable and in fact take on the traits of a currency though they can represent fiat currencies, cryptocurrencies, digital commodities, digital securities, and so on. Bitcoin is one such example of a fungible token. Having the ability to represent multiple variations of currencies from the dollar to yen to euro, to cryptocurrencies like bitcoin to ether to xrp, and any other stock or commodity, all on the same ledger allows for the forex and TradFi capital markets to exchange anything of value in real-time at fractions of the cost as compared to the current state.

Both fungible and non-fungible tokens are known as digital assets, and ultimately, DLT allows for everything of value in the physical world to be digitized, tracked, transacted, and settled 24/7/365 instantaneously globally. Imagine the new world we will soon enter where decentralized, siloed economies worldwide can trade anything of value in seconds with little to no fee to perform the transaction; with this in mind, it is easy to envision everything becoming tokenized in the near future.

A brave new world. Relative to everything in the future being tokenized and the physical and digital integration of things, so too will multiple worlds merge – enter the metaverse. The metaverse is essentially a virtual version of the real world beyond the one we live in. Some core attributes of the metaverse includes:

• Synchronous and live: While pre-scheduled and self-contained events will occur, the metaverse will be a living experience that exists continuously for everyone and in real-time, just as it does in "real life."
• Persistent: It never "resets," "pauses," or "ends," — it just keeps going endlessly.
• Available individually and concurrently: Everyone can be a part of the metaverse and take part in a specific event/place/activity simultaneously and with their agency in the metaverse.
• A fully functioning economy: Individuals and businesses should be able to create, own, invest in, sell and be compensated for a vast array of efforts that produce value that others recognize.
• An experience: It should span both digital and physical worlds, private and public networks/experiences, as well as open and closed platforms.
• A wide range of contributors: It should be filled by content and experiences developed and operated by many contributors, some of whom are self-employed, while others are informally organized or commercially-oriented businesses.
• Offer unprecedented interoperability: It should offer remarkable data, digital items/assets, content, and other interoperability between each of the experiences—a car developed for Rocket League (or even Porsche's website) could be transported over to work in?Roblox. Today's digital world operates as if it were a shopping mall, with each store having its own money, unique ID cards, proprietary units of measurement for items like shoes or calories, and various dress rules, among other things.

(Credit: https://chain.link/education/metaverse)

Citi believes that the metaverse economy could be worth $13 trillion by 2030. The metaverse is still a developing and rapidly expanding field. Ultimately, the bottom line is that to support and actualize a fully functional metaverse, DLT and digital assets will need to play a significant part in its future implementation acting as the backbone for its infrastructure.

Conclusion. In summary, technology is just a tool, updated versions of it evolve cyclically and tech is not inherently bad or inherently good. It all depends on how you wield it. Tech does not slow down for you to catch up. Even now, as DLT is just starting to fully integrate into mainstream infrastructure, quantum computers are starting to gain traction which could pose a threat to this new paradigm. Major banks like JPMorgan Chase are one of few leading enterprises taking the right measures to quantum-proof their distributed ledgers.

Overall, it is clear to see that we are experiencing a renaissance. A transformation of society from darkness to light by way of DLT, bringing order out of chaos in this new world order. The key question to consider now is, what are you going to do to prepare yourself for the rise of the Internet-of-Value?