We're being sold a decentralised future, one where self-enforcing (smart) contracts and micro-transactions
mediate our relationship with the world around us. Apparently this will democratise trust and reshape society, or so
Headline Verdana Bold
The future of exchanging value
Blundering toward a decentralised future
Peter Evans-Greenwood, 28/10/2017
the streak of technological determines that runs through society tells us. Though while technology is a significant
force shaping society, it is not the most important. There are deeper forces at work in society, and while blockchain
is a sign post that the future will be different from the past, the future we're racing toward is not the one we're being
sold.
The future of financial services were told is one where
micro transactions in crypto currencies enabled by blockchain
with social lending and global platforms (some of which might be distributed)
existing financial services will be disintermediated
established financial professions destroyed
sovereign currencies will be marginalised, reminders of a centralised past
This isnt necessarily so.
Theres a strong thread of technological determinism in society
We feel that we live in a technological age
and the development of new technologies is reshaping society in their image
This thread might have even strengthened recently
Rise of the robots: Machine learning and automation of white collar jobs
Were forgetting that
Technology change isnt a one way street: technology changes society but society also changes technology
Our view is also coloured by the role technology has in our culture: the Gollum story
What weve been seeing at C4tE is that the balance between technological and social determinism has tipped to
the social
The future will be shaped by a mixture of inherent human needs and cultural preferences
We can also see the outline of this future and its a lot more interesting than cryptocurrences etc. suggest
Who is Centre for the Edge then
Every team needs an explorer
nowists rather than futurists
educators, in that we intervene, poking the community to help them adapt
Our interest is in identifying and articulating the importance choices we have today that will shape the future
and what were seeing is a confluence of social preferences come together to reshape the commercial
landscape in unexpected ways
Its a social change, not a technological one

Although technology might be a prime element
in many public issues, nontechnical factors take
precedence in technology-policy decisions.
Melvin Kranzbergs 4th law
2
Kranzberg, Melvin. Technology and History: Kranzbergs Laws. Technology and Culture 27, no. 3 (1986): 544
60. doi:10.2307/3105385.
A common mistake is to think that solutions to technical problems are not subject to mushy social considerations
Many social factors are involved in what are seen as purely technical decisions
Its social pressure that shapes:
which technologies can be / are pursued
how they can be / are used
Its rare that the objectively best technology will be the one society adopts:
Copper-cooled engines, victim of the need for short term profit
VHS trounced technically superior Beta
genetically engineered crops
Ford Nucleon and the optimism of the 50s
Technically sweet solutions do not always triumph of political and social forces
This is particularly true now as were seeing social change rather than technological change
no new maths in blockchain / bitcoin
no new maths in AI
What were seeing is an environmental shift
which is something well return to later
 Its through this lens that we need to consider money: the means we typically use to exchange value

Were told that we use money due to the double coincidence of wants
a pervasive assumption promoted by economists
we use money, as barter is awkward

History is then seen as the incremental monetarization of society

its more convenient than the alternatives
its becoming ever more convenient as technology improves
cash credit instruments electronic payments

Extrapolating out, technologists predict:

smaller, more frictionless transactions
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smaller, more targeted (crypto) currencies, application currencies (tokens), personal currencies even
Resulting in peer-to-peer exchanges via distributed (blockchain) platforms
Earning is learning et al

This is unlikely though, as we forget that money is a technology for exchanging value with someone you dont or
cant trust

Before money we used shared debt

implicit and uncounted, think rounds at the bar last night
small communities exchanging resources: farmer baker cobbler

Money did have a role

calculating damages: a unit of account
a way of extracting value from the unwilling: tax Indian pound et al
Indeed, tax is moneys killer app

Exchanging value via money implied not trusting your counter party
hence dirty money and filthy rich
hHence the prohibitions on lending in all Abrahamic religions
This cultural aversion persists to this day
Skip

Surveys commonly find we want

fewer transactions, not more
a happy retirement, not financial products
a home, not a mortgage
etc
not more, finer-grained payments

So what pulled us into the monetary system?

 Un Galerie du Rayon de Modes, Le Bon March, Paris, 1920. Hliographie de N. D. Phot. Public domain.

We forget that retail is a constructed environment

the result of shifting from bespoke to mass market products
from communities to commerce
from buying from someone we know, to someone we dont

We went from mentioning to our friend, the cobbler, that our shoes were wearing thing to
Need-want recognition
Search
Comparison & product selection
Exchange of goods: payment at the point of sale
(post-purchase regret)
4

Over the last 100 years or so, what we think of the modern retail experience evolved
Goods on display
Prices clearly visible (no negotiation)
Amenities (to attract the punters)
all finally coming together in Le Bon Marche in the late 1800s early 1900s (pictured)
 John Lewis store in Westfield Stratford City Shopping Centre, 2012. Source: Editor5807 <https://
commons.wikimedia.org/wiki/
File:Stratford_City_Westfield_Shopping_Centre_John_Lewis_London_2012_Olympics_merchandise_2.JPG>

Moving forward to today

Technology has made retail more efficient:

PoS systems (invented in the 70s by MacDonalds)
Plan-o-grams
category management
dynamic pricing

John Lewis store in Westfield Stratford City Shopping Centre, 2012. Source: Editor5807 5
Online simply copies the offline paradigm
catalogues
shopping carts
checkouts

This model has been remarkably resilient, existing unchanged

 However, this is still the same model as Le bon march
As retail
As online
For all our technical sophistication, little has changed in the fundamental experience

We have forgotten that shopping is:

a constructed environment
a learnt experience

until recently that is:

A confluence of factors has destroyed the mass market
and is redefining the commercial market in the process

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First around 2005 the consumer internet and express airfreight destroyed the mid market. Why compromise
when you have:
the cheapest
the best (at the best price)
Consumers now have more information than merchants
PacBrands et al

Then social media shifted this source of information:

from what the producers published
to group (peer) opinions

What this has done is redefine value at both ends of the market
 On one side we have high value

Relationships that are heavily invested in:

communities
religions
Theres a narrative / experience that the customer identifies with, and cost is a minor concern

Examples:
the exclusive music pack or backstage pass
the cobbler who learnt their fathers trade
the local butcher selling products from boutique producers
hand crafted furniture from sustainable forests

Source: Lisdavid89 7
 On the other we have convenience
Give me convenience or give me death Dead Kennedys
We dont want to put a lot of effort in
We dont want to make decisions
We dont want to be bored
We want it cheap (though we dont care about it being the cheapest)
Ideally, we want it as a service

Examples:
music streaming: I just need background music for my life
$4 thongs at Target: for the holiday
Dollar Shave Club
Flexicar: I need to move something
Source: Lisdavid89 8
Aldi: I just need tomato sauce, dont waste my time

Were all arbitraging the difference, and individually were doing it different ways

Were also becoming more impulse driven at both ends of the the market, rather than searching
chance discovery of a service through our community

This can be seen in how the payment is being unbundled

separating clearance and settlement
and moving them away from the till
 Space: moving from the PoS to somewhere else

Focused on optimising the payment slicing a few seconds of weve forgotten that the bulk of the customers
wasted time is in:
going to the PoS
tallying the goods

Were seeing a few examples of companies moving the PoS to the customer, rather than the customer to the PoS
Aisle buying

HiPay -> image

purchase via the customers phone and WeChat account
cash transmitted from to merchants account
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Note that its common in China to leave home with only your phone and WeChat account

Apple Store App

purchase in-store via customers phone & iTunes account
aggregates purchases

Amazon Go

Moving this online is just a question of risk model

 Time: forward in time

Starbucks moved their loyalty scheme to a stored-value card

Customers add value to the cart
Use the card for purchases

Advantages:
Ties loyalty accumulation to purchase (one card, not two)
Creates a sunk cost: the customer has already purchased the coffee

Disadvantages:
Need to preload the card, making some transactions more complicated
Still tied to the PoS
Source: HAO XING
 Time: back in time

Skip: skip the queue

Use the app to pre-order
Pickup-and-go
Pay every fortnight (not using the PoS)

Advantages
Skipping the queue (some people)
Avoiding transacting (many people)

We forget our cultural prohibitions against handling money

We dont like having the transaction in the middle of the relationship
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We prefer services where they payment happens somewhere/somewhen else
Uber is an example
 Next, these new models are not like the old models

we think of the future of our businesses as being the same, but online
online retail
online

For example, consider grocery shopping

its looking increasingly unlikely that grocery shopping will move online
its not a question of someone getting the model right
doing so assumes that the current model is working fine, but we need to upgrade execution

This ignores the fact that consumer behaviour is changing

And we forget that our concept of supermarket is based on the old location-based retail paradigm that is dying
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 Its looking more likely that the grocery market will fragment
Three text boxes
breaking into three
High Value Subscriptions Convenience
High value, multi dimensional value
subscriptions: low cost, low hassle, dont force me to make decisions
ad hoc (Aldi, on demand delivery) for the corner cases

the old buying cycle is breaking down

the foundation of business

Business has been built around

Need
Search
Transaction
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however, increasingly we no longer search

were building relationships with high-value merchants

were converting purchases to subscriptions for the things we just need
whats left over low-cost things we need occasionally were after convenience

You need to create a new relationship with the customer

one not based on search or cost

There appears to be three on offer

religion: you form part of the customers identity, Apple, the local butcher
You have the primary relationship with the customer, not someone elses product or brand
value is multi-dimensional
value is absolute its your product or someone elses
you dont care where the customer buys, as long as they buy your product

community: you facilitate the community that the consumer is part of

you and the client are in the same community
value is multi-dimensional
value is relative to the community
you dont care what the client buys, as long as they buy it from you

commodity: cheap, old skool

you need to be convenient to the customer when they want something
you need to be (reliably) cheap ideally you want to be a habit
dont force unnecessary decisions and dont bore the customer

We note that theres good money to be made in all three models

Apple earns the majority of smart phone profits, with a minority position in the market
A community provides you with multiple income streams
The most profitable restaurants are the cheapest
 The existing trust model need, search, cash at the point of sale will probably endure for quite some time.

However, simply moving the current paradigm to the digital world runs counter to consumer preferences.
Consumers dont seem to want e-wallets, no matter how many times we present them. Even Apple Pay is having
trouble driving adoption, and is willing to pay $5 per user.
Despite optimising the payment (or hiding it with gift wrapping) we cant ignore the fact that, in a world where
consumers know the firms they deal with, that consumers dont want the payment in the middle of the
relationship.
We forget that the payment cash was a solution when customer and merchant didnt know, or couldnt trust,
each other, and that is no longer generally true.

So if the old trust architecture is on the wain, then what is the new trust architecture?

Mobile payment terminal, in Fornebu, Norway. Source: HLundgaard.

 At this point many people will be creating for blockchain
it decentralises / democratises trust, or so were told
trust in the math rather than trust in the people

Through the magic can build Dapps that are more transparent and equitable
Money Identity Reputation Marketplace
(payments) (accounts) (ratings) (catalogue) There are a few issues with this

Dapps will never be economic

distributed solutions are always less efficient than centralised ones
they will also be less performant, for the same reasons
Blockchain
(database) these solutions improve sublinearly at best
we can have the technical argument at the bar if you like
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Value is created in the real world

Bitcoin only has value when you exchange it for something you want in the real world
touching the real world requires oracles & oracles have all the failings of real world services
consequently
tokenising an asset doest change the nature of the asset: digital land titles are just land titles
regulation still applies
nothing is anonymous

Dapps dont democratise trust

trust is a subjective estimate of how other actors future actions will meet your expectations
Trust is different to technology. We cant democratise trust. Trust is a subjective measure of risk. Its something
we construct internally when we observe a consistent pattern of behaviour. We cant create new kinds of trust.
Trust is not a fungible factor that we can manipulate and transfer.
nor
If we want to rebuild trust then we need to solve the hard social problems, and create the stable, consistent and
transparent institutions (be they distributed or centralised) that all of us can trust.
neither bitcoin nor Eth are examples of institutions that the majority of the population can trust
 Commonwealth Bank of Australia ten-shilling note (1954-60) circa 1954, pre-1960 (note), 2015 (image). Source:
Image by Godot13.
https://commons.wikimedia.org/wiki/File:AUS-29-Commonwealth_Bank_of_Australia-10_Shillings_(1954-60).jpg

Most problematic though, is the idea of introducing tokens to fund many services
or even the creation of personal currencies

For example:
Filecoin: p2p file sharing funded by a token
p2p payments: p2p payments funded via a token

Its assumed that these currencies can be pegged to something like AUD to avoid exchange problems
this is foolish and misunderstands how money functions
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If you peg, then you need to defend the peg

youll need deep pockets
unless you control all the exchanges (impossible)
or you could create a private currency
but then you need to fund it (or recreate fractional banking)

Even then you need to deal with exchange rates:

you want to pay me in a p2p currency for your share of the pizza
but Im not a user of the currency, and Ill need to go to the bother of creating an account and converting it into a
currency I do use
so I value the p2p currency less that you do, and will demand more to compensate for the bother
this is the same as using AUD somewhere its uncommon like South America
if a merchant accepts it (which most wont) theyll demand a higher rate to compensate for the inconvenience

All these additional currencies and consequent exchange rates and required services is a drag on the
economy
we seem to forget that using currency comes at a cost

technology cant solve these problems

even for personal currencies

the solution is to minimise the number of currencies in use

this is why we put an end to freelancing by nationalising currencies
hence: tax is a currencys killer app
 So let us admit: distribution is not a magic bullet
More to the point: there is no new technology in blockchain
What were seeing is a social change

Were back at Kranzbergs 4th law

So if blockchain (technology) wont shape our future trust relationships, then what will?

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Well, in the short to mid term, theres probably three, rather than one, based on the emerging trust relationships.
 First, we might burry the payment in the social platform that consumers use to interact with the merchants, with
settlement via a low-cost mechanism (BPay? NPP?). In many all? cases the act of ordering will trigger the
Social groups (platforms)
payment, as with Uber. Our social platform(s) of choice become our remote controls for the world.

Trust for both customer and merchant has moved from currency to platform (though we still use a currency
as a unit of value).

Payments are moving away from the point of sale, to happen seamlessly in the background.
Buy it now buttons on Pinterest.
Ordering products or services via a social platform: WeChat Skip, Uber etc.

Even using the platform as a substitute for cash or a traditional payment

It will be interesting to see if Facebook, Twitter can make the leap.

 Second, payments for products are being converted into subscriptions for services, with periodic settlement via a
low cost settlement mechanism (BPay? NPP?)
Social groups (platforms) Payment for a service

This is simply a streamlining of the existing utility model.

Payments are moving away from the till to be seamlessly executed at the point where the product is consumed.
Music streaming
Dollar shave club
and so on
 Third, where customer and merchant have a less transactional relationship, payments may be via an evolved
loyalty scheme, a shared store of value, with any settlement via a low-cost mechanism (BPay? NPP?)
Social groups (platforms) Payment for a service A shared store of value
Value is now multidimensional, rather than solely focused on transactions.
Customer and merchant know each other.
Both want the payment moved to the edge of the relationship.

A shared store of value commitment by mutual debt just like before the Industrial Revolution
Merchant rewards customer for prosocial behaviour, not just transactions
Customer commits funds to create a sunk cost and show commitment

Acts like a complimentary currency, which means that the banks might be best positioned to offer white-label
services.
 The rational behind Dapps is that theyre the logical extension of the old tension between firms and markets
Pipe vs platform
Market Firm
Coase told us that the choice between firm and market is driven by the cost of: discovery, coordination &
contacting

Firms:
The old value chain stuff goes from left to right
Producers find materials, create value, and deliver to customers
Miserly with communication/coordination as everything is predefined and mandated from above

Edward Lloyd's Coffee house, Londres, par William Holland (1789)
Markets
1924 Model T assembly line
Platform businesses -> the hot thing at the moment Producers and consumers gather in a market
More choice, but requires more communication
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Uni Cal saved something like 50$ million moving their procurement process to a market

Were seeing the great unbundling

Dapps are positioned as the next step

make everything distributed
 we forget that before the firm and the market we had the village
the baker brought the bread in the morning
the cobbler lived around the corner
etc

we didnt need money as we didnt need (as much) formal governance

vast majority of relationships facilitated via debt
double coincidence of wants is fiction
money only used when we didnt know or didnt trust someone, as with damages

it was industrialisation and the explosion of the mass market that pulled the vast majority of people into the
monetary system

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Village fair, Richard Brakenburgh, 1650-1700, oil on canvas - Villa Vauban - Luxembourg City
 so we need to consider these on a continuum
Community Market Firm
communities were great, but they didnt scale
markets enable us to create communities around topics, but we need to go looking for them
firms are efficient, but you can have any colour you want as long as its black

the amount of administration and formalisation required increases as we move right

the volume of communication required decreases as we move right
value becomes more narrowly defined as we move right

most of industrial history has been a shift from local markets to global firms
more recently weve seen the shift from global firms to (global) markets, right-to-left
as communication technology has caught up
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its like weve shifted right, and then bounced off the end, and now were heading back the other way

the consumer shifts were seeing

value is multidimensional and relative
direct relationships rather than brands
etc
suggest that wed like to return to the village

the interesting question is what the digital village might look like
 Bitcoin, Blockchain
& distributed ledgers:
Caught between
promise and reality

The future of exchanging value

Uncovering new ways of spending

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This publication contains general information only, and none of Deloitte Touche Tohmatsu
Limited, its member firms, or their related entities (collectively the Deloitte Network) is, by
means of this publication, rendering professional advice or services.
Before making any decision or taking any action that may affect your finances or your
business, you should consult a qualified professional adviser. No entity in the Deloitte Network
shall be responsible for any loss whatsoever sustained by any person who relies on this
publication.
Peter Evans-Greenwood
2017 Deloitte Touche Tohmatsu. Fellow, Deloitte Centre for the Edge