Will Digital Dollar Stablecoins & CBDC Co-Exist?
The rapid rise of digital dollar stablecoins has been paralleled by accelerating interest from central bankers on the role and possibilities of Central Bank Digital Currencies (CBDC). To some in the industry, these are viewed as at odds with one another, to others these are ultimately two sides of the same coin, converging trends that will emerge through broader public sector and private sector collaboration in the coming years and decade ahead.
No matter, everyone seems to agree that digital dollars and digital currency more broadly are the future of electronic money and the broader global financial system. How will these two phenomenon interact, compete or simply just co-exist?
On this week's Money Movement we're joined by Visa's Head of Crypto, Cuy Sheffield; Neha Narula, the Director of MIT's Digital Currency Initiative, an institute leading research and development in crypto, digital currency and now CBDC models; and Robert Bench, AVP at the Federal Reserve Bank in Boston, and a key contributor and collaborator on the future of digital currency with the Federal Reserve.
So will CBDC and stablecoins be able to co-exist? Listen to the episode to find out our thoughts!
Jeremy Allaire: Hello, I'm Jeremy Allaire, and welcome to The Money Movement, a show where we explore the issues and ideas driving this brave new world of digital currency and blockchains. Today, we're going to be talking about digital dollar stablecoins and central bank digital currencies. We've seen this year in particular, but certainly over the past years significant proliferation in digital dollar stablecoins. We know new digital dollar stablecoins associated with things like Libra are emerging.
This has really been a very, very fast-moving part of the market. Regulatory frameworks emerging for these and, really, all of these are fundamentally private sector-issued and operated technologies. Although increasingly, leading digital dollar stablecoins are operated through broader arrangements to use a phrase that the Financial Stability Board has used for global stablecoin arrangements, things like Centre Consortium, Libra Association, and the like that have multiple stakeholders and are seeking to set standards.
Now, at the same time, both the topic and the substance of central bank digital currency has also been emerging, again, for a host of reasons. CBDC has emerged in part as a reaction to the private sector and internet-led innovations of digital currencies. It's emerged because, well, frankly, some of the largest economies in the world are actively in the process of operationalizing new central bank digital currencies.
This is part of this broader macro environment of the diminishment in the use of cash as a product from central banks, desires for continued payment system innovation, improving financial inclusion, broadening and supporting cross-border transactions, all these as factors driving the increased interest in CBDC. Now, some are saying that there really can only be one digital currency dollar or one digital yen or pick your currency and that it's not really the role of the private sector to issue money if you view stablecoins as private sector-issued money.
Others are saying that digital dollar stablecoins are, fundamentally, a payment system innovation and that the private sector has led in this field for decades. In fact, even longer, and that standards and regulations and, ultimately, connectivity to central banks and their balance sheets can give us the best of both worlds. Really excited today to explore these issues on The Money Movement.
We are joined by Visa's head of crypto, Cuy Sheffield; Neha Narula, the director of MIT's Digital Currency Initiative, which is an institute that has been leading research and development in crypto, digital currency, and now central bank digital currency models; and Robert Bench, a.k.a., Bob Bench, AVP at the Federal Reserve Bank of Boston and a key and distributor and collaborator on the future of digital currency with the Federal Reserve. Welcome, everyone.
Cuy Sheffield: Good to be here. Thank you.
Jeremy: All right.
Neha Narula: Hi, Jeremy.
Jeremy: Nice to see you all. Cool, I think to try and set the stage a little bit, there's a lot we can talk about and it's really a pleasure to have each of you, who I think bring really profound perspective on these topics. Let's just get started with some quick introductions and what brings you to the subject matter and then we'll dive in. Maybe we'll start in the upper left, or at least for me, the upper left with Cuy.
Cuy: Thanks, Jeremy. I'm Cuy Sheffield. I'm on the global fintech product team at Visa, where I lead our crypto products, so really excited to explore these issues today.
Jeremy: Excellent. Neha?
Neha: Thanks, Jeremy. Hi, everyone. My name is Neha Narula. I'm the director of the Digital Currency Initiative, which is based out of the MIT Media Lab. We focus on cryptocurrency and digital currency research and technology.
Jeremy: Excellent. Bob?
Bob Bench: Hey, it's Bob Bench. I'm an AVP at the Federal Reserve Bank of Boston. Our team works on general-purpose CBDC research and exploratory applied prototypes for CBDCs.
Jeremy: Excellent. That sounds cool. We're going to dig into what that means here. Actually, maybe we'll start with you, Bob. I remember at one point, a meeting I had at the Federal Reserve in the not-too-distant past. I met someone whose title was product manager for cash and I thought, "That's pretty cool." There's a product manager for cash and cash is a product of the central bank. Most people don't really think of it that way. We've got products that we sell as companies, but central banks have a product. It's called cash. What's the role of cash as a product in the United States, and then how might that inform how the Fed thinks about digital cash?
Bob: Yes, that's a great question. I was surprised too when I came to the Fed from Circle. We had a lot of product questions that Circle's great PMs thought about. The Fed PMs think the same way. What do our customers need? What's their use case? How do we make this easier for them to use more accessible? You think about just currency generally, right? A currency's goal is to be a unit of account, a medium of exchange, and a store of value.
Cash being the original former currency here in the US, that's what we want it to be first and foremost. Our cash office is really great at knowing their product and knowing their customers. What is our product? There's about $2 trillion of our product out there of a $20 trillion money supply. Of that $2 trillion, we have about $1.4 trillion or so that's hundreds. A decent amount of that, which is overseas, and then the remaining is smaller denominations.
Our economists also and product officers also understand how that money moves, where it moves, and why it's moving, where it is. When we think about trying to build a cash alternative, certainly, not a cash replacement, but what would a prototype cash alternative look like? One of the key questions for us is, are we thinking more medium of exchange or are we thinking more store of value?
That's one of the critical questions that we needed to think about and bring in the Digital Currency Initiative at MIT to help us think about because we think that you can weigh the technology to be more focused on store value, say having a much more secure platform, or you can have it much more focused on medium exchange, which may require higher throughput and faster settlement.
As you know, Jeremy, those are really important technical trade-offs. When we think about what's the potential goal of a prototype CBDC is, are we looking for people to have something to store and is security the ultimate concern or do we need it to be fast so you can get a cup of coffee very quickly? That's an important trade-off in why working with folks at MIT's DCI is so important to get the best answers in front of policymakers.
Jeremy: It's great perspective. This obviously affects the broader cryptocurrency industry as people think about these trade-offs between security, scalability, and access. Access might be thought of as decentralization or who can participate. Those all play off each other obviously. It's cool to hear people at the Fed thinking about that, so that's awesome, Bob.
Maybe a related question, Cuy, which I'll direct to you, which is I think when people think about Visa and the vision of Visa, you even hear it as this building a cashless society. In some ways, Visa represents, for much of the mainstream world, this move from analog to electronic money, which has happened over decades. Visa really led the way globally on that. I think now, clearly, Visa and you, in particular, are focused on cryptocurrency, digital cash models, the future. How do you think about digital cash in relation to historical electronic money?
Cuy: The foundation of Visa was built on the electronic movement of money. Decades ago, Dee Hock was talking about how money would become alphanumeric data that can move across the world at the speed of light. We see in digital currencies, they represent an evolution of money with these new forms of cryptographic bear assets.
As money evolves, we think it's important for Visa's network and solutions to evolve with it to ensure that new forms of money can be transferred in a secure and convenient manner. We're seeing increasing interest from clients across the world looking to utilize digital currencies in new payment forms. Given this interest, we want to help to shape and support the role that digital currency can play within the existing payment ecosystems.
Jeremy: Yes, that makes a lot of sense. I think we'll come back to some of those issues. Where are the boundaries of digital cash, electronic money, payment systems? The interesting thing about this space is that it all is one big soup as well. Neha, I know you've thought a lot about these trade-offs of security, scalability, decentralization. Those are fundamental things that I know have been worked that you and your colleagues have looked at for a long time at DCI. I'd love to just hear your thoughts on those trade-off as it relates to the specific prospect of a digital cash product, whether it's private sector or public/private or public altogether.
Neha: Yes, thanks, Jeremy. We've all been reiterating this. Security is paramount, right? If payment systems break, if monetary policy goes awry, that has real ramifications on people's lives. They can't buy food. They can't buy medicine. They can't eat. They can't get paid. We're seeing some of these things now with COVID as it's taking time for stimulus checks to get meld out, things like that.
Security here, reliability, stability, that's priority number one with the digital cash system. I'm sure the folks at Visa think about this all the time. I think we all have this vision of this really great future where we have money work the same way that information works now digitally, where we can program with it, where we can encapsulate it. We can feed it into apps. We have these open APIs, things like that.
I think we're all working towards that future, but we have to remember that none of that works without the security, without the underlying stable system. A lot of the work that we do at DCI is really thinking very carefully and deeply about security. What are the different ways that things could break all the way up and down the stack from the hardware on your machine to the operating system to the libraries, the compilers you're using to build the code? How can backdoors get into that? We have to be very paranoid.
We have to think very carefully about the security of these systems. I also think it's worth remembering that, at least, the cryptocurrency revolution started with Bitcoin about 11, 12 years ago. That's not actually that long. These systems have not been around for that long. They're brand new cryptographic and distributed systems protocols. Those things take a while to harden. It takes a while to bang on those things and make sure that they are correct and that they're not going to fail in unexpected ways.
Jeremy: Yes, it touches on a lot of things. Really, I think a lot of the decentralization movement and open-source software, The Cathedral and the Bazaar, the famous essay that looks at how do you crowdsource the best-- The most secure code is the code that's most open and most transparent. There's a real desire to experiment out in the open and to iterate out in the open and to leverage that intensity of peer review that is the real world on these things.
The internet evolved that way. Certainly, I can remember first-generation internet. You say, "Hey, you're going to put a piece of software. You're going to be able to put a word processor in a web browser." People would laugh you out of the room like, "This is a joke. You can't do it. It's not going to work." With video, the idea that you needed centralized, highly-controlled, resilient infrastructure like satellites and cable systems and so on to deliver television, but then, you know what? Actually, you could do it with open standards over the open Internet.
This balance between centralization, decentralization, and the constant ability to increase quality of service, security, resiliency on decentralized systems is one of the features of the internet. I think, to some degree, what this discussion of stablecoins and central bank digital currency and will they co-exist is one of these born and grown out of the internet as standards and as another kind of built to be operated as a controlled resilient system. I'm interested to hear how each of you think about that juxtaposition and how that could play out. Anyone can jump in.
Cuy: I guess I'll start. I think you have to break down your fiat-backed digital currencies into three parts. It's what type of money is backing it or collateral? Who is responsible for operating the technology that actually issues and redeems them? Who operates the network that digital currency is transferred over? You could start to see the spectrum of design choices that are emerging where one end, you have this private sector-led, the leading existing stablecoins like USDC that are backed by treasuries or commercial bank money issued by fintechs and operated, transferred over public blockchain networks with thousands of nodes that are validating transactions.
On the other end, you could imagine a digital currency backed by central bank reserve, issued where the technology is operated by the central bank to create it and the network is operated by the central bank. I think there's a lot of room in the middle of options for public and private sector partnerships to be able to back and issue digital currencies and operate the networks that they run on. With this, more digital currencies will emerge in the future and then land somewhere across that spectrum. They could potentially coexist or engage in market-based competition for various use cases based upon diverse properties that they can have.
Jeremy: There's that Fedwire money, which is a particular form of electronic money, then there's Visa electronic money. Today, at least, Visa electronic money has a lot more utility value than Fedwire electronic money just for everyday stuff. Fedwire money is really important for a certain class of very important scaled transactions with a very clear set of controlled trusted intermediaries. It's that interplay. Other thoughts from you, guys?
Bob: I think one thing-- Go ahead, Neha.
Neha: Okay, I was just going to respond to the security point you made before about open-source. It's really surprising. I think sometimes people think because some things are out in the open, it means that people are looking at it. There is a very long tail of stuff out there that no one is looking at. It's very time-consuming actually to audit all of the software to really break it apart. There aren't necessarily the right incentives in place to do that yet. The incentives around open-source software is really, really complex.
We see things like bugs in OpenSSL and in really, really core pieces of software, which tons of billion-dollar companies rely on. It turns out, they're being maintained by a couple of people in their spare time. I think that there really is this issue with open-source software that we need to figure out how to solve. We're really seeing it in the cryptocurrency world, where there's so much money sloshing around where, how do we fund that very deep, important work of doing the auditing, of looking at all the software, of testing it rigorously and really making sure that it's top-notch? I just want to make that point.
Jeremy: Yes, I know. It's like the bar is so much higher in the technology for digital currency than the kind of protocols that-- yes, we can get streaming television. It's great over the internet, but sometimes broadband goes down. What do you do? If the internet goes down and you've got digital cash, what do you do? Interesting questions like that. I want to come back to this higher-level theme, which is when we juxtapose these regulated digital dollar stablecoins versus envisioned public-sector central bank digital currency.
How much of this is a payment system innovation versus something that actually really has an impact on the actual sovereignty of money issuance? Because I think about stablecoins as protocols and formats for the use of sovereign money on the internet and as, fundamentally, a very significant payment system innovation. It's more than a payment system innovation because of the programmability and all the things that come with that.
I think there are others that have a view that if there's a token that represents a dollar and it's issued by someone in the private sector, well, that's not the role of the private sector. Where are we in this? Is this a payment system innovation? Can the technology be created by, operated by the private sector, or open-source combined with the private sector, combined with public sector supervision and engagement? Where do we sit in those trade-offs? Bob, I'd love to hear your thoughts.
Bob: I think this goes into Jeremy's some fundamental questions of, how are you approaching this problem? I think you can make it where it is exclusively a payment innovation, a pure technology innovation where you don't change the intermediary stack, for example, right? You can keep the current system where the central bank creates the money. That money goes to a commercial bank, which has a Fed account. They use their leverage ability to effectively 10x that money, if you will, and create through lending, right?
The rails change a little bit, but the underlying's intermediary structure doesn't change. That can make certain types of money more interesting from a programmability standpoint. It can make the rails more resilient theoretically. It can make them more efficient and more safe, but the overall monetary system isn't changing. For most people, the monetary system works pretty well.
I think with the stablecoin approach, and we certainly discussed this when we were at Circle, is it takes the money outside of that constrained environment or that limited environment of the commercial banking. Even though most fiat-backed stablecoins are ultimately commercial bank deposit tokens, if you will, it lets them leave that environment. That can be really interesting. Certainly, there are people for some reason or other who are not in the banking system. That is a critical challenge for the Federal Reserve to address and for all central bankers to address.
How do we make sure financial inclusion is at its maximum? We need to get better at that. We need to explore some of the types of technologies that Circle has explored and your peers have explored to understand, how do we reach that 7% or so people who, for some reason, are not part of the banking system? The good part about this project with MIT is we're trying to look at all those policy levers. What can folks like Neha do and our team do that can make more people in the system or can really fundamentally change how people access the system?
Cuy: One thing I'll add is we've started with really closely watching the rapid growth of the stablecoin ecosystem across the world. I think one thing that's really stood out has been the emerging global vibrant developer community that are building new products and services on top of stablecoins. I think you could argue that stablecoins and public blockchains, they can help lower that barrier to entry to building new digital wallets and financial services. That's great for consumers to have more options and innovative products.
We're starting to see this with our business today. We launched this Fintech Fast Track Program last summer to make it easier for startups to partner with Visa and issue Visa credentials. Almost a third of the companies that are coming to us are building on digital currencies in some way. We're really excited about it as really a platform that developers are using that could build new products and services that can then help address financial inclusion.
Jeremy: It's fascinating to watch obviously and seeing a smart contract-based stablecoin that people trust. It's essentially an open API for dollars on the internet. It's amazing to see what people are doing with it. We've seen hundreds and hundreds of companies innovating on USDC. They don't have a relationship with us or Coinbase. It's just like they're just building. We're in the very early stages of the innovation curve of programmability.
Look, there's going to be bad things that happen. We've seen DeFi contract hacks. We've seen all kinds of things, which if this was the official system of dollars in the economy, we'd say, "Whoa, hold on a second." At the same time, the rapid pace of innovation is obviously really, really significant and commendable. I guess I'd love to actually just ladder off of that and just imagine some scenarios and just get all of your perspective on if this changes the calculus in particular of this question of the coexistence and/or integration between the stablecoin world and the central bank digital currency world.
One scenario, which I think is not an unreasonable scenario, is that over the next two to three years, there's hyper-growth in stablecoin usage. It goes from tens of billions of stablecoins into the hundreds of millions or maybe a trillion-plus or more. Then, all of a sudden, it's getting to a level which resembles the distribution of cash. There are scenarios, obviously, where large-scale internet firms are deploying this.
Obviously, there are large-scale internet firms deploying this, but a broad range of internet companies and fintechs and large financial institutions adopt this. You have that hyper-growth. Does that affect how the Federal Reserve would look at this? Is there a de facto digital dollar at that point that needs to be then regulated differently, the reserve model regulated differently? That's one scenario. It's not an outlandish scenario certainly.
Then another scenario is more geopolitical in nature, which is, say, the digital yuan is free-floating and made widely available on the internet. Countries, businesses, individuals that are transacting with China, which is probably, in the next five years, the largest economy in the world, it becomes over-the-top, I like to say, currency system. Does that change the calculus of how CBDC, at least from the United States perspective, and private sector stablecoins would work together? Anyone want to take the bait on that one? [laughs]
Neha: I'll say something really quick, which is we started working on CBDC in around 2016. That's when we hired our first person from the Bank of England. At that point, I think we were hoping things would move quickly and they were moving very slowly. It's definitely the case that all of the things you just cited have accelerated this conversation dramatically. I think a lot of folks who thought maybe this was 20, 30 years out, not something they had to worry about right now, realized, "No, this could be a five-year problem or less," and that we really need to get smart on it. Definitely, the things you mentioned have been an accelerator.
Bob: I'll agree there with Neha. Certainly, I can't speak on behalf of the Federal Reserve System and our team as a technology team, right? What's critical for us to understand and one reason we've launched this is we know that the private sector like Circle or like the Centre Consortium, for example, are building really interesting technologies that we need to understand deeply.
Regardless if they go to a certain asset threshold, they become systemically important. You saw a little bit of that with China, right? The public statements by the People's Bank of China, one of the leading reasons to use the DCEP program was because of the systemic risk of Alipay and WeChat. They thought that they were a systemic risk in those two companies. The Chinese government really had to learn how Alipay and WeChat worked to build or help build their own system.
One thing our team does is we are building our own internal testing environment to put technology like Centre's USDC technology or the lever technology through a comprehensive testing environment to understand what kind of, at least, technology stresses that would put on themselves internally if they got to a scale of a dollar because we think that you have to understand the underlying technology if that does happen and what kind of systemic risk that would pose, at least from a technology standpoint.
Cuy: I would just add that there's clearly growing demand for stablecoins. I think as stablecoins grow, they present this live ecosystem to observe what developers are building and how consumers and businesses are interacting with these cryptographic bear assets. I think as the stablecoin ecosystem matures, we can start to see what features and what infrastructure emerges and if it's addressing use cases that central banks might be looking for CBDC, and if there should be different properties or different designs of digital currency to be able to do that in a safe and secure way.
Jeremy: There's several pieces that I want to ladder off from comments that each of you have made that I think are really interesting and worth talking more about. Actually, speaking of the Chinese DCEP, there's the two-tier model that people talk about where there's some component that's centrally administered. Then there's another tier, whether it's large fintech bank-like firms or actual commercial banks that can operate this technology. They're a two-tier model.
I guess the way I've thought about it at least is, could private-sector arrangements for standards for things like digital dollars like USDC, could those eventually just become standards that were supervised by the Fed or other central banks? The underlying money becomes central bank M1 or an equivalent, but the technology is, in some ways, more like how Visa grew, which is the central bank doesn't run the card networks.
It became a private sector consortium of firms that said, "We're going to build standards for interoperability for electronic money settlement." It's going to set a layer above Fedwire or a layer above other networks. It seems inevitable that, at least in the West, a two-tier model is what's going to happen. It's a question of, is it something created from scratch by you guys [chuckles] or is it something that happens organically through public-private collaboration?
Bob: Yes, I can say the two-tier models, it's what we do now. The Federal Reserve does not handle individuals. That would be a major mission change for us to start managing individual's accounts or individual's wallets. The public-private sector does a good job of that. There is a neat fit there. America has a long tradition of the public sector with its mission-driven approach working with a private sector to innovate well. Putting a man on the moon, the internet, the whole growth of the internet, that was a public and private sector partnership that continues to this day.
There's a really nice fit there, Jeremy. I think you're exactly right because opening accounts, that's something we don't do for individuals right now and that would be a big change. The private sector does it pretty well. When we were at Circle learning about how to really reduce that friction to get more people in the financial system, I think that's something the private sector has done really well and we certainly need to learn from.
Jeremy: Go ahead.
Neha: Really quick, Jeremy. Someone said this to me before. I'm just going to totally steal it from them. A nice way of looking at these big projects like the internet and the moon landing and things like that, you've got .gov, .edu, and .com, right? You've got all these three different pieces that have been really critical in bringing these things to bear, right?
It's not one side on its own. You need, obviously, the innovation of the private sector. You need the regulation, the representation of the people from the public sector. You need neutral research, fundamental research and design that often comes from academia that can't really be provided by the public or private sector necessarily. It's really interesting to think about--
Jeremy: You got .orgs too.
Neha: Yes, there are .orgs. Yes, but it's really interesting to think about these pieces of the triangle.
Jeremy: I like that concept a lot. It resonates well here. I guess another piece of this which has been talked about and we've talked about it a little bit here, which is digital currency, generally speaking, stablecoins as they exist today, and potentially digital cash as a product of central banks in theory have this attribute of being bearer instrument money. Even in a two-tier model, if it's just an electronic record at a bank, it's no longer a cash product. It's no longer bearer instrument money. I think there's a lot of discussion about privacy, anonymity, self-sovereignty.
These are core attributes that have drawn people to cryptocurrency, but that also tie into the product manager of cash at the Fed thinks about those issues. The US Treasury certainly thinks about those issues, but where do we think we need to land on that? That's one of the most controversial pieces of all this. It's one of the lightning rods that gets people on-- I don't want to say both sides, but on multiple sides of this pretty fired up. Because when you have bearer instrument money and it has the speed and power of the internet, that changes things.
Just like when you opened up the internet as a communications medium to everyone everywhere, that changed things too. Like my kid can go get recruited by ISIS on YouTube or people can gather in crowd, organize a revolution in a country that's a dictatorship. They use Tor and they use secure communications to subvert authoritarian regimes. There's all these trade-offs, privacy, anonymity, self-sovereignty. This is all going to come-- I don't want to say crashing down, but come together in the design of digital currency models. Where do you think the Fed sits on those issues?
Bob: Well, I can't speak on behalf of the entire Fed certainly, but I can--
Jeremy: Hold on, Bob. That was like a softball.
Bob: Yes, sorry. I think there's some really key issues there, right, Jeremy? I think it's not just, how does the Fed think about security and privacy? To Neha's point, when we think about future payment systems, security is everything, right? The dollar can't break. That being said, we do think about in our research questions of, what kind of data transmission happens on that network?
The Bitcoin network transmit transactional data. Its Jar's wallets had-- Not even Jar. Wallet A, Central Wallet B, X amount of BTC, and that's all it sends. A world in which you may have a private sector actor doing all of that in your world, having a second layer of, say, a monopolistic actor doing it, that's a lot of information that one private sector actor gets. I've heard you say this a ton of times.
Marc Andreessen talks about the original sin of the internet, which is people's data for ad revenue. That's something people think about for public goods. If we have a public mission to provide central bank money, how do we do that and protect public data? This is where our work with Neha and her team is really important because when you think about security, you have to really think deeply about security.
Challenge that security question that if you're going to collect any data, you have to understand how is it protected and how robust is that security protocol. Even Bitcoin itself isn't entirely secure. People who know well enough know that that's true. If you get enough mining power, Bitcoin can be attacked. We need to think about these fundamentally because it is a public good and the people's financial data is really important.
Jeremy: I remember, Neha, when Sean and I first walked in and talked to you about what we were doing with Centre and USDC, I think one of the criticisms that you had, which is totally legitimate, was, "Well, this is centralized and it's centrally issued." There's a lot of focus, I think, at DCI on censorship-resistant, forms of digital currency, and supporting that development, and privacy-related technologies and the like. I'm sure that continues to be a focus for DCI. As it relates to this exploration on central bank digital currency, what are your thoughts on how those designs can play out with public sector money?
Neha: Well, I think in some ways, we're running two really huge experiments right now. We've got the cryptocurrency world, which is, as you put it, very decentralized. With these groups of developers from around the world, all different time zones, it's very hard to get on a meeting together. Just writing a software, putting it out there, people running it, people picking it up. It's amazing, right? We are seeing massive amounts of experimentation.
People putting tens of millions or hundreds of millions of dollars' worth of tokens and cryptocurrencies into contracts and sometimes losing that money, right? We're seeing a lot of experimentation and variation in that world. These systems were specifically built and designed to be hard to turn off and hard to regulate and hard to find those points of control. There's a certain value to that because it allows a certain type of experimentation to happen that maybe couldn't happen in other more different types of structures.
That said, money, especially fiat money, the dollar is not a decentralized good. You don't fork the dollar, right? It's not a decentralized government sort of a thing. There's the Federal Reserve. There's the United States government. There are these actors in place who've created the dollar and, thus, have control over it. We need to acknowledge that. I don't think fiat currencies are going anywhere anytime soon. I think that they are still pretty important.
Jeremy: Which ones?
Neha: [chuckles] Maybe it depends which ones. They are still incredibly important to people's lives and make a huge impact. I think it's important to look at that area as well when we're thinking about redesigning this technology, which is what you're doing with stablecoins, I think. Really, these are two different approaches that have a lot to learn from. We can learn a ton from the lessons of the last 12 years in the decentralized world to think about how to carefully design and architect a CBDC.
That's the idea here. That's why we're doing this because we think there's some value. I don't see these two areas at odds at all. I think they work together in order to have that experimentation, have that crazy stuff happen. A lot of people are going to lose a lot of money, unfortunately, but they're taking that risk and then learning from that and bringing some of the best ideas from that into the fiat world.
Jeremy: It's great perspective. I want to touch on something that Cuy had referenced as well, which is-- and, actually, Brian Brooks, who now is the head of the OCC, talks about the dollar needs to remain competitive. There's a competitive economy for fiat currencies. Obviously, the monetary policy is part of the product and the sovereign credit and all of that good stuff, but then there's the utility value.
How do you build better features? How does a dollar become a more feature-rich currency? Now, we're moving into a world where there's actually competition on the utility value of fiat currency when you are now moving to this realm of digital currency. You can design features, which is very-- Cash, what's the security technology or the anti-counterfeiting technology? Might have been features of a physical note.
Now, there's real utility. This touches on something again that, Cuy, you brought up, which is the amount of developer innovation that's happening with programmability, that's happening that in some ways-- and this is part of our view and vision, which is payment just becomes a ubiquitous free service on the internet. It becomes this much broader thing and that this isn't just about payment system.
This is about a bigger set of innovation, which is in the economic contracting layer that, now, businesses can construct and program economic contracts in really, really profound ways. That's the ultimate utility value that exists here. I'm curious to hear each of you think, reflect a little bit on that layer of all this, whether it be on what's happening in the private sector today or what might be possible in public sector-related CBDC initiatives. Maybe I'll start with you, Cuy.
Cuy: I think there used to be a clear line between software companies that would provide software-as-a-service solutions for businesses to help them do things like manage expenses and simplify accounting. Then you had financial institutions that would help businesses send and receive payments. We're now seeing a trend where software companies are embedding payments into their workflows to be able to add additional value for their customers.
A quick example, if you had a large company and you want to spend $100,000 in AWS, you might fill out a purchase order on a Word doc, email it off for approval, have it land in the accounting department, and then they use their financial institution to make a wire. This is now being replaced by software. There are companies where you submit a request. It's approved and it automatically initiates payment. This design space of, "How can you program payments as a feature within software platforms?" is really expanding. Many companies are using Visa products to do that today. We're excited to see if smart contracts and digital currencies can further accelerate that trend.
Jeremy: Bob or--
Bob: Yes, I'll go ahead. Going into the question of programmability, I think this kind of goes back into that multiple layer system that you already discussed earlier, whereby when we talk about our general-purpose research, we're really focusing on, as Neha said earlier, security, right? Security has to be the ultimate issue there. When you add programmability, certainly, you expand the attack surface of that software or the digital currency software. That's something we think about deeply.
There is a world in which the underlying prototype could be extremely secure but have very limited programmability, but those private sector partners or commercial banking partners, they may be able to add that programmability. I think they already are. Banks are having open APIs now. Certainly, the FedNow program, which is 24/7 real-time growth settlement, that enabled banks to work a lot faster with their payment sector partners. On our research, which is the core general-purpose CBDC, security is really the ultimate factor we think about. Programmability is a nice-to-have, but any threat to security is subject to strict scrutiny on our end.
Neha: Echoing that, I really think there are different stages to technology, right? It's a big question, what stage are we in right now with the cryptocurrency world and cryptocurrency technology? When I think about having a really robust platform, I think about a layered approach. I think about the internet stack. I think about those protocols, how the bottom layers were not depending on the top layers. It wasn't all squashed into one virtual machine.
There was really nice, clean separation. As we are doing our research and looking into what we can do with programmability, we found that with a pretty small number of core features, you can get a lot out of them, right? If you use the right signature scheme, if you have time locks, things like that, you can really get a lot out of the upper layers. Now, this is a pretty difficult paradigm to program and experiment with is the problem, right?
Jeremy: Makes sense. We think about that layering as well and we, in some ways, look at USDC as a protocol. It needs to be independent actually of blockchains. It can't be tied to a specific blockchain. There's so much innovation happening in different fundamental architectures for this. That's something that we'll be rolling out a lot more of is, how do you use this as a protocol on very different types of blockchains that support different use cases and the like?
I always like to end with predictions from folks. Clearly, it seems like internet-scale money, digital cash models are here. They're emerging. They're growing. I'll ask two related questions, which is within this regulated digital dollar stablecoin space, whether it's USDC or Libra USD or others that still don't exist three years from now. What do you guys think there will be in circulation in those?
Neha: All right, I'll go first if no one wants to talk. I'm really bad at prediction. I never get anything right, but I will raise the question. Isn't the US dollar the ultimate stablecoin in a way? What does it do competition-wise if something does come out and really has the right features around it? How does the stablecoin arena evolve? That's something I'm really curious about. I'm not making predictions necessarily, but I think it's going to be really interesting to see.
Cuy: I'm not making predictions either. We're seeing a ton of interest in activity and I expect that to continue, but I can't put a prediction on it.
Jeremy: Bob, will there be a Federal Reserve digital dollar or central bank digital currency in three years?
Bob: I cannot say that there will be a digital dollar CBDC in three years, but what I do hope to have with a lot of Neha's help is an open-source platform that we're going to offer the world to take a look at what might work so that not just the US can benefit it but from any country or any software developer who wants to explore how this might work better.
Jeremy: That's cool. I like that. All right, very well. This has been a really nice conversation, covered a lot of ground, could have gone on a lot of it. We went over a bit. I just want to thank each of you for joining today. Thanks so much.
Cuy: Thanks for having us.
Neha: Thanks for having us.
Bob: Thank you.
Jeremy: Absolutely. A great deal to synthesize there and these themes are going to just amplify, I think, very much month over month, year over year as we go forward. We'll continue to come back to these here on The Money Movement. Next week, we're actually going to step away from stablecoins. We've really spent an enormous amount of time on stablecoins and the fundamental innovations and blockchain technology with them.
We are going to dive for a moment into the Bitcoin thesis and really try and take a look at where we are on the journey of the Bitcoin thesis, what that core thesis is. It is, today, the largest digital currency in the world and continues to grow in its use. Very different design center, very different set of goals in many ways than things like digital dollar or stablecoins or CBDC. We're going to be joined by two significant leaders in this space. One is Michael Sonnenshein, who is managing director of Grayscale Investments, who manages one of the largest publicly investible Bitcoin funds in the world and is part of the Digital Currency Group.
Dan Morehead, an earlier guest on The Money Movement, will be rejoining us. He is the CEO and co-chief investment officer at Pantera Capital. One of the great global macro-thinkers for decades actually before applying his global macro-thesis to Bitcoin. We'll hear from both of them on where we are on the Bitcoin thesis and journey. Until next week, stay well, stay safe, and stay informed.