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signals

Emerging trends that expand the definition of value

The evolution of exchange

The concept of value is changing fast.

Signs of this evolution surround us. Witness our growing comfort with alternative payment methods. A generation ago, we used only checks and credit and debit cards to buy things. Now many of us are, at times, using loyalty points or cryptocurrency. A New Economy is starting to materialize — driven by new behaviors, technologies and business models — and the definition of money is expanding to include other non-traditional assets, which we’ll routinely and seamlessly exchange in everyday transactions.

The way we live is driving this dynamic. More and more, we exist across three domains: the physical, the digital and the virtual. We increasingly expect that these domains will mesh and that we’ll be able to frictionlessly navigate and travel between them. To do so, we require appropriate ways to store and transfer value.

7.2%

Annual decline in check payments between 2015 and 2018
There were 42.6 billion check payments in 2000 and 14.5 billion in 2018 1

86%

say they have heard at least a little about cryptocurrencies and 24% say they have heard a lot2

16%

of Americans have traded in, invested in or otherwise used a cryptocurrency according to a September 2021 survey

Powerful tech enablers are also stimulating this evolutionary dynamic

Tokenization, the representation of just about anything as a discrete digital entity, is making it possible to turn both tangible and intangible things into liquid assets. Tokens tend to be associated in the public imagination with the blockchain, but conventional technologies can also support them. Non-fungible tokens (NFTs) arguably remain the best-known such tokenized assets, even if the bull market that saw some of them earn their owners spectacular returns has passed. But other digital assets, including digital versions of national fiat currencies, are gathering momentum.

Distributed ledger technology has emerged not only as a platform for cryptocurrencies but as a mechanism for unmediated value transfer. This distributed ledger technology transcends borders and allows individuals and other parties to exchange value fast and securely, without the participation of an authoritative institution like a bank to oversee and legitimate the transaction.

81%

A 2022 study indicates that 81 of the leading 100 public companies are putting blockchain tech to work3

Real-time payment networks have brought new efficiency, speed and precision to the process of exchange. Individuals, businesses and governments alike can send and receive payments 24/7, as opposed to within conventional business hours as in the past. Transfers are irrevocable, which lends certainty, and funds are immediately available.

A transformative paradigm

Consumer comfort with innovation, a cross-domain mode of existence that necessitates novel ways of doing things, strong tech enablers — these, then, are the drivers of a paradigm that could bring major implications for our economy.

As for us as individuals, this emerging paradigm could redefine how we think of wealth and ownership. It could even affect how we conceive the world that surrounds us. We may henceforth imagine it no longer as a realm of scarcity, but as one of plenty — a place where sources of value hide in plain sight.

Toward coming to terms with this novel value paradigm, we discuss in this primer the following:

The building blocks that will have to be in place for this expanded value paradigm to succeed

The main emergent forms of value

Four new types of value

In the new environment, technology will play a number of roles. It will function as a platform for new types of money, a matrix supporting the development of virtual goods and a wand that coaxes previously obscure liquidity from physical objects that surround us, as well as from intangible things like data. The potential result: A world in which more wealth is available for more uses and is at the fingertips of more people. The following four items will be among the most important vehicles for that wealth.

 

Public digital currencies

such as bitcoin and Ether, which exist on blockchain, are arguably the best-known digital currencies.

Central bank digital currencies (CBDCs)

are, however, gaining traction. They could prove more influential and of greater utility than the original cryptocurrencies.

Central bank digital currencies (CBDCs)

are digital currencies that central banks issue either via conventional means, such as electronic payment systems, or using distributed ledger technology (DLT). They’re essentially digital versions of countries’ fiat currencies.

Today, 11 countries have launched CBDCs:

the Bahamas, Jamaica and eight Eastern Caribbean nations. Fourteen more have launched CBDC pilot projects and all of the G7 countries are in the CBDC development phase. Some countries use conventional technology, others solely DLT. Yet others deploy a mix of both technologies.

In the U.S., the New York Federal Reserve’s CBDC project, known as Project Cedar, has transitioned from the research into the development phase.

CBDCs could be programmable

so that transactions can be executed automatically when conditions are met. Programmability will also allow atomic settlement, the simultaneous and instant exchange of assets within a single transaction. Efficiency will take great leaps forward as a result

DLT-based CBDC transactions

would also allow different transaction functions to be combined and executed together. They would thus facilitate composability — the quality that allows for the inter-relationship and combinability of a system’s components, in the interests of versatility.

The emergence of the metaverse

that 3D immersive online reality that could develop into the next iteration of the internet — is occasioning growth in the digital assets that will exist in it. A new 3D parallel world will need to be filled with digital things. Many, if not all, of these will be for sale.

Digital fashion start-ups

are selling items of virtual clothing in which buyers can dress up their online avatars or photographic images of themselves posted on social media.
 

$55 BN

Predicted value of the metaverse fashion industry by 20304

Luxury brands

have also experimented in the creation of digital goods.

These digital creations appeal to a demographic that considers online self-presentation to be as important as self-presentation in the physical world and is willing to pay for it.

WHO’S JUST DOING IT

The athletic shoe giant teamed up with digital fashion start-up RTFKT Studios to launch the RTFKT x Nike Dunk Genesis CRYPTOKICKS, a pair of virtual sneakers. A real-life version of the sneakers was also available.

The digital representation of real-world assets via tokenization

allows us to transform physical objects into liquid sources of exchangeable value.

A house, a work of art, a plot of land, an automobile, a case of rare wine — any one of these things and many more can be represented as a token that can then potentially circulate in an economy.

Fractionalization

allows for group ownership. A homeowner could in essence “take public” a house, raising money by selling off X tokenized shares of it to X number of buyers in exchange for rights and privileges to be negotiated.

In addition, tokenization allows physical items to be fractionalized: that is, broken down into X number of units. A token represents each.

The result could be to increase liquidity and make the personal and financial benefits of ownership more accessible than they have been in the past.

It could be possible to become the partial owner of a piece of real estate simply by buying a number of fractional shares on an exchange, a task of minutes.

Tokenization

also makes possible the exchange, and thus the monetization, of the data that each of us produces: medical data, browsing data and more. Tokenized data represents a source of significant value that in theory is available to all of us.

Access to tokenized data can be granted and revoked

giving each of us a newly granular, flexible control over our data. Unlike now, when we often lack a say in how our data is used and may not know who has access to it at all, we’ll be able to share or withhold our data as we see fit.

WHO’S DOING IT

Genectica: the genetics tech company has partnered with data lab Oasis Labs to tokenize genomics profiles, giving patients NFT-based ownership of and control over their genetics data.

Smart contracts

conditional protocols that dictate how items on the blockchain “act” — could dictate that we receive small digital currency payments each time some third party, such as a social or ecommerce platform or insurance company, accesses our data.

$8.3 BN

Expected value of smart contracts market by 2031, with a 21.40% CAGR up to that year5

All of these phenomena point to the beginnings of a new data economy in which we ourselves, rather than big companies, will profit from the data we shed every day. Aggregating organizations will collect data from numerous owners and, working on their financial behalf, bundle it for data-hungry third parties.

Building blocks for the future

For these types of value and ways of creating value to develop, certain building blocks will need to be in place.

Today’s emerging digital asset exchanges, such as crypto exchanges and NFT marketplaces, are insufficiently interoperable. A state of affairs where platforms function as walled gardens is incompatible with an environment where movement is supposed to be frictionless. The components that make up the new value exchange system will have to be knit together in a way that satisfies, among other things, the expanding needs of global commerce.

People today don’t only lack control over their online data. They’re also uneducated about the implications, including the risks, of the online data economy. The result is that they’re ill-positioned or even unwilling to make intentional decisions about, for example, the privacy tradeoffs inherent in internet transactions.

Super apps — essentially platforms combining an expandable variety of functions — or highly elaborated smart wallets could help here. Each could include solutions that ease the way for users by making privacy-enhancing choices for them during the process of verifying identity and of granting and exerting authority over data.

89%

Eighty-nine percent of consumers in 2022 survey claimed to "care about data privacy" and "want more control"

82%

Eighty-two percent of that group are "willing to spend time and money to protect data"6

New value exchange platforms, like NFT and crypto marketplaces, can lack the protective mechanisms that characterize the global commerce system as we’ve known it: regulatory authorities, international trade conventions and the like.

These things will have to appear, and soon. We’ll need governance models and institutions that parallel those that we’ve long known in the traditional economy. Alternatively, existing institutions will have to change so that they can function effectively in the new world.

Even now that cryptocurrency is almost a decade and a half old, buying, trading and storing it can be intimidating, even for the technologically savvy. It can require multi-step online operations and familiarity with arcane terminology.

That’s not sustainable. Next-gen platforms will need to be as simple and user-friendly as the apps we use to manage our bank accounts and trade our equities.

A regime of expanded value could have far-reaching effects. It will certainly change our economic structures and behavior, but it could go farther than that, inflecting how we conceive of the world and our place in it and what we consider of worth. It could transform, so to speak, our value system in the widest sense of the term. Coming to grips with this transformation, and with the opportunities and challenges that it presents, will be a long-term project — one that will shed light on what our societies will look like into the next century.

Read more about Mastercard's activity in this space

To learn more about changing ideas of value and money and their implications for businesses, individuals and society at large, please look out for the Q1 2023 issue of Mastercard’s thought leadership publication Signals, which will explore the topic of reimagined money.

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