We Are Moving Towards: Reputation Economy

Alex: Hello, everybody, and welcome to the Curiosity Code podcast. I'm your host, Alex, and today we're diving deep into the future of money identity and the very infrastructure that underpins more in financial assistance. Joining me is David Burch, one of the world's foremost thinkers in digital identity, financial innovation, and the evolution of money itself. He is internationally respected author, advisor and speaker whose work has shaped how policymakers, technologists and banks alike think about trust wallets and the next generation of digital infrastructure. David, welcome to the show.

David: Thank you. Thank you for inviting me.

Alex: Let's just dive straight into the subject of digital identity. You often said that identity is the new money. What does it mean in the world of CBDCDs, biometrics and decentralized finance?

David: Well, I mean, originally I was really thinking about just banks. And I think many years ago, it became clear that the payment margins were getting a bit thin. It was getting harder and harder to earn money from payments. Banks were actually. Banks were getting rid of their payment processing businesses. And it seemed to me that a lot of the problems we were facing in the payment space, fraud and so on and cost of acquisition, et cetera, weren't really payment problems. They were actually identity problems. And the more time I spent thinking about this, the more convinced I was that it was identity, or more specifically, digital identity for a new generation. It was that that we were missing. And if we had that, then, I mean, I know it's a trivial thing to say and people often say it, but it's true. If you know who everybody is, payments are really quite easy. You know, it's just updating some figures in a spreadsheet somewhere or a ledger or something. And so that's kind of got me focused on identity. And I began to think that actually the key role of banks in the value chain wasn't making the payment, it was knowing who people were and managing their reputations and so on. So there's a sort of bigger picture meaning to it as well, which is, of course, that, you know, in the long run, we're really moving towards a reputation economy where it's who you are. Actually, it's not so much who you are, it's what you are. And also and who testifies and who vouches for that which really determines the way commerce works and who can engage and who can transact. So if you like, there's the sort of small meaning, which is I kind of thought this is what banks should do. I mean, they haven't done it, but I still think they should be doing it. And then a comment about how the economy is going to work in general in the future. And if you want the story that really kind of brought this to mind for me, it's a very well known story. But in the 1970s, there were some bank strikes in Ireland. The bank shut down and people couldn't get cash. They literally ran out of money. And economic studies that were done after this showed that GDP wasn't as effective as you would think, that with no cash the economy would grind to a halt. But of course that's not what actually happened. Because what happened was people made their own money, they made their own IOUs. And because people had centers of trust, another word for these would be pubs where people could assess the. If you like the reputation, like, you know, whether someone's going to be good for the money or not, if everybody knows everybody else, the fact that you don't actually have the money to transact sort of doesn't matter. It takes you back to what I suppose you could think of as a kind of a sort of medieval economy where everything is based on credit and you borrow through the year and then when the harvest comes, you pay everything off. It's like that kind of thing. If you know who people are, if you can assess their credit worthiness, so to speak, does it matter if you have the money to. And it was, it was actually reading about that which kind of cemented my thinking, which is actually, it's the identity that's the important bit. The payments are not. I mean, payments are important, you have to have them, they have to work. But if you know who everyone is, they're not that complicated.

Alex: I find this idea very beautiful.

David: But.

Alex: At the same time, we live in very fragmented worlds, right? With borders, different platform, different regulations. Do you believe we'll ever have universally trusted digital identity infrastructure or platform or.

David: Well, you know, now, of course, you're asking a horrible nerd now at ld, so you have to unpick that for my answer to make any sense. So do I think we have a universal digital identity? No, but we may have interoperable digital identities. But actually that's not really the key issue. The key issue is the credentials. It's the facts about you and who attest to them. So in other words, I might not be able to verify some, some foreign documents or source materials or whatever, but if the credentials are readable, you know that either. And a good example of this would be ISO mobile driving licenses. You know, the fact is I will be able to read an ISO mobile driving license and find out whether it's real. Well, I'll know because of the digital signatures and if it's valid and all this kind of thing. So the interoperability of the credentials really is where we need to go. And on that I'd say I'm more optimistic actually. I mean, I do think you begin to see the, you know, driving licenses are one of the areas, but you see other people beginning to discuss things in terms of, for example, educational credentials or work credentials. I mean, some people joke about, you know, LinkedIn creating this kind of universal identity network, but so it's mainly a.

Alex: Matter of international standards and adoption of majority of countries.

David: As I say, it's about credentials, it's about what you are in most circumstances we can think of. I need to know whether you're a qualified dentist or not. I need to know whether your qualifications are valid. I need to know whether you are authorized to practice. Do I need to know who you are? That's not clear, you know, like your identity. And in fact there's lots of reasons why you might want your identity to be private in many circumstances. It's the facts about you that are crucial to transactions. It's knowing what you are, not knowing who you are. And I think on that we have the W3C verifiable credentials standard, we have the ISO mdocs and MDL standard. And so we, you know, we do see things moving in that direction. Yeah, it's, it's a long way to go, but we're heading in that right direction.

Alex: David, I'd like to get your perspective on subject of money in general. In what opinion? What are the biggest myths people still believe about the nature of money in the digital age?

David: I remember going to a meeting a few years ago at Chatham House, which is where they do research on foreign policy and so on. And we got into a discussion about money and a very intelligent, well educated journalist asked me a question which implied they thought that there was still gold in the bank of England, which was what was backing banknotes. Like your banknote somehow had some real asset underneath it. And you know, the idea that money is just made up seems odd to most people, but of course it's true. And I suppose the advent of things like Bitcoin and cryptocurrency has made people think a bit more about that in recent times. I was involved in an argument today on LinkedIn about whether money constitutes a debt or not and this sort of thing. So I would say that's probably the biggest myth, that there's something backing money, because money as we mean it, there is no gold in the bank of England. It's all about trust.

Alex: So, continuing subject of money, let's talk a bit about where we store the money. You've spoken quite a lot about smart wallets in the past. What role do you see them playing in shaping consumer behavior, financial control?

David: Well, this is. I think that we're. An interesting point with this because. And in fact, in my last book, I wrote a book called Money in the Metaverse about money in the future with Victoria Richardson. And one of our central predictions in that was that you would have wallets as the kind of organizing principle for commerce. But actually, the main users of those wallets would be AIs, not people. I mean, now that makes me look like Nostradamus, but I mean, at the time it seemed obvious to us that that was the way things were going. So when I say smart wallet, I very specifically mean a wallet that is being used by AIs. So if you have a. And you can see why this will happen, because most of the things that we do with wallets are quite boring. You know, paying for parking and things like this. So, so, so when wallets can, you know, when, when the AI can do that for you, I, I mean, people, I'm sure, will be only too willing to hand this over to AIs. So we need wallets that can be controlled by AIs as well as people. And those wallets are not just about money, of course, because if you look in your wallet right now. Actually, if you look in my wallet right now, there is no money in it. Everything that's in my wallet is identity. It's payment cards, it's tickets, it's licenses, it's loyalty cards. They're all identity documents, not money. So I don't think that's a particularly controversial prediction. Now, I think it seems fairly clear that most people will go over to AIs for that sort of thing.

Alex: So when you name back then smart wallets, the intelligence part was the actual artificial intelligence.

David: Yeah, well, as it's turned out, yeah, that's right. Originally, I was just trying to draw a distinction between, because people were talking about super apps, we're going to, we're going to end up with super apps. And I wasn't so sure about that. There's, obviously there are cultural issues there, but I thought there's a big difference between a wallet and an app. When, you know, when you use an app, you're sharing your identity with all of the mini apps, if you like, or the. So an app shares identity. When you have a wallet, like your Apple Wallet, you share authentication. You have one authentication for every. But inside the wallet, you have potentially very different identities. This is how the book came about because I was sketching out some ideas for this and I began to. As I started to kind of formulate my thoughts, I began to realize that wallets were at the center of it. And I'm not an absolute expert on wallets by any means, but. But my co author, Victoria Richardson, is, and she was working for a wallet company at the time. So I called her up and it's like all of these things, like, you ask a couple of simple questions and then, then you realize, oh, my God, I actually don't understand anything about this at all. It's just like, how come, how come we put the book together? But yes, it started just as a distinction between, between apps and wallets. And then the more we thought about it, the more it was clear that actually AI is going to take more and more of those transactions. The things for the average member of the public, and I include myself in that, you know, payments are just not that interesting. It's not fun. And when an AI can do it for you instead, that's great. And if the AI can make good decisions around that, you know, I'm going to, when I finish talking to you, I'm going to go to the store, I have to go and get some milk and a couple other things. And when I go to the checkout, I don't want to stand there thinking, you know, should I use my amex Platinum card and get rewards, or should I use my, my supermarket MasterCard and get cash back, or should I use my British Airways card and get Avios and then look at my diary and work out, well, where am I going? You know, which flights could I potentially get? What's. How much are those Avios worth? You know, so does it make, you know, like. No. I mean, I'm a normal person. I'm never going to do this, but for a bot, it's nothing. A bot can do this in milliseconds. And, and so I see a, I see a big transformation there. Why, why would you want to pay for anything yourself when a bot can do it for you.

Alex: I love the concept. I never heard about it, but it's.

David: So obvious it's the wrong way around at the moment. Because if you look at what's going on with, you know, you see those demos of operator and things like that, the computer goes and picks the hotel and the flights, right? Picking the hotel is the fun bit, like looking at the different hotels, looking at the rooms. So the AI picks the hotels, and then you have to pay because the AI's got no way of paying for things. So you get to do the boring bit, which is paying for things, and the AI does the fun bit, which is looking at different hotels. This is the wrong way around. I should be doing the fun bit. Actually, I don't want to do any of it. I want an AI to do all of that. But I know a lot of people would like to look at the hotel rooms and what's new like, and all this kind of thing. So I think that the idea that people will want to make these decisions, they'll want to do it themselves. To me, that doesn't seem right. I think. No, I think that stuff will go to bots quite quickly. So bots have to have access to the wallets, and that means we have to have some kind of infrastructure for that. Because if my wallet goes to pay for a hotel or something like that, the hotel needs to know, well, who is authorizing this? Okay, it's this AI. Well, who said that AI is allowed to book hotels for Dave Birch. Okay, here's a, here's a, here's a credential which says this. Who says that he is allowed to spend up to, you know, $1,000. Oh, there's a credential that says that. So we want it done correctly, you know, with an infrastructure there to support it. But yeah, I don't, I don't see that as controversial. Payments are not interesting.

Alex: Is it where the CBDCs will, you know, take some role?

David: Personally, I think that's a very different topic. I think people who are experimenting with AI to AI payments now, by and large, are using stablecoins. And the reason they're doing that is, of course, banks don't offer any product in that space. You know, my, my, my bank, you know, AIs can't have bank accounts, but, but they can have wallets. And so, you know, giving AIs the power to control wallets and spend st that, you know, that's what people are doing now and now and you can sort of see why that is because there's no alternatives there downstream. That wouldn't be true. You know, the AIs would have a choice of different ways of doing this. Now would they do things which require the old fashioned infrastructure of clearing and settlement? You know, probably not. So would they use stablecoins or CBDCs? I can see exactly why they would do that.

Alex: So what's your take on the global race to develop CBDCs in general?

David: I'm thinking out loud because this is an interesting topic and I'm not sure what the answer to it is either. But it seems to me CBDCs and stablecoins, it's apples and oranges. CBDCs have goals which are nothing to do with the payment mechanism. If you're going to have a cbdc, it has to be about inclusion, it has to be about innovation, it has to be about resilience of the payment systems. It has to be about, well, let's call it sovereignty, things like this. It has goals to make, make the country better off, make citizens better off. Stablecoins don't have those other goals. So that's why I think stablecoins and CBDCs are different things. I just wrote a thing talking about how, I mean, I think actually central banks can learn a lot from what's going on in the stablecoin space. But no, they're different things.

Alex: So in your opinion, how central banks can avoid replicating problems and shortcomings of the traditional financial systems when they, you know, working on CBDCs.

David: Well, I would say that CBDCs should focus on doing the things that, you know, to some extent the private sector won't do. You know, CBDCs are about meeting national goals, national requirements. So for example, I could make an argument which says CBDCs have to work offline if there's a flood or if the power goes down or if the systems crash, you should still be able to go to the store and buy some milk with your mobile phone and your cbdc. Well, stablecoins don't have that requirement. That's not what they do. So CBDC should focus on those things which are good, which the country needs to improve the lives of citizens but are not delivered by, by the private sector.

Alex: If you were advising the bank of England today, what's one principle you'd insist they adopt in their C CBDC strategy?

David: Well, the one. Well one principle would be offline. The other principle would be about inclusion. So at the moment we have an odd sort of, you know, there are People who don't have a bank account and there are people who have bank accounts that don't need them. And what I mean by that is most people, their core requirement is for a place where you can pay and you get paid. So actually making people have bank accounts is an expensive and inflexible way of delivering that. You know, you have this concept of basic bank accounts, everybody should be able to handle that. But those are expensive to deliver and people actually don't want them because they don't want all of the other banking stuff that goes with it. So, so the idea that people could have a simple wallet and with, you know, very basic KYC and that they could store, you know, up to a couple of thousand pounds in it or something like that, just with a phone number, I mean that's probably good enough. You, you don't want complete anonymity for reasons we don't want to go into at the moment. But you know, this kind of limited co, this is probably good enough and it would make the economy work much better because then everybody could be paid and pay remotely as well. I mean, you know the dynamic at the moment, which is the people who are trapped in a cash economy generally less well off people, those are the people who have to end up paying most for everything. Those are the people who can't take advantage of online offers and deals and things like that. So now I just think we need to start seeing stablecoins and CBDCs as very different things. You know, they can learn from each other, but they're not the same thing.

Alex: So we talked about digital identities, smart wallets, CBDCs. I'd like to touch base a bit on regulations. In your opinion, is it possible to design regulation that's both innovation friendly and resilient to financial crime? Or is that just, you know, dream and wishful thinking?

David: One thing that a lot of people are unhappy with when you start talking about CBDCs and stablecoins and financial inclusion, they're unhappy about the idea that every transaction is spied on. And you know, with good reason, that's quite understandable. One of the interesting things we can do with digital identity, and this goes back to this point about credentials, is we can, we can construct a fundamentally different infrastructure which is based on proving what you are, you know, without giving away your identity. I'll give you a very simple example. You know, I want to buy, I don't know, drugs or something from you that I have to be 18 or guns or something is use an American example. So I want To. So I need to prove to you that I'm over 18, okay? And I can do this with a verifiable credential which has all sorts of cryptographic proofs around it, so we can do business. Now, let's imagine the proof that says I'm over 18 comes from, let's say, for sake of argument, it comes from Barclays Bank. Now if I go to commit some sort of crime, the police will go to Barclays bank and say, well, who? You know, with a court order and say, well, who is this person? 1, 2, 3. And they'll say, well, it's Dave Birch. So, which is good because you don't want people getting away with crime. On the other hand, if you don't have a court order, okay, then you shouldn't be able to track who I am or what I'm doing. You see what I mean? So I think we have more of a toolkit now with modern technology because we have homomorphic encryption and cryptographic blinding and zero noise crucial, these kind of things, that we can construct a different kind of infrastructure. We don't have to have the absolutes where every single transaction is spied on or no transactions are spied on. Neither of those are appealing. And I suppose the fault for this polarized discussion partly goes to. It's because of people like me, because maybe we, we just haven't under. We haven't explained very well how these things work. You know, the idea that you can have these different ways of operating, you know, for people who, like, if you're a lawyer or a reg, you've grown up with ideas of ID which are to do with passports and cards in a filing cabinet, these things must sound very strange and perhaps we have to get better at explaining how they all work. But, but no, that on that I'm optimistic. I think, I think the new technology gives us new new opportunities there.

Alex: David, in your books you often explore the societal implications of fintech. What ethical blind spots do you think the industry is overlooking right now?

David: Well, actually, I mean, I think those. The kind of things I was worried about, you know, mass surveillance and things like this and discrimination. I think those all seem quite small now compared with what's going on with AI because, you know, we have to build, and I am not an expert on ethics. I mean, I recognize there are issues, but we have to start building these frameworks into AI. This could be a better solution. Right? So if you imagine financial transactions where my AI is transacting with your AI and they're both interacting with A regulator. A regulator. AI that actually could be a better system where people can't do, you know, bad things like front running and insider trading and all this sort of thing, you know, where the regulator is monitoring the transactions, but because the regulator doesn't know who we are, et cetera. So, so I'm not saying like it's a negative thing, but I just think AI dominates the thinking in that space and the ethical frameworks we need for AI are, are the most important ones right now.

Alex: Yeah, I think AI dominates pretty much all industries these days.

David: Well, I think it surprised all of us just how quickly the technology has moved along. You know, I think a couple of years ago, well, in fact, you know, I remember right, I wrote a thing for wired back in 2018 saying that in the future bank customers would be robots. But you know, we all thought this was years away. We were all taken by surprise just how quickly it's happened, you know.

Alex: Yeah, I think, I think, I think it's completely different from what we experienced in the past with all other technology advancements. Usually you would see something happening like in the scientific community, government, maybe military. Then gradually over years, consumer level solutions start to pop up and then this, what's happening now is kind of reversed. The government is trying to catch up and consumers actually, you know, leading the wave. So it's interesting.

David: No, no, that's true. And I, I think it's, I don't think it's much of a prediction to say that our strategies over the next three to five years are going to be completely dominated by AI. I think, I think seeing a bit further downstream actually is, is really very difficult. I sometimes say to clients, you know, that, that actually AI is, it's a bit of an event horizon. You know, we can, we can see it coming. We just really can't see what's the other side of it. You know, once AI gets to a certain level, trying to predict where it will go next is, you know, right now I don't see it. I don't see how it's possible, but it's interesting.

Alex: David, what's one unconventional idea or concept that's been rattling around your mind lately, but it has, hasn't yet made into.

David: Your writing or talks Unconventional concepts? Well, I don't know how unconventional they are, but I've long thought that the future isn't a future where we have a single currency. I don't think we're going to end up all using Bitcoin or the US dollar BRICS currency or something like that. I Kind of think technology is taking us in a direction where we're going to have a lot more kinds of money. There'll be a lot of different kinds of money and it kind of doesn't matter to us because the concepts will be very remote. But in a way, if you have, if you think about this idea that you have digital assets and you can trade these digital assets continuously in liquid markets, then the idea that you need money as an intermediary begins to vanish. So you have all these assets, so why don't you just trade those? Now we're all very familiar with the double coincidence of wants and the evolution from Badger and stuff like that. So the idea that I have an asset and you don't want that asset so we can't do business with each other. Well, I think that begins to vanish. You have these baskets of assets which are continuously being traded in liquid price discoverable markets. The idea that I would sell and of course these assets all earn, that's why we're using them. So the idea that I would sell these assets to hold money and then use the money to buy things, you know that, that begins to vanish. And it sounds very far fetched and futuristic, but actually it's not at all. I don't know if you ever remember, I mean you're probably too young to remember Edward de Bono, the guy that did all the lateral thinking books you didn't have to get. When I was your age, we had to go on management training courses where you had to put different color hats on. I don't remember what they were, but I can't remember. I think green hats were, you were an accountant or something and red hats you were Marcus. I don't remember. He had these different colored hats, I don't even remember what they were for. But that was Edward de Bono. That was his thing. But he also wrote, he wrote a very interesting paper on the future of commerce in which he made this. And remember he was doing this before, before we had the Internet, before we had Mintcoin and all this kind of thing. But basically he said, look, if, if things are all, if everything is digital and it's all connected all of the time, then basically business goes to these baskets of assets and you continuously trade these assets. You don't need to come out of these assets into money. And actually when I read that it's called the IBM$, it came out in 1994, that was one of the seminal things which when I read it I thought, oh my God, that sounds crazy. And then five minutes afterwards I'm, oh, actually maybe, maybe he's, maybe he's onto something. So if you're talking about unconventional views, I think this view of actually money disappearing completely is, you know, quite an interesting way of thinking about things.

Alex: David, thank you very much for your time. It's been a great conversation.

David: I'm not sure how helpful that idea was.

Alex: I like the stress on unconventional side of the question. So that's, that's great. I, I, I hope we left our listeners and viewers thinking.

David: Thank you for asking me interesting questions. I really appreciate it.

Alex: You're welcome. For the listeners, thanks for listening till the end. Don't forget to hit the like button on YouTube. Subscribe to the channel and if you are listening this on any of the podcast platforms, don't forget to subscribe and leave a feedback. Thank you very much and see you next time.

David: Talk soon.

Alex: Bye bye.