Special Report

The Future of Money

From blockchain and bitcoin to NFTs and the metaverse, how fintech innovation is changing the future of money.

We are on the precipice of a new form of finance that will use a range of technologies to change the way we use and manage one of our most fundamental tools: money.

Gone are the days of taking out cash from an ATM, applying for a mortgage by visiting a bank branch, or shopping in a department store. Now, for many, conducting financial transactions of any kind is a purely online experience, escalated over the past two years bythe COVID-19 pandemic. Increasingly, the future of money exists in the Ether, via phones and laptops.

But there's a bigger future for money, the early stages of which are now taking place. Cryptocurrencies and faster, more powerful financial technologies are transforming our concept of money and challenging the financial institutions that currently manage it. The year 2021 was a transformative year for finance, and 2022 is shaping up to bring more change. ZDNetlooks at two categories that are diving into the future of money: blockchain and fintech innovations.

See also: What is digital transformation? Everything you need to know about how technology is reshaping business.

Blockchain and digital currency

Cryptocurrency is a digital token that's secured and transferred cryptographically using blockchain technology. Bitcoin -- the world's first decentralized cryptocurrency, launched in 2009 -- is the biggest and most popular, with a market cap valued at$786 billion as of early January 2022. Plenty of people have heard about Bitcoin, but few know how it truly functions. 

The first thing to remember: Bitcoin and blockchain are not synonymous. Blockchain -- often defined as a shared, immutable ledger that securely links blocks of encrypted data transactions in a network -- is the medium for recording and storing Bitcoin transactions. Bitcoin operates on its own blockchain network.

There are currently more than 16,000 cryptocurrencies, of which Bitcoin is the biggest, followed by Ether, which operates, along with all cryptocurrencies other than Bitcoin, on the Ethereum blockchain. Estimates suggest the total value of cryptocurrencies is about$2 trillion. 

But already this year, the value of Bitcoin and other cryptocurrencies dropped after the Federal Reserve took a more hawkish stance on its monetary policy, scaling back on the amount of bonds it holds and indicating that it'll raise interest rates. Cryptocurrencies, which operate outside of central banks and government organizations, certainly aren't impervious to the shocks of the global banking system and marketplace.

In addition to their market risk, cryptocurrencies remain highly controversial because critics point out they aren't tied to a regulated central bank or a sovereign institution, which makes them much harder (or even impossible) to regulate. That means cryptocurrencies and Bitcoin, in particular, have already been seized on by those who want to use them for money laundering, buying illegal goods or circumventing capital controls.

But despite such controversies, crypto's popularity and use are growing rapidly as of late, to the point that it's well on its way to becoming a significant disruptor to the world economy in the next few years. 

As a result, many corporations, financial institutions and investors -- many with a big case of FOMO -- are trying to calculate the potential financial rewards of getting involved with crypto.

Currently, about 300 million people, or 4% of the world's population, are using cryptocurrencies in some form, and some industry players hope and believe that could rise significantly by the end of the decade. 

According to Gartner, by 2024, for example, at least 20% of large enterprises will use digital currencies for payment, store of value or collateral, which will disrupt current financial networks and business models. Stablecoins -- a token that's pegged to a fiat currency, such as the US dollar, and therefore more 'stable' than that of a decentralized currency -- have more than quintupled in value from$29 billion to$163 billion in the past year. Credit their popularity to the fact that they're stable in value and that they're capable of supporting more transparent and efficient value transfers than legacy payment networks.

Upcoming trends in cryptocurrency

Avivah Litan, distinguished analyst and VP at Gartner, who also co-authored its report,Predicts 2022: Prepare for Blockchain-Based Digital Disruption, toldZDNet that you'll see cryptocurrencies being used for retail payments in about three to five years. Now and in the next couple of years, you'll see a lot of interest and adoption of cryptocurrency by investors as an investment tool, namely as a hedge against inflation and as an alternative to gold. However, it remains an extremely volatile investment. Currently, a Bitcoin is valued at around$31,187, well below its all-time high of$68,223 on November 10, 2021. 

Despite this, there's little sign that investors or companies are backing down from the potential reward crypto has to offer.

That's not just down to speculating on the price of cryptocurrencies. Some investors and companies are also interested in crypto to get into decentralized finance or DeFi. "Companies want to get in on the action; even the hedge funds are putting more money into cryptocurrency," says Litan. 

Banks have to serve these companies, becoming digital asset custodians, and it's a global phenomenon, not just in the US. "DeFi's starting to attract institutional finance; cryptocurrency is about 0.08% of assets held, and some surveys say, for example, that hedge funds will hold 7% of their assets in cryptocurrency in five years," Litan said.

Governments throughout the world are also opening up to blockchain and crypto now. So far, 83 countries are experimenting with or implementing so-called Central Bank Digital Currencies, or CBDCs, which represent 90% of global GDP, according to the Gartner study. China, which recently banished miners from mining all forms of decentralized cryptocurrency in favor of implementing its own