The modern definition of digital goes far beyond its origins in signal processing, of time sequenced modulation versus continuous physical signals. When the average consumer hears the term “digital” today, we tend to think “electronic” but electronic and digital are not the same, especially when it comes to business and money.

In modern business, digital is synonymous with speed, scale, and efficiency. This is a more faithful understanding of the term digital according to its origins insomuch as analog signals are subject to degradation by noise and transmission from one point to another, while digital signals can be noise immune through error detection and correction, making data transfer faster, more efficient and scalable. These are the very attributes that underpin the data transmission protocols of the Internet.

When it comes to money in the modern age, there is a similar analog, but one that is entirely fallacious: “most money is digital”. If you ever hear this term, please call “Bullshit”.

Most money, or what is commonly known as “broad money” (M1/M2, etc) is the largest part of the liquid money supply in circulation. It is definitely not digital by either modern or conventional definitions. Most money is electronic, but that doesn’t make it digital. This may seem like hair-splitting, but most money does not demonstrate the attributes of efficiency in transmission according to digital’s conventional definition.

Banks create money through the credit and lending process. They represent this so called “digital money” on their deposit ledgers, which is ephemerally minted by way of the fractional reserve banking model (stop and go Google it now you don’t get it). The banks then present this new money to their clients through websites and mobile apps, and thus we wrongly conclude that “most money is digital” because we see electronic numbers on our mobile screens.

The problem is that different bank’s ledgers are not readily interoperable, thus so called “digital money” cannot be transmitted without significant “signal loss”, or “friction” in financial parlance. As banks coordinate book entries to their deposit ledgers to ensure that nothing is double spent or double counted when money moves between banks, they charge fees to their clients for this exercise in basic accounting.

Banks were conceived for the simple purpose of safely storing monetary value (deposits) and lending money to promote economic growth and trade. Charging fees to hold deposits and pay bills, or to transfer funds to other banks, sometimes in other countries, creates “friction” for us, the depositors. This friction is bad for us, but good for banks, because it perpetuates the need for additional services which generate fee revenue.

This is exactly what the crypto revolution is ultimately protesting in the modern age where people are already digitally connected, and where information freely flows.

It all comes back to “value storage” and “value transfer”. The social movement underpinning Bitcoin and cryptocurrencies is really a tipping point in the protest against fees charged by banks for the pedestrian task of storing money, and the additional fees they charge for transferring money to other parties, a discipline commonly called payments.

The crypto revolution is also rooted in a deeper protest against bad monetary policy often contaminated by the influence of poor fiscal policy within the jurisdictional establishment—let’s not forget that Bitcoin was born out of the global financial crisis of 2008, which was the perfect storm arising from terrible fiscal policy and financial regulation.

An objective view of monetary “store of value” in the modern digital age naturally begs the questions: Why does digital money need to be stored in a bank? If Bitcoin demonstrates how to use electricity to store value, why can’t I actually store digital money on my mobile phone, or in my LinkedIn or Facebook account? Why should I have to pay banks to store my money when they turn around and make more money by lending my money to others?

Blockchain provides the distributed database technology that would allow banks to securely share a common deposit ledger amongst themselves, if they were to adopt it. But they lack incentive to do so. Adoption of this new technology requires buying-in to a new paradigm of true digital money that can be stored online and move freely around the world in real time. It’s the free ly part that poses a challenge to banks who rely on payment fees for more than forty percent of their revenue in aggregate. [1]

Banks have rallied around the battle cry of Jamie Dimon who declared that “Bitcoin is a fraud, but Blockchain is good”. An entire industry segment called “Enterprise Blockchain” was born on this ill-fated statement and is paying the price, pouring hundreds of millions of dollars of investment into software development that promises companies an easier way to store and manage information, which they already do fairly efficiently.

Meanwhile, billions of dollars are pouring into other segments of the crypto space: Initial Coin Offerings, crypto exchanges, and public Blockchain networks, because they haven’t lost sight of the original value proposition of tightly associating “store of value” and “value transfer” with transactional data—its more than just a new kind of database. But by themselves, private blockchain networks and distributed ledgers are uncompelling for CIOs who are compensated to find measurable operational efficiencies through technology. The ROI just isn’t there without the “value store / value transfer” features.

Until Enterprise Blockchain realigns itself with the “value store / value transfer” paradigm that Jamie Dimon divorced, it will be relegated to the fringes of emerging technology. Bank CIOs will show very little love using their checkbooks. The adoption curve will be long and protracted. Only those with intense staying power will survive, and even then the segment for private blockchain networks will remain relatively small compared to public blockchain technologies that truly embrace digital money, tokenized ownership of real world assets, and the free exchange of digital tokens across borders without intermediaries.

Until blockchain transforms global financial services, it’s not likely to be widely adopted by other industries. By extension, until banks and central banks embrace real digital money by way of tokenized fiat currency in the form of stable coins or central bank digital currencies, cryptos will continue to gain momentum. The longer banks wait, and as more applications are built using crypto-friendly public blockchain technologies, people will trust cryptocurrencies more, and continue to trust banks less.

The next decade is poised to be the “Uber moment” for the ever-resilient banking industry that has been immune to disruption... until now.

[1] https://www.mckinsey.com/industries/financial-services/our-insights/the-future-of-global-payments