Banks : Past to the Future (Part 1)

26 min readNov 13, 2020

Welcome to the age of Next generation chain, Cardano

Getting involved with a good tech community has its unknown and silent advantages. Currently, working on the Cardano project and able to see their workings as an outsider (to IOG, Emurgo etc.). It is nice to see the development of next generation blockchain where many of the drawbacks of the earlier chains (speed, monolithic architecture, isolation, code verifiability, on chain governance system, staking, decentralization, DAO, transport protocol integration, etc.) being removed gradually.

And running a stake pool also gives the confidence that this system can actually work, and we are able to create the most decentralized infrastructure in the world. People still doubt the project as it should be in the tech adoption curve (Doubt → Criticism → Adoption → Hype).

One of the things that is currently happening is that established banks are now opening crypto accounts (especially bitcoin), in order to attract investments. In the telegram channels we are now getting normal people who are promised trips to Paris etc. by banks such as UBS in order to promote investment of crypto assets with the banks. (Personal experience).

One needs to understand why banks are now trying to do this and what is the strategy at play here.

Image of the first banking institution. All the current banks will also be relegated to the museum in the future, except for the central banks.

Why are banks now running after Crypto ?

Here are few of the reasons for this kind of cheap behaviour of this institution.

Bull run of the crypto and especially Bitcoin which is now being promoted in social media as Gold 2.0. Basically a scarce asset (21 Million fixed supply) that cannot be controlled by any single government and overcomes the shortcomings of Gold (like storage, transportation, smaller denomination, fixed supply etc.).
The loss of trust of people in the banks due to negative interest rates and resultant withdrawal of capital by normal people from banks.
COVID-19 driven accelerated pace of fiat money printing by governments all over the world, resulting in dilution of value of existing fiat currency. (printing Trillions in a matter of months which used to take a few years earlier in the 90s).
Lack of effect on economic activity of the fiat printing and hence generation of jobs in the economy, leading people to seek returns elsewhere.
Concept of CBDC(Central bank digital currency) being floated by all central banks, following the footsteps of Chinese digital Yuan which has been introduced yesterday (10 Nov, 2020) in China, and it is easy to integrate all things digital, including cryptocurrency already existing like Bitcoin.
Last but not least the Web3.0 revolution slowly happening via the next generation blockchains like Cardano, Algorand, Polkadot and few others, lead to dilution of the entire value propositions of the last generation banking.

Following the thread from the last point, we will now explore what crypto based banking systems will offer to the entire world community and why this is a better model for the next generation. For this we have a brief digression into the concept of web3.0 which is the other name for crypto based channels for value transaction.

Brief History of Web3.0

Let us explore the vision of web3.0. There have been efforts to create an easily transactable digital value transaction systems even in the 90s, but it all came to fruition when the famous paper of Bitcoin (by the anonymous founder Satoshi Nakamoto) was published. This was the title “A Peer-to-Peer Electronic Cash System”. The year was 2009 and the system started by few enthusiasts now has snowballed into one of the most valuable assets. Again it followed the same cycle of (Doubt → criticism → Adoption → Hype). We are probably in the adoption phase now, where major institutions (including banks)are going after it.

Now the title of the bitcoin says a lot. It says, that without the control of any central power (like government or banks), we are now able to transact electronic cash. This is the foundation of the web3.0. One of the statement from the foundational paper stated above was this: “We have proposed a system for electronic transactions without relying on trust”. This is the crux of the new system. Via bitcoin, what has now been created is that trust can be programmed by consensus mechanism and can be propagated to other parts of systems outside finance. Few smart students set out on this broad and challenging objective of programming trust based systems. Let us see how.

The underlying foundation of Bitcoin is a technology called Blockchain, which is mostly described as a decentralized, distributed, immutable ledger backed by something called consensus mechanism, needed to commit a transaction onto this chain. Bitcoin introduced POW (Proof of work) system which in simple words mean solving of a mathematical problem before being able to commit a transaction onto the chain. Immutability arises from the fact that longer the chain grows with time, more difficult it will be to recreate the chain (because POW needs energy and time).

Taking the clue from Bitcoin, a group of young students saw an opportunity to take the underlying technology of blockchain, and enhance it to carry out not only a simple financial transaction, but allow a general programming platform on top of it. This programming platform would be so-called smart contract execution. Out of this effort came out Ethereum platform, which still relied on POW as in bitcoin.

Slowly over a period of time, as bitcoin started to gain adoption and Ethereum got more established as a platform, people started to recognize the limitation of the vision which Bitcoin provided. Few of them are:

It is a monolithic piece of software that is closed to the outside world. Hence, we cannot integrate much onto this chain. Any problem and repair of this system will become more difficult over time (as money is locked into these systems and also the foundational architecture does not allow that). Already this led to so-called forking (hard copy and start from scratch strategy) and every time that happens it leads to tremendous loss of effort and value.
The bitcoin POW has its limitation. For one, it requires more and more computational power that increases exponentially over time.
Right now most of the mining pools are being subsidized in terms of taxation, rewards of new blocks being awarded to the miners etc. And once this stops(maximum blocks having been mined or draw closer to it), the concept of transaction fees will kick in. How far this dynamics will work is yet to be seen and hence this system will be tested as it reaches this point of dynamic equilibrium.
To run POW systems due to increasing cost and energy of maintaining the chain, it leads to rich becoming richer mechanism. So only big investors can manage to run the mining pools.
With more centralization due to the POW protocol, chances of failure increases over time. And as existing pools become more centralized the chance of shutting down this system increases (governments etc). And eventually it defeats the purpose for which this system was created for. (Snake eating its own tail till it dies…)
Upgrades to the system is far from easy. It takes months to release software on bitcoin, partly because of the limitation of the system architecture (while in normal software worlds we release 10s of releases in small parts daily).

The community was smart enough to understand the above and people got hard at work to create the next generation which learns from past mistakes. Welcome to the world of Generation 3.0 blockchains. These are the chains which aim to actually compete with Bitcoin at large over the cycle of crypto revolution (2022–2023 onwards). To name a few of these are: Ethereum 2, Cardano, Polkadot, Algorand and few others.

Noteworthy is that the founders of Ethereum are behind many of the third generation chains. Cardano has Charles Hoskinson, and Polkadot has Gavin Woods as founder and of course Ethereum 2 has Vitalik Buterin. Only Algorand comes out of MIT researches notably Silvio Mikali, the inventor of Zero knowledge proofs for which he was awarded the Field medal in Maths. There are many others coming into the play as we speak(Ergo etc.) which are also working on the drawbacks suffered by Bitcoin.

Many of these third generation chains relied on hard core research in Cryptography systems which appear in peer reviewed journals. Leading among this is Cardano which spent almost 4 years dedicated to research before they implemented the same. But once they are fully out of the door they will be like a huge elephant coming out of the door and people will slowly realize the same…As with any tech journey adoption cycles are roughly 7–9 years. And it means we are looking at big parabolic growth of some of these chains beginning from 2022 to 2024.

All these chains have their unique value propositions and have been built bottom up (except for Ethereum 2.0 which now has the load of carrying over all the stuff from Ethereum 1.0 and did not follow a thorough research based path).

So how does these chains remove the drawbacks of the Generation 1 & 2 chains. Since I am working with Cardano will henceforth use that as the reference chain.

They introduce something called POS (proof of Stake). This means now the mining pools will now be able to allow people to delegate money to their pools (without giving over control of their capital) and this collective financing of a mining pool is called a Stake.
Pools with stakes now compete to mine blocks containing transactions. The underlying algorithm (Ouroboros for Cardano) then decides how much reward that needs to given to the pool operators & delegators in the pool. (I am not going into the details of this). Suffice to say that this process is not very expensive in terms of computational power and is certainly much more scalable than POW in the last generation chains.
By smart design of wallets something called cold staking (where the keys of the wallet stay offline totally) is also now being enabled in Cardano. So we store the money in the hardware or paper wallet and then delegate the funds to the stake pools without losing control of the funds. So even if the stake pool gets hacked the investor’s money is still there, and they can just move funds to other pools for continuing their search for returns.
Code release and update of the chain has become much easier. Cardano has introduced something called a hard fork combinator where they can easily transition from an old to a new chain with added functionality without the need of a forking (as is currently required for all the earlier generation chains).
Advances have been made in zero knowledge proof systems where we can verify a transaction without actually knowing about the details of the transactions. Chains like Ergo has gone to an extent to allow part of the chain to be provable via this, instead of having to store the entire chain on a single mining node !
Interoperability of the chains is becoming easier. Cardano for example is already allowing Ethereum token holders to transfer their tokens to Cardano chain as native assets with a single press of a button (not yet released) and Polkadot is also known for its ability to be cross chain compatible.
On chain voting systems are being designed (Voltaire on Cardano), that has the capability to change the way we take decisions for all the financial stuff done on chain.
The Concept of Treasury has been introduced on chain, where some part of the funds generated on chain (due to transaction) is devoted to maintaining the chain and its ecosystem.
Scalability in the number of transaction is being addressed by building layers on top of the chain, that aggregate transaction and do block commits in order to increase the number of transactions committed to the chain per second. For Cardano this is so-called Hydra layer. It is claimed that with this close to 1Million TPS would be possible, but let us see.

The work continues by researchers and software engineers to improve the capability of these critical pieces of infrastructure that aims to disrupt the age-old notion of trust based institutions such as banks, notary etc.

Brief history: FIAT based banking Cartel

Let us look at the banking Cartel that has been in power for all of our current lifetime. It is a pyramidal system led by the Bank of international settlements(BIS), IMF and World Bank.

Bank of international settlement in Basel, Switzerland.

The BIS has as its members 62 central banks under it but with governing body consisting mainly of US and EU members. It has the possibility to oversee debt issuance of all the central banks of the world and has propagated the debt based Keynesian economics to all the major world government. This has also led to the so called Fiat currency system, fractional reserve banking and accelerated issuance of debt with the decoupling from the gold standard.

In summary what they are doing is stealing the money/value to be owned by the next generations and putting it in the hands of the few rich institutions (mostly rich corporates) and then hope to bring back inflation into the system and hence devalue away the debt created.

Normal ignorant people hence are left with higher tax burden, higher property prices, higher prices of goods and lesser effective FIAT BASED currency. Families cannot meet their daily needs even with two person income.

When in 1970s we could have one earning member have his own house and maintain a whole family of 2 kids, wife & grandparents, people are struggling to maintain half of that size family even with two earning members, leave alone owning a house of their own.

It punishes hard working savers and pensioners and steals their money to be given to the crony capitalists. So in the end the problems created by FIAT printing and debt creation is pushing us to a situation where never in the past has there been a greater disparity between the rich and the poor. See the graph below which clearly shows what unbridled freedom means to the printing presses of the world (the central banks governed by the BIS)

Income inequality in united state:1910 to 2010. (Ref: Thomas Picketty, Capitalism in the 21st Century)

We are now 50 years since the gold standard removal (1970) and almost 90 years since the great depression of 1929. And with COVID-19 and an extreme of QE(Quantitative easing) based funding of the economy shown in the chart below, we can see the unsustainable nature of FIAT printing we are in. Needless to say that we are the point of fracture of the current economic system based on current banking systems.

ref:https://www.visualcapitalist.com/the-feds-balance-sheet-the-other-exponential-curve/

Over a 50 years cycle the money supply has increase by 60–70%. It simply means just in 1 year of COVID-19, we have totally blown off the top of this FIAT supply.

So in the end around this time (2020) we are left with banks offering negative interest in EU (and probably soon in US) and normal people and their pensions are now being risked by fund managers to be invested in higher risk/reward instruments (like equity) in order to just provide a break even return.

The entire misdeeds of the last 50+ years is getting accelerated to the breaking point and point of no return. We are going to see an extended phase of money printing for the next few years(till we arrive at cliffhanger scenario), because they have literally no other recourse. The drug taking for the last 50 years cannot get rid of it without killing itself and all the people they have made suffer.

This website has collected statistics of the financial irregularities and its effect on the economy / income /GDP of the world in a single place.

Here is another nice lecture that explains the debt trap of the institutions like IMF and World bank, in the context of sub-saharan Africa:

https://youtu.be/d7KEp9wuFSE

In order to make this process better and more sophisticated the banks are now playing the following endgame.

End game of Banks: CBDC (Central bank digital currency)

Now in the end when a system has broken itself and has reached a point of no return what will they do ? The entire banking cartel (BIS and Central banks) now will need to consolidate itself and guard itself even more. Very obvious and understandable right …just common sense.

Till now they have been able to exploit the people using the banks and the government/corporates as their instruments. But that is not going to work any more because the people will not be keeping their money in the banks (providing negative returns).

So what would they do ?

The need of intermediary banks will be removed totally. They will centralize power into their own hands using introduction of digital currency. So EU will issue a single currency, China their digital Yuan and US their digital USD and so on for other nations of the world.

Following questions needs to be asked so that we may not get disillusioned with the entire process:

Is this CBDC going to be any different than the FIAT currency ?
Is this going to benefit us at all ?
What are the precautionary steps we should take when we adopt such a currency and why ?
How do we educate ourselves about this new age that we are being forced into?

Let us look into each of the above in some more detail:

CBDC Differences with FIAT:

Obviously it is digital and hence can be issued centrally from the central bank and supplied to the people concerned without need of any intermediary institution like banks as we know them today. A mobile app is all that is needed.
Now money markets will undergo more fine grained segmentation. So different kind of rules for money issuance can be done for businesses than for normal salaried individual. So debt issuance can be segregated from non-debt issuance. (like salaries of individuals).
Better money control means more socialistic rules of society. Now the government can monitor their citizens and control their spending pattern using digital currency as the weapon for punishment in case someone does not do what they want. Many examples can be thought of: Like micro-managing certain communities, social segregation of people based on their earning power and all the ills of communism that we have seen in the past.
At source taxation. Finer financial segmentation of society (and individuals thereof), means we can have very different taxation for different things depending on the whims and fancies of the government who is ruling the society. It just becomes easier for them to do what earlier required a lot of middleman and institutions.
Minority and their freedom will be at stake. Dissenting voices will be punished silently using digital financing as instruments.

Is this going to benefit us at all ?

That is how it will be marketed for sure. Change is not easy but pouring the poison with sweet words is not difficult for the masses. It has been done and will be done again. Although the motivation of digital currency seems not to be for the good of the masses, but as for all things in life there are always two sides to everything.

So what are some of the good things about CBDC ?

No need of distribution channels in order to send money. Directly from the central bank straight to a person’s wallet. It is as simple as that.
Differentiation between debt capital vs non-debt capital can be easily done. And control over debt issuance and debt management becomes easier. So basically difference between good/bad money can easily be done.
If Debt management becomes easier then writing off debt become easier as well. It means that when debt is returned back, equivalent amount of value creation actually takes place economically. (In this event, even if someone pays off debt using earlier debt, this can be tracked and hence value creation for such a case would be offset by equiv. debt).
Corruption can be tracked effectively as no more untraced transaction can happen within one set of digital currency, but it increasingly means that different digital currency across borders will need to work with each other. And digital governance now needs to be tracked internationally, and new set of rules cross border will need to be introduced independent of the domicile of a digital currency.

KYC across the exchanges needs to be tied to each other and digital identity (via DID) have to be normalized and hence on chain identity and governance becomes of ultimate importance.

What are the precautionary steps we can take for adoption for CBDC ?

One thing that will remain the same, is the set of individuals who are taking decision what they can do with the digital version of currency. They will be an invariant across this transitioning scheme in most countries, so the decisions will be as good as the people making it. Hence whether the good / bad happens in society will be driven by the intelligence of people at the end. But now their decisions will be magnified in their impact, as they will become more of a demigod able to influence larger set of population than earlier.

With exponentially greater power should come exponentially greater responsibility and this will be a make/break for a society at large. And whether we create a new cruel / benevolent ruler depends on how good a control of the finance arm can be done using equivalent judiciary system. In absence of this balance any society will land up in a chaos, as the bad normally wins over the good in the current age (termed as Kali Yuga in Indian literature or the iron age where wisdom is lacking and power is in hands of the irresponsible in majority of the cases.).

Hence rule 1 is consolidation of the judiciary system to respond to the growing power of central monetary system centralization. Without this there will be chaos / social unrest eventually if things are allowed to go on unbridled as we have seen over last 50 years of monetary decoupling (from Gold). In fact without it an exponential pace of decay of society into chaos cannot be ruled out.

Let us assume the good weather scenario, for the meantime, where we have a society that recognized all the above points and are able to introduce proper judiciary system (including digital governance system such as on chain voting) throughout society in parallel to the introduction of CBDC. And even in that case, we are left with a fine question, which is bothering us currently.

Would that stop us from devaluation of currency and unequal wealth distribution in the society ? Answer is a clear no. In fact it will probably accelerate the process as the underlying assumptions why we need debt driven growth remains same.

So is there something we can do in order to protect us from inflation/hyperinflation ? Yes. This is where the Bitcoin and generation 3 chains that will be increasing holders of value (via the tokens) comes into play. These chains will increasingly hold value transfer across different segment of industries. THEY WILL BE HIGHWAYS FOR VALUE TRANSACTION, AND GIVEN THE SCARCITY IN BUILT INTO THE SUPPLY OF THESE TOKENS it means they will retain value over time in an automated way without human intervention.

Banks collapse as CBDC makes them redundant

Thus the relevance of the chains like Cardano, Eth2, Polkadot, Algorand and others will increase over time, as people will have no other option for value storage (except for stocks/bonds which also will be tokenized). Also cross chain interactions will increase the network effect, increasing the utility of these chains. Needless to say they will become the backbone of our society.

In order to avoid exposure to the deflationary tokens of CBDC one way would be to convert wealth to value preserving tokens like Bitcoins (and equiv. stable coins) and only when needed use CBDC for daily use.

Last question we wanted to explore is:

How do we educate ourselves about this new age that we are being forced into?

This is where the masses will again be cheated. Just like introduction of Euro as currency introduced silent hyperinflation in the housing market ( Personally was a part of this transition around 1997–98 and housing prices inflated by 20–40 percent in matter for 2–3 months of this transition and remained permanently higher. Case study of Netherlands), leaving non-house owners with higher house prices, in the same way silent introduction of CBDC will leave the masses totally like helpless chickens about to be slaughtered. Without the proper tools to handle this transition and knowledge about how they should preserve their wealth, they will end up giving a larger and larger portion of their hard earned wealth to the government. And now they will have no where to hide as government can monitor every cent of spendings.

Crypto is still a hard thing to deal with and takes months of learning and psychological shift to the educated and trained people in the profession. What to talk about the uneducated and non-tech savvy people who does not know how to handle a digital wallet for example.

As we speak, China is doing exactly this. Without prior education of the masses (regarding handling digital yuan) they are doing this mass plundering strategy using sweet words and iron fists to suppress any dissidents.

So it begs the questions what are the key educational areas for the masses. Let us try to identify the same

Concept of digital wallet and security of the same. Why simple mobile app is not enough to ensure security of the digital currency and how it becomes increasingly easier for hackers to steal this wealth ?
What is peer-to-peer transaction and how we ourselves are the banks when we hold these digital wallets ?
Concept of cold / hot wallet ?
What is staking (Proof of stake) and how it can help to fuel the next generation of community based economy ?
How this freedom of becoming one’s own bank can lead to greater prosperity by forming a peer group of individuals who can form a value preserving set of economic activity and hence grow wealthy ?
The good / bad / ugly face of digitization of the economy.

Overall educational emphasis should be to teach the people their core strength and how to consolidate themselves / their community/ their families using digitized economy of the future.

Here is the link to the article stating the German finance minister pushing for the EU CBDC. God save EU !

It has been a long article with several digressions on the way. Hence let us do a brief recap of what has been explored till now. After that we can dive deeper into the question we started off with viz. “Banks of the future: How could they look like ?”

Recap:

We explored the topic of why banks are now are begging normal retail investors to open crypto accounts (especially bitcoin) offering word of mouth marketing and offering these marketeers incentives like free trip to Paris etc. in return. We summarized it with each person now able to maintain his own wallet where he can store / transact without need of banks any more. Even hardware wallets are offering exchange apps where we can directly convert from one tokens to another. Thus the wallet becomes the bank.
Then we explored briefly how web3.0 evolved, from its beginning with the bitcoin revolution and now progressing to the third generation block chains like Cardano, ETH2, Polkadot, Algorand etc. all making a shift from POW to POS , opening up a concept of staking which generates return for all concerned.
Then we explored the concept of FIAT banking Cartel and how even this is progressing towards digital revolution with introduction of CBDC. And how this digitization process will actually aid the adoption of the third generation block chains. We explored a few positive and negative points of the CBDC introduction and what are some of the risk/rewards of this system.

And now finally based on the above we will explore what this could mean for retail investors and how the banking in the future can happen and how community based growth dynamics can be ensured leading to greater prosperity and welfare for all. We will compare this with how communities existed before banking was there and how this model was actually more prosperous for nations and how we are reverting back to the mean from which we have deviated now.

Community as a unit of Society

The model of society right now has been imposed as a aggregation of cities where the government has decided how to split up the country into provinces, → towns/cities & villages. At least this is the current uniform model in most of Europe and also in parts of USA. This model of development has several benefits. First it spreads the population density uniformly and makes each unit self sufficient in terms of generation of revenue using industry as the means.

Now this was the model of the last century where heavy mechanisation and manufacturing was necessary and manpower had to be programmed to fit into the role of the industry to provide the labour power.

But with increasing shift away from agricultural based economy, to industrial economy and now AI/Robotics and service driven economy, we are no more constrained by time / location to fulfil our daily task. Having a meeting across time zones / countries is quite common using zoom, skype, google meet or any such remote working tools. And hence what we want now is to connect to people remotely and form a working group so that the brain / intellect related work can be achieved with minimum physical effort.

During covid-19 we have seen how many companies have changed their business model of people working remotely and this flexibility in itself has allowed the companies to continue operating in spite of the pandemic. It also proved that organization of human beings into the societal structure as we have now is suboptimal as far as money flow / value generation is concerned.

Companies have taken the full benefit of this, as they have spread globally and always find out ways in order to relocate their profit to the areas of globe with lower taxation/tax havens and get away with reduced taxation, while people located in different countries get stuck with local taxation.

Infact in some companies the higher management compensation is done from tax favourable country. So a company in Netherlands may be paying their CxO from Luxembourg (without revealing the name of company this is actually what happens in one of the prominent multinational.

We hence question whether this organization of society can continue into the future, which will have to link companies, people, government across boundaries of space and time. Especially with introduction of CBDC and rising prominence of block chain driven value internet via web3.0 what sort of societal organization would be optimal ?

A person may be working for a US company (having operations in 20 countries across the globe) and based out of Bermuda. He may be doing the same work as a worker sitting in Berlin. And just because of location both these person are unequally paid.

Look at the current state of EU vs Switzerland. The effective compensation of a person working for a company in Switzerland is 2–3 times the same work done for a German company. All due to the differences in taxation laws and currency. I know this first hand for IT jobs as I have been in that situation.

Hence it begs the question, how can this difference be normalised, and how equal pay for equal work can be finally established no matter which country the person is based out of. This is where again the blockchain based token system can be a boon for companies to adopt. Instead of stock based ownership of companies, a structure around token generation based on value created could be a fantastic way to reward people (as long as these tokens can be traded in open market).

Thus we arrive at a conclusion that the current way of rewarding people in local currency is suboptimal and it is unfair to reward people doing the same work, differently in different part of the globe. The net beneficiary is the institutions which basically acts as vultures to suck up talent in cheap places. So for non-manual intellectual work especially, companies need to pay people uniformly and this can be best facilitated using tokens as a means to compensation.

In this case we can form virtual communities globally to achieve a common goal and thereby generate value and get compensated without intervention of governments.

For the sustenance of the public infrastructure etc. a social minimum tax can be requested from the people staying in a particular place. This will reverse the policy of people begging the government (social minimum wage) to being the government working for the needs of the people and companies being run by working people rather than the reverse which is the case now.

This societal structure can then focus on attracting right kind of talent and give them the facilities needed to fulfil their working conditions, rather than an extraction model where people are taxed till death.

On an hindsight it is the allowance we have given to the banking cartel that has led to many of the ills of the society. And if people get organized into working communities internationally, the tools are present that can allow these entities to function properly. (In Cardano we are trying to seed these kind of communities called DAO (Decentralized Autonomous Organization) and soon we will be able to give a concrete answer to many questions raised in this topic).

Community based banking

Communities now can take advantage of the decentralized peer-to-peer financial transaction network using Proof of stake (POS) for example of Cardano. Anyone can start up a stake pool and allow investors from the community to delegate to their pools. In return staking returns are accrued to the community token holders. Pool operators gets percentage of returns for operating the pools, in addition to the rewards obtained. For example of how delegation works in cardano please see here.

As described above the peer-to-peer system now allows communities to independently construct their own stake pools and start to hold tokens and generate rewards. One might be wondering where these transactions that generate rewards come from. This is the beauty of this system. It goes as follows:

Once tokens are hosted on exchanges (Kraken, coinbase etc) they become a market in themselves.
In addition over period of time, Dapps (decentralized apps) are going to be built on these chains and via these apps business transactions can occur.
So both of the above methods generate more traffic on the chain. These transactions are committed to the chain using block creation by the stake pools. And in return the pools gets rewarded.
Now in order for the pools to be able to mint blocks they themselves should be having certain pool of capital delegated to them (When ADA holders [in case of Cardano], choose to connect their holdings with a pool, then this process is called delegation. The money does not leave the wallet of the holder so there is zero risk of losing the capital, but upside of getting staking rewards increases.)

In summary stake pools act as a savings account in a bank where returns are generated provided enough staking amount is present. So the above structure now allows businesses to put their capital in stake pools instead of in banks, and participate in the upside.

Native tokens can be created by a particular community if needed.(Cardano allows native tokens to be created just like ADA and hence each community can now mint their own tokens. Please note what can be a token and what not, from a separate article.).
And also business can transact with their peers using their native tokens Applications can be built on this chain and value creations within communities can be strengthened.

With the above simplified view of things (we have not yet discussed governance, decision making, regulatory hurdles based on geography etc.), we can see that the entire business driven financial value can be structured more fine grained in form of community based structures where the need of intermediary such as banks will not be needed any more. Let us look at some of the simple use cases of DeFi that can easily be accommodated.

Community now creates a pool of money called treasury and lending pool. And this pool can be accessed by only the community members serving for B2B lending.
Community businesses when they show financial investment and loyalty can be rewarded in tokens and when they fall into tough times, these funds can be used for their recovery.
And host of decentralized application can ride on top of these blockchain networks …. At least in theory for now.

Final Takeaways

Current system looks like this. An heirarchical debt driven society driven by the BIS whose sole purpose is to coordinate creation and coordination of debt and see to it that countries / citizens keep on being enslaved. The intentions of this institute may have started as being good (having been instituted after the last great depression of 1929) , but later decayed into unbridled debt creation with removal of gold standard in 1970.
In this system normal people especially just doing a day job bear the maximum tax burden while the rich find out ways to siphon off wealth to tax haven and non taxable instruments or create enterprises whose overall tax burden is two times lower than employees.

Debt driven economy that is driven in heirarchical manner from the top to the bottom. BIS is based in Basel switzerland and is outside the jurisdiction of any government. A unitary power center of the world finance.

After introduction of CBDC the following will be the scenario.

Central banks will now issue digital version of the currency (equivalent to so called stable coins such as USDC) currently in circulation on crypto exchanges. They may either do it on their own or use one of the current existing blockchains. In these chains controlled by the government there will be no consensus mechanism like POS/POW because they are just dumb and stupid way of creating dumb money except in digital format and it will still be centralized whereas the whole idea of blockchain is to be decentralized.

In case of CBDC although in theory they use blockchain these systems will be permissioned and based on closed source code which is not peer reviewed. And most important centralized unlike the open chains which are aiming for more and more decentralization. So although they will want to appear to people be the same as bitcoin, ETH, Cardano and others, in reality they will be a totally different beast which just cannibalises the technology for selfish needs of the dictators.

Finally in presence of generation 3.0 blockchains and decade old bitcoin network this is the situation.

Coexistence of CBDC with the value preserving blockchains based on POS/POW such as Bitcoin, Cardano, Eth2, Polkadot, Ergo etc. So for business and communities , it will provide value preserving transactions using POS. Thus value transfer to/fro from CBDC to the public chains will happen via Dapps (Smart contracts).

Education of common people is a key component of this whole process, and needs to be structured in such a way that people becomes familiar with using of crypto tokens. If we need to use mobile apps as wallets we need to ensure they have multisig enabled so that no one can easily steal the tokens from the wallets.

In the following article we will try to address the skeptics who things Banks are too big too fail and they will continue to suck the people except in a different way using crypto, and the path to a more decentralized global society.