Long

Money is a technology (I)

In 2013 The Atlantic magazine published a list of the 50 greatest breakthroughs since the wheel. They asked a variety of eminent scientists, historians and technologists to rank a list of innovations and then put them together into a feature. Number one was the printing press, but what caught my attention was the appearance of paper money at number 42. It made me think that in the great sweep of things the replacement of commodity money by records of some kind actually goes back a lot further, to the grain banks of ancient Babylonia and to the marks made on cuneiform clay tablets, and extends right up to the present day where there are a number of fascinating discussions going on around the use of cryptography to manage distributed ledgers. Was paper money as big a breakthrough as the clay tablet was or the blockchain may be?

That question in turn led me to think about the relationship between money and the technology of money. You can’t invent coins unless someone has already invented smelting, you can’t invent banknotes without printing, you can’t have Western Union without the telegraph and so, rather obviously, on. Yet the interaction between money and the technology of money is more complex and less well-understood than you might think. As Jevons wrote, back in Victorian times:

It is a misfortune of what may be called the science of monetary technology, that its study is almost of necessity confined to the few officers employed in government mints. Hence we can hardly expect the same advances to be made in the production of money as in other branches of manufacture, where there is wide and free competition.

Well, that was then and this is now. The “science of monetary technology” is becoming more widely studied and with the arrival of smart cards, mobile phones and Bitcoin it has become easier than ever to create your own money and experiment with it. You can for instance download an app for the Brixton Pound, a local currency in London, to your smartphone nowadays and there are kids sitting in basements dreaming up the next DogeCoin and Drachma. Kids like my son who trade World of Warcraft Gold via his iPhone with insights and dexterity to match Wall Street’s High Frequency Traders (HFTs). 

 

Looking for Narrative

The iconic technology of modern money is the credit card. You might therefore be surprised to know that the first mention of a credit card that I have found as part of a fictional narrative is in a text from 1886 called Looking Backward, 2000-1887 by Edward Bellamy. This was one of the best-selling books of its day (I have a 1947 edition in front of me so it was still being reprinted 60 years later) and has a “guy falls asleep under hypnosis and awakes 114 years later to find a model society, then finds it’s all a dream” story arc that is hard to read with modern eyes, because the perfect society that Bellamy imagines is a communist super-state that looks like Disneyland run by Kim Il Sung. Everyone works for the government, and since government planners can optimise production, all of the “inefficiency” of the free market is gone.

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‘People found ways to work with multiple currencies before, they will again’.
Source: Dave Birch.

The time-travelling central character is told by his host in the year 2000, the good Doctor Leete, that cash no longer exists. Instead, the populace use “credit cards”. That strikes me as a pretty imaginative prediction a generation before the Western Union charge card was invented. It’s also rather unusual for a utopian vision since, as Nigel Dodd observes in his 2014 The Social Life of Money, from Plato to Star Trek they generally-speaking don’t include money at all, never mind cash.

Given that Bellamy failed to predict television, computers, airplanes and the knowledge economy, he makes a couple of other really insightful predictions about the evolution of money. When talking about an American going to visit Berlin, he notes how convenient it is to use cards instead of foreign currency:

 “An American credit card,” replied Dr. Lette, “is just as good as American gold used to be”.

What an excellent description of the world after the end of the gold standard, with Nixon’s 1971 cusp still a century away at the time of writing. However, I think that the most fascinating question on the future of money comes later in the book, when Edward asks his 21st century host

 ‘“Are credit cards issued to the women just as to the men?”

and is told

“Certainly.”

This is a wonderful example of how science fiction isn’t really about the future, but about the present: the retort “certainly” is clearly intended to surprise the Victorian reader as much as the glass tunnels that surround pavements when it rains. In this article, I hope to present a narrative just as surprising to contemporary audience and I intend to do so (while using technology as the driver and infrastructure for change) by following Bellamy’s example and looking to the social sciences to make my prediction.

 

Money is a Technology

The late professor Glyn Davies, who wrote a definitive history of money, gave a presentation at the first-ever Consult Hyperion Forum back in 1997 in which he said that the impact of technology on money was, overall, decentralisation. He used the memorable example of the tally stick and the creation of the London money market to illustrate the point. Around the same time, my colleague Neil McEvoy and I wrote for Wired magazine arguing that while the new technologies for the medium of exchange were being deployed in a reactionary fashion to bring improvements to the current money system of national fiat currencies, they would in future drive such decentralisation and be used to create wholly private currencies. The argument was that emerging technologies, particularly the synthesis of cryptographic software and tamper-resistant smart card would, we said (as did many others), make the cost of entry into the currency ‘market’ quite small.

Many organisations, we therefore predicted, might then wish to enter this market, for example as a means of supplying credit (as envisaged by the Nobel prize-winning economist Frederick Hayek in 1970s), of encouraging customer loyalty (explored by lateral thinker Edward de Bono in the 1990s) or for political reasons explored by “Satashi Nakamoto”, the mysterious inventor of Bitcoin, and others since 2008. We explored the Hayekian view, arguing that whereas the world’s currencies are currently organised on broadly territorial lines, one might imagine a future in which currencies occupy (overlapping) niches according to the virtual, as well as geographic, communities to which people belong and a vigorous ‘foreign’ exchange market where people (or, more likely, their computers) trade these currencies.

Hayek put forward the proposition that the provision of private currency would be more likely to result in sound money than state currency because the issuers of that private currency would have to compete in order to keep the value of their currency up. It was an interesting thought experiment, but it was difficult at the time to see it as anything more. Hayek himself discussed the practical barriers, noting the problem of “cash registers” or “vending machines” handling notes and coins of differing denominations, size or weight, whose relative values would fluctuate. However, Hayek foresaw (perhaps he too had read Bellamy) that:

Another possible development would be the replacement of the present coins by plastic or similar tokens with electronic markings which every cash register and slot machine would be able to sort out, and the ‘signature’ of which would be legally protected against forgery as any other document of value.

We now have the digital money and digital identity technologies to make this vision both real, cost-effective and desirable and the “tokens with electronic markings” that Hayek predicted are the mobile phones that all of us now have. But while money is still created by banks now, will the issuing of the new currencies be restricted to banks? When de Bono wrote The IBM Dollar back in 1993, he said that he looked forward to a time when “the successors to Bill Gates will have put the successors to Alan Greenspan out of business”, arguing that it would be more efficient for companies to issue money than equity.

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‘When I was your age, my T-Shirt said Motörhead’.
Source: Dave Birch.

Interest in this model has been rekindled as interest in the “blockchain” has grown. The blockchain is the distributed public ledger technology that underpins Bitcoin, and can be seen as a consensus database that everybody can copy and access but by clever design cannot subvert: a permanent record of transactions that no-one can go back and change. Many people think that this technology has considerable promise and indeed one of the early and high profile adopters of Bitcoin, Overstock.com, has recently filed to offer securities as “digital securities … the ownership and transfer of which are recorded on a cryptographically-secured distributed ledger system using technology similar to (or the same as) the distributed ledger technology used for trading digital currencies”.

 

Cuius Regio, Eius Pecunia

While Hayek and de Bono looked to economics to create their narratives, there might be other factors that determine the kinds of money we create. Values, for example. This leads me to think another obvious category of currency issuer: the community that uses the currency, especially with sentiments around anti-globalisation abounding, adumbrating the link between decentralised digital money and personal identity that I explored in my 2014 book Identity is the New Money.

Following that anti-globalisation chain of thought, one rather obvious type of community that might want to issue its own currency is the city. In the Long Finance exploration of the world of financial services in 2050, “In Safe Hands”, Gill Rowland, sets out a scenario that has city-states replacing nation-states as the basis of society and commerce. This appeals to my long-held appreciation of Jane Jacobs’ work on the city as the basic economic unit.

Rowland makes a passing but powerful observation on this future, saying that individuals will protect their “personal identity, credit ratings and parking spaces” at all costs and that since monetary arrangements (nation-state fiat currencies) will have collapsed, the commercial paper of global corporations will be used as international currency which as a technologist I interpret in the “de Bono meets the blockchain” framework discussed earlier that would make for a plausible but wholly different economy. We will have multiple identities, use multiple monies (but not cash), through services provided by different entities, and be defined by our social network and reputation. There will be social and political implications impossible to foresee clearly. But we do know that we will, if anything, be underestimating the long-term implications of these changes.

This perspective suggests that the traditional national and supra-national view of the link between geography and currency is too restrictive: perhaps in the future, all money will be local, belonging to the community in which it is used, it’s just that “local community” will mean something different in the connected world. Whether the community is Totnes or the Chinese diaspora (an example of what Rowland calls an “affinity group”) or World of Warcraft won’t matter, but the shared desire to minimise transactions costs for “us” at the possible expense of transactions costs from “them”, will. Since the overwhelming majority of retail transactions are local, most people’s transactions most of the time will be in their local currency with minimal transaction costs. A small number of transactions will be in “foreign” currencies (ie, someone else’s local currency).

Paying with your mobile phone at Wagamama
Paying with your mobile phone at Wagamama

From this perspective, the widespread view that “alternative” money can work in isolated local environments but not at scale is wrong, because both locality and globalisation will mean something different and there’s no reason why interconnection between local money of one form or another (via markets) cannot operate globally. Local currencies right now are a form of electronic voucher rather than money, but in this community-centric vision of the future one can easily imagine an Islamic e-Dinar or an IBM Dollar interconnecting  through Ripple, a payment settlement application, to provide a seamless global means of exchange.

This is more of a reconnection with the past than it may seem at first. If we look at the history of money management by ordinary people, the relative use of the money instruments available is fascinating. In Britain, for example, right up to the 19th century, there were normally several currencies in circulation in addition to Sterling. This situation, having been temporarily banished by state capitalism in the post-Bretton Woods world, is likely to be restored as Hart argues and I see no reason why people (aided and abetted by their mobile phones and smart watches) could not adjust. This “new local” version of money must sound as crazy to you as the idea of central bank and cheques did to the inhabitants of Stuart England, but it really isn’t. Trying to imagine a wallet with a hundred currencies in it and a Coke machine with a hundred slots for them is naturally nuts. But your phone and the Coke machine can negotiate and agree on currencies (or, more importantly, currency markets) in a fraction of a second, the time it takes to “tap and go” with your iPhone, Samsung MST or Microsoft HCE wallet.

 

Further Reading:

Bellamy, E. Looking Backward 2000-1887. Cleveland, World Publishing Company (1946).

Birch, D. Identity is the New Money.London, LPP (2014).

Dodd, N. The Social Life of Money. London, Princeton University Press (2014).

Vigna, P. and M. Casey. Genesis. in The Age of Cryptocurrency. New York, NY, St. Martins (2015). See a NYT Review here.

 


David G.W. Birch is Director of Innovation at Consult Hyperion, a technology consultancy specializing in secure electronic transactions. Before helping to found the company in 1986, he spent several years as a information technology consultant living and working in Europe, the Far East and North America. His most recent book, “Identity is the New Money”, was published by LPP in 2014. You can reach him via mail and follow him on Twitter @dgwbirch and LinkedIn.

  • The only thing I’d like to add to your piece, Dave is the ‘measure of value’. For a global currency to become accepted as a medium of exchange it has to have a measure of value that’s commonly understood. Without that, why would anyone accept it as payment?

    So the trick to making a digital currency work is to focus on the measure of value. That begins with a community of like-minded people who define for their own purposes what value means to them. In our community for example, we define it as activities that contribute to the common good – teaching, giving, learning, volunteering…that kind of thing. Definition is critical – it sets boundaries which in our case aren’t geographical as in a physical community, but standards of behaviour that we as a group have agreed to be ‘of value’ to our community’s health and wellbeing.

    This boundary defines what we represent – a kind of club for people who give a damn, if you like.

    Having defined the sorts of activities that we the community value, it then becomes a relatively straightforward exercise to agree how that value should be measured. In our case we measure it using time. Time spent teaching, giving, learning or volunteering earns points that represent the value that has been created. Anyone who gives their time to our community in pursuit of defined activities that contribute to our community’s wellbeing, earns points (or coin) at exactly the same rate, valuing everyone’s contribution equally. In our case 60 points to the hour.

    Think of it a bit like Club card points but rather than earning points for shopping at Tesco, you’d earn points for doing good.

    So now you have a definition of value – one that the community have defined democratically – and a way of measuring it that everyone understands becuase it is, well “non-technical”.

    Once you have a definition of value and a way of measuring it, you have the foundations of a points system that can be used as a means of exchange for people who need to get jobs done but don’t have the cash to pay for it. People within the community understand it’s worth and accept it as a means of payment becuase they know they can pass it on to others who accept it for the same reason. It begins to flow and function just like money.

    What you have now is a market. Everyone who’s a part of the community can contribute towards its upkeep by not wasting their time. Dig a hole if you’re young or knit a cap for premature babies if your old. It doesn’t matter. Do good; earn points; be recognised. Become better. Belong to the community.

    Where is the value in that? I’d let the market decide.

    After that is