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A money that understands us

Sometime during last week's 2014 edition of the Tomorrow's Transactions Forum, this line occurred to me: "We are moving from money we understand to money that understands us." Dave Birch, who runs the event, likes this: "It sounds friendly."

I wish to copyleft it here so it can't become a marketing slogan.

Unfortunately, neither half of that sentence is actually true. The correct version would go something like, "We are moving from money we think we understand to money we hope will make our lives easier, but it may not and we'll only find out later what elements of privacy we've sacrificed." Birch, who hates (good, old, reliable) cash and for whom the all-digital era can't come fast enough, wouldn't like that nearly as much. It doesn't sound so friendly. It also lacks elegance.

Showing that the first half of that sentence is wrong was the job of Felix Martin, the author of Money. Delving into history and economics, Martin makes the case that the way we typically think of money - physical currency - is entirely wrong. Instead, what matters most are systems of accounting, transferable credit, and a trusted authority; currency is just universally agreed-upon tokens of value. Yap's stone wheels were those tokens - but, Martin said, the Yap's real innovation was the system of accounting that enabled them to transfer credit back and forth while the stones remained stationary.

Let's recast all this in terms of language instead of economics: we're talking grammar versus vocabulary. The accounting system, the concept of transferable credit, the authority - those are grammar, the structural rules that give shape to the system. Currency is vocabulary, and like vocabulary it constantly shifts in response to social, political, and cultural trends.

To make a currency scale beyond a relatively small group you need an authority - at one time a sovereign, now a nation or a bank. A few centuries back, the private monetary system in use among commercial traders and the official monetary system backed by European sovereigns merged in a settlement that created today's system. Based on his research, Martin predicted that the eventual outcome of the arrival of Bitcoin will be a new settlement that subsumes Bitcoin into the existing structure. As several others remarked, it may become, in other words, a platform or protocol rather than a currency.

Last year at this event the buzz was all about digital wallets. This year...retrench: O2 has closed its wallet (at least for now); Google Wallet is broadening away from near field contactless (tap and pay) to become more like Paypal. Part of the problem is a lack of standards and an internecine fight over control: Forbes spots no less than six different industries squabbling over mobile payments. This is not a recipe for mass adoption.

Nor is the attitude of the banks. A bizarre titbit: the UK's new Digital Currency Association has been refused when trying to open a bank account - an account denominated in pounds sterling, not a cryptocurrency, opened by real people, not a fridge.

"Digital currencies have been around for a long time," said Tom Robinson, founder of both the DCA and the secure digital currency custodian Elliptic, in recounting this. "The key problem is double spending." Until now, this is what banks were for: a trusted central party that checked every transaction. Bitcoin, he said, was the first to solve this and eliminate those intermediaries; now Russian protesters can hold placards with QR-coded Bitcoin addresses up to the TV cameras so the rest of the world can send direct donations. Small wonder Russia, along with China, has banned it. The DCA's goal is to establish best practices before regulation comes in, as is beginning to happen. The American Internal Revenue Service has ruled that Bitcoin is property; Germany sees it as private money.

Rethinking what "money" is opens many strange possibilities. Under the 2013 revision of the Payment Services Directive, Michael Salmony explained, banks must open their platforms to third parties. Robinson added the possibilities of programmable money that only pays itself out if contractual conditions are met: no more escrow intermediaries.

Birch himself thinks money is in general on the way out; his book Identity Is the New Money is due out in a few weeks. In his view, the social graph and reputation will cost less than and therefore replace today's social capital, which typically requires the imprimatur of a trusted authority - Harvard, say, or the Bank of England. Today, you take my £1 coin because although you don't know me you trust the familiar coin and the Bank of England. In Birch's future, the worldwide communications network can tell you it's safe to trust my payment; you no longer need the £1 token - rather like the Yap, and their unmoving stones.

This is what I meant by "money that understands us". For Birch, such a system is far cheaper and less favorable to fraud and criminality than cash. Until we understand the inherent cost in lost privacy of such a system, I don't think we can make that call.

Wendy M. Grossman is the 2013 winner of the Enigma Award. Her Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series. Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard - or follow on Twitter.


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