Central bank digital currency again

Greg Medcraft, the Chair of the Australian Securities and Investment Commission, recently said that “traditional” bank current accounts may disappear in the next decade because central banks will create digital currencies and provide payment accounts to customers directly (Australian Financial Review, 3rd September 2017). This is a topic that I examined in some detail in my recent book, Before Babylon, Beyond Bitcoin. Did I mention that I have a new book out, by the way? This is what the noted British magazine Prospect said about it:

When a book comes along with glowing praise on its sleeve from Kenneth Rogoff and an introduction by Andrew Haldane, Chief Economist at the Bank of England, you know you’ve got something hot on your hands. This analysis of money by one of the world’s leading experts on the subject does not disappoint…

Birch is brilliant at bringing together these disparate historical strands, through the birth of the great European trading centres, up to the present day. The central insight of all this is that money is essentially a technology, just like any other and that technologies change—and improve—over time. In other words, money is not fixed. And it is certainly not just coins and notes.

And what of the future of money—will it be characterised by a drive towards a small number of unified currencies, or towards a multitude? Birch opts for the latter. In future, communities will develop their own stores of value, Birch says, independent of governments and central banks. The growing popularity of crypto-currencies such as Bitcoin suggests that he may have as good a handle on the future as he does on the past.

From What actually is money? A new book examines early civilisations to find out | Prospect Magazine

As you will deduce from this, I think that the way that money works now is, essentially, a blip. It’s a temporary institutional arrangement and it must necessity change as technology, business and society change. These sentiments are not restricted to technological determinists of my ilk. As the former governor of the Bank Of England, Mervyn King, wrote in his book The End of Alchemy”, although central banks have matured, they have not yet reached old age. But their extinction cannot be ruled out altogether. Societies were managed without central banks in the past”. I was reminded of this when I listened to the excellent London FinTech Podcast series produced by my good friend Mike Baliman. In Episode 85 “The Nature of Money, Economic Imbalances & will Central Bank Digital Cash alleviate them?” which Mike made with David Clarke of Positive Money, the idea of central bank digital currency is discussed in some detail. While I understand the reasons why a digital currency is attractive to a central bank (and there are many of them) I’m not convinced that in the long run central banks will retain any sort of monopoly over digital currency. And if they don’t have a monopoly, what can they do to keep the value of their money up and therefore attractive as a store of value?

 I had to think about this sort of thing in some detail when the kind people from Amsterdam Institute of Finance (AIF) and the Dutch central bank (Die Nederlandsche Bank, DNB) invited me to Amsterdam to launch my book in their fair city, so I took the opportunity to run through the “5Cs” model of money issuing from the book and take questions from a very well-informed audience.



One of the points that I made was that technology is no longer a barrier. The idea of the DNB running something like M-PESA but for Dutch residents is hardly far fetched. There are 26 million M-PESA users in Kenya (as of 2Q17) and Facebook can manage a couple of billion accounts, so I’m sure that DNB could download an app from somewhere to run a few million accounts for the Netherlands. There is a middle way though. The central bank could create the digital currency but it could still distribute it through commercial banks. The commercial banks would not be able to create money as they do now (only the central bank would be able to do this) but they would use their existing systems to manage it. Yao Qian, from the technology department of People’s Bank of China, wrote about this earlier this year.

“To offset the shock to the current banking system imposed by an independent digital currency system (and to protect the investment made by commercial banks on infrastructure), it is possible to incorporate digital currency wallet attributes into the existing commercial bank account system so that electronic currency and digital currency are managed under the same account.”

PBOC Researcher: Can Cryptocurrency & Central Banks Coexist? – Bitcoin Magnates

We had a go at this sort of thing a couple of decades ago with Mondex and its ilk in the first attempts to get bank-issued electronic cash into the mass market. Those efforts failed for a number of reasons but primarily because of a lack of acceptance. It was easy to give people cards but hard to give people terminals. That’s all changed now. M-PESA doesn’t use cards and terminals, it uses mobile phones. I’m sure that when future historians write about the evolution of money, they will see that the mobile phone, not the plastic card, was the nail in the coffin of cash. But back to the point, which is… why bother? What if the Chair of the Australian Securities and Investment Commission is right? Why bother with the commercial banks in this context? Now we are clear about the differences between cryptocurrency and a digital currency, let’s review a few of the key issues:

  • A monetary regime with central bank-issued national digital currency (i.e., digital fiat) has never existed anywhere, a major reason being that the technology to make it feasible and resilient has until now not been available. But now technology is available, and we should use it.

  • The monetary aspects of private digital currencies (a competing currency with an exogenous predetermined money supply) may be seen as undesirable from the perspective of policymakers. Also, as I have mentioned before, the phrase “digital currency” is perhaps a regrettable one as it may invite a number of misunderstandings among casual readers.

  • Digital fiat means a central bank granting universal, electronic, 24 x 7, national currency denominated and interest-bearing access to its balance sheet.

  • The cheapest alternative for running such a system would clearly be a fully centralised architecture like M-PESA but there may be other reasons for want to use some form of shared ledger implementation instead (e.g., resilience).

  • A feature of such a shared ledger system is that the entire history of transactions is available to all verifiers and potentially to the public at large in real time. It would therefore provide vastly more data to policymakers including the ability to observe the response of the economy to shock sort of policy changes almost immediately.

Were we to decide to create a new central bank digital currency issued and managed by commercial banks (let’s call it Brit-PESA) now, of course, we wouldn’t use the basic SIM toolkit and SMS technology of M-PESA. We’d use chat bots and AI and biometrics and voice recognition and all that jazz. I don’t think it would that difficult or that complicated: there would be a system shared by the commercial banks with the funds held in a central account.

There’s a very good reason for doing so. I’m sure you’re all familiar with the Bank of England Staff Working Paper No. 605 by John Barrdear and Michael Kumhof, “The macroeconomics of central bank issued digital currencies”. It says (amongst other things) that 

…we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC price or quantity rules, as a second monetary policy instrument, could substantially improve the central bank’s ability to stabilise the business cycle.

Did you see that? Permanently raise GDP by as much as 3%. Scatchamagowza. Permanently raise GDP by as much as 3%. Why aren’t we doing it right now! Let’s draw a line under the money of the past and focus on the money of the future. Talking of which, back to my presentation at DNB.

dnb slide

Whether digital fiat is the long term future of money or not (and I think it isn’t), let’s get on with it, whether Brit-PESA or Brit-Ledger or Brit-Dex, and give everyone access to payment accounts without credit risk.  And there’s another reason, beyond GDP growth, for doing so. Writing in the Bank of England’s “Bank Underground” blog, Simon Scorer from the Digital Currencies Division makes a number of very interesting points about the requirement for some form of digital fiat. He remarks on the transition from dumb money to smart money, and the consequent potential for the implementation of digital fiat to become a platform for innovation (something I strongly agree with), saying that:

Other possible areas of innovation relate to the potential programmability of payments; for instance, it might be possible to automate some tax payments (e.g. when buying a coffee, the net amount could be paid directly to the coffee shop, with a 20% VAT payment routed directly to HMRC), or parents may be able to set limits on their children’s spending or restrict them to trusted stores or websites.

From Beyond blockchain: what are the technology requirements for a Central Bank Digital Currency? – Bank Underground

If digital fiat were to be managed via some form of shared ledger, then Simon’s insight here suggests that it is not the shared ledger but the shared ledger applications (what some people still, annoyingly, insist on calling “smart contracts”) that will become the nexus for radical innovation.

Estonia is a real place

My little corner of the internet seems awash with tales of a mythical utopia that goes by the name of Estonia. Since my little corner is the digital identity corner, I’ve been hearing about digital identity in Estonia more and more. At meetings and conferences, on social media and in conversation, I hear people talking about the Estonian national identity scheme that uses a blockchain. The Harvard Business Review, for example, tells us that “since 2007 Estonia has been operating a universal national digital identity scheme using blockchain”. This sort of thing crops up on Twitter from time to time. I’m not sure if some of the people tweeting about the Estonian national digital identity blockchain know that Estonia is actually a real place and that some people (e.g., me) have been there. In fact, here is a picture of me in Tallin to prove it.

 Me in Tallin

The Estonian national digital ID scheme launched in 2002. A decade ago a colleague of mine at Consult Hyperion, Margaret Ford, interviewed Mart Parve from the Estonian “Look@World” Foundation in the long standing “Tomorrow’s Transactions” podcast series (available here). Mart was responsible for using the smart ID service (both online and offline) to help Estonia develop its e-society. If you listen carefully to them talking, you will notice that they never mention the blockchain, which is unsurprising since Satoshi’s Nakamoto’s paper on the subject was not published until more than a year later, in October 2008.

The strangeness of the obsession with Estonia in blockchain circles began to bother me after I was invited along to a blockchain breakfast (seriously) at the House of Lords last year. The invitation came because I had been asked to contribute to the Parliamentary Office of Science and Technology (POST) work on distributed ledger and the purpose of the breakfast was to discuss this report. The breakfast was hosted by Stephen Metcalfe MP, chair of the Science and Technology Committee. Sir Mark Walport, the Government’s Chief Scientific Adviser (GCSA), opened the proceedings. Sir Mark had authored the Government Office for Science report on “Distributed Ledger Technology: beyond blockchain” earlier in the year. In it, he focused on a particular kind of distributed ledger, the Bitcoin blockchain, and attempted to explain it to the general reader and then explore some of the potential uses.

(From here on I insist to sticking to the term that Richard Brown of R3 and I started using a couple of years ago “shared ledger technology” (SLT) as the general description because I feel that the fact that multiple organisations share the ledger is more important than its architecture.)

Personally, I found the report slightly confusing because it was jumping between ledgers, blockchains, the bitcoin blockchain and bitcoin almost on a paragraph by paragraph basis. What’s more, and I realise that I read the document from a very technical perspective and that I may see some of these things therefore in the wrong context, I think the report might have benefited from some more description of shared ledgers, and the reasons why Moore’s Law and falling communications costs have made the core idea of everyone storing every transaction a plausible architecture. Here’s the way that my colleagues at Consult Hyperion and I started to think about the ledger a couple of years ago, the “4Cs” model that has worked rather well.

Consensus Computer Model

I prefer to use this layered approach to explain the key components of a shared ledger and then develop ideas around different choices in those layers. Different choices in consensus technology, for example, lead to a variety of different possibilities for implementing a shared ledger. In order to help categorise these possibilities, and narrow them down to make useful discussions between the strategists and technologists, I use the taxonomy that Consult Hyperion developed to distinguish between different kinds of public and private ledgers. Rather flatteringly, Sir Mark used a simplified version of the this model on page 19 of his report.

When the report came out I said that it might be considered reckless to disagree with the GCSA, but I just did not (and do not) see cryptocurrency as a sensible government option for digital currency. Anyway putting my nerdy criticisms to one side, Sir Mark’s conclusions (which were essentially that the technology is worth exploring in government contexts) were surely correct. He said that permissioned ledgers (i.e., not the Bitcoin blockchain) are appealing for government applications and I’m sure he was right about this, although I remain sceptical about some of the suggested government uses that are based on costs or efficiency. I think that his suggestions around applications that focus on transparency are the more interesting areas to explore in the short term and they would be my focus if I were looking to start exploratory or pilot projects in the field. I share the Open Data Institute’s view on this, which is that blockchains could be used to build confidence in government services, through public auditability.

House of Blockchain

When it came time for my contribution, by the way, I said that it wasn’t at all clear to me that it was accurate to describe Bitcoin as a decentralised system since almost all of the hashing power resides with a very small number of unaccountable mining pools based in China but, more importantly that

  1. It seems to me that many of the efforts to move shared ledgers into the marketplace have concentrated on shaping shared ledgers to emulate existing solutions in the hope that SLTs will be faster, higher or stronger. These are all unproven assertions. It is possible that a shared ledger replacement for RTGS might be cheaper, or more resilient or more functional that the currency centralised solution, but who knows?

  2. The transparency of the shared ledger, the aspect that most doesn’t work for current solutions in current markets, may well turn out to be the most important characteristic because it allows for ambient accountability and therefore opens up the potential for new kinds of markets that are far less costly and complex to regulate, manage, inspect and audit. This is the “shared ledger as regtech not fintech meme” that I am rather fond of.

  3. Just as the invention of double-entry bookkeeping allowed for the creation of new kinds of enterprise, so it seems to me that the shared ledger will similarly lead to new kinds of enterprise that use the shared ledger application (the SLAPP) as the engine of progress and the focus of innovation. I assume that there are kids in basements experimenting with SLAPPs right now and that this is where the breakthrough use case will come from. As I said some time ago in a discussion about shared ledgers for land registry, turning the ledger into a platform may be the most important reason for shifting to this implementation.

At the breakfast, Sir Mark said that the goal of the POST reports is to demystify technology for policy makers although I have to report that in his closing remarks he said that we had not been entirely successful in this enterprise and I fully concur with his opinion. That’s not why I’m talking about it breakfast at the House of Lords here though. Back to Estonia! At one point, the breakfast discussion moved on to the Estonian electronic identity system. At this point I expressed some scepticism as to whether the Estonian electronic identity system was on a blockchain. The conversation continued on the basis that it was. Then to my shame I lost it and began babbling “it’s not a blockchain” until the chairman, in an appropriate, gentlemanly and parliamentary, told me to shut up.

The point that I was trying to make was that the Estonian ID scheme, launched in 2002, has nothing to do with shared ledgers or mutual distributed ledgers or blockchains. As it happens, a some time after my breakfast with their lordships, I had another breakfast, this time with the new CIO of Estonia, Siim Sikkut


I asked Siim where this “Estonian blockchain ID” myth came from, since I find it absolutely baffling that this urban legend has obtained such traction.  He said that it might be something to do with people misunderstanding the use of hashes to protect the integrity of data in the Estonian system. Aha! Then I remembered something… More than decade ago I edited the book “Digital Identity Management” and Taarvi Martens (one of the architects of the Estonian scheme) was kind enough submit a case study for it. Here is an extract from that very case study:

Long-time validity of these [digitally-signed] documents is secured by logging of issued validity confirmations by the Validation Authority. This log is cryptographically secured by one-way hash-function and newspaper-publication to prevent back-dating and carefully backed up to preserve digital history of mankind.

Well, there we have it. It looks as if the mention of the record of document hashes has triggered an inappropriate correlation amongst observers and, as Siim observed, it may indeed be the origin of the fake news about Estonia’s non-existent digital identity blockchain.

(This is a revised and edited version of post that first appeared on Consult Hyperion’s “Tomorrow’s Transactions” blog in March 2017.)

Bitcoin isn’t the future of money, but tokens might well be

The noted cryptocurrency investor Brock Pierce was responsible for the first Initial Coin Offering (ICO) of its kind (which was MasterCoin) back in 2013 and he is an investor in a great many companies in the space via Blockchain Capital. He’s a serial entrepreneur with a track record going back many years. He knows about investing in a way that I very much do not. Listen to what he says about the impact of ICOs.

I think what I’ve done is the end of all VC, all private equity, all rates because these are industries that are illiquid… I think the Sequoias of the world will go out of business. I think all the big VCs are done.

From The Wizard Behind the ICO’s Transforming VC

Wow. That sounds like a pretty astonishing claim, hubris verging on the delusional. But the thing is… I think he may be right. To see why, you need to think about the money of the future. In his book “The Money Trap”, Robert Pringle (a former editor of that well-known revolutionary pamphlet “The Banker“) writes that at the turn of the millenium “globalization reached the limits compatible with existing international monetary arrangements”. I could not agree more. There is pressure for change and I think the current cryptomania gives us a window into the future of money. But as I have written many times before, the future of money is not Bitcoin and Bitcoin is not the future of money.

Now I accept that with the price of Bitcoin around $4000 and still climbing, that seems like a brave statement. But Bitcoin $4000 doesn’t mean anything. How do you figure out what Bitcoin is worth? From the market? On the one hand I read that this opaque marketplace is being manipulated but on the other hand I read that Bitcoins will be worth like $1 billion each or something (which makes it all the more puzzling why merchants bother with Bitcoin acceptance, since no sane shopper would spend Bitcoins instead dollars if they are going to go up a thousandfold in the next few years). In the long term, for Bitcoins to be worth something, someone has to want them for some reason. What will they want them for? Shopping? It’s too slow, it was never designed for real time payments. Money laundering? Bitcoin isn’t anonymous enough for mass market criminals (as the FBI guys who stole coins during the “Silk Road” investigation and that BTC-e guy who got arrested in Greece have discovered).  No, I don’t think uncensorability is going to be a good enough business to sustain Bitcoin. The Wannacry ransomware scallywags swapped their Bitcoins for anonymous Monero as soon as they could get them out of their wallets. Bitcoin will, in time, be superseded in these markets by truly anonymous digital money.

If not Bitcoin, then what? Of course, it’s entirely possible that while Bitcoin and other cryptocurrencies may not be the money of the future, they may be the platform for money of the future and I think can erect an intellectual scaffolding to support this claim even if I cannot architect the financial institution of the future that it will be used to build. In my book “Before Babylon, Beyond Bitcoin”, I explore the notion of private money set out by the noted Maltese “lateral thinker” Dr. Edward de Bono. He wrote a pamphlet called “The IBM Dollar” for the Centre for the Study of Financial Innovation (CSFI) back in the early 1990s, in which he rather memorably remarked that he looked forward to a time when “the successors to Bill Gates will have put the successors to Alan Greenspan out of business”. (It was reprinted in David Boyle’s superb book “The Money Changers” in 2002 and you can read it online here at Google Books.)

Dr. de Bono was arguing that companies could raise money just as governments now do — by creating it from thin air. Now, if that notion seems to have resonance Mr. Pierce and his ICOs then, well… yes, that’s my point. Lots of companies are doing just that and they are raising literacy billions of dollars doing so.

WOULD you like to invest in Filecoin, a marketplace for digital storage services? Or Indorse, a professional social network where members own their data? How about Lust, a service “to enable all human beings on Earth to find their perfect sexual partner anonymously?” These are just three of a wave of what are called initial coin offerings (ICOs)… What are they and why are they so successful?

From What are initial coin offerings? in The Economist (22nd August 2017).

The idea of private currency as a claim on products or services produced by the issuer caught my attention two decades back when I first worked on digital money and continues to inform my thinking. For one thing, it makes economic sense. IBM, in de Bono’s example, might issue “IBM Dollars” that would be redeemable for IBM products and services, but are also tradable for other companies’ monies or for other assets in a liquid market. Now, to make such a scheme work IBM would have to learn to manage the supply of money to ensure that the monetary base and its capacity to deliver are matched and that inflation does not destroy the value of their creations, but I’m sure they could get Watson to do that, so it is easy to imagine that such a system could work.

To Mr. Pierce’s point, this would mean a new kind of financial market. A start-up launches, and instead of issuing equity, it issues money that is redeemable against future services. So, for example, a distibuted file storage start-up might offer money in the form of megabyte days that are redeemable five years from now. In the early days, this money would trade at a significant discount to take account of the risks inherent in the venture. But once the file system is up and running and people like using it, then the value of the money will rise. With tens of millions such currencies in circulation, constantly being traded on futures, options and foreign exchange markets, it might sound as if the “money” would be unusable because transactions would be unbearably complex for people to deal with. But as I wrote in “The Financial Times“, that’s not the world that we will be living in. This is not about transactions between people but transactions between what Jaron Lanier called “economic avatars“. This is a world of transactions between my virtual me and your virtual me, the virtual Waitrose and the virtual HMRC. This is my machine-learning AI supercomputer robo-advisor, or more likely my mobile phone front end to such, communicating with your machine-learning AI supercomputer robo-advisor.

These robo-advisors will be entirely capable of negotiating between themselves to work out the deal. Dr. de Bono foresaw this in his pamphlet, writing that pre-agreed algorithms would determine which financial assets were sold by the purchaser of the good or service depending on the value of the transaction… the same system could match demands and supplies of financial assets, determine prices and make settlements. He also wrote that the key to any such a system would be “the ability of computers to communicate in real time to permit instantaneous verification of the creditworthiness of counterparties”, an early vision of what we might now call the reputation economy that I explored in my previous book “Identity is the New Money”. Now, 

Now, two decades on from this description, we have a technology to implement and while the idea using cryptocurrencies as tokens linked to something in the real world  is hardly new (from the earliest days of Bitcoin people were using “coloured coins” to do this), token technology really took off with the development of the ERC-20 standard back in 2015. ERC-20 defined a way to create a standard form of token in a “smart contact” on the Ethereum blockchain. (Ignore the language here :  they are not smart and they are certainly not legal contracts, they are a special kind of application that executes on the blockchain). The use of these ERC-20 tokens to implement ICOs has exploded in recent months. Filecoin, the company that plans to monetise unused computer storage noted in the Economist article above, has just raised $50m+ in token pre-sales to Silicon Valley investors (including Sequoia Capital and Andreesen Horowitz) and another $200m in a public token sale. That came not long after Tezos, which is developing a blockchain competitor to Ethereum, raised $232 million and Bancor raised $153 million in three hours.

Despite these huge sums, there is a lot of uncertainty in the space. The Securities and Exchange Commission (SEC) ruled in July 2017 that certain kinds of tokens are in fact securities and that transactions must regulated. This was hardly unexpected and I certainly think that the ruling was good news. Yes it is causing some disruption right now (one of the largest exchanges, Bitfinex, has just suspended ERC-20 token used for ICOs from trading for US citizens) and yes some people will lose a lot of money and yes some people will end up in jail, but that’s what happens as we move from a Wild West to regulated growth and prosperity. The regulation of ICOs is important because ICOs are more of a picture of the money of the future than Bitcoin is.

As I said in Before Babylon, Beyond Blockchain, tokens may make a real difference to the way the economy works. When the current craziness is past and tokens become a regulated but wholly new kind of digital asset, a cross between corporate paper and a loyalty scheme, they will present an opportunity to remake markets in a new and better way. One might imagine a new version of London Alternative Investment Market (AIM) where start-ups launch but instead of issuing money they create claims on their future in the form of tokens. The trading of these tokens is indistinguishable from the trading of electronic cash (because they are bearer instruments with no clearing or settlement) but there will be an additional transparency in corporate affairs because aspects of the transactions are public. And while the company and observers may not know the beneficial owner of the tokens (because the wallets are identified only by keys), the market will be set up to issue wallets after appropriate KYC. In the general run of things, transactions are private but where there is suspicion of wrongdoing the ownership can be exposed under appropriate legal conditions. With reputations established as an immutable history of participation in transactions, good behaviour will not be gamed and bad behaviour will be on display. Market participants will be able to assess and manage risk, regulators will be able to look for patterns and connections. I’ll be able to see that your assets exceed your liabilities without necessarily being able to see what those assets or liabilities are.

The transparency obtained from using modern cryptography (e.g. homomorphic encryption and zero-knowledge proofs) in interesting ways, as an aside, is one of the reasons why I tend to think of the blockchain as a regtech, not a fintech. As Salome Parulava and I wrote in “Ambient Accountability: Shared Ledgers, Glass Banks and Radical Transparency in Financial Services” in just-published “Handbook of Blockchain, Digital Finance and Inclusion”, these “translucent transactions” mean that we will find ourselves in an era of ambient accountability, where the technological architecture means constant verification and validation instead of periodic auditing long after the trades and exchanges have taken place.  

This is a far more efficient way to manage a marketplace. There won’t be some giant IMF database that manages the new kinds of money. In this market, company perfomance rewards private money holders by improving the exchange rate against other private monies. No coupons and dividends, no clearing and settlement, no hiding the number of tokens out there. The cost of trading these tokens will be a fraction the cost of trading stocks and bonds, which is why liquidity will seep out of existing markets and into these new and more efficient structures. Stephen McKeon, a finance professor at the University of Oregon, summarises this imperative by saying that assets of all kinds will tokenise because they will lose the “liquidity premium” if they do not.

Tokens won’t only be issued by companies, of course. It seems to me that tokens that implement the values of communities (and, because they are “smart”, can enforce them) may come to dominate the transactional space (think of the Islamic e-Dinar and the London Groat). One such community might well be the nation state. In fact, at least one nation state is already thinking along these lines. Kaspar Korjus, the director of Estonia’s e-Residency program, has already floated the idea of issuing tokens instead of sovereign bonds.

Korjus said that the money raised in the offering could be used for a fund jointly managed by the government and outside private companies. This fund would be used to invest in new technologies for the public sector as well as invest venture capital into Estonian companies founded by both natives and e-Residents. Eventually Korjus sees the tokens holding value and being used as a payment method for public and private services both within the country and globally, which would provide a return on investment to ICO participants.

From This European country may hold an ICO and issue its own cryptocurrency – TechCrunch

This is, to my mind, the ultimate answer to “what is money”. Money is something that you can pay your taxes with! If Estonia were to go ahead in this way — merging, essentially, currency and bonds into a single, liquid, circulating digital asset —we will have gone full circle back to the days when government tally sticks were circulating in England. Every day, in every way, the future of money looks very much more like its past.

Back to the future of Bitcoin

I was very excited to discover via the interweb tubes that Bitcoin is now going into geostationary orbit. In the near future, Bitcoins will be dropping as a gentle rain from heaven. Well, sort of.

Blockstream Satellite is the world’s first service that broadcasts real-time Bitcoin transactions and blocks from a group of satellites in space.

From Blockstream – Announcing Blockstream Satellite

You cannot imagine the nostalgia this story generated for me because, astonishing as it may now seem, the first ‘fintech’ project that I ever worked on involved using satellites to transit financial data and the first book chapter that I ever wrote was about the use of satellite data for business.

Settle down youngsters, and I’ll tell you the tale…

Cast your mind back to 1982. Those interweb tubes are a distant dream. Getting data from place to place is a major effort. In a far away place (Indonesia) a group of talented 10x prima donna programmers are writing software to run on the world’s first regional satellite data system, the Palapa-B1 service (a Hughes HS376, for the technical, with 24 C-band transponders). In the great city of Bandung, one of these dashing young software engineers — me — was initially tasked with writing the (and here’s one for the teenagers) X.28 code and then the X.25 code to allow (amongst other things) bank terminals and other devices to connect via this new satellite network to allow communications between bank branches on far flung islands throughout the Indonesian archipelago and bank offices in Jakarta and elsewhere. You couldn’t buy communications software for the processors we were using. You had to write it from scratch. If you tell the young people of today that, they won’t believe you.

Indo83 3

We were working at a telecoms supplier’s site in Bandung. I know it doesn’t look much from the outside.

A Japanese team were building the baseband modems and implementing the Aloha link protocol that had originally been invented for Alohanet. This gave me the assembly language primitives to work with to implement the CCITT protocols on top. X.28, as if you need any reminding, was the protocol for character input/output (used to connect terminals across a network to mainframes) and X.25 was the packet-switching protocol for interconnecting computers. I still think of terminals at DTEs (Data Terminating Equipment) and I still think of network connections as DCEs (Data Circuit Terminating Equipment). All of these quaint terms vanished from the pages of history about a week after TCP/IP was invented.


As you can see, inside we had access to many modern facilities.

Implementing X.28 meant that staff could log on to bank mainframes using terminals in the branches. Implementing X.25 meant that remote minicomputers could interconnect. Getting the code to work, and getting it to work quickly enough, and getting it to work in the limited memory available was a fantastic education. I loved my time as C ninja, interfacing with what was then leading-edge communications hardware to deliver data services to real users.

Indo83 2

Here I am making a few small adjustments to the communications processors boards.

It was here I learned all my UNIX tricks and C programming stunts. Those were the days when if you didn’t like the way that the team wrote code you could quickly knock up a parser to force them into line (which one of my colleagues did, using YACC), when you had to pretend to the system administrator that you didn’t have root access (which we all did) and when the disk packs held 5Mb so you had to be very careful with the space available *wipes away a tear*.

Indo83 1

As you can see, the team really appreciated my mad programming skills and their contribution to the great success of the project.

In the later 1980s and very early 1990s, I enjoyed working on a wide variety of projects around satellite data communications. I worked on technical architectures, system designs and even on regulation in a team with the now-infamous Vicky Pryce (who was then chief economist at KPMG, and who I remember as a very impressive and really clever, but also really nice person). The very first conference paper that I ever wrote was on the use of satellite data broadcasting to deliver stock exchange data to market participants and I spent happy days at Telekurs, Dow Jones Telerate, the London Stock Exchange and other places working on link budgets, low-noise blocks and forward error correcting codes (this is where I learned about convolutional coding and Viterbi decoders. One of the most interesting areas I worked in was the use of Vertical Blanking Interval (VBI) data services embedded in analogue television transmissions and the potential (abandoned) use of data space in digital television transmissions for value-added (largely financial) services.

Books about satellite communications

A few years later, I worked on a similar system using Very Small Aperture (VSAT) terminals in K-band (too much information, ed.) for a US telecommunications provider, on one of Consult Hyperion’s first US projects. In those still pre-internet days, if you wanted to get data from a branch office back to HQ reasonably quickly you had to pay for a leased data line from the phone company, which was very expensive. Putting a satellite terminal on your roof was a cheaper alternative and as the frequencies went up from C- to Ku-based, so the dish sizes and costs came down. The cost of installing and maintaining a six foot dish compared very favourably with the costs of alternatives, until the internet and mobile phones came along and spoiled all the fun.

Ah, the good old days.

Here’s bibliography from “Before Babylon, Beyond Bitcoin”

In case anyone finds it useful, here’s the full bibliography from Before Babylon, Beyond Bitcoin…

Birch, D. (Ed.) Digital Identity Management–Technological, Business and Social Implications. Gower (Farnham, UK: 2007).

Birch, D. Identity is the New Money. London Publishing Partnership (London, UK: 2014).

Boyle, D. The Money Changers. Earthscan (London: 2002).

Bray, H. You Are Here. Perseus (New York: 2014).

Brown, J and P. Duguid. The Social Life of Information. Harvard Business School Press (Boston: 2000).

Chittenden, O. (Ed.) The Future of Money, Virgin (London, UK: 2010).

Christensen, C. The Innovator’s Dilemma—When new technologies cause great firms to fail. Harvard Business School Press (Boston: 1997).

Cohen, B. The Future of Money. Princeton University Press (Princeton, NJ: 2006).

Conway, E. The Summit—The Biggest Battle of the Second World War. Little, Brown (London, UK: 2014).

Coyle, D. Paradoxes of Prosperity—Why the new Capitalism benefits all. Texere (New York, NY: 2001).

Coyle, D. Sex, Drugs and Economics—An Unconventional Introduction to Economics. Texere (London, UK: 2002).

Coyle, D. Sex, Weightless World: Strategies for Managng the Digital Economy. Capstone (Oxford, UK: 1997).

Davies, Prof. G. A History of Money from Ancient Times to the Present Day. University of Wales Press (1994).

Del Mar, A. A History of Money in Ancient Countries from the Earliest Times to the Present. George Bell & Sons (London:1885). Reprint Kessinger Publishing.

Desan, C. Making Money—Coin, Currency and the Coming of Capitalism. Oxford University Press (Oxford, UK: 2014)

Eco, U. Travels in Hyperreality. Picador (London, UK: 1987).

Edgerton, D. The Shock of the Old—Technology and Global History Since 1900. Profile (London, UK: 2006).

Friedman, F. Money Mischief. Harcourt Brace Jovanovich (Orlando, FL: 1992).

Goetzmann, W. Money Changes Everything—How finance made civilization possible. Princeton University Press (Princeton, NJ: 2016).

Hart, K. The Memory Bank. Profile (London, UK: 1999).

Hock, D. One from Many—VISA and the Rise of the Chaordic Organisation. Berrett-Koehler (San Francisco, CA: 2005).

King, B. Bank 3.0. Marshall Cavendish International (Tarrytown NY: 2013).

King, M. The End of Alchemy. Little, Brown (London: 2016).

Lanier. Who Owns The Future. Allen Lane (London, UK: 2013).

Lewis, M. Moneyball. W.W. Norton (New York, NY: 2003).

Mayer, M. The Bankers—The Next Generation. Plume (New York, NY: 1998).

Nocera, J. A Piece of the Action—How the Middle Class Joined the Money Class. Simon & Schuster (New York: 1994).

Omwansa, T. and N. Sullivan. Money, Real Quick: The story of M-PESA. Guardian Books (London: 2012).

Sargent, T. and F. Velde. The Big Problem of Small Change. Economic History of the Western World series. Princeton University Press (Princeton, NJ: 2002).

Schewe, P. The Grid: A Journey Through the Heart of Our Electrified World. Joseph Henry Press (Washington, DC: 2007).

Schneier, B. Secrets and lies—Digital security in a networked world. Wiley Computer Publishing (New York, NY: 2000).

Seabright, P. The company of strangers: a natural history of economic life. Princeton University Press (Woodstock, UK: 2005).

Seidensticker, B. Future Hype–The Myths of Technology Change. Berrett-Koehler (San Francisco, CA: 2006).

Shenton, C. The Day Parliament Burned Down. Oxford University Press (Oxford: 2012).

Slegin, G. Good Money—Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage 1775-1821. University of Michigan Press (Ann Arbor, MI: 2008).

Sofsky, W. Privacy—A Manifesto. Princeton University Press (Princeton, NJ: 2008).

Solomon, E. Virtual Money—Understanding the Power and Risks of Money’s High-Speed Journey into Electronic Space. Oxford University Press (New York, NY: 1997).

Solove, D. The Future of Reputation—Gossip, rumour and privacy on the internet. Yale University Press (New Haven, CT: 2007).

Standage, T, Ed. The Future of Technology. Profile (London, UK: 2005).

Watson, R. Future Files—A Brief History of the Next 50 Years. Nicholas Brearley (London: 2010).

Weatherford, J. The History of Money. Three Rivers (New York, NY: 1997).

Banks and ice

Some years ago, I happened to be reading William Bernstein’s A Splendid Exchange: How Trade Shaped the World when I was mildly startled to see a reference to the magnitude of America’s 19th century ice trade. Startled because I’d never heard of this trade despite that fact that ice was America’s second largest export tonnage (second only to King Cotton) at the time of the Civil War! I immediately resolved to learn more and a few moments of augmented intelligence (ie, Google) threw up the name of Frederic Tudor, the “Ice King” who invented the industry. From there it was a quick jump to Gavin Weightman’s The Frozen Water Trade, one of my favourite books.

The story of Frederic Tudor (perhaps “yarn” might be a better description) ranges over most of the seven seas, taking in privateers, shipwrecks, invention, speculation, enterprise and vision on the way. Tudor had an idea and spent years, in a truly American fashion, pursuing it until he had created an entirely new market and had satisfied it through an entirely new industry. When he shipped his first cargo of New England ice down to Martinique in 1806, he thought he would have a sure-fire success. But the inhabitants had no idea what to do with it: if you’ve never seen ice, would you buy some? Eventually he found using it to make ice cream a moderate economic success and was encouraged to continue. A decade later, his breakthrough came when he began shipping not to the Caribbean but to Charleston, Savannah and New Orleans and the business began taking off.

At the same time, an ice ecosystem began to develop. Downstream, the waste water coming off of the melting ice was sold as a cold draught rather than poured down the drain. Upstream, the demand for sawdust (used to insulate the ice cargos) from the Maine timber industry (previously a nuisance) generated more wealth. New technology was applied to cutting, storing and hauling the ice.

Frederic’s marketing strategy was dynamite. He created an insatiable demand for two main products: ice cream and cold drinks. When opening up a new town, he would provide free ice to bartenders knowing that customers would never go back to warm drinks once they’d tried a mint julip or an iced tea. It seemed to me slightly reminiscent of the bottled water industry today: create a demand, satisfy it and the use brand to drive up the price. Indeed, Weightman notes that the only difference between “Wenham Lake Ice” (one of the main brands of the time) and other ice was purely marketing.

Tudor was a ruthless businessman, seeing off competitors by lowering the price of his ice to ruin them, but not a perfect one. Some of his enterprises outside ice went well (graphite mining and property) and some not so well (he lost a fortune speculating on coffee futures). In any case, by 1849 the ice trade he had created was going so well that he ran out of ice in Boston and had to send a ship and a crew north to cut chunks off of icebergs!

“To speak literally, a hundred Irishmen, with Yankee overseers, came from Cambridge every day to get out the ice. They divided it into cakes by methods too well known to require description…” — Henry David Thoreau, from “The Pond in Winter,” Walden

From The ice men come to Walden Pond (Walden 186) | The Curious People

By the time Thoreau was moaning about the ice trade disturbing his peace on Walden Pond, Tudor was shipping ice to Calcutta (where the grateful British Raj coined him a medal), round the Cape to San Francisco and even to Australia. In America, ice was no longer a luxury item but an essential comfort.

Naturally, as I followed this wonderful tale, I couldn’t help but try and extract key messages around the intersection between economics and technology. In this field, there is a definite paradox around Frederic and I find it fascinating. Frederic was not a luddite by any means and appears excited by the new inventions of the time. In 1830, he predicted that “steam will soon take the place of horses” and went on to say that “the times are surcharged with novel inventions and improvements of all kinds… steam seems now the ordinary power: in all probability some other and more convenient one will be discovered”. And, of course, it was.

Yet as Weightman notes in passing, it never seems to have occurred to Frederic that someone might “undermine his ice trade by manufacturing ice or making an artificial refrigerator”. Perhaps it is some kind of innovator’s curse, to imagine change in all businesses except the one they have created: it’s why Bill Gates didn’t invent Google and why Akio Moirta didn’t invent the iPod.

As it turned out, when artificial refrigerators did arrive, they at first bolstered the trade by providing an inexhaustible, year-round supply of clean ice for shipping through the existing supply chain before, in time, they destroyed the trade by decentralising ice making to the point of consumption. Destroyed the trade so thoroughly, in fact, that few people remember that it ever existed. The market that Frederic’s genius created is still with us, but the industry he created to service it has melted away.

This is how I see the banking sector. As the former CEO of Barlcays, Anthony Jenkins, said (I paraphrase), banks digitised banking rather than make it digital and are facing the “Uber moments” to come. The digital financial services revolution has barely begun. Our cool new finance stuff is running on some very old rails.

The banks have indeed spotted the invention of refrigeration and they have taken the first primitive refrigerators (e.g., the blockchain) and are using them to make blocks of ice that are then packed in sawdust and sent off in sailing ships just as they were before (by which I, of course, mean the legacy information technology infrastructure). Meanwhile, other people (the fintechs, the internet giants, new businesses yet to be born) are looking at decentralisation and are shipping the fridges rather than the ice. They are looking at using blockchain technologies to create new and decentralised markets founded on translucent transactions and ambient accountability.

I hope this isn’t too clumsy a metaphor for taking a look at the 21st century technologies that are already upon us (ranging from biometrics and the blockchain to artificial intelligence and the internet of things) to try and see what they will really do to the financial services sector in general and the banking industry in particular. I think I have a fairly structured way of thinking through these issues and, more importantly, I think I have an idea for a new book…

The Taylor report is right: we should get cash out of the “gig economy”

The Taylor Report was released today. It’s a report about the “gig economy” and contains a number of proposals for reform in the labour market to modernise the various systems (e.g., tax and benefits) and improve the lot of workers. I don’t propose to comment on any of those proposals, also having recently entered the gig economy myself, I can attest to both benefits and annoyances, but I do want to comment on one point made by the report that was picked up in the media. 

Cash-in-hand payments to builders, window cleaners, plumbers and other trades people should be discouraged through a technology revolution to collect up to £6 billion more in tax, a Government-commissioned review urged today.

From Abolishing cash-in-hand jobs ‘would raise £6bn in tax and benefit workers’ | London Evening Standard

The report notes, entirely correctly, that allowing people to exist in a cash-in-hand economy is not only bad for them (because law-abiding employers get undercut) but that it is bad for the rest of us too. Here’s a short extract from my new book Before Babylon, Beyond Bitcoin on this point:

Professor Charles Goodhart (London School of Economics) and Jonathan Ashworth (UK economist at Morgan Stanley) have studied the subject in some detail. They note that the ratio of currency to GDP in the UK has been rising (as you will recall from Figure 7) and argue that the rapid growth in the shadow economy has been a key cause. In their detailed examination of the statistics, the authors make a clear distinction between the “black economy” (e.g., drug dealing and money laundering) and the “grey economy” of activities that are legal but unreported in order to evade taxation. When your builder offers you a discount for cash and you pay him, you are participating in the grey economy. When your builder offers you crystal meth and you pay him, you are participating in the black economy. They define a total “shadow economy” as the sum of the black and grey economies.

…Two rather obvious factors that do seem to support the shape of the Sterling cash curve are the increase in VAT to 20% and the continuing rise in self-employment, both of which serve to reinforce the contribution of cash to the shadow economy. The Bank say that there is “limited research to confirm the extent of cash held for use in the shadow economy”, but Charles and Jonathan make a reasonable estimate that the shadow economy in the UK could have expanded by around 3% of UK GDP since the beginning of the current financial crisis.

…According to Tax Justice UK, that expansion means that there were £100 billion in sales not declared to UK tax authorities that meant a tax loss of £40 billion in 2011/12 and that will rise to more than £47 billion this year. The IMF have noted that while Her Majesty’s Revenue and Customs (HMRC) is not good at estimating losses outside the declared tax system, which is why their latest estimates for the tax gap are low at £33 billion for 2011/12. And while we all read about Starbucks and Google and other large corporates engaging in (entirely legal) tax avoidance, half of all tax evasion is down to SMEs and a further quarter down to individuals (according to HMRC).  There are an awful lot of people not paying tax and simple calculations will show that the tax gap that can be attributed to cash is vastly greater than the seigniorage earned by the Bank on the note issue. Cash makes the government (i.e. us) considerably worse off.

The suggestion made in the Taylor report should be uncontroversial. However, there are people out there who think that forcing law-abiding persons such as myself to subsidise money launderers, drug dealers and corrupt politicians is a reasonable price to pay because the alternative is unpalatable.

In a world without cash, every payment you make will be traceable.

From Why we should fear a cashless world | Dominic Frisby | Opinion | The Guardian

My old friend Dominic Frisby is of course, completely mistaken about this.  Whether the electronic money in your pocket is completely traceable, completely untraceable, or somewhere in between, is a design decision. As I point out in my new book (did I mention that I had a new book out?) where exactly that dial is set between anarchy and totalitarianism is something that our elected representatives should decide and then ask technologists to deliver. This is subject that I know a rather a lot about and so I can assure you that the technology that we already have is perfectly capable of delivering electronic money anywhere on that spectrum.

My own prediction is based on William Gibson’s prediction in the pages of Count Zero. There, one of the characters in this future fiction notes in passing that “it wasn’t actually illegal to have [cash], it was just that nobody ever did anything legitimate with it”. Therefore I expect to see a variety of different kinds of anonymous electronic value transfer systems that are used to deliver pseudonymous electronic money systems and I expect some of those pseudonymous electronic money systems to be used by banks and others to deliver the special case of wholly traceable payment systems.

That, however, isn’t the point of this post. The point that I want to make is that we need an intelligent and informed debate on what we want to replace cash, since it’s going to happen. It should be society that determines how it wants electronic money to work. Whether cash is going to burn out or fade away, we should be planning its 21st-century replacement now. It’s an interesting question to ask whether that means Bank of England Bitcoins or not!

Csfi jun audience

On which topic I was invited along to take part in the CSFI roundtable on “‘Formal’ digital cash: The currencies of the future?” with Ben Dyson from the Bank of England and Hugh Halford-Thompson of BTL Group last month. The event, held at the London Capital Club, was hugely oversubscribed, which I took to be evidence of renewed City interest in the general topic of digital cash and the specific topic of digital currency.

My good friend Andrew Hilton, long-standing captain of the good ship CSFI, framed the discussion in his invitation ask the basic “what if”. “What if some central bank issued a digital coin that was as widely accepted as a bank note? Or, if not a central bank, what if a group of banks or payments operators issued a similar digital coin?”.

For me, the roundtable was both an opportunity to plug my new book (did I mention that I have a new book out by the way?) and an opportunity to learn in the best possible way: by answering hard questions from smart people. I won’t attempt to summarise the discussion here except to say that there seems to be a lot of confusion about what form a central bank currency might take and it wasn’t limited to the people in the room.

“Such risks could be reduced if central banks offer digital national currencies, which the IMF defines as a ‘widely available DLT-based representation of fiat money’.”

IMF urges central banks to study digital currencies | afr.com

Now, why the IMF would define digital national currencies this way is unclear. A national digital currency, or e-fiat for short, may be implemented in any number of different ways. A “widely-available DLT-based representation” would be only one such option and even then it is not entirely clear what “DLT-based” actually means in this context. For that matter, it is not entirely clear what “DLT” means in this context either.

It’s important to separate the topics to move the conversation along: do we need e-fiat and if we do, then how should it work? To the first point I think the answer is probably yes. To the second point, the answer is “well, it depends”. It depends on what we want the e-fiat to do. Should it deliver anonymity or privacy, for example. Should it work like M-PESA or Bitcoin? That’s a fun discussion. How much would it cost to set up “Bank of England PESA”? It wouldn’t even have 100m accounts and Facebook has a couple of billion. If they were to look at some form of shared ledger solution, where copies of the “national ledger” are maintain by regulated financial institutions (e.g., banks – whereby taking part in the consensus-forming process would be a condition of a banking licence) and the entries in those ledgers related to transfers between pseudonymous accounts (i.e., your bank would know who you are but the central bank, other banks and auditors would not) then it would be a permissioned ledger (without proof of work) that could work pretty efficiently. Either way, my point is that it’s doable, so we ought to do it. 


ZCash and The Glass Bank

Interesting to see the cryptocurrency ZCash in the news today, since it’s one of the ones I focussed on in my new book (in case I haven’t mentioned it, it’s called Before Babylon, Beyond Bitcoin and you can buy it from all good booksellers). As I said about Zcash in the chapter “Counting on Cryptography” written toward the end of 2016, “people, companies and governments will not use the underlying anonymous currency but instead use the privacy-enhancing kinds of money built on top of it”.

This is indeed what J.P. Morgan just announced at Consensus 2017 (see “JP Morgan Chase to Integrate Cash Technology to its Enterprise Blockchain Platform“). Or, as American Banker put it in their story “So, just to be clear: JPMorgan isn’t using Zcash”. As was set out by the parties themselves, what they intend to do is to use the Zcash technology of zero-knowledge proofs on their own Quorum blockchain to deliver privacy into financial markets where the participants want the advantages of shared ledgers but do not want to disclose the contents of transactions to all participants. I think this is quite a big deal, but that’s because the institutional use of these new technologies to create markets that work in more efficient ways accords with my own mental roadmap for shared ledgers. 

In a paper I co-wrote a couple of years ago with Richard Brown, the CTO of R3, and Consult Hyperion colleague Salome Parulava [published as Birch, D., R. Brown and S. Parulava (2016). “Towards ambient accountability in financial services: shared ledgers, translucent transactions and the legacy of the great financial crisis.” Payment Strategy and Systems 10(2): 118-131.], we adopted the term “translucent” to mean transactions that are transparent for the purposes of consensus (in other words, we can all agree that the transaction took place and the order of transactions) but opaque to those not party to the trade or the appropriate regulators under the relevant circumstances. I gave a talk introducing these concepts at NextBank Barcelona back in 2015.

It seems to me that the JP Morgan / ZCash announcement takes us another step forward in this direction and moves use towards the era of “The Glass Bank” (something I used in client workshops for many years and that I first blogged about back in 2011), an era in which translucency develops as a response to the Great Financial Crisis (GFC) and as a fundamental improvement in the way that financial markets operate, and which I have already decided will be the title of my next book!

Mo’ identity, mo’ money, mo’ book

In his book “Sapiens — A Brief History of Humankind”, the historian Yuval Noah Harari writes perceptively and entertainingly about things that are fundamental to our economy and indeed our society: money, trust, reputation and the like. I found his description of the “cognitive revolution” quite compelling, especially where he talks about human beings gaining the ability to communicate information about relationships and therefore reputation (or, as I might simplistically label the basket of concepts linked together here, “identity”). He talks about the ability of the neolithic clan to remember the mutual obligations that bind people together when they can grasp the idea of a future, and how memory does not scale into the settlements of the agricultural revolution, thus necessitating the invention of money. He writes that

When trust depends on anonymous coins and cowrie shells, it corrodes local traditions, intimate relations and human values.

Yet we needed them. The problem, as Harari framed it, is that trade cannot exist without trust, and it is hard to trust strangers (but easy to trust their money – indeed he later talks about this saying “if they run out of coins, we run out of trust”). As society scales beyond the ability of individuals the local (including the money) is given up to the global.

In short, then, when we cannot share memories about information about identity, relationships and reputation we have to come up with some other way of making payments to support trade and increase prosperity. Which leads me to speculate that if there is indeed an identity revolution, a new way of sharing memories, underway because of the transition to online-centric life then we might need to rethink the modus operandi founded on central banks, nation states and fiat currency. As Mervyn King, former governor of the Bank of England wrote in his End of Alchemy, banks and central banks “are man-made institutions that reflect the technology of their time”. 

Perhaps their time is coming to an end. The way that we think about identity today is simply not working (identity fraud in the UK is at an all-time high and still rising). We need some different ideas. The always fascinating Jan Chipchase pointed me to this section of a very thought-provoking Medium piece on identity by Dan Hill:

“How might we be able to think more richly of ‘both/and’ in terms of identity, of being part of nations, cities and the world, of respect for both the local and the global?”

For more identity, not less – Dark Matter and Trojan Horses – Medium 

Yes, yes, yes. More identity, not less. In my previous book “Identity is the New Money” I wrote how social media and mobile phones and cryptography restoring the reputation economy of the neolithic clan but at scale, making the point that while our ancestors lived in one community, we live in many. Community is no longer geography.

In my new book “Before Babylon, Beyond Bitcoin” I explore the intertwined evolution of technology and money, which I hope will provide the general business reader with some useful structure for thinking about the future of banks and Bitcoin, leading to an exploration of community and value. I finish by putting forward the idea that the multiple monies of the future will be linked to the multiple communities we will inhabit and, as the quote above makes clear, the multiple local and global identities of the future.

“Our identity is framed in terms of street, neighbourhood, region, nation, biome — all are meaningful, alongside various forms of communities of interest” 

For more identity, not less – Dark Matter and Trojan Horses – Medium 

My personal suspicion is that while this is certainly true and that these identities will all be meaningful, a generation from now the city identity will be the most important. Indeed, Dan Hill goes on to say that

“Europe has functioned via urban centres for millennia, rather longer than our modern understanding of states. In some respects, this is a more meaningful form of organisation than that relative latecomer, the nation state, for all the benefits that the latter has accrued.”

For more identity, not less – Dark Matter and Trojan Horses – Medium 

Dan makes the point that Manchester and Estonia are similar in population size and while we are all familiar with e-residency of the latter perhaps, rather as Gill Ringland suggests in her financial services scenarios for 2050, e-residency of desirable cities will become a valuable right and the basis for one of a number of demographic asset classes. He goes on to speculate, as I have done, on whether a new Hanseatic League or a new Mediterranean Economic Union might be viable structures. I’m not sure I agree with his views on EU e-residency (because the EU is rather an artificial structure) but it’s certainly an interesting position to discuss, not least because it forms a money-issuing community of the kind that I discuss.

My general view is that we are returning to Harari’s “local traditions, intimate relations and human values” as the basis for trade because those new technologies (mobile phones, social networks and so on) mean that we can recreate the clan, the widespread and diffuse memory of obligations, on a population scale. Hence it is not implausible to imagine that new forms of money will arise that map more closely to the values of the communities they serve.

One last thing. Those communities will not be limited to people. Much if not most trade will be between machines, between my car and your garage door, between my flying car and your Amazon drone. We might see communities of robots developing their own money to reflect their own values. Will we be allowed to use it? I don’t see anyone in Star Trek using money, but something must be going on in the background to allow my starship to use your scarce crystals for power. I don’t claim to have all, or indeed any, of the answers but I hope that my framing of the questions will help you to think more clearly about an inevitable future of more identities and more monies.

By the way, you can buy an advance copy of the new book (which will be launched officially at Money2020 in Copenhagen next month) for the giveaway price of £17.50 if you can put up with having a copy signed by me. The pristine, signature-free copies are £22.50. Run, don’t walk, over to London Publishing Partnership and reserve your copy now.