[Dave Birch] We had a Tomorrow’s Transactions thought leadership day at the International Payments Summit in London thanks to Katie Gywn-Williams and the rest of the terrific team at ICBI. The idea was to look at a lot of different aspects of the fast-evolving world of retail electronic transactions to try and help those in banks responsible for strategy and planning in the field. We ended the day with, I have to say, a super panel session. I asked my good friends the paleofuturist Bernado Batiz-Lazo, the voice of reason Michael Salmony and next-generation banker Brett King to look at where electronic money might take banking, commerce and society over the the medium term.

It’s very difficult to predict even a few years ahead and Michael highlighted the dynamic around technology: we tend to overestimate the timescales for adoption but underestimate the long-term impact. In others, it will take longer than people like me think for electronic money to displace cash, but when it does the impact on society will be far greater than mass redundancies in the ATM business. Once you being to look more than a few years ahead, in fact, the social changes wrought by new technology become hard to imagine. A generation ago, on 3rd April 1988, the Los Angeles Times Magazine pub­lished a 25-year look ahead to 2013. It contained all sorts of bizarre views of life in Los Angeles today, including such unimaginable fantasies as supersonic jet travel and people smoking cigarettes. But it’s a fun read, and in Bernado’s spirit of paleofuturism, I encourage you to read it not to laugh at what they got wrong but to understand why they got it wrong. For example: what’s wrong with this picture?

After parking the van, Alma stops for some cash at the bank-teller machine in the lobby of her building. She punches in her I.D. number and then puts her thumb on the screen. After several tries, the machine finally recognizes her fingerprint and gives her two $20 bills with bar codes that verify the money has been issued to her.

Interesting that they thought biometrics and cash would co-exist in common use. Rather fascinatingly, and so very William Gibson, one of the key elements that is missing from the vision of 2013 is the mobile phone, despite the fact that it had already existed for a decade. The first AMPS (1G) cellular network was launched in the America in 1978. Yet in the vision for 2013…

Bill is trying to locate his wife to tell her about the dinner guests. Unable to reach her either at home or the office

My italics, of course. It’s been at least a decade since my wife called me either at home or at the office or, indeed, anywhere else. If she wants me, she calls me, she doesn’t call a place. The mobile phone didn’t just change the payphone business, it changed the very way that we think about communications. We understand now, of course, that the future of money over the next 25 years, in common with the future of a great many other everyday tools, is about the device formerly known as the mobile phone and what Sam Lessin of Facebook calls the “superpower” of being able to communicate with anyone else anywhere in the world at any time.

But back to Alma. The last time I went to the US — to Austin, Texas, for South-by-Southwest — I didn’t take any US currency with me and I didn’t get any $20 bills out of an ATM while I was there either. I paid for everything using cards and my mobile phone (LevelUp). Yet I read only recently, in a discussion about the near future, that…

There’s some debate about whether plastic credit and debit cards will be totally replaced by mobile payment systems in the next few years. However, there’s no doubt that, in 2030, my son will carry a wallet with cash in it, because we’ll still be using paper and metal money well into the future.

[From 15 Current Technologies We’ll Still Be Using in 2030]

Maybe it will be a class thing? The middle classes will have abandoned cash and it will exist only to serve the poor and excluded. That’s one scenario, but I don’t think so. As I have droned on about interminably, the device formerly known as the mobile phone is a way to accept payments as well as make them, and this is what does for cash. Brett quite rightly made fun of the UK government’s reaction to the suggestion that cheque clearing might be abandoned in a decade or so. “How will I pay my cleaning lady?” was the typical insurmountable hurdle to change erected in the pages of the The Daily Telegraph. This is exactly analgus to those mid-1980s comments about mobile phones, along the lines of “Well if I want to make a phone call when I out, I can always use a payphone”. Just for the record, I pay our cleaner using the Barclays mobile app and FPS, as I imagine do most normal people…

So what will be still using in 2030? When I was listening to the futurologist and Forum friend Richard Watson talking about the problem of forecasting across a generation, he said that one of the central problems is that our brains work in a lazy way. Our brains look for patterns so that they think they understand things (this is why people consistently see patterns in random noise) and made the point that the kind of digital bubbles people are living in lead to a kind of Balkanization of the future. As I’ve said once or twice at the Tomorrow’s Transactions Forum, we have to look out of the corner of our eyes to see how technology is being used in ways that might disrupt existing business models, and that is difficult. So this leads me to ask, just as our friends in 1988 didn’t see that the decade-old technology of mobile phones would be everywhere in 2013, which decade-old technology is going to be everywhere a generation from now, leading not just to disruption in old businesses and the creation of new ones but a fundamental shift in mental models? If I had to guess, I’d say it was 3D Printing, but I’m desperately keen to hear what you think. In fact, I will send a copy of “The Future of Money” (with a foreword by Vince Cable) to the person who posts the most plausible suggestion before the end of the month.�

These are personal opinions and should not be misunderstood as representing the opinions of�
Consult Hyperion or any of its clients or suppliers

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

[Dave Birch] I’m very curious about media interest in Bitcoin, which seems to have accelerated in the last couple of weeks. Last week, for example, I found myself being interviewed for the BBC’s current affairs flagship “Newsnight“. A couple of days later, this package appeared on the BBC News site. Here it is, in fact.

I forced my family to watch this. Afterward, my good lady wife (a lay person of great intelligence) told me that while she had enjoyed my performance on national television, “I know no more about Bitcoin than I already did – ie, nothing – and I really wanted it explained”. All of the graphics about cryptography hadn’t helped at all. That set me thinking about alternative ways to explain the technology. When I’ve tried to explain Bitcoin to lay persons before, I’ve not started off by talking about cryptography, I’ve started off with narrative.

The closest analogy to this is the stone currency of the island of Yap, in the South Pacific.

[From What should the “mainstream” think about Bitcoin?]

So what was the stone currency of Yap and why is it a useful way to explain Bitcoin? This was explained by the economist Milton Friedman in a famous 1991 paper called “The Island of Stone Money” and there was a terrific NPR programme about this a couple of years ago. Here’s my summary of the story and why it would have given the BBC better graphics for Newsnight!

The nation of Yap is a group of four islands in the South Pacific. The islands have no gold or silver or any form of precious metal that could serve the function of money that we are used to. Consequently where we developed the habit of using metal ingots as stores of value, the inhabitants of Yap used stones. A few centuries ago, they discovered a particular kind of limestone on another group of islands about 250 miles away. Since this limestone was not available on Yap, the supply was limited. From time to time, the tribal chiefs would organise expeditions to these distant islands to quarry and bring back new stones carved into disks. The disks were of various sizes, some only a few inches across and weighing a pound or two, while others could be 12 feet across and weigh thousands of pounds. At the end of a successful expedition the chief who organised it would keep the large stones and 40% of the smaller stones, the remainder being divided between the expedition members. A long-lived and successful chief might therefore have many very large stones outside his house.

Now, suppose that chief engages in some form of trade or has to pay a large dowry or give a gift to a neighbouring chief some reason. These large stones are too big to move without considerable effort, so the Yap islanders came up with a practical solution to the problem of minimising transactions costs. Since the stones were too big to move, they didn’t bother. The tribes just agreed that the particular stone no longer belonged to Chief A and now belonged to Chief B instead. Everyone was happy. Over time the stones might be traded again and again, each time staying exactly where they were but with all the tribes agreeing on their new owner.

The system worked even when the stones were invisible. Here’s what I mean. Suppose the expedition quarried some stones but on the return journey, as would happen from time to time, their raft (which I picture as being a bit like the Koni Tiki, below) got caught in a storm and to survive they had to chuck one of the stones off of the raft. When they got back to the chief they told him about the stone which is now five miles down at the bottom of the Pacific. Everyone agreed that the stone still belonged to the chief and when he used that stone in a trade all of the tribes agreed that the stone belonged to the payee. Not only does the stone not go anywhere, none of the participants in the trade have ever even seen it. In a way, and this was Friedman’s point, it doesn’t really matter whether the stone actually existed or not. Everyone agreed it did, and therefore it was money.

The tribal chiefs were the central bankers of this system because they organised the quarrying of the stone that brought the new money into existence and the distribution of the stones that formed a rudimentary system of taxation. It all worked reasonably well. It is very interesting to me that the stone money survived the arrival of fiat currency and reports from a few years ago seem to indicate that the value of the large stones had remained fairly stable over time. Interestingly, the 12 foot stone disk weighing thousands of pounds had one very significant advantage over a bar of gold, which is that you can steal a bar of gold but even the most skilled burglar isn’t going anywhere with a 12 foot limestone “coin”.

So this is the analogy with Bitcoin. In Bitcoin, instead of expending manual labour to find a kind of stone that is rare, we expend computing power to find sets of numbers that are rare. These sets of numbers have a particular mathematical property that makes them difficult to find but once you have found them it is easy to check that they have that property, just as the Islanders could easily check that your disk was made from the rare limestone from Palau. Once you (or rather, your computer) has found one of these numbers then it is yours and you can keep it or trade it.

Bitcoin releases a twenty-five-coin reward to the first node in the network that succeeds in solving a difficult mathematical problem requiring a certain amount of brute-force computation (known as a proof-of-work calculation.) The solution is then broadcast throughout the network, and competition for a new block and its twenty-five-coin reward begins.

[From The Future of Bitcoin : The New Yorker]

As in the case of the stones, if I send you my Bitcoin, the coin isn’t really going anywhere (after all, all I’m doing is sending you a copy of the numbers that I found) and what we are really doing is just telling everybody else that the coin now belongs to you and not to me. On Yap, the record of ownership of the stones was part of the collective cultural memory, but in Bitcoin it is the distributed transaction ledger known as the “block chain” (if you click on that link, you can see all of the Bitcoin transactions as they happen). In essence, when I give you a Bitcoin the record of that transaction is copied out to all of the other users so that everyone now knows that the coin belongs to you. Because of the particular mathematical properties of the numbers used in the Bitcoin system there is a finite suppy (21 million) of these numbers and once they are all discovered no more can ever be “minted”. It would be as if Palau had been eroded away by the Pacific storms so that no more limestone disks could enter the Yap economy.

There is one conceptual difference between Bitcoins and stone disks that is much remarked on in media reports. When it came to the stones, everyone knew who the stones belonged to. They knew that Stone X belonged to Tribesman A and everyone knew who Tribesman A was. But in Bitcoin, the coins are associated with cryptographic keys rather than individuals. You might know which internet address one of those cryptographic keys is associated with during a transaction, but that doesn’t tell you who the person is. So there is a kind of anonymity associated with Bitcoin that would have been impossible to imagine for the Yap islanders. This anonymity seems to be a focus for the media, with all the talk of the “Silk Road” market for drugs etc.

But back to my question at the beginning. Why the media interest? I think it points to something more interesting than Bitcoin itself, which is recognition that there is a latent demand for change. The media interest isn’t specifically about Bitcoin, to my mind, but about the appearance of an alternative to the state-issued, interest-bearing fiat currency money system that has been in place for the last forty years. The post-industrial economy needs a new kind of money and, I might suggest, it needs to cast the net for alternatives, not have the same representatives of the status quo framing the solution as they did the problem. We have been here before, you know.

Towards the end of the 17th century money the government gave up passing pointless laws (such as the 1660 act forbidding the export of bullion) and instead of asking investment bankers or celebrities for advice in the modern fashion, they decided to ask someone clever instead. Thus was the smartest man that ever lived, Sir Isaac Newton, then the Lucasian Professor or Mathematics at the University of Cambridge, appointed the Master of the Mint.

[From Digital Money: The only thing you learn from the study of history]

I’m not suggesting that the creator of Bitcoin is another Newton, but what I am suggesting is that the technology used to create Bitcoin could be used to create the new kinds of money and a new kind of economy needs.

These are personal opinions and should not be misunderstood as representing the opinions of�
Consult Hyperion or any of its clients or suppliers

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.