Where does the money in a £20 note actually exist? It’s the sort of thing you don’t often think about. Unless, of course you’re an expert like David Birch, whose day job is heading a consultancy specializing in secure electronic transactions, and who’s also just published a book called “Identity is the New Money.”
He used that question during his Talk@Mendeley to get the audience thinking about what we understand money to be, and put forward the idea that:
“Technologically, money is a primitive form of memory”
As the title of the talk suggests, David actually goes back to the past in order to understand the future of money, and what it holds in store for all of us as transactions technology advances.
Paradoxically, he says, we can best understand the Bitcoin phenomenon by studying the stone currency system in the Pacific Island of Yap, where ownership of the valuable, but extremely large and cumbersome carved stones is transferred without the need to physically move them. The entire system is based on accepting the value of the stones and remembering who they belong to at any given time, even if the stone in question happens to be at the bottom of the sea.
The way money works these days is actually quite recent, David explained.
“The birth of modern money dates back only to around August 1971, when Richard Nixon ended the convertibity of the US Dollar, so actually, money as we know it right now is only about 40 years old. It’s not a law of nature.”
Social Anthropologists such as Jack Weatherford agree that the electronic money world looks much more like the Neolithic economy before the invention of money than the market as we have known it for the past few hundred years.
“In a world where everybody is connected to everybody else, what do you actually need the money for? If this was a Neolithic clan, you’d have sets of obligations to each other that you would remember. Money is a marker that allows you to scale that process. But. If you can remember everything, then you might not actually need money at all.”
And that is where technology comes in, making that memory-based system scalable: Old universal currency systems are broken, Birch argues, and they reduce people to having to engage in what he calls “security theatre”.
He illustrated this by recounting a recent experience of trying to buy a cup of coffee using his credit card at a Las Vegas branch of Starbucks, and being asked to present some form of picture ID. In the end he produced an expired security pass which the person serving him accepted in spite of having no real way of knowing whether it was, in fact, genuine.
“There’s no actual security taking place here, but as long as I know my lines and she knows her lines, then everyone is happy. That’s where we are with transactions in general right now. But if I had had my Starbucks app, I could have paid for my coffee using that without any trouble.”
The idea is that in an age dominated by mobile phones and apps, we don’t need one universal sort of currency that works everywhere. We can instead more easily and securely use “Starbucks Money” or any other kind of situation-specific money, with the same sort of convenience, as technology mediates your transactions for you in increasingly efficient ways.
In this brave new world, crowdsourced resources and systems based on your reputation – such as a LinkedIn profile – are much more appropriate forms of verifying identity than top-down imposed mechanisms:
“I wager money that it’s harder for any of you to forge a LinkedIn profile than it would be to forge a Western Australian Driving License that would get past someone”
disclaimer: Neither David Birch nor Mendeley is advising or in any way encouraging people to try either of these options at home.
Bitcoin does not, therefore, represent the actual future of transactions and money, but this cusp we’ve arrived at where it is not only possible, but safer and more convenient to create lots of different types of money that work within different communities. In this scenario, Bitcoin is the piece of technology that will enable this and allow that to happen. The Flux Capacitor of money if you will.