The Future of Money
(Originally written for the Gallery Magazine, Jersey Oct 2018)
Money.
Something that Jersey over the last 50 years has become synonymous with. Some of us have lots of it. Some of us work day to day with it. The island’s reputation and industries are dependant on it. But how many of us actually understand what it is, past the ability to pay for things. It’s not really something taught in our schools, but merely something we learn about through using it. And our idea of money is completely unlike our grandparents and completely different to what our grandchildren’s will be, but because we use it day to day, we rarely realise how it’s changing.
First, a quick history lesson.
Go back far enough, and there’s always been something that humans have recognised as money; chickens, shells, jewels, metal, paper. The concept is simple — you currently use something for trading, say chickens. But suddenly you need to exchange a smaller amount (say a third of a chicken) or a vast amount (3000 chickens). Chickens suddenly aren’t the best medium of exchange… so you come up with an exchange rate. 1/3 chicken = a shell. This way, you’re starting to standardise the inherent price of a chicken, and therefore the whole economy. Of course, outside of your small village, this exchange rate is unknown and you’d have to continue bartering between your shells and whatever they’ve pegged their ‘money’ to.
Fast forward a bit and you’d realise that people have decided on mainly one thing to act as the backbone of their money.
Gold.
It’s fairly useful in this manner. It’s fairly scarce. It takes energy to get out of the ground. It’s easy to prove it’s actual gold. It can be made into small or large units, and is fairly portable (especially if made into jewellery).
Why are you bothering to tell me this? Well, going back to the grandparents’ remark… their idea of money was one that was backed by gold (or silver in some cases). It meant that governments would hold these metals in reserves so people knew that the IOU slips that you’d hold in your hand was worth something. And this method worked. As long as you had confidence in your currency, you had confidence in your economy.
All this has changed in the last hundred years. Countries decided that only holding a percentage of their currency’s wealth in gold would do. And then in 1976 (after several major wars), the USA decided to ditch the link completely and thus FIAT money was born; it’s worth money because we (the government) says it is. This allowed their economy to grow, and in turn most of the world decided to peg their currency (officially or otherwise) to the US Dollar.
Fast forward to ten years ago. We’re all becoming used to using digital forms of money, even if we’re not aware of it. Our credit/debit cards are starting to replace the notes in our wallets & purses. Around 8% of money in the world is actual cash, the rest is just 1s & 0s on a computer somewhere, entrusted to a bank. We starting to get comfortable buying things online and a whole generation is growing up with this as the default. But our version of money isn’t really designed for this. We need to go through various entities to send money around the world, at great cost. Banks and credit card providers need to spend huge amounts trying to secure our money and combat fraud. All in all, we need to change our money for the future.
It’s around this time that an known person (or group of people) named Satoshi Nakamoto enters the frame… (and everyone I know sighs deeply because they know what’s coming next).
Released to the world in 2008, they published an idea called Bitcoin. This took a bunch of existing ideas and threw them together to try to create a money for the digital age. The issue has always been the following; if you can identically copy things digitally then what is stopping you just copying your digital £1 infinitely. Traditionally we trust banks to stop us doing so. But with the advent of the technology Satoshi termed ‘Blockchain’, we now had a solution, and one that not only would solve this problem, but would be designed to be used globally and would be scalable for the future. There is no central entity to trust, no central point of failure and is open to all who want to use it. With this currency you could send someone 1/20,000th of a 1p, or £1 billion, all for the same transaction fee; after all, it’s the same amount of data, and when you look at this way, suddenly charging a percentage of the transaction seems very outdated (and insanely expensive).
But why can’t we stick with Jersey Pounds, I hear you ask?
We probably will do (as will most stable countries). But our currencies, have a slight major problem when it comes to transacting digitally. The smallest unit we have is a 1p (and honestly, most banking systems won’t let you send something that small), therefore we’re stopping the whole approach of micro-transactions. Currently you’d be pretty upset if you had to pay a penny every time you watched a video on Youtube. But if you paid 0.000001p and didn’t have to put up with their adverts and banners every 30 seconds, you’d probably be keen to do so. It’s this concept of micro-payments that will drive the next global revolution, as the Internet of Things takes over the world.
Your self driving car would pay for it’s insurance for every millisecond that it’s outside of your garage. Your iPad would pay for every word displayed on your local news site instead of a subscription. Your email program pays for every letter you send in a email, so it’s not labelled spam. All of these are concepts that require fast, cheap, secure digital forms of payment. And this is why the world is currently going mad for what we call ‘Cryptocurrencies’. Bitcoin, and the ideas that followed, are designed to be used in this way and will continue to influence how we see money.
The Jersey pound will at some point, become a purely digital currency. If you think I’m wrong, ask the nearest 20 year old how much physical cash they have on them. Tap to pay cards are now the default for that generation — it’s easier, lighter and are likely to have an app managing the whole thing.
In 10 years, we’ll all have purely mobile wallets. And our currency will be backed by some complex mathematics equation rather than something in a vault, and will be so natural to use compared to our current system, you’ll be amazed you ever did this with physical coins and notes.
